Center for the Advancement of the Steady State Economy
Regular Contributors:  Herman Daly, Brian Czech, Brent Blackwelder, James Magnus-Johnston, and Eric Zencey. Guest authors by invitation.

Why Bargains are Bad

by Marq de Villiers

Bargain-hunting has become a cultural obsession (my father in law, bless him, used to drive a good way across town so he could buy day-old bread that a flyer had promised was a nickel a loaf cheaper; my neighbor trolls the Internet for wine a dollar cheaper, or a lawnmower he can get for a hundreds buck off — whether or not he needs another lawnmower). Thrift hasn’t disappeared; it just mutated into the endless search for cheaper stuff.

This search has had many savagely negative effects: it has persuaded manufacturers to set price, rather than quality or service, as the single prime necessity. It no longer matters that something lasts, or does what it was supposed to for longer than it takes to unwrap it, as long as it was cheaper than the competition. This means that things can no longer be fixed, only thrown away, and the next cheap thing bought in its stead. It has driven down wages, and led to the globalized search for an ever cheaper work force. It has led to a world in which advertising tells greater and greater lies. It has led to a world in which predatory discounters routinely drive smaller businesses into bankruptcy, devastating small towns everywhere. It rewards scale. It led to Wal-Mart, the world’s largest retailer, and arch pusher of vast amounts of Adam Smith’s unnecessary things.

Much has been made recently of Wal-Mart’s plans to reduce its environmental impact, and to enforce environmental and social standards on the millions of suppliers that fill its stores. Wal-Mart has switched to environmentally benign light bulbs in its stores. Its trucks are no longer kept idling while their drivers take a lunch break. But meanwhile, Wal-Mart still keeps its prices as low as possible. It works this way: a factory in a small town, say Winchester, Virginia, makes, say, rubber goods. Call it, oh, Rubbermaid for short. It is a good-sized firm, and it has always operated in a socially responsibly way — it has a stable workforce, pays livable wages, makes products that endure, and sells a good many of them to Wal-Mart. By 1994, the company was doing so well that it was voted the most-admired American company by Fortune magazine.

But a few years later, as Joe Bageant put it in Deer Hunting with Jesus, “North America’s largest plastic products company was a foundering corporation, brought down by the boys from Benton, Arkansas… In 2001, Wal-Mart’s executive management team heavied up on Rubbermaid, demanding ridiculously low prices despite an 80 per cent increase in the cost of raw materials, and personal pleas from Rubbermaid CEO Joseph Galli. Galli begged. Wal-Mart stood firm. Later, when Rubbermaid refused to go along with Wal-Mart’s utterly unworkable price, Wal-Mart dropped the hammer. It pulled Rubbermaid products off the shelves, replacing them with knockoffs… After seeing its sales drop 30 per cent, Rubbermaid caved.” Rubbermaid shut down 69 of its 400 facilities, fired eleven thousand workers and planned to shift half its production to what it delicately called “low-cost countries.” Five years later, Rubbermaid’s profit was up — net income of $108 million. But the workers were still out of work, and the town devastated. “The fact that stock rises — and its owners along with it — in the wake of mass firings says more about what corporations consider an asset than a million mealy-mouthed Human Resources brochures and Wal-Mart smocks,” as Laura Penny so trenchantly put it.

What is gained? It is easier to see what is lost. Workmanship and product integrity are lost. Paying jobs are lost, and workers who feel good about themselves and where they work. A good corporate citizen is lost, and with it a tax base for another small town. In a larger sense, a culture that understood standards, workmanship, and the value of craft is degraded, along with the sturdy but apparently obsolete capitalist notion that competition leads to stronger, more highly evolved industries through the process of “creative destruction.” Instead, we get price wars and the relentless erosion of standards. We get big box stores with no roots and no conscience. We get the commodification of jobs that has ravaged the middle class.

So ask again, who benefits? Here’s the answer: when Caterpillar moved its operations to right-to-work (i.e. anti-union) states with low wages, its employees could no longer afford to buy houses or send their kids to college, but the company’s profit jumped, in 2006, by more than 70 per cent, and the CEO got more than $14 million in what is laughingly called “compensation.” You can call it compensation, if you like. I call it swindling.

So what happens when we stop shopping?

This is the great conundrum. The economy is built on consumption and the early obsolescence of things provide jobs, and keep the economy ticking over. How do you manage a transition, if people stop spending? Before, you could always rely on technological advance. People could stop buying buggies, and the buggy manufacturers went out of business, but people bought cars instead, and car makers prospered. But what happens if they stop buying something — and buy nothing to replace it? If men stopped shaving, thousands of workers would be laid off, because their jobs are to make razors and razor blades and batteries for shavers, and shaving cream and lotions, and devising marketing campaigns for shaving systems. This dilemma is replicated in every industry, in every town, in every region, in every country. Andrew Revkin, The New York Times’s wise ecology correspondent, pondered the question not long ago, though he put it this way: How do you grow an economy without the jobs and the taxes that these unnecessary things produce? And he added: “The market, unfortunately, does not differentiate between good and bad. If the people want junk, the market will provide. So we have to fall back on the conscience of our business leaders.” In which he was surely being sardonic.

But in Revkin’s question lie the seeds of an answer. He asked, how do you grow an economy without the taxes and jobs… ? The beginning of the answer surely is, don’t grow. As Tim Jackson puts it, “consuming less may be the single biggest thing you can do to save carbon emissions, and yet no one dares to mention it. Because if we did, it would threaten economic growth, the very thing that is causing the problem in the first place.”

Marq de Villiers is an award-winning writer of books and articles on exploration, history, politics, and travel. He is also a graduate of the London School of Economics, and his latest book puts his training in economics to good use. Our Way Out: Principles for a Post-Apocalyptic World offers a refreshing menu of economic options for an overly consumptive population living on an environmentally stressed planet.

The Heroic Works of Jerry Mander

by Rob Dietz

When I was a rookie economic activist in the fall of 2008, having become the director of CASSE only a year prior, I met Jerry Mander.  At the time I had no idea how many heroic things he had done to both conserve natural areas and support the transition to a better economy.

As a card-carrying introvert, I’m not much of a networker, but I came to know Jerry through one successful episode of networking. Right around the time I began my job of promoting the steady state economy as a positive alternative to the pursuit of perpetual growth, Annie Leonard released her runaway hit film The Story of Stuff. I thought it was outstanding, and I wanted to know how she had made it. So I gave her a call, and we had a friendly and educational (for me) discussion. I was going to be in the San Francisco Bay area where she was based, and I asked her if she would meet me to continue our discussion in person. She agreed and said that I also ought to meet Jerry Mander, so we set a time to get together for Indian food.

I didn’t know much about Jerry, other than he had founded the International Forum on Globalization (IFG) and was serving as its leader (I later learned that he and IFG had played an important role in organizing the Seattle protests against the policies of the World Trade Organization). Upon meeting him, I could see that he had a style all his own. Dressed like a professor in a tweed sports jacket, it was impossible not to notice his gray curls, which could fairly be described as “Einsteinian.” His charisma drew me in right away.

He was organizing a meeting of intellectuals and activists to discuss the downsides of capitalism and to consider alternative economic models. I was honored to receive an invitation, especially when I learned what an amazing roster of people he was convening — it was a great opportunity to learn the ins and outs of economic activism! The meeting was all the more interesting because of its timing in October 2008, when the financial meltdown was in full swing. Wall Street titans, Beltway power players, and a good chunk of the Western world seemed to be in complete panic mode.  It was the perfect moment to be questioning the economic status quo.

