The Transition from Uneconomic Growth to Sustainability

The Transition from Uneconomic Growth to Sustainability
Changing the Paradigm The Transition from Uneconomic Growth to Sustainability The Center for the Advancement of the Steady State Economy

Outline Definitions The Conflict between Economic Growth and the Environment Theoretical Framework Empirical Evidence Steady State Economy, the Alternative to Economic Growth Policies and Institutional Changes for the Transition Getting Started with the Paradigm Shift

Definition – Paradigm Thought pattern in a scientific discipline
The general definition of a paradigm is a thought pattern in a scientific discipline. Of course it’s up for debate as to whether economics is a scientific discipline, but the term “paradigm” can be applied to a social science or a set of cultural characteristics. Perhaps the most famous example of a paradigm shift is the switch from the Ptolemaic view of the solar system (with the Earth as the central heavenly body) to the Copernican view (with the sun at the center). It is interesting and instructive to note that people are often unaware of the paradigms in which they operate. They can become so embedded in cultural beliefs that questioning them is not tolerated – just ask Copernicus and Galileo! If water is a paradigm for fish, they don’t realize it until they are removed from the paradigm. Proverbial paradigm shift leads to big changes in the scientific worldview

Unrealistic! Growth Paradigm in Economics Ecosystem Economy
Resource extraction Waste products Reality-Based Ecological Economics Model Unrealistic! Ecosystem Economy Resource extraction Waste products Standard Model of the Economy The current paradigm or pattern of thought in the field of economics views the economy as the overarching system and the ecosystem as the subsystem. In this view, it is easy to envision continuing growth. A more realistic view places the economy as a subsystem of the ecosystem. Its growth becomes limited by the extent of the overarching system in which it operates.

Definition – Economic Growth
Increase in the production and consumption of goods and services (typically expressed in terms of GDP) facilitated by increasing: population per capita consumption Not the same as economic development GDP or gross domestic product is a measure of the value of final goods and services produced in a nation. I’ll discuss its utility as a measure of prosperity a bit later. Growth means getting bigger. Development means getting better.

World Population (Millions)
Component 1 – Population World Population (Millions) -10000 -9000 -8000 -7000 -6000 -5000 -4000 -3000 -2000 -1000 1000 2000 The first component of economic growth, population growth, is shown here on a compressed time scale. It is easy to note the huge growth in human numbers that has occurred since the industrial revolution. Viewing population growth on a linear time scale, it is amazing to see just how recent in history this growth has occurred. Even thought it is right there in the graph, this recentness is a hard concept to grasp. We were all born into a world with a lot of people and continuing expansion of our numbers. The situation is reminiscent of the fish in the bowl of water.

U.S. Per Capita GDP (year 2000 dollars)
Component 2 – Consumption U.S. Per Capita GDP (year 2000 dollars) Here is the second component of economic growth – increasing per capita consumption. The upward trend here is pretty obvious. The combination of increasing consumption per person and increasing numbers of people is the stuff of economic growth.

Definition – Uneconomic Growth
Growth of the macroeconomy that costs more than it is worth. Value ($) Marginal Cost Marginal Benefit Q2 V2C V2B V1C Q1 V1B Q* V* The law of increasing marginal costs says that for each additional unit of production, costs get higher and higher. Increasing production uses resources that are of lower quality or are more expensive, so that the cost of producing each additional unit is greater than the previous unit. Take, for example, oil. The earliest production of oil was achieved by digging a small hole in the ground – a fairly inexpensive procedure. Compare that to the costs of extracting a barrel of oil from the tar sands in Alberta, Canada. The law of diminishing marginal benefits says that as one consumes successive units of a good, the additional satisfaction decreases. Q* represents optimal quantity produced, and V* represents optimal price charged. At Q1, producing another unit has more benefit (V1B) than cost (V1C), so the producer will do so. At Q2, unit costs are already higher than unit benefits, so the producer will produce less. The same relationship holds for economic growth. If economic growth is the activity or good we are producing, then producing more growth than Q* is actually uneconomic. The marginal costs outstrip the marginal benefits. Quantity (units produced or consumed)

