What is the economy actually for?

 

The Economy as a Relational, Ecological, and Intergenerational Infrastructure

The economy is the material infrastructure through which societies organize the conditions of human development. It determines how food, housing, energy, healthcare, education, knowledge, time, and other essential resources are produced and distributed. Economic activity is therefore not an autonomous system of markets and transactions. It is embedded in social institutions, political rules, cultural expectations, and ecological systems, while also shaping the opportunities transmitted between generations[1].

Human beings participate in economic life through extensive networks of dependence. Entrepreneurs rely on education, law, infrastructure, finance, technology, and public stability; workers depend on employers, care systems, and labor protections; consumers depend on global production and distribution networks. Contemporary supply chains deepen these relationships by connecting resource extraction, manufacturing, logistics, digital services, and consumption across countries[2]. Such interdependence can enable specialization, innovation, and knowledge exchange, but it can also create asymmetrical relationships in which powerful companies, financial institutions, platforms, or countries control access to capital, technology, data, and markets.

Digitalization adds another layer to this structure. Data, artificial intelligence, cloud services, and online platforms have become essential economic infrastructures. They can improve productivity and broaden access to knowledge, but their dependence on large datasets, computing capacity, and network effects encourages concentration[3]. Control over data and algorithms may consequently become a form of economic and political power. Digital infrastructure should therefore be treated partly as a public or semi-public good, governed by principles such as accessibility, privacy, transparency, interoperability, and democratic accountability.

Markets remain valuable instruments of decentralized coordination. Prices can communicate information about scarcity, encourage specialization, and support experimentation and innovation. Yet markets do not constitute a self-sufficient moral or institutional order. They depend on property rights, contract enforcement, public infrastructure, trust, and regulation. Moreover, they have three structural limitations[4].

First, prices frequently exclude ecological and social costs. Pollution, climate damage, poor working conditions, and pressure on healthcare or care systems can be imposed on third parties or future generations. Second, markets tend toward concentrations of capital and power, particularly where scale advantages, network effects, and control over infrastructure create dominant firms. Third, markets respond to purchasing power rather than human need. They can therefore allocate resources efficiently while leaving substantial groups without adequate housing, healthcare, education, or income. Markets are consequently more legitimate when they operate within institutions that internalize external costs, limit domination, preserve competition, and guarantee basic security.

Economic growth must be evaluated in the same instrumental way. Historical growth has helped reduce scarcity and finance improvements in health, education, infrastructure, and living standards. Productivity and innovation remain important, especially where material deprivation persists. Growth is not, however, an adequate goal in itself. An increase in gross domestic product may coincide with ecological destruction, rising inequality, weakened care systems, or chronic insecurity[5].

The relevant distinction is therefore between reproductive and destructive economic development[6]. Reproductive development strengthens the social, institutional, and ecological foundations on which future prosperity depends. Destructive development increases output while exhausting natural resources, concentrating power, transferring costs to others, or undermining human capacities. Some sectors—such as healthcare, education, sustainable energy, public transport, circular production, and ecosystem restoration—may need to expand, while highly extractive and fossil-dependent activities may need to contract. Economic progress should be assessed by its direction and consequences rather than by aggregate expansion alone.

Macroeconomic structures strongly influence this direction. Productivity growth depends not only on private entrepreneurship but also on education, research, infrastructure, public health, and institutional trust. Investment determines the future composition of the economy, but financial markets often favor short-term returns over projects whose social or ecological benefits emerge gradually. Credit can finance valuable investment, yet excessive private or public debt can produce instability and restrict future choices. Monetary policy, financial regulation, taxation, and state capacity are therefore essential parts of economic organization. Capable and legitimate public institutions are needed to stabilize crises, supply public goods, regulate markets, and direct long-term investment[7].

