1.3.6 Households, markets, commons and state
Helpful prior learning and learning objectives
Helpful prior learning:
Section 1.1.1 The economy and you which explains what an economy is and how it is relevant to students’ lives
Section 1.1.2 The embedded economy, which explains the relationship between the economy and society and Earth’s systems.
Section 1.3.1 Human nature, which compares the way that mainstream economists view nature (selfish, competitive, with unlimited needs/wants), and a more complex view that includes other characteristics (empathy, cooperation and limited needs).
Section 1.3.3 Human needs, which explains the distinction between needs and need satisfiers
Section 1.3.5 Provisioning systems, which explains how the physical and social parts of economic systems mediate between biophysical inputs and social outcomes.
Section S.1 Systems thinking, which explains what a system is and why systems thinking is useful. (coming soon)
Section S.x Feedback loops and tipping points, which explains the roles of reinforcing and balancing feedback loops in amplifying or dampening change. (coming soon)
Learning objectives:
explain the role and interconnections of households, markets, commons and the state in provisioning systems
Everyday we hear stories about the economy, mostly related to businesses - what they’re doing, how much money they make, how many people they employ. We also hear about state or government “intervention” into the economy, as though the government mostly sits outside the economy and occasionally tinkers with it. If you pick up an economics textbook, chances are that the first chapters are about supply and demand in markets, where goods and services are exchanged for payment.
Markets are an important way to meet human needs, but with all this attention, you might think that markets are the only provisioning institution, but that’s not true.
Figure 1. What people think the economy is
(Credit: Lisa Fotios CC0)
The economy is much more than markets! It’s all the human-made systems we use to transfer and transform energy and matter to meet human needs and wants. This happens in many areas of society, not just markets and involves many types of human relationships, not just exchanges of money for products.
Figure 2 shows the embedded economy model, first introduced in Section 1.1.2. That model highlights four important provisioning institutions: the household, markets, state and commons. Institutions provide a way of organising relationships in society. The way institutions work are influenced by history, culture, technology, politics and power. Each of the four provisioning institutions is a system inside the larger economic system. These institutions work together to meet human needs within planetary boundaries.
Topics 2-5 of this course will explore the four provisioning institutions in detail, but below is a brief introduction.
Figure 2. The embedded economy model
(Credit: Kate Raworth and Marcia Mihotich CC-BY-SA 4.0)
What is the household?
Households are vital for human wellbeing and all other human activities, leading some economists to call the household the ‘core economy’. Household members care for each other and carry out domestic tasks like cooking, cleaning, nurturing, and planning.
Household tasks and the time needed to do them differ across societies. Where incomes are limited, with little access to markets and low or no state support, households directly fulfill many human needs. They may grow food, fetch water, make clothing and care for children and elders. In some areas of the world, just fetching water (Figure 3) can take many hours per day, a task that is getting even more time consuming with climate change. This household work is mainly performed by women and girls. It is unpaid and unacknowledged, worsening gender inequalities because the burden of household work is often so great that women and girls cannot go to school or take paid work.
Figure 3. Household care and domestic work takes many hours every day, but is ignored by most economists
(Credit: Ganta Srinivas CC0)
In high income countries, household work looks different. There may be more interaction with market and state provisioning institutions. Food, clothing and other essentials may be purchased in markets, rather than self-made. Child- and elder-care may also be purchased in the market or provided partly by the state. The state may provide a range of other services like education and healthcare, and goods such as water and electricity to make it easier and more efficient to meet human needs. Still the burden of household care and domestic work mainly falls on women, creating gender differences in time devoted to household work and paid income that make women more economically vulnerable.
Economic analyses usually do not consider unpaid household care and domestic work. For example, it is not counted in gross domestic product (GDP). Household care and domestic work is mostly invisible to businesses and governments, and therefore does not get the support it needs to function well from other areas of the economy.
The household is covered more extensively in Topic 2 of this course.
What is a market?
A market is a provisioning institution where goods and services are bought and sold at a price. Prices provide signals, or feedback, in markets (Section S.x), which influence the actions of buyers and sellers and can change their behaviour.