Definition – Sustainability
Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. Basic human needs and the world’s poor Limits imposed by technology and social organization - Brundtland Commission Weak Sustainability Hold total capital (natural and human-built capital combined) constant. Assumes the two forms of capital are substitutes. Strong Sustainability Hold natural capital constant. Assumes the two forms of capital are complements. Proponents of weak sustainability support economic growth as long as societies are not depleting total capital. So you can draw down natural capital as long as you bring up human-built capital. Does this work? A simple example that supports strong sustainability comes from oceanic fisheries. To simplify, there are two stocks of capital: (1) the fish or natural capital and (2) the fishing boats or human-made capital. As the fishing industry gets going, there are lots of fish and few boats. As fish are caught and sold, additional resources are available to buy more boats. More and more boats means more ability to catch fish. Because of the increased ability to catch fish (increased stock of human-built capital), the industry can liquidate fish populations faster than they can reproduce. Soon there are many boats and few fish. Even though total capital was kept constant, it’s hard to call the situation sustainable. Economic growth converts natural capital into human-built capital and goods and services.

Outline Definitions The Conflict between Economic Growth and the Environment Theoretical Framework Empirical Evidence Steady State Economy, the Alternative to Economic Growth Policies and Institutional Changes for the Transition Getting Started with the Paradigm Shift The theoretical framework for the conflict between economic growth and the environment is based on the principles of physics and ecology. Economists have been trying for years to make economics into a hard science mostly by flexing mathematical muscles. It’s a bit ironic that they tend to ignore some fundamental scientific principles in their analyses.

Thermodynamics First Law of Thermodynamics: Conservation of mass and energy. Second Law: Entropy never decreases in an isolated system. Natural Capital Waste Model of the macroeconomic system that accounts for the laws of physics $$$ Standard model of the macroeconomic system An economic translation of the first law is that we cannot make something from nothing. All economic production must come from resources provided by nature. Also any waste generated by the economy cannot simply disappear. For the second law, although energy and materials remain constant in quantity, they degrade in quality or structure. This is the meaning of increasing entropy. In the context of the economy, whatever resources we transform into something useful must decay or otherwise fall apart to return as waste to the system that generated the resource. Based on these two laws of thermodynamics, the economy operates as a system for transforming low-entropy raw materials and energy into high-entropy waste and unavailable energy, while providing society with interim goods and services and the satisfaction they deliver. Analyzing the basic macroeconomic model, it is apparent that these laws are not part of the equation. There is simply a perpetual flow of products and wages from firms to households with a concurrent flow of labor and consumer spending from households to firms. A more physically correct model shows the linear system from raw materials to waste. In addition the economy is depicted as a subsystem of the Earth as already discussed.

K Competitive Exclusion GDP Time C a r r y i n g C a p a c i t y
Natural capital allocated to the economy Natural capital allocated to nature GDP E c o n o m i c G r o w t h Here we see the economy, its size gauged by GDP, growing in sigmoid fashion toward carrying capacity (K). This growth is a process of reallocating natural capital (such as soil, water, timber, and minerals) from the “economy of nature” with its non-human species to the human economy, where the natural capital is converted into manufactured capital and consumer goods. This process may be summarized in one sentence: “Due to the tremendous breadth of the human niche, the human economy grows at the competitive exclusion of wildlife in the aggregate.” Time

Cover of the Wildlife Society Bulletin
Spring 2000 The Wildlife Society dedicated an issue of its bulletin to this topic, showing how economic expansion occurs at the expense of wildlife habitat and populations.

K Ecological Carrying Capacity Scenarios Individuals Time K-selection
r-selection K K-selection Individuals Animal populations exhibit two basic growth patterns. K-selected species grow exponentially until an inflection point, at which time the population growth rate diminishes until the population levels off at or near carrying capacity (K). r-selected species grow exponentially until they breach carrying capacity, crashing and reducing carrying capacity for some time afterward by causing environmental damage. Time

K GDP Time Economic Carrying Capacity Scenarios K-selection
r-selection K K-selection GDP In terms of growth dynamics, the primary trait distinguishing humans from non-human species is that, with humans, per capita resource consumption varies tremendously among individuals, even by orders of magnitude. Therefore, we cannot simply use the number of individuals in considering the population’s size relative to carrying capacity. We have to consider the size of the economy, or population times per capita consumption as indicated by GDP. Time

Trophic Theory Service Sectors Service Providers
Producers (agriculture, extractive industry) Heavy Manufacturing Light Manufac. Service Sectors Human Economy Primary Producers (plants) Consumers (herbivores) Carn- ivores Service Providers Ecology (economy of nature) Here we see the basic trophic levels in the economy of nature, where the service providers are such things as scavengers and decomposers. One of the principles of ecological economics is that the human economy follows the same natural laws as those governing other species. In the human economy, the producers are the agricultural and extractive sectors. Perched upon them are heavy manufacturing sectors such as steel-making, and at the top are light manufacturing sectors such as computer chip manufacturing. Interacting throughout are service sectors such as banking, insurance, and janitorial services. Without surplus at the lower trophic levels, the upper trophic levels cannot exist. A Nobel laureate in economics was once asked about impending collapse in the agricultural sector and its effects on the economy. He has since retracted his statement, but he said it wouldn’t be a problem since agriculture was a small part of overall GDP for the nation.