All sorts of scenes still occupy my memory from Jerry’s meeting. David Korten and Josh Farley proposed a new way to structure the banking industry, which would entirely change the way money works. John Fullerton explained the complexities of derivatives and the power of “big capital” in driving critical economic decisions. Richard Heinberg described the financial collapse as a sign of the end of economic growth, which became the core idea of his next book project. Annie Leonard provided details on the making of The Story of Stuff, and the view from the conference room, which overlooked San Francisco Bay, provided a fun bit of irony as she discussed her movie about the downsides of the cheap-goods economy. Behemoth cargo ships piled high with colorful shipping containers motored into and out of the bay to pick up and drop off their wares. The meeting was an incredible collection of sustainability superstars, and Jerry facilitated it with skill and grace, his flair for leadership apparent.

If Jerry’s accomplishments were limited to founding and directing IFG and running significant meetings in the process, that would be admirable enough. But on a subsequent trip to San Francisco, I had a great time uncovering one amazing fact after another about his career.

Jerry agreed to meet with me again to discuss how CASSE and IFG could collaborate. On the day of our get-together, I had some time to kill, so before traipsing through the tower-lined avenues of the financial district where we had arranged to rendezvous at a coffee shop, I walked to the public library to see what sort of facts I could dig up on Jerry.

Early in his career, he was an ad-man. But somewhere along the way, he formed an alliance with Sierra Club icon, David Brower, and he put his skills to great use. As told by Marc Reisner in his book Cadillac Desert, Brower considered Jerry to be a genius — the full-page ads he designed for the New York Times, Washington Post, and other major newspapers were largely responsible for shifting public opinion about dams in the Grand Canyon and thwarting the Bureau of Reclamation’s plans to flood some of the most picturesque lands on the North American continent.

Jerry’s role in protecting the Grand Canyon cemented his place in my Hall of Heroes. But I knew he had also written some books, so I looked in the library’s catalog and found some of them. The library had a copy of his most famous book, Four Arguments for the Elimination of Television. It was originally published when I was a first-grader, and I wish our society had taken his arguments to heart. I was part of the TV generation. In fact, I think I can honestly call myself a recovering TV addict. I’m sad to report that a sizable percentage of my brain capacity has been taken up by the cheesy dialogue and over-the-top action sequences of 80s movies and TV shows.

But it wasn’t Four Arguments that made me do a double take. It was actually Jerry’s first book that had me rummaging through the bookshelves: The Great International Paper Airplane Book. I used to check this book out from my elementary school library all the time — even more often than books on UFOs, ghosts, and the Loch Ness Monster! Not only had Jerry Mander played a pivotal role in saving the Grand Canyon, not only had he orchestrated an incredible career switch from advertiser to crusader for the public good, but he had also fired the imagination of at least one child.

When I met up with him for coffee, our conversation quickly turned from the state of the economy to something more poignant — the loss of connection to nature that has afflicted modern society. We discussed it as a root cause of many of the most profound problems of the day, and we shared stories about relationships we had built and good times we had had in our lives while exploring wild places. This loss of connection blinds people to the fact that continuous economic growth also means continuous transformation of natural resources into salad shooters, remote-controlled rotating tie racks, twelve-lane highway interchanges, and other manufactured capital and products. It was clear that a love of nature had colored Jerry’s worldview and driven many important choices in his life.

I’m planning to visit him this week, and I’m excited to catch up with my friend and have another chance to say thank you. The world is a better place for having had certain people in it. If you’re lucky, you might cross paths with such a person every once in a while. Luck was smiling on me when I crossed paths with Jerry Mander.

Economics as if the Laws of Thermodynamics Mattered

by David Jones

There is no wealth but life. –John Ruskin

Have you ever considered the question: what is life? If we are aiming for a new economic system that will preserve and enhance life, rather than the current system, which more often than not seems to destroy and degrade life, perhaps we should consider what life is and how it is made possible. I recall learning about “living things” in high school biology classes, but always found the definitions of these “living things” to be somewhat vague. Let me try a physicist’s definition then, which might feel unfamiliar at first. A living thing is a kind of low-entropy-maintenance machine: a configuration of differentiated parts that succeeds in performing complex, interdependent functions for a prolonged period of time.

Having used the word “entropy” in the previous sentence, I should try to explain what it is. All living and non-living things (and hence all human economies, whether or not economists pay attention to the fact!) obey the laws of thermodynamics. The second law, in particular, introduces the concept of entropy and the idea that the entropy of a closed system must either remain constant or increase, but never fall. Entropy is a measure of how “special” a particular arrangement of parts is — the lower the entropy, the more “special” the arrangement. Life is “special.”

To illustrate this concept of “specialness,” imagine first a set of red and blue gas molecules, fifty of each say, bouncing around in a room. Which is more likely: (A) that all 50 red molecules will be in one half of the room and all 50 blue in the other half, or (B) that some roughly even mixture of red and blues will be present in both halves? Scenario B, is the less “special” and more likely one, but why? The answer is that there are many ways of arranging the molecules to have “some roughly even mixture” of red and blue — a great many pairs of molecules can be swapped between the halves without making a difference. However, with the perfect red and blue split, if any molecule is swapped with a partner in the other half of the room, then each half gets “contaminated” with one molecule of the “wrong” color — such a swap does make a difference. Hence what we see tends to be an equal mixture of each color, just because there are vastly many more ways of seeing an equal mixture.

Now I can state the notion of entropy precisely — the entropy of such a set of molecules is a number that is large when there are many ways of swapping pairs of molecules and getting the same overall state, and small when there are few ways of swapping them and getting the same overall state. Explicitly, an entropy S is given by Boltzmann’s entropy law:

S = k log W

Here k = 1.38 x 10−23 joule/kelvin (Boltzmann’s constant), W is the number of ways of swapping the components of a state (say red and blue molecules) without making an overall difference to that state and log W means “the natural logarithm of W” — the power you have to raise Euler’s number (e = 2.718) to in order to get W (for example if W is equal to e then log W is equal to 1, because e to the power 1 is e).

Boltzmann's tomb, with his famous entropy law above the bust

That little equation of Boltzmann’s explains a huge number of phenomena. For example, why do hot things tend to get colder and cold things hotter? Easy — bring a hot thing and a cold thing into contact and it’s like the red and blue molecules all over again — there are many, many more ways for hot molecules and cold ones to get mixed together equally than for them to stay separated into a hot part and a cold part. So the temperature equalizes.

Another example: why do balls bounce lower and lower, but never start bouncing higher and higher? Easy — after they’re done falling, ball molecules are moving more, on average, than floor ones. During each bounce, there are more ways of sharing out this motion randomly amongst the ball and floor than there are of keeping all the faster molecules in the ball and all the slower molecules in the floor. So this sharing out is what happens, and the ball eventually stops bouncing. The opposite case — a ball spontaneously bouncing higher and higher — never happens in practice because it is so unlikely. That’s how you can tell a film is being played backwards; everything that happens is so unlikely that it is never seen to happen in practice. These examples demonstrate the second law of thermodynamics: the total entropy always increases and never decreases because of how incredibly unlikely a decrease is.

What about life and entropy? A living thing has a very low entropy compared to its surroundings, because there are not many ways of swapping its constituent parts and leaving it in an invariant state. For example, swapping molecules between your heart and brain wouldn’t leave you in “an invariant state” — it would kill you! In fact, coming into thermodynamic equilibrium with your surroundings is also known as being dead!

Next question: how is life able to maintain this low-entropy state, in apparent defiance of the second law? Well, life is part of the Earth-sun system. We can regard this as “a closed system” to a very good approximation — a vast ocean of space separates it from other systems. But the Earth alone (plus moon, of course!) is not “a closed system.” The sun — a nuclear fusion reactor — provides the Earth with a constant input of low-entropy “organized” energy in the form of high-intensity photons (particles of light). Plants use this energy to make food which animals (including humans) eat, keeping the low-entropy-maintenance machinery of life running.

