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Herman Daly on how to start moving towards a sustainable economy

by Migeru Tue Dec 13th, 2005 at 02:20:37 PM EST

In a recent thread, rdf pointed out an excerpt, entitled  Steady-state economics, in which Herman Daly criticises "growth economics".

When I complained that the excerpt's sub-title A Catechism of Growth Fallacies was a more apt description of the content of the article, as it did not contain any description of what steady state economics should be like, or how to get there from here, rdf replied that I should read Daly's books to get the whole picture.

Fortunately, in the speech Daly gave on the occasion of his retirement from the World Bank, there are some hints about how to start moving in the right direction. I suppose now I need to get ahold of one of his books to get an idea of what his vision of the steady state economy is, but I think I have a reasonable guess already. Anyway, that's a topic for another diary.

Daly's speech is excerpted below the fold, as a taster and to kick-start debate.


After six years at the World Bank and having at 55 finally reached the age of both reason and early retirement, I am now returning to academia-to teaching, researching, writing-and chasing after grants. While I am happy about that, I also feel a sense of loss at leaving, especially because I think the Bank will become, and is already becoming, much more environmentally sensitive and literate. It is also, of all places that I have worked, the one where I have had the best colleagues. The person who more than anyone else has fought for the environment in the Bank for over fifteen years is Robert Goodland. Trying to help him, Salah E1 Serafy, and others, to "green the Bank's economists" has been a high privilege and sometimes even fun. It is also unfinished business. The Vice Presidency for Environmentally Sustainable Development in its first year, under Ismail Serageldin's leadership, has been the most encouraging step forward during my time here. When the critical areas of population and energy are brought under the domain of ESD, it will be even more encouraging.
External Issues: Advice for Fostering Environmentally Sustainable Development

I have four prescriptions for better serving the goal of environmentally sustainable development through World Bank policy and action. The four prescriptions are presented in order of increasing generality and radicalism. That is, the first two are fairly specific and should, I think, be relatively noncontroversial. The third will be debated by many, and the fourth will be considered outrageous by most Bank economists.

#1. Stop counting the consumption of natural capital as income. Income is by definition the maximum amount that a society can consume this year and still be able to consume the same amount next year. Thus sustainability is built into the very definition of income. But the productive capacity that must be maintained intact has traditionally been thought of as manmade capital only, excluding natural capital. We have habitually counted natural capital as a free good. This might have been justified in yesterday's empty world, but in today's full world it is anti-economic. The error of implicitly counting natural capital consumption as income is customary in three areas: (1) the System of National Accounts; (2) evaluation of projects that deplete natural capital; and (3) international balance of payments accounting.

#2. Tax labor and income less. and tax resource throughput more. In the past it has been customary for governments to subsidize resource throughput to stimulate growth. Thus energy, water, fertilizer, and even deforestation, are even now frequently subsidized. To its credit the World Bank has generally opposed these subsidies. But it is necessary to go beyond removal of explicit financial subsidies to the removal of implicit environmental subsidies as well. By "implicit environmental subsidies" I mean external costs to the community that are not charged to the commodities whose production generates them.
#3. Maximize the productivity of natural capital in the short run, and invest in increasing its supply in the long run. Economic logic requires that we behave in these two ways toward the limiting factor of production -i.e. maximize its productivity and invest in its increase. Those principles are not in dispute. Disagreements do exist about whether natural capital is really the limiting factor. Some argue that manmade and natural capital are such good substitutes that the very idea of a limiting factor, which requires that the factors be complementary, is irrelevant. It is true that without complementarily there is no limiting factor. So the question is, are manmade capital and natural capital basically complements or substitutes? Here again we can provide perpetual full employment for econometricians, and I would welcome more empirical work on this, even though I think it is sufficiently clear to common sense that natural and manmade capital are fundamentally complements and only marginally substitutable.
#4. Move away from the ideology of global economic integration by free trade. free capital mobility. and export led growth-and toward a more nationalist orientation that seeks to develop domestic production for internal markets as the first option. having recourse to international trade only when clearly much more efficient.
It seems a little silly, but I think it is true that just be changing the way we count the wealth of an economy and shifting the tax burden around (without changing its aggregate amount) one could really create the necessary financial incentives to make the economy less wasteful and less damaging to the environment. So, it is all up to the accountants to do it, and to the economists to convince politicians that that is the right way to count one's wealth. Note, in particular, that Daly seems convinced that such changes in accounting and taxation would be noncontroversial among World Bank economists. One can always hope...