Economic power must likewise be treated as an institutional issue. Concentrated capital can be converted into more than purchasing power. Ownership may confer control over employment, housing, land, media, data, infrastructure, research, and investment; it can also purchase expertise, access, agenda-setting capacity, and endurance in political conflict. Formal equality at the ballot box can therefore coexist with profound inequality in social standing and effective influence. At the same time, private accumulation depends on collectively maintained conditions: law, courts, education, health, transport, energy, digital networks, monetary stability, public research, workers, consumers, and inherited social knowledge. Recognizing these conditions does not deny entrepreneurial effort or risk. It establishes a claim of reciprocity and a reason to prevent economic advantage from hardening into hereditary social and political domination. Concentrated wealth can be reinvested to generate further control over production, technology, media, and policymaking. Financial institutions influence development by deciding which activities receive capital[8]. Digital platforms can control market access and information flows, while large corporations may convert economic resources into political influence. Regulation, antitrust policy, transparent ownership, financial supervision, employee participation, and diverse ownership structures are needed to prevent economic interdependence from becoming structural domination.

Care is a foundational but frequently invisible component of the economy[9]. Paid and unpaid activities involved in raising children, supporting families, maintaining health, educating people, and caring for older or dependent people reproduce the human capacities on which all production relies. Traditional economic statistics underestimate this work because much of it occurs outside markets and is disproportionately performed by women. An economy can therefore appear productive while depleting its underlying care capacity.

Care cannot simply be subjected to the same efficiency logic as industrial production[10]. Attention, presence, trust, and emotional engagement require time and cannot always be automated or accelerated without reducing quality. Commercial provision can expand access, but excessive commodification may subordinate care relationships to profitability and cost reduction. Healthcare, education, childcare, mental support, and informal care networks should instead be recognized as productive infrastructure essential to long-term economic resilience.

Economic institutions also shape emotional life. Insecurity about income, housing, employment, or debt can create chronic anxiety and shorten people’s decision-making horizons. Strong inequality intensifies status competition, while consumer culture may connect identity and recognition to purchasing power[11]. Digital comparison can amplify feelings of inadequacy and exclusion. These emotional effects are economically significant because trust, confidence, and expectations influence consumption, investment, cooperation, and institutional legitimacy. Narratives of progress, crisis, scarcity, merit, and mobility similarly shape behavior by giving people interpretative frameworks for understanding economic conditions.

The economy is ultimately a material subsystem of the biosphere[12]. Production transforms energy and resources and generates waste and emissions. Ecosystems supply fertile soil, clean water, pollination, climate regulation, and other services that markets often undervalue. Efficiency improvements alone may not solve this problem because lower costs can encourage higher total consumption—the rebound effect[13]. Economic activity must therefore remain within the regenerative and absorptive capacities of natural systems, including boundaries related to climate, biodiversity, land use, water, and nutrient cycles.

Ecological disruption also generates collective emotions. Climate anxiety can focus attention on danger but may lead to paralysis when people see no credible path to change. Ecological grief reflects the loss of landscapes, species, livelihoods, and cultural identities. Hope becomes constructive when it is linked to realistic institutions, technological possibilities, collective action, and visible progress. Ecological transition is therefore not only a technical transformation but also a social and emotional process.

Because production chains, finance, taxation, technology, and ecological systems cross borders, national policy alone is insufficient. Global interdependence creates a mismatch between transnational problems and predominantly national institutions. International coordination is needed for climate policy, corporate taxation, labor standards, financial stability, debt governance, digital regulation, and the protection of global public goods[14]. Such governance must also confront inequalities between countries in technological capacity, bargaining power, debt burdens, and exposure to ecological damage. Transparency, accountability, participation, and institutional correctability are necessary if transnational authority is to be legitimate.

These considerations lead to the model of a relationally sufficient economy[15]. Sufficiency does not mean imposed austerity or universal scarcity. It means institutionally guaranteed adequacy: everyone should have sufficient resources, time, care, security, and opportunities for meaningful development, while destructive accumulation and ecological overshoot are limited. Markets, innovation, entrepreneurship, and decentralized decision-making remain important, but they are evaluated by their contribution to human development within social and planetary boundaries.

Such an economy rests on seven interconnected conditions:

• Basic security: reliable access to income, housing, food, energy, healthcare, and education.
• Ecological limitation: production and consumption remain within the regenerative capacity of natural systems.
• Institutional correctability: regulators, democratic institutions, and public oversight can identify and correct harmful outcomes.
• Distribution of power: concentrated ownership, monopolies, financial dominance, and platform power are institutionally constrained.
• Care infrastructure: paid and unpaid care, education, and social reproduction receive sufficient resources and recognition.
• Emotional stability: economic institutions reduce chronic insecurity, destructive status competition, and social distrust.
• Meaningful participation: people can contribute through work, enterprise, learning, care, and involvement in economic decision-making.