The Earth-sun (plus moon) system, of which the human economy is a sub-system

Save for a few ocean vent ecosystems, this low-entropy input from the sun makes all life on Earth possible, and hence all human economies (again, whether or not economists pay attention to the fact!). When we humans burn reserves of oil and coal laid down over millennia in a geological eye-blink, we are liberating the low-entropy energy captured from ancient sunlight and buried deep underground.

The second law of thermodynamics has profound implications for our economic systems. A constant stream of low-entropy energy from the sun is required to maintain life’s organized state. Without this “entropy gradient” the machinery of life would soon wind down, like the bouncing balls or mixing molecules did. So in order to prolong life on Earth, we should try to use this vital low-entropy input as efficiently as possible, to recycle it through all sectors of the economy. We should certainly not waste it and assume that we will be able to increase our use of it more and more and more, forever.

Unfortunately, most mainstream economists don’t seem to have heard of the second law of thermodynamics. Perhaps this isn’t really their fault, since it’s not in their textbooks. But it should be. It governs all life and all systems on Earth, including the economy. As our leaders in business and government race to implement misguided economic models that are not founded upon the laws of thermodynamics, and as nation after nation refuses to question the pursuit of never-ending economic growth, we draw closer to a fate that will end in tears for the human race. I worry that the tears have already begun falling.

David A. Jones is a PhD student in theoretical physics at Southampton University in the UK. He writes frequently for the Positive Money blog.

Occupy the G-8

by Brent Blackwelder

This is the text of an address delivered by Brent Blackwelder to the Occupy Movement, in Frederick, Maryland, May 18, 2012 on the occasion of the annual meeting of the G-8 at Camp David.

Terrible economic times are facing billions of people worldwide. Where are the jobs? Roughly half of new college graduates in the U.S. cannot find work. Who’s getting all the money? The gap is widening between the one percent and the 99 percent.

At the same time, the world’s oceans are being devastated by overfishing, forests are being obliterated, mountains are being blown apart to get at the coal, and rivers around the world are being dammed, diverted, and drained of their water. A quarter of the species on the planet are headed toward extinction. Compounding these effects, the earth’s climate is being destabilized by emissions of greenhouse gases.

Driving this fiasco are casino economics, cheater economics, and futureless economics. It’s not a pretty picture. Why can’t we do better? What can we do about it? Are the powerful leaders of the G-8 nations gathered here going to provide the solutions?

If the past record of the G-8 is any guide, promises will be made, the World Bank will be assigned the role of savior, but monetary pledges won’t be fulfilled, and nothing major will happen to shift the status quo.

I propose to you today a bold paradigm shift in our economy — away from the futureless economics, away from the casino economics, and away from the cheater economics that run the global economy. We need an economics for the earth, its people, and all the life on this planet.

I suggest that the Occupy Movement could bring about an economic paradigm shift by adopting the steady state economy as its macroeconomic policy goal. That means an economy with stabilized levels of production and consumption, which means stabilizing population and per-person consumption. It means an economy that operates within the carrying capacity of the Earth and does not threaten present and future generations with its overbearing, bloating size.

Cheater Economics, Casino Economics, Futureless Economics

The global economy treats natural resources as if the Earth were a business in a liquidation sale. The global economic system of today is undermining the life-support systems of our planet.

One major shortcoming of capitalism is that it does not reveal the real ecological costs of commercial products. Furthermore, today’s capitalism allows corporations to externalize the damaging health and environmental costs of their activities. Today’s capitalism also tolerates massive taxpayer handouts to highly polluting corporations.

In the Casino Economy billions in profits are made without providing any goods or services — they are made with complex financial instruments sometimes referred to as derivatives. Complex financial instruments enable the avoidance of taxes. The financial sector in today’s U.S. economy is now about three times as large as the manufacturing sector.

In the aftermath of the big bank bailouts and the passage of the Dodd-Frank law to curtail high-risk lending, JP Morgan Chase recently announced a loss of $2 billion from its risky trading (now the bank says it’s over $3 billion). Hand-in-hand with cheater economics, many huge corporations put their profits in offshore tax havens and escape paying an estimated $100 billion to the U.S. Treasury.

In current economic practice, corporations are evaluated on their quarterly returns. There is little long-range thinking. Mainstream economists tell us 100 years from now is not worth worrying about. (One dollar a century from now is only worth pennies today.)  But such thinking runs counter to the values of most people. Parents are concerned about what kind of world their children and grandchildren will live in.

Futureless economics, casino economics, and cheater economics have no place in a steady state economy. But here are some examples of the damage they cause in the current economic sectors of energy extraction, agriculture, mining, and forestry.

1) Fossil fuels. Extractive industries are going to the most remote and riskiest places, such as the Arctic Ocean, to obtain oil. Uncleanable spills will be the inevitable result. Some of the most biologically diverse regions, such as the tropical rainforests, are being decimated by oil drilling. Oil and gas companies are extracting the dirtiest of fuels, such as tar sands in Alberta, Canada. Coal companies are using techniques like mountain-top removal to get at the coal in West Virginia. In the process they are creating a Martian landscape by obliterating the forested green mountains and destroying the entire hydrologic cycle.

Most extractive industries enjoy substantial handouts from governments. The U.S. is set to provide $110 billion over the next decade to the oil and coal industries. That’s right — some of the world’s richest companies enjoy taxpayer handouts, and some do not even pay income tax.

The health and environmental costs of oil extraction in places like Nigeria over the last 50 years are huge, but oil and gas companies like Shell have not cleaned up the more than 5,000 spills that have wrecked fisheries, polluted drinking water, and harmed the health of local people who have borne the brunt of the contamination.

2) Agricultural lands. Powerful agribusiness giants like Monsanto are trying to patent all seeds and control agriculture from top to bottom. Major meat companies like Smithfield operate gigantic animal factory slums that cause serious water pollution and load the air with noxious fumes that harm people’s health and displace local family farms.  As with fossil fuels, governments subsidize the polluters. Time Magazine showed that some of the biggest animal factory farms receive all sorts of handouts from state and local governments.

3) Forests: the world’s forests are rapidly being destroyed. The U.S. has set a horrible example going back to the 1800s when, for example, the state of Michigan was almost totally deforested. Instead of creating sustainable logging operations for the state, the timber industry abandoned Michigan and kept moving west. After seeing some of the horrendous logging along the West Coast, President Franklin Roosevelt said, “I hope the bastards who did this are roasting in Hell.”

The U.S. Forest Service is notorious for providing “below cost timber” sales in our National Forests. Corruption and bribery characterize logging operations around the world.

Friends of the Earth England and Friends of the Earth Ghana combined efforts to show that lumber in Ghana was being extracted, but taxes were not being paid on the real volume of timber being cut.

4) Minerals. Leonardo DiCaprio’s film Blood Diamond illustrates a typical problem with mining operations that seek gold, copper, diamonds, and other minerals. The use of cyanide to extract gold causes major pollution all over the world. The mining lobby in the U.S. has been so strong that the 1872 Mining Law and its subsidies have not been changed. The “pollute-and-run” practices of the past continue today on steroids.  As with oil, coal, and gas extraction, the damages to health, crops, and the air, land, and water are externalized on the public.

Elements of an Economics for the Earth: A Steady State Economy

There is no magic formula that can move the world to a sustainable, steady state economy. However, by pursuing any of the following actions, countries and localities can move in the right direction and set the stage for a paradigm shift to occur.

1) Get rid of polluter subsidies.  Give subsidies only to clean energy; no more subsidies for fossil fuels, agribusiness, and the like. About half the states exempt pesticides from their sales tax. Senator Sanders (I-VT) and Congressman Ellison (D-MN) have introduced legislation to eliminate all subsidies to the fossil fuel industry — a measure that would save $110 billion over the next decade.