Plants Trophic Theory Human Economy Animals Service Providers Service
With Economic Growth Animals Plants Animals Human Economy Service Providers Human-Inclusive Economy of Nature Philosophically, one may not agree with the notion of separating humans from the rest of nature. In that case, one may view the entire enterprise as a “human-inclusive economy of nature,” in which case the plants are the true producers, non-human animals are the intermediate consumers, and humans are the “super-carnivores.” The service providers are a mix of non-human species and human specialists. They include such things as pollinators, soil aerators, and pest controllers. In the context of trophic theory, the process of economic growth entails a sort of “trophic compression,” with the human economy growing, again, at the competitive exclusion of non-human species. Further compression of the foundational trophic levels to grow the human economy is a sketchy proposition, as it has the potential to lead to diminished overall carrying capacity.

Limits to Growth - The Evidence
Source Limits Limits on the quantity of natural resources that are raw materials for the economy. Sink Limits Limits on the ability of the environment to assimilate wastes generated by economic production. Turning to the doom-and-gloom evidence of limits to growth, let’s divide them up into sources and sinks. Here, source refers to the part of the environment that supplies usable raw materials for the economy. Sink refers to the part of the environment that receives the waste flows from economic production and consumption.

Source Limit - Overfishing
Fishing down the food web Overfishing is a good example of a source limit. This graph investigates trends over time in marine trophic level decline. Scientists used to measure trophic level qualitatively (consumers, producers, etc). Now, we can look at it quantitatively by fractional calculation of energy transfer. Mean trophic level is on a scale of Most species at level 5 are threatened and most at 2 are not commercially available. As we have become adept at catching marine fishes, it is the stock of fish that is limiting our ability to produce more and more fish for the dinner table. The natural limits imposed by marine ecology limit the number of fish we can extract from the seas. The societal response to this limit (aside from ineffective policies to conserve stocks) has been to fish lower on the food chain and catch species that were previously considered to have little value. Daniel Pauly, UBC

Source Limit – Resource Depletion
r-selected economy The Rapanui, former inhabitants of Easter Island, provide another example (although a bit gory) of source limits. As their economy expanded, they cut down all the island’s coconut palm, a staple food and fiber resource. An invasive species (rat) may also have contributed to the deforestation. Having exceeded the ecological carrying capacity of the island, their society collapsed, with members resorting to cannibalism. This is a good example of an r-selected economy.

Sink Limit – Climate Change
Climate change is a sink limit. As we’ve burned fossil fuels to drive economic growth, we’ve begun to reach atmospheric limits to absorb the wastes. NASA’s James Hansen wrote this in a paper appearing in the journal, Science. “If humanity wishes to preserve a planet similar to that on which civilization developed and to which life on earth is adapted, paleoclimate evidence and ongoing climate change suggest that CO2 will need to be reduced from its current 385 ppm to at most 350 ppm."

Combined Sink/Source Limit
Causes of species endangerment Urbanization Agriculture Water diversions Recreation, tourism Pollution Domestic livestock, ranching Mineral, gas, oil extraction Non-native species Harvest Modified fire regimes Road construction/maintenance Industrial development Top Dozen Causes Species extinctions are a result of bumping up against both source and sink limits. The top dozen causes of species endangerment: 1Urbanization, 2Agriculture, 3Water Diversions, 4Recreation&Tourism, 5Pollution, 6Livestock, 7Mineral/Gas/Oil Extraction, 8Non-native Spp, 9Harvest, 10Modified Fire Regimes, 11Road Construction, 12Industrial Development The list of causes includes the proliferation of the labor force, light manufacturing, and service sectors (urbanization), the agro-extractive sectors (agriculture, livestock ranching, mining, and direct harvest of individual animals (logging is # 13 and just off the list), economic infrastructure (reservoirs, roads), economic byproduct (pollution), a service sector with direct impact on species (outdoor recreation), manufacturing sectors (industrialization), incidental effects (modified fire regimes), and invasive species, a function of international trade and interstate commerce. Czech et al Bioscience 50(7):

