Most of you reading this book – in other words those who can afford it and have the time, the inclination and the ability to read it – can count yourselves lucky to have been born into this particular chapter of human history. Most of us are healthier, wealthier and better educated than we would have been if we’d been born at any other time. Go back just a few hundred years and the chances of you being alive and having enough to eat, let alone being able to read and write, would be considerably diminished. To take just one statistic, albeit a fairly fundamental one; of those who died during the year 1903 in England and Wales, 35 per cent were under five years of age. By 1953 that figure had fallen to 4.3 per cent and in 2003, a century later, it was just 0.72 per cent. (Office for National Statistics)

Nevertheless, many of us feel uneasy about the state of the world we live in, and the state in which many of our fellow human beings have to live. There is increasing consensus amongst the scientific community that we in the ‘Developed World’ are consuming the planet’s resources at a rate that is seriously threatening our environment, and at a rate that will inevitably increase as China and India join us. At the same time we share the planet with almost two million children that die each year “for want of a glass of clean water and adequate sanitation.” (United Nations Development Program) We have also just passed through a century during which the number of lives “deliberately extinguished by politically motivated carnage” is estimated to be in the region of 170 million, of which only a fifth were military personnel and less than a half died during the First and Second World Wars. (Brzezinski, 1993)

Over one billion of the six billion people alive today survive on less than a dollar a day. Meanwhile, at the other end of the scale, the 500 richest people in the world boast a combined income greater than that of the poorest 416 million (United Nations Development Program). Although many of those 500 are philanthropic, it is worth noting that there are an estimated 10,000 privately owned jets in the United States, while Boeing is reported to have recently taken orders for 11 private jets that are being converted into “mobile mansions” with a price tag of some $150 million each. (Merrill Lynch and Capgemini, 2007)

Furthermore there are huge discrepancies between the contribution that each of us makes to society, and the reward that we receive as a result. A supermodel chosen to front a new line of clothing is rewarded with a contract worth hundreds of times more than the annual salary of a front-line nurse or an aid worker who may be directly responsible for saving many people’s lives. A bond trader whose actions may have contributed to the collapse of a major bank walks away with a bonus large enough to feed half the children in a small African country.

Most people find such statistics shocking. While only the most naive dream of a utopian equality, many feel that the balance has gone too far and that there is urgent need for a world economy that allow resources to be distributed at least a little more fairly and sustainably. After all, most of us would be prepared to forego that second helping of pudding if we really believed it would directly translate into food in the mouth of a starving child. Unfortunately, in this complicated world of ours, such links are far too tenuous.

Furthermore such aspirations are no longer altruistic. It is an unfortunate fact that most of the places which will be hardest hit by climate change are also those that suffer the most deprivation. The United Kingdom may well become one of the more pleasant places to live in the coming decades, but we risk being surrounded by starvation, disease and despair.

We also feel a sense of helplessness in the face of such statistics. What can the ordinary person, without access to enormous personal wealth, really do to change the lives of such huge numbers of people in a meaningful way? Yes, if enough of us unplug our phone chargers, forego that second international flight and buy Fairtrade groceries, it will make some difference, but is that really enough?

Nevertheless, ignoring the effect of natural calamities, it is our collective actions as human beings that have brought us to where we are today. It is the systems that we have created for accessing, using and distributing the resources available to us – the fresh water, the oil and gas, the flora and fauna and the mineral wealth – which are responsible for the state we are in. If we could better understand how those systems work and how they came about then perhaps we can work towards creating a better world.

What we have here is an example of a ‘coordination problem’. The problem is that of coordinating our efforts so that we can distribute the available resources to those who need them in as fair, as efficient and as sustainable a manner as possible. Of course this is only a problem with resources that are scarce or unevenly distributed. We all need air to breathe, for example, but thankfully air is plentiful and, in all but the most extreme circumstances, manages to distribute itself to those who need it without our intervention. The same cannot be said of water. Only those lucky enough to live next to a spring have free access to fresh water. For many, gaining access to clean water on a regular basis is a major concern.

The Labour politician Tony Benn likened the situation to that of four men who find themselves alone in a lifeboat after their ship has gone down, left with nothing to eat except a single loaf of bread. How do they distribute this precious resource? They could fight over it, in which case the loaf ends up feeding the strongest. They could auction it, in which case it ends up feeding the richest. Or they could divide it into four equal pieces (Benn, 2007). Put like that, the solution seems obvious to any decent human being. However it is not so straightforward when the ‘boat’ contains six billion people and the ‘loaf of bread’ represents all the various resources available to humankind, ranging from oil, water, coal and iron to grain, meat, silver and gold, to say nothing of the skills and strengths that we each have to offer.

Although we still end up fighting over the spoils with frightening regularity, we have come up with other solutions. These can be described as either ‘bottom-up’ or ‘top-down’. The bottom-up approach leaves it to individuals to come up with their own solutions and works on the basis that we each best know our own needs and how to fulfil them. This approach is based in the belief that our ingenuity, left alone to work in a free market and guided by the price mechanism, will ensure the most efficient outcome. As we will see, such a ‘laissez faire’ approach can work extremely well. However it does have significant limitations.

A top-down approach, by contrast, requires that resources be managed by a central authority. Whether elected or installed by force, it is the job of this authority to plan the production and distribution of goods and services to best serve the needs of the people. As we shall also see, while a planned approach can overcome some of the limitations of the free market, it also introduces its own set of problems.

Nowadays both these solutions are seen as extreme and most countries have adopted a ‘mixed economy’.

To be continued …

Describing the kind of world we would like to inhabit is relatively easy. The hard part is working out how to get there from where we are now without causing unnecessary suffering along the way. As we shall see in a later chapter, many of the foreign aid programmes instigated by the developed world over the past few decades had admirable objectives, and some of the steps taken towards those goals were definitely in the right direction, but the way in which they were executed resulted in war and starvation.

Chapter 1: The invisible hand →