The End of Growth: Adapting to Our New Economic Reality (42 page)

The US has also spawned systematic critiques of standard economic theory. Henry George (1839–1897) has been called America’s most important home-grown economist; his writings explored the implications of the principle that each person should own what he or she creates, but that everything found in nature, most importantly land, should belong equally to all humanity.
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Economist Thorstein Veblen (1857–1929) criticized the wastefulness of consumption for status.
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More recently, the book
Small
Is Beautiful
by German-British economist E. F. Schumacher (1911–1977) inspired Bob Swann (an American pioneer of land trusts) to found the E. F. Schumacher Society, which is now the New Economics Institute, one of several US organizations that promote a basic restructuring of the economy according to ecological principles.
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If growth is impossible to sustain, what alternative goal should economies pursue? Herman Daly (who was a student of Georgescu-Roegen) has for nearly three decades advocated a “steady-state economy,” which he describes as “an economy with constant stocks of people and artifacts, maintained at some desired, sufficient levels by low rates of maintenance ‘throughput,’ that is, by the lowest feasible flows of matter and energy from the first stage of production to the last stage of consumption.”
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A steady-state economy would aim for stable or mildly fluctuating levels in population and consumption of energy and materials; birth rates would equal death rates, and saving/investment would equal depreciation.

The goal of a steady-state economy is now being actively promoted by the Center for the Advancement of a Steady State Economy (CASSE), headquartered in Arlington, VA, with chapters elsewhere in the country.
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The president of the organization, Brian Czech, is author of
Shoveling Fuel
for a Runaway Train
(2000).
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In his 2007 book
Managing Without Growth
, Canadian economist Peter Victor presents a model of the Canadian economy that shows “it is possible to develop scenarios over a 30 year time horizon for Canada in which full employment prevails, poverty is essentially eliminated, people enjoy more leisure, greenhouse gas emissions are drastically reduced, and the level of government indebtedness declines, all in the context of low and ultimately no economic growth.”
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Some critics of the steady-state economy concept have assumed that keeping consumption constant would require harsh government controls. However, Daly and others contend that such an economy could flourish in the context of a constitutional democracy with a common-sense mixture of markets and market regulations. Markets would still allocate resources efficiently, but some vital decisions (such as permissible rates of resource extraction and the just distribution of resources, especially those created by nature or by society as a whole) would be kept outside the market.

A few nations and communities are already moving in the direction of a steady-state economy. Sweden, Denmark, Japan, and Germany have arguably reached situation in which they do not depend on high rates of growth to provide for their people. This is not to say these countries have only smooth sailing ahead (Japan in particular is facing a painful adjustment, given its very high levels of government debt), but they are likely to fare better than other nations that have high domestic levels of economic inequality and that have gotten used to high growth rates.

Sweden is now home to a number of eco-municipalities. Inspired by economist Torbjörn Lahti and by Karl-Henrik Robèrt, founder of the Natural Step Movement, these formerly depressed industrial towns have made an official and deliberate commitment to “dematerialize” their economies and to foster social equity.
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Övertorneå, Sweden’s first eco-municipality, saw a 20 percent unemployment rate during the recession of the early 1980s and lost 25 percent of its population (prior to becoming an eco-municipality), but now boasts a thriving ecotourism economy based on organic farming, sheepherding, fish farming, and the performing arts. The town has reached its 2010 goal of being a free of fossil fuels. Hällefors, a former steel town that also suffered from high unemployment 20 years ago, now has an economy based on renewable energy, organic farming, and culinary arts. Other eco-communities exist in Norway, Finland, and Denmark.
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For the world as a whole, the transition from a growth-based economy to a steady-state economy is likely to be far more problematic than the examples in the preceding paragraph might suggest: ecotourism will never be the economic backbone of New York, Beijing, or Mumbai — though organic farming will likely be the main engine for a growing number of smaller communities.

Which raises the question: How do we get there from here? Aside from creating non-debt-based currencies (as discussed above), what strategies could help ease the way toward a healthy post-growth world economy? Herman Daly and other steady-staters advise policies along the following lines:

• A cap–auction–trade (or cap-and-dividend) system for extraction rights for basic natural resources;

• A shift away from taxing income and toward taxing resource depletion and environmental pollutants;

• Limits on income inequality;

• More flexible workdays; and

• The adoption of a system of tariffs that would allow countries that implement sustainable policies to remain competitive in the global marketplace with countries that don’t.