The model favors institutional pluralism[16] rather than either unrestricted capitalism or centralized state planning. Private companies, public organizations, cooperatives, and community institutions can coexist. Taxation can shift some of its burden from labor towards pollution, resource consumption, monopoly rents, inheritance, capital income, and extreme wealth[17]. Regulation can protect competition, labor standards, financial stability, and ecological limits. Basic security may be provided through social insurance, universal services, income guarantees, or combinations of these mechanisms.

Important trade-offs remain. Ecological limits may constrain production in some sectors; care-intensive services cannot always achieve conventional productivity gains; and regulation can become excessive or inflexible. These tensions cannot be eliminated through a single formula. They require transparent democratic deliberation, institutional experimentation, empirical evaluation, and ongoing correction.

Transition should therefore occur through gradual institutional recalibration rather than an abrupt replacement of the existing economy[18]. Investment can be redirected toward care, education, housing, sustainable energy, public transport, circular production, and ecosystem restoration. Markets can be corrected through ecological taxation, antitrust enforcement, platform regulation, and financial supervision. Alternative indicators can supplement GDP, while cooperatives, public development banks, shared ownership, and local initiatives can serve as experimental models. International coordination is necessary to prevent capital mobility and regulatory competition from undermining national reforms.

Economic performance should ultimately be assessed through a multidimensional framework covering basic security, ecological impact, distribution of wealth and market power, care capacity, working time, employee participation, ownership diversity, and institutional responsiveness. No single index can capture all these relationships.

An economy succeeds when it creates and preserves the material, social, institutional, and ecological conditions under which people can develop. Its legitimacy rests not on accumulation or growth as ends in themselves, but on its ability to provide genuine freedom, distribute power, sustain care, respect planetary limits, withstand crises, and transmit viable developmental opportunities to future generations.

 

Would you like to explore how a relational understanding of humanity can transform democracy, law, the economy, and public institutions? Click the link below to read the full book, Becoming Human Together, and discover a new framework for building a more humane, democratic, and correctable society within ecological limits.

(PDF) Becoming Human Together: Rethinking Democracy, Power and Institutions for a Complex and Changing World

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[1] Karl Polanyi, The Great Transformation (Boston: Beacon Press, 2001 [1944]); Mark Granovetter, “Economic Action and Social Structure,” American Journal of Sociology 91, no. 3 (1985): 481–510, https://doi.org/10.1086/228311; Greta R. Krippner and Anthony S. Alvarez, “Embeddedness and the Intellectual Projects of Economic Sociology,” Annual Review of Sociology 33 (2007): 219–240, https://doi.org/10.1146/annurev.soc.33.040406.131647.

[2] OECD, Interconnected Economies: Benefiting from Global Value Chains (Paris: OECD Publishing, 2013), https://doi.org/10.1787/9789264189560-en; Gary Gereffi, Global Value Chains and Development (Cambridge: Cambridge University Press, 2018). Supply chains distribute both opportunities and risks unevenly and vary substantially by sector.

[3] Jean-Charles Rochet and Jean Tirole, “Platform Competition in Two-Sided Markets,” Journal of the European Economic Association 1, no. 4 (2003): 990–1029, https://doi.org/10.1162/154247603322493212; Lina M. Khan, “Amazon’s Antitrust Paradox,” Yale Law Journal 126, no. 3 (2017): 710–805. The policy treatment of digital infrastructure remains contested and sector-specific.

[4] Arthur C. Pigou, The Economics of Welfare, 4th ed. (London: Macmillan, 1932); Joseph E. Stiglitz, Economics of the Public Sector, 3rd ed. (New York: W. W. Norton, 2000); Sen, Development as Freedom. Market failure and distributive insufficiency are distinct arguments and should not be conflated.

[5] Joseph E. Stiglitz, Amartya Sen, and Jean-Paul Fitoussi, Report by the Commission on the Measurement of Economic Performance and Social Progress (Paris, 2009), https://ec.europa.eu/eurostat/documents/8131721/8131772/Stiglitz-Sen-Fitoussi-Commission-report.pdf; United Nations Development Programme, Human Development Report 1990 (New York: Oxford University Press for UNDP, 1990), https://hdr.undp.org/content/human-development-report-1990.

