Economics for a finite planet

by cwatch / Alternatives, Banking & Finance, Environment / 31 Mar 2017

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As part of our Green Capitalism project, one contributor, Benjamin, gives their take on the idea of ‘steady state economics’ – an ecological approach to economics where economies remain at a stable size instead of growing over time, and resource consumption is kept within ecological limits. Please note the views are the authors and do not represent Corporate Watch’s position.

In the foreword to a new report by the prominent economist Jeffrey Sachs, senator Bernie Sanders writes: ‘What I heard and what I continue to hear is that Americans have had enough of establishment politicians and establishment economists who have claimed for far too long that we must choose between economic growth, economic fairness, and environmental sustainability. They have sold us a bill of goods that says we can’t have all three. Well, they are wrong.’ [1] Whilst Sanders’ rhetoric is appealing, should we demand all three? Do we need to revisit the presumption that economic growth is always necessary and desirable?

“The increase of wealth is not boundless, at the end of what they term the progressive state lies the stationary state.” – J. S. Mill [2]

The idea of steady-state or zero-growth economics is far from new. Nineteenth century economists such as John Stuart Mill and Adam Smith, embraced the concept of growing towards a desirable end, then maintaining that end with no need to grow further. During the twentieth century this focus was lost with conventional economists arguing for infinite growth, whilst rarely addressing the question of how this could be achieved with finite natural resources. In 1990 a group of economists sought to highlight this contradiction when they established the International Society of Ecological Economics.

Economies are measured by adding up all of the transactions which take place, usually over the course of a year. In the case of a country this figure is called GDP or Gross Domestic Product. The total value of transactions can go up from one year to the next, either because there are more people or because each average person has bought more this year than last. We call that rise economic growth. Any change due to fluctuating population can mask per capita (per person) changes. If we want to consider human welfare, per capita figures can be more useful.

Let us remember that there is nothing natural or inevitable about economic growth. Growth is a modern obsession, which did not pertain in the classical world. Civilisations rose and fell without ever experiencing per capita rises in income or consumption. In Europe, all this changed two hundred years ago with the industrial revolution. New sources of energy allowed growth beyond the ecological limits imposed on previous societies, borrowing from the past in the use of fossil fuels and from the future in the use and abuse of ecosystem services. As such, growth only began when civilisation stepped outside the sustainability inherent in living within ecological limits.

In 1990 when the first Ecological Economists advocated a new respect for these ecological limits, their ideas were well outside the mainstream. However, in the intervening two and half decades, many ecological themes have moved from speculative theorising to current affairs. The thaw of Siberian permafrost. Melting of alpine glaciers. Armed conflict over water resources. The idea of an economy in which growth is neither necessary nor desirable also has more currency than it did.

According to the Centre for the Advancement of the Steady State Economy, a system without growth ‘aims for stable population and stable consumption of energy and materials at sustainable levels.’ [3] Let us consider each of these points individually:

Zero growth in itself is not a panacea. The steady-state we are aiming for must be within ecological limits (sustainable levels), for example the atmosphere’s ability to cycle carbon dioxide.

Stable consumption means that we can all expect to live comfortably, but that consumption patterns must not balloon over time.

Stable population means that population cannot continue to grow. If it does, each individual must consume less year on year for consumption as a whole to remain steady. Reproductive rights are one of the most fundamental expressions of personal liberty, so how we stabilise population without recourse to authoritarianism or unjust market mechanisms remains a huge challenge. Addressing inequality in relation to both gender and income distribution remains key.

Achieving a society which respected all three points would have huge advantages for ordinary citizens. In a steady-state economy it would be more realistic to achieve stability, which could provide a comfortable life for all whilst eliminating boom/bust cycles. Since continuous growth and sustainable scale are mutually exclusive, any steady-state economy must abandon the flawed expectation that growth will be the engine to alleviate poverty. Some mechanisms of redistribution would equally help achieve true sustainability, because poor people who have trouble meeting basic needs tend not to consider their ecological impact, and the super rich tend to consume unsustainably.

In a mutation of language which has largely passed unremarked, our society’s obsession with growth has led the word to be used interchangeably with prosperity. President Trump has promised to bring growth back to the American rust-belt and George Osborne’s “Northern powerhouse” purported to bring growth to Britain’s northern cities. In Cornwall, the Cornish word “sowena” (prosperity) is used as a toast, it wishes drinking companions good fortune in the same way that the French “santé” wishes them health. I have yet to find a language which wishes growth upon anyone other than small children.