For example, during the initial stage of the Russia-Ukraine conflict in 2022, natural gas flows to stocks in Europe declined. As a result, prices increased. The higher prices were an incentive for other suppliers like the United States to supply more natural gas to European countries’, increasing inflows to their stocks. On the other hand, the higher prices were an incentive for consumers to buy less natural gas, reducing the outflows from stocks. The (often) stabilising role of prices is one of the main advantages of market provisioning.
Figure 4. Markets are powerful provisioning systems that provide things we need and want
(Credit: stockrojoverdeyazul CC BY-NC-ND 2.0)
The market’s price mechanism is useful, but it has important limitations. Markets only value what is priced and only provide goods and services to those who can pay. While this is fine for certain types of non-essential need satisfiers, markets are not always appropriate for goods and services that meet fundamental human needs. There can be extreme power differences between sellers and buyers in markets for essential goods, so that sellers can ask very high prices and earn high profits when consumers really need what they sell. This extractive behaviour widens economic inequality, and undermines trust and the social cohesion we need to cooperate to reach shared goals.
Unregulated markets also often degenerate Earth’s systems because many natural resources are taken for free and overextracted from ecosystems by producers. Similarly, many businesses pay nothing for emitting damaging waste into ecosystems. Markets usually do not account for this damage in their prices.
Markets will be discussed in greater detail in Topic 3.
What are the commons?
The commons is a provisioning institution where the shared resources of a group are used and managed through self-organising, instead of relying on market prices or government regulations. Consider how people in a village might manage a water well (Figure 3) or the wood resources of a forest. Commons come in many forms, from sharable natural resources, to cultural resources such as language and rituals, to digital resources like Wikipedia and this Regenerative Economics book! Worldwide, especially in indigenous communities, people successfully manage shared resources for the good of the community, demonstrating that commoning can meet human needs sustainably and equitably.
Figure 6. Some forests in the European Alps are managed through commoning
(Credit: Emily Morter CC0)
Mainstream economics usually assumes that shared resources will be overexploited because people may have the incentive to take too much, an idea that is called the tragedy of the commons. They claim that the solution for this problem is to privatise, that is to sell the shared resources to private owners, who will manage the commons to maximise its output and their profits (Section 1.3.1).
However, successful commoning is never unmanaged and open-access as some economists assume. Rather, commoning involves a self-organised community using and managing resources together, which can be an effective alternative to privatising shared resources for the benefit of only those who can pay. Commoning will be discussed in greater detail in Topic 4.
What is the state?
The state is a provisioning institution that provides essential services and supports and regulates the other provisioning institutions.
States can support households by providing some essential care services for everyone such as education, healthcare, child- and eldercare. These services can reduce the time, energy and money spent by caregivers in the household, enabling them to take on paid work or support their communities in other ways. States can also provide regulations and financial support for households, such as laws protecting parental or personal leave from work or extra money for caring for children or elders.
States support markets and other provisioning institutions by providing infrastructure to support economic activities, such as roads, electricity grids, and water and sewage treatment. States regulate and provide financial support to markets to shape them to support the common good. This might include laws banning toxic pollutants, mandating minimum wages for workers, and state investment in financially risky but important innovations.
States can also support commoning activities. Though commoning involves self-organised groups who manage shared resources, the state plays a role in providing conditions to make this kind of organisation possible. For example, the state can create and enforce laws that protect communal resources and activities from interference from private interests.
State provisioning works best when decision-making includes a wide range of stakeholders, who can offer their diverse perspectives and advocate for their needs. Stakeholders may have different interests and different levels of power, so it is important for the state to balance power between groups. This also builds trust. However, sometimes economically powerful groups are able to influence state decisions and laws in their favour, called regulatory capture. This corruption, or use of power for personal gain, widens economic inequality and threatens Earth’s systems.
The role of the state in the economy is discussed in greater detail in Topic 5.
