DRAFT
2/20/01

The Economic Metacrisis in Sonoma County

Arthur Warmoth, Ph.D.
Sonoma State University
Skaggs Island Foundation

Copyright © 2001

After nearly a decade of Clinton-era prosperity and basking in the glow of being the home of Telecom Valley, Sonoma County is being assaulted by a series of crises that threaten the health of the local economy, as well as the pocket books of the middle class. These crises include energy, housing, and health care. We are also facing more chronic aggravations in the areas of open space and increasing gang activity. One might be tempted to curse the gods for a string of bad luck. However, I would like to suggest that all of these critical issues can more properly seen as reflections of one metacrisis. That is the crisis that Garret Hardin (1968) called the problem of the "commons," and which economists refer to as the question of "public goods." In 1958, John Kenneth Galbraith in The Affluent Society pointed out that U.S. society (and most modern industrial societies) tends to be awash in private goods and starved for public amenities. The situation has changed little since then.

The underlying problem is a middle class ideology that overemphasizes individualism, including individual consumption and the market mechanisms that stimulate and regulate that consumption, and that systematically undervalues collectively produced and consumed forms of wealth and well-being. This is perhaps epitomized by the cliché that "private enterprise produces wealth and government consumes it." This ignores the fact that governments actually produce a good deal of wealth in areas such as education, public infrastructure, and public safety. It also reflects a widespread mistrust of government. This mistrust flows perhaps from the fact that we have not yet developed mechanisms as elegant as the free market for managing the production and consumption of public goods, a problem exacerbated by the temptation to various forms of corruption inherent in political power.

However, this may be a good time to face up to the issues involved. All of the problems listed above are problems of the management of social systems, in most cases of the social arrangements for the management of ecological systems. The ecological dimension of the current situation is exacerbated by the fact that California is uniquely positioned to be confronted by the problems of rapid population growth and high population densities for the foreseeable future (a distinction shared only with countries such as China and India). Because California is blessed with abundant natural resources and an incomparable climate, the state needs to become a pioneer in developing systems to provide sustainable, high quality, high density living.

The challenge of the crises in all of these areas is to develop more effective politics. This will require at least three elements. First, it will require systems analyses that are adequate to both the political and economic dimensions of these problems. Second, it will require that citizens develop an economic sophistication that allows them to understand the wealth-creating aspect of government, and therefore to see taxation as a question of the appropriate allocation of finite resources, rather than as a raid on the individual's pocketbook. And third, it will require the development of more trustworthy political institutions. Fortunately, since the systems solution to all of these problems requires the decentralization of decision-making, the necessary reinvention of politics can largely take place at the local level where political institutions can be more directly accountable to voters.

Before looking at each specific area it is worth making some general points about the economic characteristics shared by all of these areas of economic activity. If the basic purpose of economic systems is the creation of wealth and well-being by allocating resources to the satisfaction of human needs, it is useful to have a model of the full range of human needs to be addressed. The psychologist Abraham Maslow's theory of the hierarchy of needs is perhaps the most comprehensive model currently available. Maslow (1954) arranges human needs in a hierarchy according to their urgency: physiological, safety, love and belongingness, esteem and self-esteem, and self actualization. As a general rule, it is difficult to devote much energy to the satisfaction of the higher levels if the lower levels are unsatisfied. However, the success of an economic system should be judged by its success in providing widely available opportunities for the satisfaction of the full range of human needs. This includes the needs that involve human relationships and social satisfactions, as well as those that can be satisfied by material consumption. While areas such as energy, health care, and housing involve the satisfaction of basic or survival level needs, they also have important systems implications for the economics of quality of life or higher need level satisfactions.

There are two additional general characteristics of these problems that are worth noting. First, although to the middle class they look primarily like economic problems, a closer look reveals their connection to festering wounds in the democratic body politic of the community. A central tenet of middle class ideology is security against the unpredictabilities of poverty. However, all of these crises, in varying degrees, increase the exposure of the middle class to the insecurities that the working poor live with on a daily basis.

Second, although they may in varying degree be complicated by the dynamics of global capitalism, their solution is mainly dependent on the deployment of local and regional resources. These human and natural resources lie largely outside the orbit of the global trading system.

In the remainder of this essay, I will attempt to sketch a systems analysis of each of these areas that could serve as the basis for effective local and regional political action. The discussion will proceed along a continuum from those aspects of the commons that are primarily ecological in nature to those which are primarily social. The discussion will focus in turn on energy, land use (housing and open space), health care, and gangs. 

Energy

The energy crisis appears at first look to represent a failure of corporate capitalism to provide adequate supplies of electricity and natural gas at reasonable rates. The initial response of state government is to use its economic and political power to bribe and coerce the power industry to deliver. In the near to medium term, this analysis is valid. The state's strategy of securing long term energy contracts and investing in the upgrading of the generation and delivery infrastructure makes sense.