To make the transition to a steady-state economy, we must reform the language we use to talk about consumption, wealth and work. There is a degree of truth in the Orwellian notion that vocabulary shapes our thinking. Our terminology must focus on ends not means: welfare, not growth or money. Once we recognise ends, we will be freer to search for means which are both more effective, as well as more sustainable than our current model. Consumption must not be used as an analogue for contentment. We must begin to consider livelihoods instead of merely jobs.

Political ecologists tend to consider the size of an economy as approximately proportional to the load that it exerts upon ecosystems. Exceptionally few sectors of any economy have yet been able to break this link. With this as our starting point, it is logical that many radical environmental campaigns seek to disrupt through-puts of natural resources, thereby impacting on the overall size of the economy.

In a subtle contrast, proponents of steady-state economics argue that escaping from the presumption of economic growth is more urgent than constraining the economy within ecological limits. As Herman Daly put it in his ground-breaking book Steady-state Economics, ‘We cannot go into reverse without first coming to a stop.’ [4] Since those words were published, the term Degrowth has entered the lexicon to describe an economic reverse gear, but Daly’s simple assertion remains true. Once society has built effective measures to constrain and manage the size of the economy, only then can we hold a meaningful debate about what size the economy should be constrained to. Daly’s writings are not Utopian, rather he proposes a transition from our current, unsustainable rates of consumption and resource depletion: ‘Pragmatically, quotas would probably at first be set near existing extraction rates. The first task would be to stabilise to get off the growth path. ‘Though governments must retain ‘the ability to tighten constraints gradually.’ His is a radical but not a revolutionary discourse.

In his essay ‘Institutions for a Steady State Economy’, Daly draws a distinction between two questions: ‘Could a steady-state economy function if people accepted it?’ and ‘How likely are people to accept it?’. [5] Political history is littered with failed schemes which met only one of these criteria, so it is important that we have confidence in steady-state economics on both counts.

Let us first consider how a steady-state economy might work and the mechanisms necessary to maintain it. We must begin by adopting new measures of success. Many choose annual salary as a measure of individual success. Similarly, GDP is regularly quoted as a measure of national well-being. GDP is flawed not least because it entrenches a disturbing form of double counting. Production which drives pollution is nonetheless positive – from the perspective of GDP. When further money changes hands in any clean-up this again boosts GDP. Such an approach provides little incentive to avoid pollution in the first place. Any transaction where money changes hands adds to the figure, regardless of the social or ecological good of that transaction. Any work which is done without money changing hands, such as childcare and other work within the home, is excluded. In setting out a unique model for his country’s development the king of Bhutan argued that Gross National Happiness (GNH) is more important than Gross National Product.[6] Quite how GNH should be measured remains a question.

There are quantitative approaches which seek to supplant GDP as a go-to measure of national economic well-being. The most developed is the Index of Sustainable Economic Welfare (ISEW). Under this measure, economic transactions are balanced against such factors as income distribution and costs associated with pollution. The calculation endeavours to reflect the environmental sustainability and social acceptability of transactions. ISEW has its critics, particularly those who seek a move away from placing a price on nature. Empirically, whatever the price, someone will be prepared to pay to pollute or deplete. With these criticisms acknowledged it is nevertheless believable that we might devise a measure of success better suited to a steady-state economy than current formulations.

In a world where one of governments’ main objectives is to maintain a growing economy, there is a clear incentive for government – through licensing and tax incentives – to keep down the prices of the raw materials which form inputs to industrial processes. Most notably, this applies to fossil fuels, since this primary energy ultimately powers almost all economic activity.

A form of rationing based upon quotas has been proposed as the key mechanism for slowing and arresting economic growth. Governments would auction quotas for production of raw materials and the revenue generated could replace many forms of taxation. Current approaches, such as mechanisms within the UN Framework Convention on Climate Change (UNFCCC), are excessively complicated because they seek to regulate emissions. If we accept that any hydrocarbons mined from the ground will ultimately add to carbon dioxide in the atmosphere, it would be administratively easier to apply quotas at the coal-face or the well-head since there are many fewer sites of extraction than there are sites of combustion and emission.

In ecological economics, quotas are seen as more effective than taxes since their effect is direct. Taxation invites industries to pay to pollute; whereas a quota forces a constraint on pollution, through constraining inputs. Importantly, it is quantity which determines ecological impact, not price. As such, it makes sense for government to decide upon a quantity (through a quota) and subsequently allow the market to set a price, rather than set a price – through taxes, and hope that the market will respond by choosing a sustainable quantity.

Bearing in mind the constraints imposed by quotas, there will necessarily be a role for regulation in ensuring a just transition to this newly constrained world. This has been as discussed by the North Sea oil-workers union OILC. Workers in energy production and intensive industries will inevitably be impacted by the imposition of quotas and must be adequately compensated.