2) Shift to a clean-energy basis for the global economy. It is technically feasible to run the global economy on a carbon-free and nuclear-free basis. Amory Lovins has a new eloquent description of his plan. Arjun Makhijani in Carbon Free, Nuclear Free provides another. California physicists Jacobson and Delucchi offer a slightly different plan in Scientific American (Nov, 2009) as does Lester Brown in World on the Edge.

3) Adopt the measures proposed by Senator Levin on tax dodging. Senator Levin (D-Michigan) is chairman of the Senate’s Permanent Investigation Subcommittee and has exposed a wide range of scandalous tax-dodging activities by corporations in American that deprive the Treasury of over $100 billion annually. A miniscule tax on global financial transactions and on currency transactions would yield hundreds of billions, while forcing players in the casino economy to pay at least something.

4) Change the indicators. The gross domestic product (GDP) is taken as a measure of society’s well-being, but in reality it measures how fast a nation is converting its natural resources into waste. It fails to account for the depletion of natural resources. Some states, including Maryland, have adopted the genuine progress indicator. And Bhutan has adopted Gross National Happiness as a better measure of well-being.

5) Restructure jobs. Adopting a four-day workweek can help reduce unemployment, spread the work, and provide time for people to spend with their families. The clean energy strategies described above would provide vastly more jobs per dollar than the fossil fuel industry. These jobs can materialize from dispersed renewable energy projects while our energy dollars remain in the community.

6. Support local investing. Michael Shuman’s new book Local Dollars, Local Sense: How to Shift Your Money from Wall Street to Main Street provides evidence that local investment does better than Wall Street stock purchases. The book presents a variety of examples of opportunities for investing in local businesses, local banks, and local exchanges. About two dozen studies have shown that such local spending and investments can provide several times as many jobs compared to investments in nationwide business. For example, for every $100 spent in a national book chain about $13 would remain in the local economy, whereas with $100 spent at a local bookstore, about $45 would remain.

Is a steady state economy just an idle utopian dream? Tim Jackson’s report, Prosperity Without Growth, prepared for the UK Sustainable Development Commission, provides a detailed discussion that makes a convincing case. Canadian economist Peter Victor has shown how the transition to a new economy can be accomplished in such a way that per capita income increases, unemployment declines, and poverty decreases.

In a world where propaganda and big money have undermined governance and the media, the Occupy Movement has a vital role to play by confronting decision makers, protesting polluting corporations, calling for an economic paradigm shift, and giving visibility to the paths for a healthier future.

What’s “Rio+20″ and Why Should We Care?

by Brian Czech

For those of us working in ecological and economic sustainability, Rio+20 is a big deal, and in our circles, just about everyone knows about it. Yet we have to wonder, what proportion of the general public has even heard of Rio+20, much less knows what it is? It’s a big question for a forum like the Daly News, where we’re all about mainstreaming sustainability. When we mention Rio+20, do we quickly lose readers who vaguely assume it’s some international, esoteric event with little relevance to mainstream society?

Rio+20 is short for the United Nations Conference on Sustainable Development. It’s a follow-up to the 1992 Earth Summit, which also was held in Rio de Janiero. The biggest environmental conference of all time, the Earth Summit produced the Convention on Biological Diversity, the Framework Convention on Climate Change, and Agenda 21. It was a beacon of hope on a planet in peril.

On the other hand, anarchists, nationalist extremists, and paranoid conspiracy theorists (and Sarah Palin, who warrants her own category) rue the Earth Summit because it evoked a certain level of international governance. It threatened the free world with that S word: sustainability.

The Earth Summit was also memorable for President George H. W. Bush snubbing his nose at the Convention on Biological Diversity, despite its signing by 150 countries and the European Union. He did sign the Framework Convention on Climate Change, but only after it lost its teeth by calling for voluntary instead of mandatory cuts in greenhouse gas emissions. In general, Bush dampened spirits and hampered diplomatic progress. “The American way of life is not up for negotiation,” he iconically announced, and he pitched that classic 90’s win-win rhetoric: “Economic growth provides the resources for environmental protection, and environmental protection ensures that growth is sustainable.”

I am quick to add that, despite explicitly identifying two prominent Republicans above, the win-win rhetoric was far from a partisan project. The Clintons, for example, were fond of win-winning with, “There is no conflict between growing the economy and protecting the environment.”

And the rest is history: decades lost, for the most part, in win-win one-upsmanship when we could have been preparing smartly for limits to growth and the sustainable alternative, the steady state economy. But that’s enough about history. What does Rio+20 offer in its wake? I think it offers perhaps the single biggest opportunity yet for “steady statesmanship” in international diplomacy.

Signs are abounding that the win-win rhetoric is giving way to common sense and sound science. No clearer sign exists than the CASSE position on economic growth and its growing list of signatories and commenters. One long-time conservation leader who recently signed the CASSE position noted, “I’ve been waiting for you for 40 years.” The time is ripe for steady state economics in academia, non-governmental organizations, and public policy.

But it’s not just we at CASSE and our list of signatories who signify a paradigm shift away from the obsession with economic growth. Why, just today the Huffington Post published an interview with Jeff Rubin about his new book, The End of Growth. The title is less noteworthy than the fact that Rubin was chief economist with CIBC World Markets. It seems like almost every day another well-known economist or ex-Wall Streeter is looking limits to growth square in the eye and not flinching. Rubin sees the end of growth as an opportunity for the planet to recover from the destruction inevitably wrought be growth.

These folks have a lesson for mainstream environmental and conservation organizations who can’t kick the win-win growth habit: Better get out of the way as real conservation leadership is coming from elsewhere. History will show that the big conservation NGOs have done us a major disservice by failing to raise awareness sooner — much sooner — of the trade-off between economic growth and environmental protection. To the degree they actively propagated the win-win rhetoric, their legacies will suffer.

I’ve digressed slightly from Rio+20, but only for some context. The proceedings of massive, bureaucratic UN conferences are not always unhitched from reality or relevance. What the various statesmen and women, ambassadors and diplomats are cogitating is the same thing we are: How can we all get along in the world when we know that many countries are consuming resources at a rate that is unsustainable and threatening to others on the planet? And yet those same countries continue calling for economic growth? There’s got to be a better way. Let’s hope the better way is achieved through diplomatic means, and not less peaceably.

Several weeks ago I moderated a session of the UN General Council in New York called “Harmony With Nature.” The session was sponsored by the Bolivian government, whose diplomats were completely understanding of limits to growth, and of the alternative policy goal of the steady state economy. My fellow panelists (including Joshua Farley, Herman Daly’s co-author of Ecological Economics) were aligned on the matter, and I daresay we literally brought “steady statesmanship” into the UN lexicon, or at least the proceedings. The tired old win-win rhetoric was debunked, and the feedback was enthusiastic.

This experience mirrored one from the Eastern Economic Association conference a few years ago, but on a much larger scale. The economists at the EEA conference were very unlike the neoclassical economists that pander to politicians with perpetual growth theories. They got it about limits to growth and the need for a steady state economy. So too with the diplomats from countries not so raveled up with Wall Street. The days of the win-win rhetoric are waning; the world at large is moving on, ready for steady statesmanship.

Are you?

What Is the Limiting Factor?

by Herman Daly

Herman DalyIn yesteryear’s empty world capital was the limiting factor in economic growth. But we now live in a full world.

Consider: What limits the annual fish catch — fishing boats (capital) or remaining fish in the sea (natural resources)? Clearly the latter. What limits barrels of crude oil extracted — drilling rigs and pumps (capital), or remaining accessible deposits of petroleum — or capacity of the atmosphere to absorb the CO2 from burning petroleum (both natural resources)? What limits production of cut timber — number of chain saws and lumber mills, or standing forests and their rate of growth? What limits irrigated agriculture — pumps and sprinklers, or aquifer recharge rates and river flow volumes? That should be enough to at least suggest that we live in a natural resource-constrained world, not a capital-constrained world.