Activity 1.3.6
Concept: Systems
Skills: Thinking skills (transfer)
Time: 30 minutes
Type: Individual, then pairs or group
Note: this activity could be accompanied by the video Meet the Economy from the Doughnut Economics Action Lab, which is the first listing in the Further Exploration section below.
On a sheet of paper, make 4 columns labelled: activity, provisioning institution, your role, energy or matter used?
In the first column, make a list of everything you did today so far.
In the second column, indicate which provisioning institution you think was involved: household, market, commons, state.
In the third column, write down what you think your role in that situation was. You may find inspiration in the text in this section.
What insights does this information give you about your various roles in the economy. If you can, discuss with a partner or as a class.
Ideas for longer activities, deeper engagement, and projects are listed in Subtopic 1.5 Taking action
Checking for understanding
Further exploration
Meet the economy - Short video by the Doughnut Economics Action Lab (DEAL) that introduces students to the 4 provisioning institutions of the economy and outlines the multiple and varied roles we all have. This video can complement Activity 1.3.6. Difficulty level: easy
Why we shouldn't trust markets with our civic life - TED Talk from Michael Sandel, professor of political philosophy at Harvard University, on the appropriate role of money and markets in society. Difficulty level: medium
The Commons, Short and Sweet - A short description from David Bollier of key characteristics of the commons for beginners. Difficulty level: medium
Note: There is a separate full topic for each of the provisioning institutions in this course, so if you are interested in any one of them, you can find much more information in those topic sections.
Sources
Raworth, K. (2017). Doughnut economics: seven ways to think like a 21st century economist. London: Penguin Random House.
Terminology (in order of appearance)
economy: all the human-made systems that transfer and transform energy and matter to meet human needs and wants
state: a system that provides essential public services, and also governs and regulates other economic institutions
supply: the quantity of a product that producers are willing and able to supply at various prices
demand: the quantity of a product that consumers are willing and able to purchase at various prices
market: a system where people buy and sell goods and services for a price.
provisioning institution: a group of people and their relationships as they try to meet human needs and wants
transfer: to move something from one place to another
transform: a change in the state, energy or chemical nature of something
energy: the ability to do work or cause change
matter: anything that takes up space and has mass
embedded economy model: an economic model showing that the economy is shaped by society and dependent on nature
household: a system where people living together care for each other and do domestic work, often termed the 'core economy'
commons: a system where people self-organise to co-produce and manage shared resources.
institution: human-made systems of rules and norms that shape social behavior
power: the ability to influence events or the behaviour of other people
system: a set of interdependent parts that organise to create a functional whole
income: the ongoing money earned (flow) from work or investments
climate change: a change in the temperature and precipitation patterns in an area, in recent times due to human economic activities
gender inequality: people are not treated equally on the basis of their gender
gross domestic product (GDP): the total value of all goods and services produced in an economy in a time period
feedback: when outputs of a system circle back to impact inputs to the same system
flow: movement of something such as energy, matter, information or money between stocks
stock: an accumulation of something, such as energy, matter, information, or money
consumer: someone who uses resources and products to meet needs
need satisfier: the specific ways people meet their needs
economic inequality: unequal distribution of income and opportunity between different groups in society
social cohesion: the extent to which people in society feel connected to one another and share common values
unregulated: not controlled by laws or rules
degenerative economy: an economic system that meets human needs in a way that degrades and destroys social and ecological systems
overextraction: taking too much of something away from somewhere else, especially using effort or force
ecosystem: the interaction of a community of organisms with their physical environment
waste: unwanted or unusable materials
indigenous community: the original settlers of an area (pre-invasion/colonialism) who have retained their culture apart from colonisers
tragedy of the commons: when shared resources are overused and depleted
care: the act of providing what is necessary for the health, welfare, upkeep, and protection of someone or something
regulation: a rule that guides individual or group behaviour and enforced by an authority
minimum wage: the lowest wage permitted by law or other agreement
stakeholder: a person who has an interest in or is impacted by some activity
regulatory capture: when the government prioritises the interests of economically powerful groups over the general interests of the public
corruption: use of power for personal gain