By Donella Meadows

–December 9, 1993–

The scramble to complete a GATT world trade agreement by December 15 is an act of desperation.  There is 12 percent unemployment in France, 22 percent in Spain, 25 percent in Ireland.  The Japanese bubble has burst.  The industrial nations, unable to stimulate their own markets, seek salvation through invading the markets of others.  Cars aren’t selling in America, so maybe we can unload them in Sweden or Germany — where car makers are also laying off workers for lack of sales.

Freer trade won’t work.  Trade barriers and isolationism won’t work either.  It’s the wrong time in the long wave to solve problems by either stimulating or retracting trade.

The long wave is the most unpopular theory in economics, probably because we can’t stand to think of ourselves as tossed around by great, inevitable cycles.  Surely, collectively, we learn as we go, we exert our intelligence against historical tides, we may have problems but we progress to new, different, and better problems.

But I have to admit, watching the Faltering Seventies turn into the Roaring Eighties and then the Depressing Nineties, that the only people who have correctly called these changes have been the long wave theorists.  They were not surprised by the high interest and inflation rates of the Seventies.  They expected the Eighties, like the Twenties, to be a time of wild investment, an overheated economy, escalating debt, and conservative politics.  They predicted that the Nineties, like the Thirties, would see a worldwide depression.

The reason for the present faltering world economy is too much capital, meaning too many factories and buildings, too much capacity to produce.  The world can turn out cars roughly 40 percent faster than anyone is buying them.  It was already obvious a decade ago that there were too many steel mills, machine tool factories, electric plants, and oil wells (hence the falling price of oil).  By now it’s clear, worldwide, that there are too many office buildings, shopping malls, hotels, and condominiums.

It took decades of overbuilding to come to this pass.  It will take at least a decade to work our way out of it, which can only happen after many more investments are written off, and after, slowly, economic demand increases.  Meanwhile we are doing at least three things wrong.

First, we’re trying to stimulate investment, when investment is exactly what’s not needed.  With the world awash in unsold real estate and idled factories, there are few sane investments to make.  So money scurries around the world seeking out insane investments — junk bonds, currency speculations, exotic derivatives, none of them linked to real value.  Some have crashed already; there are plenty more on the brink.  At this point in the long wave government policy should not try to reward anyone for investing in anything the market isn’t rewarding.

Second, we’re discriminating against the poor and the middle class even more than usual.  When there’s an economic squeeze, income distribution always worsens.  Wages go down, while management gets richer.  Workers’ pension plans and health care benefits are being bargained away.  Welfare programs are being cut in every nation that has welfare.  Worldwide the richest 20 percent of the people now get 83 percent of the income.  Aside from the immorality of that distribution, there is the practical problem that the 80 percent who have only 17 percent to spend are the very ones whose consumption is supposed to make the economy hum again.

Third, we’re cutting back too far.  As the debts of the Eighties come due, both government and industry are “downsizing,” which means firing people.  Each layoff makes perfect financial sense, but every job lost, public or private, reduces demand still further, which makes the next round of downsizing necessary.

Cutting back is essential — it was over-investment that got us into this pickle in the first place.  But at the bottom of the long wave everyone cuts back too far, pushing demand much lower than it would normally be, forcing people to make do with the old car, to cancel magazine subscriptions and stop going out to eat, to postpone adding on the new room, penting up demand so much that eventually, five or ten years from now, conditions will be right for the next long wave upturn.

It’s logical to do everything that makes the depression worse.  It’s necessary, compelling, inevitable for corporations to downsize and governments to cut budgets.  That’s why the long wave persists, and why watching it is like watching a Greek tragedy — the remorseless working out of things.

If the Eighties resembled the Twenties, and the Nineties are a semi-repeat of the Thirties, one can only shudder at what that implies for the coming decade, the first of a new millennium, or the repeat of a holocaust.  Stagnant economies and increasing misery require scapegoats.  With nothing constructive to do, one can always hate.  Hate the Jews, hate the Bosnians, hate the Turks, hate the Hispanics, the blacks, the liberals, the environmentalists, the feminists, the non-Christians.  This ugly dynamic is already far too active in the world.

Long wave theory is not so fatalistic as to say there’s no way out of the cycle, but it says we can’t escape with minor jiggering, with clinging to our favorite myths and power structures, or by inventing new ones.  What the theory would recommend at this most dangerous point is not free trade or no trade or downsizing or investment credits or deficit reduction, but cooperation, solidarity, and generosity, especially toward the poorest and weakest among us.  Meeting their needs, believe it or not, is the best way of meeting the needs of everyone.

Copyright Sustainability Institute 1993