Economic logic says to invest in and economize on the limiting factor. Economic logic has not changed; what has changed is the limiting factor. It is now natural resources, not capital, that we must economize on and invest in. Economists have not recognized this fundamental shift in the pattern of scarcity. Nobel Laureate in chemistry and underground economist, Frederick Soddy, predicted the shift eighty years ago. He argued that mankind ultimately lives on current sunshine, captured with the aid of plants, soil, and water. This fundamental permanent basis for life is temporarily supplemented by the release of trapped sunshine of Paleozoic summers that is being rapidly depleted to fuel what he called “the flamboyant age.” So addicted are we to this short-run subsidy that our technocrats advocate shutting out some of the incoming solar energy to make more thermal room for burning fossil fuels! These educated cretins are also busy chemically degrading the topsoil and polluting the water, while tinkering with the genetic basis of plants, all toward the purpose of maximizing short-run growth. As Wes Jackson says, agricultural plants now have genes selected by the Chicago Board of Trade, not by fitness to the ecosystem of surrounding organisms and geography.

What has kept economists from recognizing Soddy’s insight? An animus against dependence on nature, and a devotion to dominance. This basic attitude has been served by a theoretical commitment to factor substitutability and a neglect of complementarity by today’s neoclassical economists. In the absence of complementarity there can be no limiting factor — if capital and natural resources are substitutes in production then neither can be limiting — if one is in short supply you just substitute the other and continue producing. If they are complements both are necessary and the one in short supply is limiting.

Economists used to believe that capital was the limiting factor. Therefore they implicitly must have believed in complementarity between capital and natural resources back in the empty-world economy. But when resources became limiting in the new full-world economy, rather than recognizing the shift in the pattern of scarcity and the new limiting factor, they abandoned the whole idea of limiting factor by emphasizing substitutability to the exclusion of complementarity. The new reason for emphasizing capital over natural resources is the claim that capital is a near perfect substitute for resources.

William Nordhaus and James Tobin were quite explicit (“Is Growth Obsolete?,” 1972, NBER, Economic Growth, New York: Columbia University Press):

The prevailing standard model of growth assumes that there are no limits on the feasibility of expanding the supplies of nonhuman agents of production. It is basically a two-factor model in which production depends only on labor and reproducible capital. Land and resources, the third member of the classical triad, have generally been dropped… the tacit justification has been that reproducible capital is a near perfect substitute for land and other exhaustible resources.

The claim that capital is a near perfect substitute for natural resources is absurd. For one thing substitution is reversible. If capital is a near perfect substitute for resources, then resources are a near perfect substitute for capital — so why then did we ever bother to accumulate capital in the first place if nature already endowed us with a near perfect substitute?

It is not for nothing that our system is called “capitalism” rather than “natural resource-ism.” It is ideologically inconvenient for capitalism if capital is no longer the limiting factor. But that inconvenience has been met by claiming that capital is a good substitute for natural resources. Ever true to its basic animus of denying any fundamental dependence on nature, neoclassical economics saw only two alternatives — either nature is not scarce and capital is limiting, or nature’s scarcity doesn’t matter because manmade capital is a near perfect substitute for natural resources. In either case man is in control of nature, thanks to capital, and that is the main thing. Never mind that manmade capital is itself made from natural resources.

The absurdity of the claim that capital and natural resources are good substitutes has been further demonstrated by Georgescu-Roegen in his fund-flow theory of production. It recognizes that factors of production are of two qualitatively different kinds: (1) resource flows that are physically transformed into flows of product and waste; and (2) capital and labor funds, the agents or instruments of transformation that are not themselves physically embodied in the product. If one finds a machine screw or a piece of a worker’s finger in one’s can of soup, that is reason for a lawsuit, not confirmation of the metaphysical notion that capital and labor are somehow “embodied” in the product!

There are varying degrees of substitution between different natural resource flows, and between the funds of labor and capital. But the basic relation between resource flow on the one hand, and capital (or labor) fund on the other, is complementarity. Efficient cause (capital) does not substitute for material cause (resources). You can’t bake the same cake with half the ingredients no matter if you double or triple the number of cooks and ovens. Funds and flows are complements.

Further, capital is current surplus production exchanged for a lien against future production — physically it is made from natural resources. It is not easy to substitute away from natural resources when the presumed substitute is itself made from natural resources.

It is now generally recognized, even by economists, that there is far too much debt worldwide, both public and private. The reason so much debt was incurred is that we have had absurdly unrealistic expectations about the efficacy of capital to produce the real growth needed to redeem the debt that is “capital” by another name. In other words the debt that piled up in failed attempts to make wealth grow as fast as debt is evidence of the reality of limits to growth. But instead of being seen as such, it is taken as the main reason to attempt still more growth by issuing more debt, and by shifting bad debts from the balance sheet of private banks to that of the public treasury, in effect monetizing them.

The wishful thought leading to such unfounded growth expectations was the belief that by growth we would cure poverty without the need to share. As the poor got richer, the rich could get still richer! Few expected that aggregate growth itself would become uneconomic, would begin to cost us more than it was worth at the margin, making us collectively poorer, not richer. But it did. In spite of that, our economists, bankers, and politicians still have unrealistic expectations about growth. Like the losing gambler they try to get even by betting double or nothing on more growth.

Could we not take a short time-out from growth roulette to reconsider the steady-state economy? After all, the idea is deeply rooted in classical economics, as well as in physics and biology. Perpetual motion and infinite growth are not reasonable premises on which to base economic policy.

At some level many people surely know this. Why then do we keep growth as the top national priority? First, we are misled because our measure of growth, GDP, counts all “economic activity” thereby conflating costs and benefits, rather than comparing them at the margin. Second, the cumulative net benefit of past growth is a maximum at precisely the point where further growth becomes uneconomic (where declining marginal benefit equals increasing marginal cost), and past experience ceases to be a good guide to the future in this respect. Third, because even though the benefits of further growth are now less than the costs, our decision-making elites have figured out how to keep the dwindling extra benefits for themselves, while “sharing” the exploding extra costs with the poor, the future, and other species. The elite-owned media, the corporate-funded think tanks, the kept economists of high academia, and the World Bank — not to mention Gold Sacks and Wall Street — all sing hymns to growth in perfect unison, and bamboozle average citizens.

What is going to happen?

Toward a New Bretton Woods and a Sustainable Civilization

by Eric Zencey

Early in April, an international community of sustainability theorists and practitioners gathered in New York City at a special High Level Meeting at the United Nations.

Titled “Happiness and Wellbeing: Defining a New Economic Paradigm,” the High Level Meeting brought together 600 participants for the plenary session on Monday, April 2, with 200 invited experts staying an additional two days to form working groups to address key elements of the new economic paradigm. The meeting was called to begin the implementation of UN General Assembly Resolution 65/309, passed last year on unanimous voice vote. That resolution, brought forward by the tiny mountain kingdom of Bhutan and sixty-eight co-sponsoring nations, called for implementation of a dramatically different, more “holistic” understanding of economic development. It specifically rejected the GDP-based approach taken in the past and called for the creation and use of an alternative set of indicators that would more accurately measure human wellbeing. It also authorized Bhutan to call the High Level Meeting to articulate that indicator set, and to create a path toward its adoption.

But the meeting was about more than an indicator set. To decide what you’re going to measure, you have to know what you want to measure, and discussion of that — the ultimate purpose of an economy — subverts a great deal of traditional economic thought. And so the larger purpose of the meeting was to articulate the elements of a new economic paradigm, and to issue a call to world leaders to adopt its fundamental precepts.