Display:
Measurement tends to be the key distorting factor in most systems. People optimise whatever they are measured on to the exclusion of all else. I think Daly is correct to say that for as long as natural capital is unvalued our market structures will continue to waste natural capital whenever it saves manmade capital.
by Metatone (metatone [a|t] gmail (dot) com) on Tue Dec 13th, 2005 at 02:31:18 PM EST
Yes, forget about morality or religious principles: just change the accounting.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Dec 13th, 2005 at 02:36:09 PM EST
[ Parent ]
In fact, if the history of political thought is any guide, as soon as you change the accounting there will be a plethora of economists ready to argue that that is the best of all possible worlds, that it follows from natural law, and that if you squint you can read it between the lines in Adam Smith.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Dec 13th, 2005 at 03:05:32 PM EST
[ Parent ]
I recently came across this series of lectures by Daly:

http://www.feasta.org/documents/feastareview/daly.htm

I'm in the middle of "For the Common Good" having just completed "Beyond Growth".
Beyond Growth is shorter, available in paperback (I got mine used on Alibris) and, I think, still in print. They seem to cover pretty much the same topics.

I'm still stuck on the question of how to get people to be less selfish now to benefit people in the future that we won't be around to know. Appeals to morality and religious principles don't seem to me to cut it in these days of runaway greed.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Tue Dec 13th, 2005 at 02:32:07 PM EST
I'm still stuck on the question of how to get people to be less selfish now to benefit people in the future

People notoriously discount the Future when making financial or economic decisions.   The only way I know how to actually affect people today is raising the price of goods until they cover the long-run ecological costs.  This would have to be an extra-Market (i.e., 'A Tax') addition to the producers market price.  

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Wed Dec 14th, 2005 at 12:14:34 PM EST
[ Parent ]
Migeru.. it is not naive, it is just right.

Changing the way you count things is one of the most fundamental issues on any culture. what to count, how to count, etc...

I doubt you can change the way of counting without changing the structure. But you can change the present structure slowly and changing the way you count things makes any small change in the structure a fixed state sooner.

So, you are not naive .. you are right.. and some of the ideas in this list make a lot of sense... just needs a little shift in the paradigm first. Shift and consolidate.. and there is no consolidation without changing the way you count things... (there is no newton laws without differential calculus.. although it is not true strictly ... the language fixed the theory.. differential calculus fixed Newton laws...same would work here).

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Tue Dec 13th, 2005 at 03:16:03 PM EST
Some people would call it feigning naïveté, but I prefer to call it Socratic irony.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Dec 13th, 2005 at 03:26:33 PM EST
[ Parent ]

There is no such thing as a non-trivial 'Steady-State' dynamic system.  

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Wed Dec 14th, 2005 at 12:27:23 PM EST
How about a Bénard convection cell?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2005 at 01:18:47 PM EST
[ Parent ]
This I know from nothing.

Does it have a Strange Attractor?  (Using "have" in a loose way.)

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Wed Dec 14th, 2005 at 02:39:34 PM EST
[ Parent ]
Imposing a tax now to preserve resources in the future requires the same type of non-selfish behavior that is so hard to come by. That's why every time politicians have a surplus which they want to put into a "rainy day" fund people come forward and demand a tax cut now instead.

"Steady state" is mostly my term not Daly's. He prefers "Sustainable Development". This means there would be qualitative improvements but not quantitative increases in the size of the economy. There would also be internal changes with some people or sectors getting richer and others poorer during various periods of time.

On a slightly different topic:
There is a thread right now on Dailykos started by bonddad about holding some sort of Yearly economic blogosphere meeting. He is looking for ideas. People here seem to be a good source of these, so why not contribute.
Here is the link:
http://www.dailykos.com/story/2005/12/14/91228/020


Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Wed Dec 14th, 2005 at 02:12:09 PM EST
Just to be clear: An 'Ecological Tax' is the only way I know which, of course, means there may be another/other way/ways.  Actually implementing such a tax would, as you say, require an (dramatic?) increase in non-selfish behaviour on the part of a good many people to make it politically feasible.  I don't think it's possible to achieve such an increase - so we agree here too.  What makes it worse, from my perspective, is with Global Climate Change looming even the most selfish egotistic pig should support the tax. Sigh

'Ack' the terminology.  I'll have to find out what is meant by "qualitative improvements" before I can be intelligent about it.  So, I now shut up. :-)

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Wed Dec 14th, 2005 at 03:18:09 PM EST
[ Parent ]
Germany does have an ecological tax, on all sources of energy.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu Dec 15th, 2005 at 06:59:30 AM EST
[ Parent ]
Tough, when the Greens (the party base by vote on the 1998 election programme) originally demanded 5-Mark-the-litre petrol (= €2.556; for comparison record achieved 2 October 2005: €1.379), it halved their poll numbers.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu Dec 15th, 2005 at 07:10:49 AM EST
[ Parent ]


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