Having briefly explored the mechanisms necessary to make it work, let us reflect upon whether such mechanisms could ever gain public acceptance. For those who are fearful of a planned economy as an assault on individual liberty, Daly suggests that ‘The micro [the behaviour of the individual] is the domain of indeterminacy, novelty and freedom. The Macro, or aggregate, is the domain of determinacy, predictability and control. We should strive for macro control and avoid micro meddling.'[7] Ecological economics also argues that – following an initial transition – the sustainable level of any steady-state economy must sit well inside ecological limits, to allow for some variability and avoid the need for market interference.

Current economic norms have lead to huge inequality. Our existing approach is failing vast numbers of citizens. In this fact there is an opportunity, since a new model which seeks to limit inequality is likely to benefit the vast majority and negatively impact only a tiny plutocracy, the one percent highlighted by the Occupy movement. Daly’s argument for limiting inequality is pragmatic, because ‘Exchange between the powerful and the powerless is often only nominally voluntary and can easily be a mask for exploitation.'[9] By his own admission, the market based mechanisms he advocates – to use Daly’s term ‘price-system parameters'[10] – can only be just if inequalities of wealth and power can be moderated. Overall levels of quotas must also take into account future generations, who will lose the ability to benefit from those resources, but who cannot bid in any auction.

Twenty-first century communication can allow ordinary citizens to participate both in a new kind of democratic politics (the Arab spring) and a new sphere of economic activity (peer to peer transactions). Despite this potential, the early ideals of many internet pioneers have been progressively lost. Under present day ‘algorithmic capitalism’ [8] multinational middle-men such as Uber and Airbnb have huge power over both consumers and producers. In defiance of a present dominated by monopolistic corporations, the same technologies – which disrupt industries – could be harnessed to disrupt the operating system of our economy.

“Future progress simply must be made in terms of things that really count rather than the things that are merely countable” HermanDaly.[11]

Politicians and global corporations are often accused of short-termism, yet both government and business are planning and instituting projects which will take years to build and which will operate for decades to come. What kind of economy are they planning for us? If we are to live within ecological limits, a zero-growth economy is ultimately inevitable, so let us begin building a new economic model now, rather than waiting for radical changes to be imposed upon us.

Until those of us engaged in the politics of social change begin to build steady-state and degrowth arguments into existing campaigns for justice and sustainability, we are in danger of arguing for a future which would be impossible, even were it to gain public acceptance. This is a trap, which many who have joined calls for Green Growth are in danger of falling in to. Today, there are so many acute confrontations, we can lose sight of the chronic problems caused by our economic system. The anti roads movement lost battles at Twyford and Newbury but won a broader victory when dozens of road schemes where shelved. We may lose some of our current fights, yet if we do so intelligently we will remodel economics as well as politics.

Steady-state economics offers a model for a future within ecological limits and crucially, proposes mechanisms to reach that destination. Questions remain around how market mechanisms could ever be implemented justly – given existing inequalities. Alternatively, what non-market systems might be devised to limit (non-renewable) resource through-puts? We must remain vigilant: elites often capture moments of disruption and direct them to entrench existing power. Finally, we need to address the question of population, whilst avoiding blame and xenophobia. The economic and ecological challenges of the present and of the future are questions for humanity as a whole. Building walls will not help to solve them.

References:

[1] Sanders, B. (2017) Foreword. In: Sachs, J. Building the New American Economy. Columbia University Press, px http://www.cupblog.org/?p=20674 (21/02/2017)

[2] Mill, J. S. (1848). Principles of Political Economy. Appleton, p514

http://www.gutenberg.org/files/30107/30107-h/30107-h.html (21/02/2017)

[3] O’Niel D. et al. (2010) What Is a Steady State Economy? Centre for the Advancement of the Steady State Economy, p1

http://steadystate.org/wp-content/uploads/CASSE_Brief_SSE.pdf

[4] Daly, H. E. (1992) Steady-state economics (Second edition). Earthscan, p52

[5] Daly, H. E. (1992) Steady-state economics (Second edition). Earthscan, p50

[6] HM Wangchuck, J. S. (1972) Speech. Thimphu.

http://www.gnhcentrebhutan.org/what-is-gnh/the-story-of-gnh/ (21/02/2017)

[7] Daly, H. E. (1992) Steady-state economics (Second edition). Earthscan, p51

[8] Spehr, C. (2016) Spongebob, why don’t you work harder. In: Scholz, T. and Schneider, N. Ours to hack and to own. OR Books, p54

[9] Daly, H. E. (1992) Steady-state economics (Second edition). Earthscan, p54

[10] Daly, H. E. (1992) Steady-state economics (Second edition). Earthscan, p74