The linking of development policy, pursuit of wellbeing, and alternative indicators in a new economic paradigm is a strong step toward establishing a sane and sustainable civilization that focuses on meeting human needs with ecological efficiency. To get there, centuries of infinite-planet economic thinking have to be swept aside. Traditional development theory begins with the idea that some nations are underdeveloped — nations that don’t have a western, industrial, consumerist economy. It also supposes that all the nations of the world want that kind of economy and that they can have it. But all three presumptions are false. No nation on the planet has an ecologically sustainable economy, which means that every nation, without exception, faces a major development problem. Consistent with the principles and practice of traditional neoclassical economics, western-style consumerist development has been predicated on an enormous drawdown of the planet’s stock of stored antique sunlight — oil and coal — which is a finite resource; and it has completely ignored the fact that the planet’s “sink” services — its ability to absorb our effluents, including greenhouse gases, without ill effect — are fixed and finite.

Together these flaws in neoclassical theory mean that development on the traditional model simply isn’t sustainable. America, with just 6% of the world’s population, uses 24% of the world’s annual production of fossil fuels, and similar proportions of other resources, both renewable and non-renewable. A nodding acquaintance with arithmetic is all you need to see that the western model isn’t scalable to the entire planet.

The traditional model of economic development presumes that raising GDP (gross domestic product) is the central purpose of economic policy. Increasingly, world leaders are recognizing that GDP is a poor measure of economic wellbeing, which is itself just part of overall wellbeing. Thus, the High Level Meeting to explore, articulate, and adopt an alternative. Bhutan’s leadership of this movement traces back to its adoption of gross national happiness as a way of measuring economic and social progress. Their use of this broader, more accurate indicator set led them to reject western style development. Faced with a decision about joining the World Trade Organization, government officials did a kind of “GNH Impact Assessment” and found that joining the WTO would diminish, not increase, their country’s wellbeing. The Bhutanese propose that their indicator set could serve as a model for the development of alternative indicators in other countries.

The 600-strong turnout for the plenary session, with many attendees from the UN delegations of member nations, shows that other nations are inclined to agree. What was new and impressive about the meeting wasn’t so much the content of what was said in the plenary speeches; many of us have heard, and have been saying, these things for years. What was new and different was who was saying them. The call for an ecologically sustainable economy that meets human needs is now being issued by prime ministers and former prime ministers, by presidents and secretaries of the interior, by directors of environmental agencies, by high-ranking officials the world over. And UN member nations are listening.

I took to the meeting a white paper on a project I’m involved with in Vermont, where, as a Fellow of the Gund Institute for Ecological Economics at the University of Vermont, I serve as coordinator of the Vermont Genuine Progress Indicator Project. The project brings together stakeholders — state and local officials, academics, leaders of non-profits, community leaders and interested citizens — to develop, articulate, and implement “GPI Plus,” a blending of the genuine progress indicator (one emergent standard among alternative indicator sets) and elements inspired by gross national happiness. The two complement each other. GPI is based on very clear, objective data, and measures physical things like net deforestation, net changes to air and water quality, net change in fertile farmland, and the costs of climate change. GNH is survey-driven and measures satisfaction with life in nine broad categories. Combining the two — using hard data about economic and ecological reality and survey research data about people’s experience — gives a fuller, more accurate picture of the economy’s sustainable, delivered wellbeing.

The Vermont project is moving forward, with a Data Inventory Meeting set for late May. (The first step in building the alternative indicator set is to convene producers and users of relevant data to see what we’ve got, what we can start with.) And a GPI Plus bill is making its way through the state legislature, having gained approval in both houses with minor differences; the Governor has indicated he’ll sign it. The bill commissions the GPI VT project as a state effort, identifies the Gund Institute as the leader, and would guarantee the participation of state agency heads and other officials in the process of development.

At the UN, the working groups that met April 3rd and 4th were tasked with laying the groundwork for a major international summit to be held in the summer of 2014. That meeting, UN officials hope, will result in a “New Bretton Woods Agreement,” a major rethinking and major reorganization of the economic and financial institutions that support the global economy. The Bretton Woods Agreement, signed in 1944, has been modified a bit — gone are the fixed exchange rates of the post-war era, just as Frederick Soddy advised — but it continues to embody an “infinite planet” model of economic development. With this High Level Meeting, the UN has acknowledged that it’s time to revamp our economic thinking and our institutional arrangements in light of the reality that the planet is, in fact, finite.

During the plenary sessions, there was little talk of steady-state economics or limits to growth from the keynote speakers, though the majority of the experts who participated in the working groups are well aware that the only sustainable foundation for the economy is a steady-state throughput that doesn’t increase (and indeed, will need to decrease) ecological footprints. I was part of a working group in which infinite-planet financing — debt-based money — was discussed. We tagged it as a driver of uneconomic, resource-destroying growth and marked it for change. Other groups entertained even more ambitious ideas: one proposal would simply do away with the $72-billion-a-year advertising industry, on the grounds that its reason for being is morally indefensible and, by the light of any appropriate indicator of well-being, economically dysfunctional: it encourages the planet’s wealthiest consumers to pursue whims and to feel idle wants as crucial needs, while the basic needs of a vast number of humans on the planet go unfulfilled.

Whether and how a New Bretton Woods Agreement will address the monetary system as a driver of uneconomic growth and environmental degradation remains to be seen. The nations of the world are on a learning curve, and how far along that curve they can be brought in two years will depend on how well the message is communicated — and on the kind of resistance that’s raised by beneficiaries of the current system, who can be expected to throw their considerable financial resources into an effort to stymie change. Ultimately our unsustainable global economy harms all humans, everywhere, now and yet to be born; but in the short term the harms do not fall equally. As I’ve argued elsewhere, on a finite planet, an infinite-planet financial system works as a pump, sucking money, wealth, and quality of life from the middle and lower classes and delivering it to the well-to-do. Kleptocracy — rule by thieves — is the technical name for it. History offers no examples of kleptocracies that withered away of their own accord.

No, success in bringing about a sustainable economic system won’t come simply as a result of the real-world lessons the planet will continue to offer us, as our infinite-planet system repeatedly crashes into non-negotiable, physical limits. It will come from a successful reframing of crisis as symptomatic of a need for dramatic and far-reaching change, and from mustering enough political power to implement that change.

Stay tuned.

Eric Zencey is a Fellow at the Gund Institute for Ecological Economics at the University of Vermont, visiting faculty in architecture and urban planning at the Sam Fox School of Design and Visual Arts at Washington University in St. Louis, and Visiting Associate Professor of Historical and Political Studies in the International Programs of SUNY Empire State College.

A best-selling novelist, he is also the author of Virgin Forest: Meditations on History, Ecology, and Culture and the forthcoming The Other Road to Serfdom and the Path to Sustainable Democracy, to be published this fall by the University Press of New England.

Negative Externalities Are the Norm

by Rob Dietz

Here’s a crazy but true fact: negative externalities are the norm — not the exception — in our current economic setup. Failure to recognize this fact has created a wild divergence between theory and practice when it comes to managing harm caused by economic activity.

The Backstory

When I was a kid, my family took a one-week vacation each summer. In the middle of August, we always went to the same place — the beach at Nags Head, North Carolina. The trip was a yearly highlight, and I could always tell it was approaching by the heap of towels, beach toys, and fishing gear that would accumulate by the door that led to the garage. On the day of departure, my dad would come home early from work, and my sister and I would wedge ourselves into the backseat of the car, which was already close to full capacity on account of the cooler hogging half of the seat space and the bags of food and sundries on the floor.

I had to steel myself for the ten- to twelve-hour drive from Atlanta to Nags Head. Although fighting for real estate with my sister in the cramped backseat was bad, the boredom of highway travel was worse. But worst of all, both of my parents smoked — Marlboro Lights for mom and Dutchmaster cigars for dad. When one of them would light up, I’d let out an overly dramatic sigh and ask them to open the window. They’d comply by cracking the window ever so slightly, trying to maintain the air conditioner’s advantage in its battle against the late-summer heat of the South. The haze that hung inside the car made it seem like one of those “designated smoking areas” in an airport.

