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The Systemic Risk Created By Resource Corruption

Corruption is a loaded word. One person's corruption is another's sound social policy. Some people believe providing unemployment benefits to laid-off workers corrupts them by making them "lazy." Many others think such benefits are sound social policy in an economic system that is prone to major cyclical ups and downs.

Fewer people agree that bailing out major U.S. banks at taxpayer expense in the aftermath of the 2008 crash was a good use of public money. An alternative would have been for the U.S. government to seize the banks, inject funds to stabilize them, and then resell them to investors, perhaps at a profit.

Was it corruption that led to the bailout instead of a takeover? Or was it an honest difference of opinion about what would work best under emergency circumstances?

We can argue whether these examples of transfers of funds from one group to another are fair. But by themselves they do not constitute a systemic risk to the stability of the entire economic and social system. In fact, some would argue that such transfers enhance that stability. However one evaluates these transfers, I would contend that a much worse corruption is to subject our society knowingly to systemic failures such as severe climate change and widespread crop failures.

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To understand this contention, we must review the material basis for our modern society. Despite all the hype about the service economy, the activities which make the service economy even possible are agriculture, fishing, forestry, mining and manufacturing. These sectors create the surplus food and fiber, the surplus energy and minerals, and the surplus goods that allow so many of us to do something other than farm, fish, log, mine or manufacture goods.

By "surplus" I mean that those engaged in the five essential underlying activities of the modern economy provide more food and fiber, extract more energy and other mineral resources, and make more things than they themselves will use. In fact, in so-called developed societies, the people in these occupations create surpluses in their respective areas that are nothing short of astonishing.

In the United States for example, those working in agriculture, fishing and forestry number 2.4 million or about 1.6 percent of the working population of 149 million as of 2015 according the U.S. Bureau of Labor Statistics. Those working in mining including oil and natural gas production (which, after all, is really just another type of mining) number 917,000 or about 0.6 percent of the working population. These two groups provide most of the raw materials for the rest of the economy while constituting just 2.2 percent of the workforce. Some raw materials, notably oil and metal ores, are supplemented with imports. But that is counterbalanced in part by agricultural exports that are about one-third of all crops grown.

Those working in manufacturing number 15.3 million, dwarfing the number of workers who actually provide the feedstock for that manufacturing. But manufacturing workers still only constitute 10.3 percent of the total U.S. workforce. We also supplement our manufactured goods with imports. But we export high-value goods such as airplanes, pharmaceuticals and advanced machinery.

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So, the percentage of the U.S. workforce that provides the actual material basis for the economy amounts to only 12.5 percent.

Even though American agricultural, fishing, forestry, mining and manufacturing systems are exceedingly efficient, this doesn't mean that they are sustainable in the long run. Our agricultural practices by and large erode the soil and undermine its fertility, a process that ultimately will lead to a decline in food and fiber production if unaltered. Our fishing practices empty out fisheries faster than they can regenerate. Our forestry practices may be called sustainable, but removing vast carbon stores from the forest and merely replanting is unlikely to be sustainable in the long run.

When it comes to mining, we already know that mining nonrenewable sources of energy (oil, coal, natural gas) and other raw materials is by definition not sustainable in the long run. For fossil fuels, climate change makes this doubly true. We will ultimately have to find renewable substitutes or go without. Recycling is important, but we cannot recycle oil, coal and natural gas that have already been burned. And, a significant portion of metals that we mine are not recycled but scattered in landfills and in countless other places.

Now I finally return to the idea of corruption. We don't normally think of unsustainable practices as corrupt. Corruption normally implies that the corrupt actor knows that what he or she is doing is ethically wrong or contrary to law. Most unsustainable practices are not contrary to law, and people will argue about whether they are even unsustainable. An act is not normally considered corrupt if the actor is acting in good faith and believes honestly that he or she is behaving ethically and legally. The person might be mistaken. But we don't put people in jail very often for making honest mistakes (as opposed to negligence).

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In the absence of definitive answers on sustainability--which we won't have them until it's too late to do anything--we surely face systemic risks. The failure of one or more of these five basic economic sectors to deliver the resources and goods upon which our society depends could be catastrophic--think: worldwide crop failure, decline in available fossil fuels, a shortage of critical metals needed for electronics (which are crucial to the functioning of modern society).

At the very least it is corrupt to subject society knowingly to potential catastrophic failures merely to enrich oneself or one's associates. I am reminded of a cartoon in The New Yorker many years ago depicting a financial presentation for which the caption read:

And so, while the end-of-the-world scenario will be rife with unimaginable horrors, we believe that the pre-end period will be filled with unprecedented opportunities for profit.

While we are being entertained with the exploits of corrupt politicians and businesspeople who hid their money from taxation using dummy corporations concocted by Panamanian lawyers, we should try to remember that, while despicable, this kind of corruption pales in comparison to the kind that threatens to undermine the very material underpinnings of our society.

By Kurt Cobb via Resourceinsights.com

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