economics health social justice

Investigating failure demand

Imagine you run a website. You look up the most popular pages and you discover that the ‘help’ page gets more traffic than any other. Do you congratulate yourself on writing such a magnificent help page? Or do you ask what’s wrong with your website that so many people need help?

That’s a classic example of ‘failure demand’, which is demand created by failure rather than success. It’s a theme in my book The Economics of Arrival, co-authored with Katherine Trebeck, and it’s investigated in a recent report from the Wellbeing Economy Alliance. They summarise the problem like this:

In pursuit of economic growth – a stated goal of almost all governments – harm is caused to people and the planet, including widening economic inequalities; high levels of insecurity, despair and loneliness; and the prospect of catastrophic climate breakdown and biodiversity loss. Governments then need to spend money to respond to these harms – which then becomes a justification for growth. In other words, we are caught in a cycle of paying to fix what we continue to break. This is known as ‘failure demand’.

The report looks at the three sectors of work, housing and the environment, in the specific contexts of Scotland and the Canadian province of Alberta.

Low pay is a driver of failure demand. In Scotland, 61% of adults in poverty live with someone in paid work, but their job does not provide enough to live on. Income is topped up by government support. Wouldn’t it be better to pay a living wage in the first place, rather than have an entire tax and benefit system constantly patching up the failures of the labour market? Wouldn’t that be simpler, as well as better for people’s dignity and sense of worth?

Rising house prices are fabulous for propping up a country’s growth figures, and successive British governments have pursued policies to that end. But that leaves the poorest unable to afford a home or even rent, and the government then has to make up the shortfall with housing benefit, temporary accommodation, or the long-term healthcare costs from those who have experienced homelessness.

Much of what is spent on the environment is failure demand, paying for the clean-up of neglect or damage from industry. Alberta faces a bill of $260 billion to clean up the impact of the oil industry and its associated infrastructure. Health problems related to air pollution cost the region $9 billion every year.

Failure demand is real and can be calculated. It’s also a philosophical problem – what is the real purpose of the economy? If it is to maximise economic activity, then destroying things and then repairing them can be vaguely justified. You can calculate the GDP at both points and all of it counts as positive. But if the purpose of the economy is to serve people, then it makes no sense at all to harm our physical and mental health and then try to make up for it afterwards. How perverse and inhumane.

If we recognise wellbeing as the priority, we can refocus away from failure demand and towards prevention. This does affect economic growth. Take flooding, for example. If a town repeatedly floods and is then repaired, all that damage will be recorded by GDP. If you plant trees on the hillsides, rewild the river and restore the wetlands so that flooding doesn’t occur, you’re likely to have lower economic growth. But you’ll have more life and higher wellbeing. Which are we going to prioritise?

It would be the same with health problems such as obesity or Type 2 diabetes – there’s much more money to be made selling people the unhealthy diet and then the cure for it than there is in investing in preventative healthcare. But surely happier and healthier lives are worth the sacrifice in economic growth.

Past a certain point, economic growth may actually be uneconomic growth. Recognising that point and adjusting accordingly is at the heart of The Economics of Arrival, and WeAll’s report reaches a similar conclusion:

We have an economy that needs to grow to generate the taxes to fix the problems the economy causes in the first place. This is unsatisfactory and unsustainable. The negative impacts of a poorly designed labour market, dysfunctional housing sector and worsening environment will increase the need for failure demand spending. This will in turn require more growth which will, in turn, exacerbate failure demand spending and so on and on. All of this is avoidable by creating an economy that gets it right from the beginning and is concertedly designed to deliver what people and the planet need.

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