It was a rough journey, but it was well worth it. The Outer Banks of North Carolina held a mystical quality in my childhood mind. It was the land of endless waves, the Wright Brothers, towering dunes, and pirate stories, all steeped in the smells of salt air and sunscreen. When I was eleven years old, something happened to sweeten the deal. My father invited me to attend the early morning fishing expeditions with the men. That was hallowed ground. Prior to the invitation, I had been relegated to the inspection crew. I’d wait for the crusty fishermen to return at mid-morning from their trip to the secret fishing hole, and I’d rush to the car when they arrived to survey their catch, which often included speckled trout, croaker, flounder, red drum, bluefish, and spot.

That invitation was the start of improved relations between me and my dad. We developed a better understanding of one another through the easy conversations that fill the downtime during a slow morning of fishing. We also developed a shared attachment to place — a mostly unspoken appreciation for where we were and what we were able to do there. Like many other fathers and sons, I bonded with my dad during the simple act of throwing a line in the water and hoping to catch a fish.

The Negative Externality

Arrrrgggghhhh!!!!

I get visibly upset when I see a sign that warns about the dangers of eating a fish caught from a given body of water. A fish consumption advisory has an uncanny ability to launch me into a scathing diatribe. Really? Have we become so reckless and so complacent that we accept polluted waters and toxic fish — that our best course of action is to stick a warning sign in the ground?

These days I live near the banks of the Willamette River, which tumbles down from central Oregon’s Cascade Mountains and flows gently north to its confluence with the Columbia River in Portland. The Oregon Department of Human Services issues the following warnings about resident fish in the Willamette:

Children 6 years of age or younger should not eat more than one 4-ounce fish meal every 7 weeks.  Women of childbearing age, especially those who are pregnant or planning to become pregnant and breastfeeding mothers, should not eat more than one 8-ounce fish meal per month.  Women past the age of childbearing, children older than 6 years and all other healthy adults may safely consume up to one 8-ounce fish meal per week.

The agency issues these warnings because the fish store dangerous levels of mercury, PCBs, dioxins, and chlorinated pesticide residues in their bodies. Given one word to summarize why these fish are contaminated, I’d say, “externalities.”

The Definition

N. Gregory Mankiw, a prominent professor of economics and textbook author, writes that an externality “arises when a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives any compensation for that effect” (Mankiw, Principles of Economics, Fourth Edition, p. 204). So a negative externality occurs when an economic activity produces harm, and the people suffering from that harm receive no compensation. A good synonym for “negative externality” is “side effect” — an unintended but unmitigated consequence.

Toxic fish in the Willamette River are the result of externalities from a host of economic activities, including mining, electricity production, farming, manufacturing, and urban development. These activities (at least the way we do them today) generate pollution, a cost that is externalized by the polluters, and that pollution finds its way into the river and into the bodies of the fish. As a result, I’m less inclined to fish in the Willamette, less inclined to take my daughter fishing there, and less likely to have the same bonding experience with her that I had with my dad.

The Theory for Managing Externalities

Economists tend to cast negative externalities as an unfortunate, but fixable, part of the market economy. The standard suggestion for fixing them is to impose taxes on externality-producing activities. For example, burning coal in a power plant causes mercury pollution. The cost of this mercury pollution is externalized by the power company and born by society (e.g., those of us who want to go fishing with our children). If the government places a tax on the amount of coal burned, the power company will burn less, and depending on the size of the tax, the government can force the power company to internalize the full costs associated with burning coal (assuming we can put a cost on the pollution, and that’s a BIG assumption).

Another possible fix is to arrange for the polluter to compensate those who bear the cost of the pollution. In the example of the power plant causing mercury pollution, the power company would pay compensation to my family (in theory, the compensation should be equal to the dollar amount at which my daughter and I value the experience of catching clean fish from a clean river). The compensation acts in the same way as the tax to internalize the costs for the polluter.  In an economics textbook, you’d see something like the following diagram, which shows how supply shifts in response to a tax.

MSB = marginal social benefit; MPC = marginal private cost; MSC = marginal social cost. A tax or compensation scheme moves supply from MPC to MSC, which increases price and lowers the quantity supplied.

Theory and Reality Diverge

The theory sounds good, but it rarely makes its way into reality. In the market, as firms work to maximize their profits, they strive to maximize revenues while minimizing costs. A sure-fire way to minimize costs is to externalize as many of them as possible. In practice, if a corporation wants to minimize the costs of environmental protection, it can move its operation to a nation with lax environmental laws. It can do the same or find various “innovative” ways to avoid paying other costs, while passing them on to the rest of society. In the context of today’s economic game, this is a sound strategy. If the objective of the game is profit maximization, then a winning player will externalize as many costs as possible.

As corporations have gotten better and better at this game, they have accrued higher and higher profits, and gained more and more influence. This influence often extends into the legislative bodies and regulatory agencies that could, in theory, prevent the inefficiency and injustice associated with negative externalities. It has become politically challenging, to say the least, for a government to place an externality-correcting tax on a corporate activity.

What about the other path proposed by economists — the path of compensation? This path falls apart for several reasons when trying to make the leap from the classroom to the real world. First and foremost, a profit-maximizing firm has a strong incentive to avoid paying such compensation. Even if a “good corporate citizen” wanted to pay compensation, it would be taking a risk — its competitors would be able to charge a lower price and potentially outcompete it in the quest for market share and profits.

Second, think about the complexity of tracing a negative externality back to its source. In the case of the river and fish, many economic entities have played a role in causing the pollution. Which ones should offer compensation? Which people should receive compensation?

Third, compensation may do very little to solve the problem. Even if the power company offered me monetary compensation, I’d still be upset that I can’t take my daughter fishing. I’m one of those people (the 99% in my estimation) who would rather have a modest income coupled with full opportunities for health and happiness, instead of a huge income coupled with degraded environmental and social conditions.

The Real Solution

In today’s cultural setting, my parents never would have smoked in the car on our trip to Nags Head. The external costs of their habit (i.e., increased odds of health problems for their children) have become much more present in the public consciousness. The dangers of secondhand smoke are now well known, and smoking, especially around children, has become frowned upon. Cultural change, therefore, can play a role in curbing negative externalities, but it is often slow to arrive and incomplete. For example, when society got fed up with the worst cases of water pollution (e.g., rivers catching on fire), the culture of environmentalism generated the political will to pass new water quality laws. Over the years, the cultural change and laws have prompted big improvements to water quality, but we still have plenty of waterways that are unsafe for swimming and fishing.

So the question is “What can we do besides wait for the culture to evolve?” For starters, let’s stop viewing externalization of costs as a small flaw that can be fixed with a few taxes or minor governmental interventions. It’s a huge flaw that’s built into the system. And that means we need to change the system.

In the boardroom, instead of working to minimize private costs, business leaders need to be working to minimize social costs. It doesn’t strengthen the economy or society when a company inflicts long-term environmental or social harm to maximize short-term profits. The game needs to be revised, therefore, to free businesses from this constraint of profit maximization. A vast accounting infrastructure exists to measure profits — there are rules, highly paid accountants, and entire corporate departments dedicated to counting up revenues and costs. But there is no such infrastructure for counting up a firm’s social and environmental impacts. We need to rethink the basic model of commerce to prevent and clean up the negative externalities that flow from today’s model.  This rethinking process is more important now than ever before — negative externalities are piling up and becoming increasingly threatening (e.g., global warming) as nations and corporations continue their pursuit of unending economic growth on our finite planet.

I hope we can speed up the cultural shift and change the economic framework. I really want to go fishing with my daughter.