In the long term, however, this somewhat artificial short term energy crisis is a harbinger of the inevitable long term problem inherent in our near total reliance on nonrenewable fossil fuels to power our economy. The only sustainable long term solution is to shift to renewable energy sources: Conservation, solar, wind, biomass, hydroelectric, and geothermal. The distinguishing characteristic of these source of energy is that they are dependent, in more or less ascending order, on local, decentralized decisions and resources. Therefore, the appropriate long term investment strategy for the public is to create incentives for investment (including recoverable public investment) in the decentralized infrastructure that sustainable resources require.

In the long run, renewable energy tends to be very inexpensive. However, the investment required to achieve it is substantial. Therefore, there is a long time frame involved in recovering the initial investment. (This situation is made worse by the accounting practice of discounting future income because of the availability of alternative, risk free interest bearing investments.)

Because of the large initial investment, only the relatively wealthy can afford it. And yet the availability of affordable energy is a public good that should be widely available throughout the community. Therefore, a rational response to the current energy crisis should be looked at as involving both short term costs to deal with a public emergency (costs that are appropriately assumed by government) and long term investment costs and benefits involved in a long-term plan for a sustainable and affordable energy supply. The costs and benefits of this long term investment should be appropriately shared among the various individual, public, and corporate stakeholders involved.

A credible response to the crisis should incorporate at least the following principles:

--The plan should be ecologically sound and sustainable,

--Under the logic of capitalism. power company management & stockholders should bear the cost of bad investment decisions in the past,

--Power producing oligopolies should be "taxed" to recover some of the windfall profits made possible by the current [de]regulatory system; the cost to consumers should bear some reasonable and fair relationship to the cost of production,

--Since the government and ratepayers are required to make investments in a long term solution through taxes and higher short term power rates, there should be an accountable return on these investments

--Regional planning for energy use, and where appropriate regional energy agencies and/or utilities, should be encouraged,

--Low cost loans for conservation and conversion should be made available to energy consumers, with a payback schedule coordinated with the realization of future energy cost savings,

--Energy costs should be permitted to rise sufficiently to encourage conservation, and although some of the income from higher rates could be allocated to crisis management, a substantial portion should be dedicated to long term investment in an affordable, sustainable energy supply,

--The emergency response and investment package should include protection for low income households.

For Sonoma County, an implication of this analysis is that our response to this crisis should not be left entirely to the state government and PG&E.

Land Use: Housing & Open Space

The housing crisis that is rendering home ownership impossible for the working and middle classes in Sonoma County is an acute symptom of the larger issue of sustainable land use. The preservation of open space, traffic, pollution control, and the conservation of agricultural land are other aspects of this problem.

Affordable housing, along with access to good jobs, good schools, and open space, is a quality of life factor that makes a community attractive. If left entirely to the play of market forces, however, the combination of well-paying jobs and free floating housing prices will lead to suburban sprawl and to squeezing the lower middle and working classes out of the housing market. Left to market forces and the piecemeal planning represented by twenty year urban growth boundaries and hit and miss open space acquisition, the economic forces for transforming Sonoma County into a Santa Clara Valley North over the course of the next century are virtually unstoppable.

A whole systems strategy for channeling these forces in a more hopeful direction would include several elements. The core element would be a comprehensive long range plan for high density living while preserving the quality of life. The development of such a plan would require the participation of a variety of stakeholder groups, including business and political leaders, real estate brokers and developers, environmentalists and agriculture groups, transportation planner and providers, and affordable housing advocates. The goals would be to create a shared vision for the sustainable development of the region that would be created through an inclusive democratic process and which would therefore be supported by the majority of citizens.

An element of a long range development plan needs to be a safety net for the working poor. In a labor market structured according to the principles of modern industrial capitalism, which among other things requires a certain level of unemployment to control inflation, it is unlikely that the value of labor at the lower end of the market will ever be sufficient to permit the working poor to purchase all of the necessities for a decent standard of living. (It should be noted that in the housing market that currently exists in Sonoma County, law enforcement officers and entry level university professors are part of the "working poor" by this definition.) An adequate safety net for this group would include guaranteed access to affordable housing and health care, as well as unemployment insurance.

The economic component of sustainable land use planning was provided by Henry George (1979/1879) in the last century. George pointed out that land is a God-given natural resources, but that it has economic market value according to its use. He also observed that most of that economic value is created by the ways human beings put the land to use. The value added by human creativity explains the high value of urban land. For example, the value of the land under the Transamerica Pyramid is largely a function of the goods and services produced by the financial district and by the urban complex of the city of San Francisco.