Combined Sink/Source Limit
Ecological Footprint Ecological footprint analysis also shows limits in both sources and sinks. The ecological footprint measures how much land and water area a human population requires to produce the resources it consumes and to absorb its wastes under prevailing technology. According to data from the Global Footprint Network, the footprint of all nations exceeded the biological capacity of the planet in the mid- to late 1980s. We’ve been drawing down natural capital to keep the economy growing and accumulating ecological debt. Global Footprint Network

Final Thought on Limits
A challenge from the realm of common sense… Can you cite examples of Earthly things that continuously grow without approaching a limit? Even the biggest of the big have limits.

Alternatives If the economy is not growing, what can it do? Shrink.
Remain about the same size. Option 2 = steady state economy, which is sustainable over the long run. Option 1 = recession or depression, neither of which is sustainable over the long run.

What is a Steady State Economy?
Stable production and consumption of goods and services; Indicated by stable GDP; Stabilized population; Stabilized per capita consumption; Stabilized throughput; and Constant stocks of natural and human-built capital. The terms stable or constant here imply mildly fluctuating in the short run but exhibiting an equilibrium in the long run. Constant populations of people mean constant stocks of labor. It also has a constant rate of throughput; i.e., energy and materials used to produce goods and services. Within a given technological framework these constant stocks will yield constant flows of goods and services. Technological progress may yield a more efficient “digestion” of throughput, resulting in the production of more (or more highly valued) goods and services.

What’s the Bottom Line? Does a steady state economy mean… Freezing in the dark under a harsh communist regime? Some kind of hippy fantasy about returning to a bygone era that no longer exists? A luddite world where we each farm our own plots of land using nothing but sticks for tools? A steady state economy is not a failed growth economy. Remember the paradigm.

Characteristics of a SSE
Optimal Scale Just Distribution Efficient Allocation Development and High Quality of Life

Optimal Scale Technical: marginal benefits of growth = marginal costs
Conversational: Finding the sweet spot. Applying the Goldilocks principle – not too big, not too small, just right! A Few Elements of Sustainable Scale Elimination of the boom and bust cycle. Restoration of natural capital and ecosystem services. Secure stocks of natural capital. Maintenance and improvement of built capital. In his book Deep Economy, Bill McKibben writes about this sweet spot. He discusses recent developments in happiness research. Beyond a certain level of income (enough to meet basic needs plus some extra for a few comforts), happiness does not increase. According to self assessment surveys, Latin America is one of the happiest regions on the planet, but not nearly the most consumptive or wealthiest in terms of purchasing power.

Distribution with limited inequality
Just Distribution Perfectly even distribution A bit of a skewed distribution Distribution with limited inequality Just distribution is critically important in a steady state economy. People who are too poor will not care about sustainability. If daily life is struggle for basic needs, there’s not much time or energy to consider the future. On the flipside, people who are excessively wealthy tend to consume unsustainably. Also if we accept that the economy cannot grow forever on a finite planet. As growth stops, there is a finite amount of wealth for the inhabitants of the planet. Ethically it is hard to ask the poor to remain poor and suffer deprivation to ensure that future generations do not suffer. A Few Elements of Just Distribution Equitably assigned property rights for common resources. Equal access to the commons. Equitable distribution of common wealth. Limits to private income and wealth inequality.

Market with stewardship of commons
Efficient Allocation No market to allocate goods and services Market with stewardship of commons Unchecked market to allocate goods and services Efficient allocation has been the focus of conventional economic thinking. In fact it has been the focus to such an extent that it has become an end in itself rather than a means to some end. Efficient allocation is the aspect of the economy that markets are good at, at least for certain types of goods and services. A Few Elements of Efficient Allocation Inclusion of non-market values. Evolution of sectors of the economy. Efficient use of capital.

Health, time, prosperity, and community
Development and Quality of Life A Few Elements of Development and Quality of Life High life expectancy. Low infant mortality. Meaningful work and jobs. Increased leisure time. Green technologies and systems. Poverty, illness, and unemployment Health, time, prosperity, and community Over-consumption and liquidation of resources Three nations that are outliers among all the nations of the world in that they have high health-adjusted life expectancy, low infant mortality, and a sustainable ecological footprint (not too big, not too small): Cuba, Panama, and Jamaica.