Environmental Heroes Can Inspire Economic Reformers

by Brent Blackwelder

Each year in April, the Goldman Environmental Prizes are awarded to six activists, one from each of the six inhabited continental regions. This year’s winners have overcome tremendous odds and threats to their lives to lead effective protests and carry out brilliant strategies. The inspiring winners give me hope that, on the economic front, we can energize an enormous protest movement in the United States. The Occupy movement has provided a solid start on opposing the outdated, unfair, growth-dependent economic model — a model that drives unemployment, encourages casino-style financing, enlarges the gap between the super-rich and the rest of society, and sucks the blood from the life-support systems of the planet.

This year’s prize winners hail from Russia, Argentina, China, and Kenya. Their stirring stories offer ideas for those of us who want an economic paradigm shift — we can employ the same kinds of energetic activism and protests that have worked on tough environmental problems worldwide.

In Russia Evgenia Chirikova initiated what started as a typical conservation battle to save the federally protected Khimki ancient forest near Moscow from a proposed superhighway. Notwithstanding efforts by authorities to suppress the movement, the first rally drew 5,000 people. Subsequent beatings of journalists and activists did not deter the campaign, and a year ago, the effort mushroomed into record-size protests against Vladimir Putin. Chirikova’s small, but courageous conservation battle turned into a general referendum on the Russian government and its leader.

In Argentina, Sofia Gatica, a mother whose baby died as a result of pesticide poisoning, organized a successful “Stop Spraying” campaign against the indiscriminate aerial spraying of dangerous chemicals on soybean fields. Gatica mobilized local women to tabulate the illnesses that were plaguing their communities, and they found cancer rates 41 times the national average. Their campaigns and protests against powerful companies like Monsanto and DuPont led to a big victory in the Supreme Court, which outlawed aerial spraying near homes.

The odds of one person in China successfully challenging thousands of water polluters may seem miniscule, especially given governmental suppression of protests. Yet Ma Jun exposed over 90,000 pollution violations by Chinese and multinational companies. The exposure empowered citizens to demand justice. Ma Jun then went after leading transnational corporations for refusing to clean up their supply chains. When the Apple computer company failed to respond, Ma organized a “Poison Apple” campaign that, after a year and a half of organized protest, forced the company to clean up the polluting components of its supply chains.

 The world’s largest desert lake in Kenya is under threat from a massive dam upstream in Ethiopia. Ikal Angelei, a brave woman using the slogan “We won’t be silenced,” has led the effort to save Lake Turkana, a World Heritage Site. This effort also seeks to provide protection and justice for the more than 100,000 people who depend on the lake. The fate of this boondoggle has not been determined, but the protests have convinced major banks to refrain from funding this mega-dam.

The economic transformation agenda of the Center for the Advancement of the Steady State Economy is connected to the battles just described because the global economy facilitates and finances these environmental debacles. Current economic institutions largely disregard the destruction of natural resources and the depletion of fisheries, neglect the rights of the poor and tribal peoples, undervalue the natural world, fail to exercise precaution when dealing with toxic materials, and undermine the well-being of future generations. The grow-at-all-costs mentality that dominates in both the halls of government and the boardrooms of businesses is distorting the way we value human life, our own communities, and natural ecosystems around the world.

To hasten the switch to a steady state economy, we need to emulate the Goldman Prize winners and generate effective protests and mobilizations. For those times when it seems overwhelming to overhaul the economy, we can look to people like Evgenia Chirikova, Sofia Gatica, Ma Jun, and Ikal Angelei. They have shown us that the biggest changes in society can originate from humble beginnings.

The Titanic Code

by Dave Gardner

One hundred years ago April 15, the Titanic disappeared beneath the icy waters of the North Atlantic. Several have marked this anniversary by noting the similarities between the Titanic and human civilization. In Titanic: The Final Word with James Cameron, on the National Geographic channel, James Cameron, director of the blockbuster film, Titanic, aptly turned the event into metaphor:

Part of the Titanic parable is of arrogance, of hubris, of the sense that we’re too big to fail. There was this big machine, this human system, that was pushing forward with so much momentum that it couldn’t turn, it couldn’t stop in time to avert a disaster. And that’s what we have right now.  We can’t turn because of the momentum of the system, the political momentum, the business momentum.*

The metaphor is remarkably apt, as the size of the Titanic meant it was not nimble. It could not stop or turn on a dime. The captain needed to look far ahead on the horizon and plan ahead. Doesn’t that sound like the predicament in which civilization finds itself? We have built up an increasingly complex system, and it is a ginormous one (7 billion served), touching all corners of the planet. It’s impossible to change overnight. And looking ahead with only a short time-horizon serves it very poorly.

There’s something else keeping us from changing course, however. It is lack of desire. Our culture is not interested in a course correction because we’re distracted. We don’t see the iceberg ahead because we’re fixated on a cultural story that defines progress as growth, and growth as progress. This worldview has led us to develop a system that depends on everlasting growth.

Fortunately, when Mother Nature says, “enough,” key parts of the system begin to fail. I say fortunately because it’s hard to argue with success. As long as this system appears to be serving most of us well, we are not likely to throw it out. The failure of the system, which we’ve begun to experience, is our best hope for motivation to get moving toward a more enlightened arrangement.

“We’ve written a narrative that was fine in the nineteenth century.  It served us well through much of the twentieth century… but it’s outdated.  And we now need a new cultural narrative.”

— William Rees, ecological economist, in GrowthBusters

In the documentary, GrowthBusters, I refer to perpetual growth as our “operating system,” comparing it to Windows or Mac OS. The belief, the dependence on, and the pursuit of growth are what we’re all about. It’s the computer code that manages everything we do. Many call it our cultural narrative. If we were on the bridge of the Titanic, it would be in our charts, affecting our compass, on our radar. It informs (or misinforms) everything we do.

Without a doubt there are economists, sociologists and activists developing patches for this growth-based operating system. There are also scientists and activists developing apps that help us lighten our load on the planet. Renewable energy, water and land conservation, permaculture, and transit-oriented development are all examples of what I would call improved software applications, but they are still written to run on our old, growth-based operating system. With a system committed to everlasting growth, they will not keep our civilization from running off a cliff.

This is not to disparage them; it is to keep us from relaxing, thinking they will enable our civilization to become sustainable. They can be meaningful parts of a completely new system. But we do have to throw out the old system and start with fresh computer code. Upgrading from Windows 7 to Windows 2013 won’t do — Windows has to go.

“Only the prospect of worldwide mind-change gives me hope for the future.”

— Daniel Quinn, author of Ishmael

Changing our cultural narrative is a tall order. In my film, Paul Ehrlich says, “We’re faced with a gigantic challenge that we haven’t been prepared for, either in our genetic evolution, or more importantly, in our cultural evolution.” I believe it’s the biggest challenge our civilization has ever faced. Who can we call? I’d love to say, just call GrowthBusters. After all, the film is my biggest contribution to the change we need to make.

But this challenge is too big. The film takes only the first step, which is to raise awareness that we have a culture that worships growth everlasting, and to help audiences realize it’s not delivering on its promise. I see the role of storytellers like Daniel Quinn, Dave Foreman, Richard Heinberg and myself as one of preparing our fellow human beings to be receptive to the completely new computer code that steady staters, transitioners, de-growthers and others are developing.

The time is now. The pieces are falling into place. The old system is crashing. We’re not able to reboot and get back to the business of robust growth. It will be key that we don’t rush in with patches or rely only on new apps. We must be relentless in our insistence on adopting a new operating system.

*Thanks to Joe Romm of ThinkProgress for alerting me to Cameron’s words.

Dave Gardner is the director of the non-profit documentary, GrowthBusters: Hooked on Growth, currently screening around the world. CASSE executive board members Brian Czech, Herman Daly and Peter Victor appear in the film. This commentary was published simultaneously here, as part of a series honoring the 40th anniversary of The Limits to Growth. Dave asks that you take his Pledge to Think Small to help speed adoption of a new operating system.