George's proposal, therefore, was a land value tax that would recover some of this community-created value for community purposes. George's land value tax was fundamentally different from conventional property taxation, as only the value of the land would be taxed, not the value of improvements such as houses, office buildings, or farms. George believed that land value taxation would be sufficient to pay for all public services and to eliminate poverty. For this reason, his proposal was labeled the "single tax," and it was the basis for a large scale political movement at the end of the nineteenth century. (There is still an active organized movement promoting George's ideas today, which includes the Robert Schalkenbach Foundation which keeps his works in print.) While in a complex modern economy George's proposal is probably not the panacea he envisioned, it does offer promise of rationalizing the economics of sustainable development. In the few jurisdictions where it has been tried, it appear to have the effect of reducing the negative effects of suburban sprawl and inner city decay.

Health Care

The glamorous and expensive side of health care is the high tech world of pharmaceuticals, biotechnology, and sophisticated diagnostic equipment. These resources operate within the dynamics of the global economy. However, most of the actual economic activity involved in providing quality health care is the labor intensive interaction between providers and consumers. The providers include doctors, nurses, paraprofessionals, and complementary health care practitioners. But they also include educators and public health officials that are involved in the preventive and epidemiological aspects of health care. These are the areas where the greatest productivity gains can be realized with the most modest investment.

Health care does indeed need to be managed, and the effective management of health care resources -- providing the best possible care at a reasonable cost to all members of society -- is a public good of substantial value. However, corporate managed care has not yet demonstrated the ability to "get it right." There is no reason, at this point in history, to believe that for-profit managed care companies are inherently superior to non-profit or public agencies. And it is becoming increasingly clear that setting overall health care priorities is a matter of public policy.

Health care economics represents a complex mix of private and public consumption, risk insurance, and the amortization of expectable crisis costs over reasonable time frames. An individual experiencing symptoms is in the market for treatment, and a fee for service market mechanism will respond to this demand. However, the prevention of illness -- including the prevention of someone else's illness that may otherwise be transmitted to me -- and the availability of treatment when it is needed are public goods. Major illness is a catastrophic expense against which the risk sharing strategy of insurance makes sense. But we also know that everyone is going to incur some medical expenses over a lifetime, with the highest expenses often occurring at the end. It makes sense to spread these expenses out over time to make the payments manageable.

This complexity of health care economics suggests the wisdom of a complex public policy approach that recognizes the variety of systems characteristics -- including scale, geography and markets, and scientific sophistication -- involved a comprehensive approach to health care. Legislatures at various levels of government should make the policy decisions as to how health care resources should be managed, including making choices about priorities for research, treatment, and education. And they should design incentive systems that reward providers of well managed services in all of these areas. There should be competition among private, nonprofit, and public agencies to provide quality services at reasonable cost. The costliest, high tech areas of health care should be managed at the national and state level, while the labor intensive aspects of education, prevention, and acute and chronic treatment should be organized and managed by mobilizing human resources at the regional and local level.

The value of a high general level of public health suggests that government should act to make certain that all citizens have access to treatment as needed, as well as providing support for research, education, and the management of epidemiological factors. Global markets and corporate research also have role to play in the development and distribution of pharmaceuticals and technology. Conventional health insurance models can handle routine medical care, but the role of nonprofit and government agencies in providing insurance coverage needs to be more fully explored. Experiments such as capitation, which rewards health maintenance, can provide incentives for a prevention-minded and cost effective approach on the part of health care providers, but some provision needs to be made for cost-based insurance to cover serious, even catastrophic, illness. Perhaps the federal government should take responsibility for providing coverage for catastrophic illnesses, such as cancer and AIDS, much as it does for other natural disasters such as hurricanes, floods, and earthquakes.

The current crisis offer an opportunity for leaders of all of the stakeholder groups in the health care system to come together and design a comprehensive planning and delivery system that incorporates the biological, ecological, technological, economic, and psychospiritual system components of wellness and health care. These stakeholder groups would include hospitals, doctors, nurses, paraprofessionals, complementary health care providers, HMOs (including Health Plan of the Redwoods, Kaiser Permanente, and HMO corporations), employers, and unions and employee groups, and community groups.

Gangs

Gangs are a response to class, racial, and generational conflict that is seen by society at large, as well as by some individual gang members, as dysfunctional. The scarcity of employment that is created by structural poverty is compounded by the economic opportunities offered by the illegal drug industry. The gang problem in Sonoma County is not as big as it is in many large urban areas. However, it will remain a chronic irritant to the body politic in the absence of a whole systems approach, involving both educational and economic strategies, that addresses all of the dimensions of the problem.