Herman Daly’s Top Ten 1-5 Employ cap-auction-trade systems for basic resources. Institute ecological tax reform. Limit the range of inequality in income distribution. Shorten the working day, week, and year. Re-regulate international commerce. The cap sets a limit on biophysical scale according to source or sink constraints, whichever is more stringent. The auction captures scarcity rents for equitable redistribution. Trade allows efficient allocation to highest uses. Tax bads not goods. Ecological tax reform shifts the tax base from value added (labor and capital) onto “that to which value is added”, throughput of resources extracted from nature. It raises revenue more equitably, and prices the scarce but previously unpriced contribution of nature. Set minimum and maximum incomes. Without aggregate growth, poverty reduction requires redistribution. Complete equality is unfair; unlimited inequality is unfair. Seek fair limits to inequality. Allow greater options for leisure or personal work. Full-time external employment for all is hard to provide without growth. Move away from free trade, unchecked capital mobility, and globalization. Adopt compensating tariffs to protect efficient national policies of cost internalization from standards-lowering competition from other countries.

Herman Daly’s Top Ten 6-10 6. Limit the scope of the International Monetary Fund, World Bank, and World Trade Organization. 7. Move to 100% reserve requirements instead of fractional reserve banking. 8. Stop treating the scarce as if it were not scarce, and the non-scarce as if it were scarce. 9. Stabilize population. 10. Reform national accounts to be able to measure when growth is economic and when it is uneconomic. Seek balance on current account, avoid large capital transfers and foreign debts. Put control of the money supply in the hands of government rather than private banks. Enclose the remaining commons of natural capital in public trusts, and price them, while freeing from private enclosure and prices the non-rival commonwealth of knowledge and information. Work toward a balance in which births plus immigrants equals deaths plus emigrants. Separate GDP into a cost account and a benefits account. Compare them at the margin. Stop growing when marginal costs equal marginal benefits. Never add the two accounts.

Institutional Arrangements
The Market Employment Regulated banking systems Regulated international trade Stock markets and investments Thriving local economies The Public Sector Governance for sustainability Ecological taxation Competent regulatory agencies The Private Sector Ecologically sound business operations Redesigned corporate charters Limited demand creation The Commons Sector Property rights for commons Trusts for managing the commons The most important thing to note is that our institutional arrangements will have to change in order to alter how the economy operates. For example, the market will need to begin the shift from global scale back to local scale. Businesses in the private sector will need to rework their operations to become ecological sound. Perhaps the biggest change will be the development of a commons sector, responsible for stewarding our common endowment of natural capital.

Changing Perceptions Spreading the information:
We can’t jumpstart a paradigm shift until people know about the new paradigm. Inroads The first text book for college courses on ecological economics came out in CASSE’s position on economic growth was formulated in The centers of power around the world are tied up in economic growth. In fact the support structure of economic growth has been referred to as an iron triangle. An iron triangle consists of a special interest, a supportive political faction, and a professional society. The economic growth iron triangle is especially powerful. The special interest is made up of corporations. The political faction is essentially the entire political community, and the professional society is the collection of mainstream economists. People need information to develop a grassroots campaign to change the power structure. Information is beginning to appear more frequently, but it’s difficult to overcome the powerful messages coming from the power structure.

The CASSE Position Carefully crafted position statement on economic growth. Based on years of study in the fields of ecology and economics. Sanctioned by many leaders in sustainability science. Individual signatures for demonstrating widespread understanding of the conflict between economic growth and environmental protection. Organizational endorsements and adoption of similar positions by professional societies to build a foundation of advocacy.

The CASSE Position The Whereas Clauses
Define economic growth, how it occurs, and how it is measured. Point out that economic growth is a top policy goal, there are limits to growth, and growth has negative effects. The Therefore Clauses Recognize the conflict between growth and the environment. Identify the steady state economy as a positive alternative to growth. Recognize that other nations may still pursue growth to meet needs.

The Steady State Economy
Take a Position! Thank you. Assignments First, if this makes sense to you, sign the position. Second, get 10 individuals or one organization to sign the position. If you need help explaining this stuff, we’ve got brief videos on our YouTube Channel, SteadyStateEcon, and a host of resources on our website, which is frequently updated.

The Transition from Uneconomic Growth to Sustainability

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