[6] Herman E. Daly, Steady-State Economics, 2nd ed. (Washington, DC: Island Press, 1991); Kate Raworth, Doughnut Economics (London: Random House Business, 2017); Steffen et al., “Planetary Boundaries.” The exact distinction and sectoral implications are the author’s synthesis.

[7] John Maynard Keynes, The General Theory of Employment, Interest and Money (London: Macmillan, 1936); Hyman P. Minsky, Stabilizing an Unstable Economy (New York: McGraw-Hill, 2008 [1986]); Mariana Mazzucato, The Entrepreneurial State, rev. ed. (London: Penguin, 2018). These approaches are debated; they do not imply unlimited or automatically effective state intervention.

[8] Piketty, Capital in the Twenty-First Century; Gilens and Page, “Testing Theories of American Politics”; Acemoglu and Robinson, “Persistence of Power, Elites, and Institutions.” The empirical relationship between wealth and political influence varies by political system and must be documented contextually.

[9] International Labour Organization, Care Work and Care Jobs for the Future of Decent Work (Geneva: ILO, 2018); Nancy Fraser, “Contradictions of Capital and Care,” New Left Review 100 (2016): 99–117; Folbre, The Invisible Heart.

[10] William J. Baumol, The Cost Disease (New Haven, CT: Yale University Press, 2012); Tronto, Caring Democracy. Baumol explains why labour-intensive services may experience rising relative costs without being inefficient in the ordinary sense.

[11] Sendhil Mullainathan and Eldar Shafir, Scarcity (New York: Times Books, 2013); Wilkinson and Pickett, The Spirit Level; Robert J. Shiller, Narrative Economics (Princeton, NJ: Princeton University Press, 2019). Causal claims should distinguish household insecurity, inequality, subjective status, and macroeconomic expectations.

[12] Partha Dasgupta, The Economics of Biodiversity: The Dasgupta Review (London: HM Treasury, 2021), https://www.gov.uk/government/publications/final-report-the-economics-of-biodiversity-the-dasgupta-review; Steffen et al., “Planetary Boundaries”; IPBES, Global Assessment Report.

[13] Blake Alcott, “Jevons’ Paradox,” Ecological Economics 54, no. 1 (2005): 9–21, https://doi.org/10.1016/j.ecolecon.2005.03.020; Steve Sorrell, “Jevons’ Paradox Revisited,” Energy Policy 37, no. 4 (2009): 1456–1469, https://doi.org/10.1016/j.enpol.2008.12.003. Rebound magnitudes differ by technology, sector, price response, and system boundary.

[14] Dani Rodrik, The Globalization Paradox (New York: W. W. Norton, 2011); OECD, Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy, 8 October 2021, https://www.oecd.org/tax/beps/statement-on-a-two-pillar-solution-to-address-the-tax-challenges-arising-from-the-digitalisation-of-the-economy-october-2021.htm; IPCC, Climate Change 2023: Synthesis Report.

[15] Sen, Development as Freedom; Raworth, Doughnut Economics; Ian Gough, Heat, Greed and Human Need (Cheltenham: Edward Elgar, 2017).

[16] Ostrom, “Beyond Markets and States”; Wolfgang Streeck and Philippe C. Schmitter, “Community, Market, State—and Associations?” European Sociological Review 1, no. 2 (1985): 119–138, https://doi.org/10.1093/oxfordjournals.esr.a036381. Institutional diversity creates opportunities for experimentation but also requires coordination and clear accountability.

[17] OECD, Taxing Energy Use 2019 (Paris: OECD Publishing, 2019), https://doi.org/10.1787/058ca239-en; Mirrlees et al., Tax by Design (Oxford: Oxford University Press, 2011), https://ifs.org.uk/books/tax-design. These sources support principles and trade-offs, not the exact tax mix proposed in the chapter.

[18] Stiglitz, Sen, and Fitoussi, Report on Economic Performance and Social Progress; Mariana Mazzucato, Mission Economy (London: Allen Lane, 2021); Ostrom, “Beyond Markets and States.” The pace and sequencing of transition require sector-specific modelling and distributional assessment.