The core of the economic strategy needs to be the availability of realistic and meaningful economic opportunities. The public, private, and nonprofit sectors can collaborate to create these opportunities, but the results need to be adequate to the scale of the need. And those elements of the solution that rely on low wage work must be backed up by the safety net for the working poor outlined above. This includes the availability of affordable energy, housing, and health care, concerns which, as we have seen above, also involve the middle class in the current economy. Education to train young people for the available economic opportunities is also important. It might make sense to provide immediate economic incentives for education, instead of relying on the middle class model that depends primarily on future economic rewards. These incentives could be in kind as well as cash. For those who are surrounded mostly by un- and underemployed friends and family, a job in the future does not look like a realistic incentive.

The core of the educational strategy needs to be communication and understanding. This means that the educational focus should be both on alienated youth and on the larger community and society which is the context of the experience of alienation. The challenge is to create effective communication and understanding both among the various ethnicities that make up contemporary society and across the generations. A sufficient response requires both political leadership and psychological sophistication.

The political leadership called for requires an ethical or moral basis. This basis can be described as the Christian Golden Rule ("Do unto others as you would have them do unto you") or the Buddhist ethic of compassion. A psychological version is contained in Carl Rogers' basic principles of effective psychotherapy: integrity, empathy, and acceptance. (Rogers' terms were "congruence," "empathic listening," and "unconditional positive regard.") The contemporary political analog of these values can be recognized in the concepts of multiethnic diversity and healthy family values. We need to actively explore the positive values of a multicultural society, as well as attending to the rights of children to grow up in a healthy environment.

Psychological sophistication is implied by the work of Lawrence Kohlberg (1984) and William Perry (1970), who suggest that the ability to effectively take the point of view of the other represents a high level of cognitive development. The situation is further complicated by the findings of object relations theory, which suggest that early childhood mistreatment, in the forms both of abusive family relationships and of racial oppression, can lead to faulty ego development requiring reconstruction in the form both of compassion and of the "tough love" that is the appropriate response to the willfulness of the two-year-old.

The moral and psychological dimensions of a sophisticated systems response are reasonably clear. However, the challenge to the middle class in fully embracing an adequate response lies in confronting two very important unconscious assumptions of middle class identity or ideology: the economic assumption of scarcity, which elicits the response of greed in order to assure some level of economic security, and the assumption inherent in the idea of class structure, which implies a sense of moral superiority over other groups lower in the class hierarchy. The choice is between the democratic values of inclusion and participation and the more archaic values of hierarchy and exploitation. The economic aspect of this moral choice is not simply whether to hold onto our resources or to give them away. The choice is between democratic inclusion in the economy or the allocation of resources to the huge, but largely middle class, social welfare and criminal justice bureaucracy that is required -- always with limited and perhaps today with diminishing success -- to control the unavoidable violent or antisocial behavioral consequences of exclusion.

Conclusion

All of the problems surveyed in this essay -- energy, land use, health care, and gangs -- represent a failure of society to adequately attend to the fabric of our collective or communal well being. They can be seen as representing a continuum that ranges from the environmental to the social ecologies of the public good, but even the primarily environmental energy crisis raises social issues, while the primarily social problem of gangs and cultural diversity has environmental consequences.

Sonoma County, which has one of the most environmentally and socially progressive citizenries in the state, is facing a choice. We can continue to rely primarily on state and national government to do our systems thinking for us, and to treat local government primarily as a referee among competing development interests and a contractor for basic public services. Or we can offer and demand political imagination at the local level, imagination that will provide leadership in rethinking the role of public goods in the overall economy (Lietaer & Warmoth, 1999), employing a level of systems thinking (Eisen, 1995) sophistication that is appropriate to the globalizing society of the twenty-first century.

 

References

Eisen, S. (1995, May). Redesigning human and global systems: A conceptual and strategic framework. Cleveland, OH: Academy of Management and Case-Western Reserve University Joint Divisional Conference on the Organizational Dimensions of Global Change. Reprinted at: <www.sonoma.edu/programs/od/GlobalHSR.html>

Galbraith, J. K. (1958). The affluent society. Boston: Houghton Mifflin

George, H. (1979) Progress and poverty. New York: Robert Schalkenbach Foundation (originally published 1879).

Hardin, G. (1968). The tragedy of the commons. Science, 162: 1243-48.

Kohlberg, L. 1984). Essays on moral development. Vol 2: The psychology of moral development. San Francisco: Harper & Row.

Lietaer, B. & Warmoth, A. (1999). Designing bioregional economies in the context of globalization. In J. Kruth & A. Cohill, Eds. Pathways to sustainability. Published on-line at: <http://ceres.ca.gov/pathways/chapter2.html>

Maslow, A. H. (1954). Motivation and personality. New York: Harper & Bros.

Perry, W. G., Jr. (1970). Forms of intellectual and ethical development in the college years: A scheme. New York: Holt, Rinehart & Winston.