EFFICIENCY AND EQUITY

EFFICIENCY AND EQUITY

In any context, whether it be how a whole economy functions, a
particular industry or just the operations of an isolated farming
community, judging the effectiveness of different systems of
economic organisation means considering issues of EFFICIENCY and
EQUITY.
Just how efficient is the organisation in generating outputs,
creating wealth and improving welfare? And does its economic
activity result in a social order and distribution of benefits that we
can approve of and can defend on grounds of social justice/equity?
A beautiful and harmonious society may be perfectly equitable
but extremely wasteful and hopelessly inefficient in providing for
its needs – a community in peace but unable to fully feed its populace
and lacking the means to defend itself against the ravages of
disease or foreign invaders.
Alternatively, the society may be a ruthlessly efficient productive
machine, its shops full of a wide range of foods and
technologically advanced, sophisticated gadgetry – but based on
exploitation of the powerless and blighted by sections of the public
who are homeless, starving and capable only of thieving rather than
productive employment.
Clearly neither extreme is attractive. What is ideal is an
economy that combines both productive efficiency and social
equity.
The history of humankind is illustrated by the dramatic rise and
fall of empires and civilisations and the success or otherwise of
various experiments in social organisation – none more dramatic
Whatever the criticisms about the monolithic nature of the
state-run NHS, however, the over-riding objective of this planned
system has never been questioned – to provide an equitable
health service for all at no up-front price to the patient. What,
how and for whom medical services are provided is determined
by medical administrators, not by the purchasing power of
consumers.
© 2004 Tony Cleaver
than the immense changes witnessed in the twentieth century.
The last hundred years have seen wars, revolutions, economic
depression, the division of the world into opposing camps of capitalism
and communism, increasing wealth of a capitalist minority
and finally the eventual collapse of the centrally planned, command
economies behind the ‘iron curtain’.
The process of evolution in the decision-making systems that
society has invented must inevitably continue. And as some systems
become extinct so others replace them. In the new millennium, what
has evolved as the most powerfully productive economic engine is a
predominantly market-based dynamo capable of astonishing accomplishments
but whose worse excesses – most would agree – have to
be kept in check by the moderating influence of public authority.
The market model’s efficiency relative to other forms of
economic organisation has passed the ultimate test of outperforming
all alternatives. It is on grounds of equity, however, that its
success can be questioned.
This chapter has already illustrated the great extremes of wealth
and poverty that exist amongst the peoples of the world. Over the
last century or so, these extremes have in fact widened at an
increasing rate as those communities which have found the formula
for increased economic growth have left behind those unable to
apply the same recipe for success.
But the inequities go further than this. Exponential growth in
economic activity has visited increasing damage on the natural environment.
Market systems that treat certain resources of the Earth as
FREE GOODS (such as the oceans and atmosphere) have no incentive to
conserve them. The monumentally productive market engine uses
and abuses such free goods at will, dumps its waste products into the
skies and seas and it is only relatively recently in our history that
we have begun to understand the harm we have been doing to the
biosphere. Priceless (literally) flora and fauna are rapidly diminishing
in number and we are thus reducing the planet’s heritage that
will eventually be passed on to our children.
If today’s standard of living is only supportable by depleting the
resources that are available for the future then INTERGENERATIONAL
EQUITY is being sacrificed.
Economist Kenneth Boulding characterised humankind’s industrial
activity as if it were operating within limitless frontiers – a ‘cowboy
© 2004 Tony Cleaver
economy’ played out under big skies and wide horizons where there
is plenty of space and resources for all. Unfortunately, the growth
of economic activity has now reached a point where the Earth is
better appreciated as a crowded spaceship – where oxygen and other
resources are scarce and some of the passengers are being more
selfish than others. None of us should now go round like Buffalo
Bill: burning the grass, shooting all the bison, using only a fraction
of the carcass and leaving the rest to rot.
Evidence of how far the Earth’s environment has been degraded
is still contested – some claim that we are doing irreversible damage
to the planet; others insist that such accusations are wildly exaggerated.
There will always be some people who have a vested interest
in proclaiming one extreme or the other – all the more reason for
economists to get their sums right. Measurement of many of the
important variables is very often extremely difficult but here are
some data drawn from The Economist magazine and the environmental
pressure group WWF (The World Wide Fund For Nature) as
shown in Figure 1.3 and Box 1.3, respectively.
1700%
1400%
400%
World
population
World GDP
CO2
emissions
80%
25%
5%
Forest areas
Blue whales
Tigers
Increase in last century Numbers remaining today
Figure 1.3 Changes in population, output, emissions and native species
since 1890.
© 2004 Tony Cleaver
Less than a century ago, it is estimated that 100,000 tigers
ranged across all of Asia from eastern Turkey to the Sea of Japan,
from as far north as Siberia down over the equator to Indonesia.
Now, 95 per cent of tigers are gone and fragile populations
survive in small clusters in India, Indo China and Siberia. While
poaching for illegal trade in tiger body parts is a continuing
menace, the greater threat to the tiger’s survival comes from
loss of habitat and the consequent depletion of its natural prey.
Of eight tiger sub-species, three have become extinct in the
last fifty years: The Bali tiger, Javan tiger and Caspian tiger. Of
the others, the South China or Amoy tiger was estimated in 1998
to have a population of between 20 and 30 individuals only. Its
future looks bleak.
As habitats fragment, the surviving tiger populations become
separated from one another and a particular threat is then the
loss of genetic diversity. Tiger fertility is reduced, litter sizes fall
and cub survival rates decline.
The problem is that tigers compete with humankind in
populating some of the most fertile, resource-rich places in East
Asia. Look at Indonesia: having lost out in Bali and Java, the
remaining battle for tiger survival is taking place in Sumatra.
A similar struggle continues in Bengal, whose famously
beautiful tiger prowls the little remaining jungle in the Indian-
Bangladesh borders not yet colonised by people hungry for
economic development.
The painful reality of economics is illustrated here. Resources
are scarce. Natural habitats that support tigers can alternatively
support increasing wealth and welfare for human populations. It
is easy for distant critics living in foreign cities to cry out in
protest and insist that tigers are protected. Who is going to
protect the livelihood of millions of poor children in Sumatra or
Bangladesh? Only their parents who need the wood that protects
the tigers’ habitat . . .
Source: Threatened Species Account, WWF International, May 2002.
Box 1.3 Case study: Tigers at risk