One of the fundamental problems with markets, acknowledged by nearly all economists, is the tendency for businesses to externalize costs (“externalities,” in economic theory, are costs or benefits from a transaction that are not reflected in the price). For example, companies that burn fossil fuels — thereby releasing air pollutants — typically pass the resulting health bills and clean-up costs on to nearby communities, or the nation, or the world as a whole. It is possible to
internalize
such costs through laws and regulations. One strategy is to collect “Pigovian” taxes from businesses equal in amount to their negative, externalized costs to society. Another solution is to define property rights more carefully (e.g., the right of residents in a community to clean air and water) so that efforts to remedy violations of those rights carry legal weight. Many conventional economists believe that such measures will solve the problem of externalities without need for government intervention in markets, but Herman Daly and Josh Farley have argued that in reality such measures are only partly effective, as the interests of future generations are still not taken into account.
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One remedy that Daly and Farley suggest is making the rights of future generations to certain resources, such as to the ecosystems responsible for generating life-support functions, explicit and inalienable.
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Henry George championed the idea of a “single tax” on the use of land (while accepting private ownership of land, he advocated the public capture of all value it generates), with the proceeds shared by society; this was a purist solution to the problems of economic inequality, monopolies, and environmental externalities. A partway measure in this direction consists of levying high taxes on land values. Pittsburgh, PA, did this in 1913 by instituting a high tax on unimproved land held for speculation, and as a result land values there have remained far more stable than in other cities.
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If the government captures any increases in land values, it eliminates speculative demand for land, thus avoiding speculative bubbles and keeping land cheaper for non-speculative uses. Land equity partnerships and land trusts (including agricultural land trusts) are other proven ways to overcome the landlord-tenant dilemma and remove land from the speculative market.
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Futurist Hazel Henderson, author of
Ethical Markets: Growing the
Green Economy
, advises governments to charge a financial transaction tax of one percent or less.
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This would not affect the trades of 99.9 percent of all Americans. But it would put a major crimp in the games that the big boys play. Let the quants use their brainpower to cure cancer rather than to craft complex computerized trading systems that leave society with less than nothing. A small transaction tax could generate over a $100 billion a year from Wall Street — and in the process, bring those ridiculous bonuses and profits back in line with the real economy.
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Henderson also advocates breaking up too-big-to-fail banks and businesses and fostering non-profit community development finance institutions (CDFIs) to address the capital needs of micro-businesses.

To discourage trans-border financial capital flows that exploit the labor and resources of less-industrialized countries, Daly calls for downgrading the IMF and World Bank into mere clearinghouses that collect fees from countries that run both surpluses and deficits in their current and capital accounts. Daly would also remove price barriers to “non-scarce” intellectual capital — including royalty payments to patent holders. Such barriers often prevent less-industrialized countries from developing the renewable energy technologies necessary to bypass fossil fuels.

One final requirement in the transition from a growth economy to a steady-state economy is the reform of corporate law. Corporations enable individuals to pool financial resources to pursue commercial interests under a legal structure that limits liability for employees and investors. In the US, corporations also enjoy the status and rights of legal persons. In effect, this gives them the financial resources to influence public policy, and to exploit people and nature, without moral or legal responsibility. In fact, corporate officers are virtually required by law to place value to shareholders above all other considerations. University of British Columbia law professor Joel Bakan describes the modern corporation as “an institutional psychopath”; in the documentary “The Corporation” (2003), he claims that if the behavior of corporations were ascribed to ordinary people, the latter would be considered to exhibit the traits of antisocial personality disorder. In that same film, former Republican Party candidate for Senate from Maine, Robert Monks is seen remarking: “The corporation is an externalizing machine, in the same way that a shark is a killing machine.”
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The environmental ethic inherent in the corporate legal structure could be summarized as: “Use resources as fast as possible until they’re gone.”

Alternative economists argue that the genuine benefit of corporations (their ability to pool capital to achieve socially useful purposes) could be better achieved through cooperatives — which have a long history of success. Credit unions are cooperative banks; some utilities operate as cooperatives; and there are also housing, manufacturing, and agricultural cooperatives.
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The following seven principles are central to the cooperative movement:

1. Voluntary and open membership,

2. Democratic member control,

3. Member economic participation,

4. Autonomy and independence,

5. Education, training, and information,

6. Cooperation among cooperatives, and

7. Concern for community.
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Cooperatives have the potential to avert overuse of resources by placing other values, including the interests of future generations, ahead of profit. Indeed, the organization “Coop America,” which began as a sort of cooperative of US cooperatives, in 2009 changed its name to “Green America.”

Gross National Happiness

After World War II, the industrial nations of the world set out to rebuild their economies and needed a yardstick by which to measure their progress. The index soon settled upon was the Gross National Product, or GNP — defined as the market value of all goods and services produced in one year by the labor and property supplied by the residents of a given country. A similar measure, Gross Domestic Product, or GDP (which defines production based on its geographic location rather than its ownership) is more often used today; when considered globally, GDP and GNP are equivalent terms.

GDP made the practical work of economists much simpler: If the number went up, then all was well, whereas a decline meant that something had gone wrong.

Within a couple of decades, however, questions began to be raised about GDP: perhaps it was
too
simple. Four of the main objections:

• Increasing self-reliance means decreasing GDP. If you eat at home more, you are failing to do your part to grow the GDP; if you grow your own food, you’re doing so at the expense of GDP. Any advertising campaign that aims to curb consumption hurts GDP: for example, vigorous anti-smoking campaigns result in fewer people buying cigarettes, which decreases GDP.

• GDP does not distinguish between waste, luxury, and a satisfaction of fundamental needs.

• GDP does not guarantee the meaningfulness of what is being made, bought, and sold. Therefore GDP does not correlate well with quality of life measures.

• GDP is “
Gross
Domestic Product”; there is no accounting for the distribution of costs and benefits. If 95 percent of people live in abject poverty while 5 percent live in extreme opulence, GDP does not reveal the fact.
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