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Growth and Laissez-faire

by Herman Daly

Herman DalyHow do you envision a successful economy without continuous growth?

It helps to consider a prior question: how do you envision a successful planet earth without continuous growth? That is easy to envision because it exists! The earth as a whole does not grow in physical dimensions. Yet it changes qualitatively, it evolves and develops. Total matter on earth cycles, but does not grow. Energy from the sun flows through the earth coming in as a radiant low-entropy energy and exiting as high-entropy heat. But the solar flow is not growing. Nearly all life is powered by this entropic throughput of solar energy. There is birth and death, production and depreciation. New things evolve; old things go extinct. There is continual change. There is qualitative development. But the earth is not growing!

The economy is a subsystem of the earth. Imagine that the economy grows physically to encompass the entire earth. Then the economy would have to conform to the behavior mode of the earth because the two would be identical. The economy could no longer grow, and would have to live on a virtually constant solar flow with closed material cycles, approximating a steady state — an exceedingly large steady state to be sure. The economy would have taken over the management of the entire ecosystem — every amoeba, every molecule, and every photon would be allocated according to human purposes and priced accordingly. All “externalities” would be internalized as required by efficient markets, and nothing could any longer be external to the all-encompassing economy. The information and management problem would be astronomical — central planning raised to the thousandth power! Long before such a total takeover of the ecosystem, the human economy and the civilization it supports would have collapsed under the weight of God-like information requirements and managerial complexity.

Submarine

Democracy doesn’t exactly bubble to the surface at the limit of carrying capacity.

Growth all the way to the very limit of carrying capacity has an unrecognized political cost as well. Excess carrying capacity is a necessary condition for freedom and democracy. Living close to the limit of carrying capacity, as on a submarine or spaceship, requires very strict discipline. On submarines we have a captain with absolute authority, not a democracy. If we want democracy, we better not grow up to the limit of carrying capacity — better to leave some slack, some margin for tolerance of the disagreements and errors that freedom entails.

The more obvious political cost of growth is war for access to rival resources — minerals, water, agricultural land, and the remaining commons. The hope that economic growth would mean ever more things for ever more people, and would therefore keep the hounds of war at bay, may have been temporarily credible in yesterday’s empty world, but not in today’s full world.

To arrive at a vision that promises success we must discard some dead-end dreams — not only the “American Dream” of consumerism, but also the mainstream economist’s dream of internalizing all ecological relationships into the monetary accounts of the economy. It is a fantasy to believe that we can devise a rigged market system in which “corrected” prices would tell the whole truth about the opportunity costs of everything in the world, and automatically optimize the scale of the economy relative to the ecosystem, as well as the allocation of resources within the economy. In T. S. Eliot’s words, this is “dreaming of a system so perfect that no one needs to be good.”

To be good includes keeping the economy from overwhelming the containing ecosystem with massive depletion and pollution. The way to do that is to leave most of the ecosphere alone, to limit our absorption of it into the economic subsystem — to keep a large part of the earth ecosystem in natura — as a future source for low-entropy matter/energy inputs and sink for high-entropy waste, and as a provider of life-support services and habitat for other species.

Laissez-faire takes on a new meaning — it is the ecosystem, not the economy that must be “left alone” to manage itself and evolve by its own rules. Of course the ecosystem cannot really be “left alone” because we absolutely depend on it to support life and production. But our rate of use must be confined within the regenerative and absorptive capacities of the ecosystem. The metabolic throughput from and back to nature cannot keep growing without eventually destroying ecosystem services faster than it produces production benefits, thereby becoming uneconomic growth. When the value of costs external to the market overwhelms the value of benefits internal to the market, then it is past time to transfer the privileges of “laissez-faire” from the economy to the ecosystem.

Once the economy is constrained in aggregate scale to stay within the limits imposed by the ecosystem, we could then fine-tune its allocative efficiency by internalizing remaining external costs into market prices. But it is critical to understand that even a perfectly efficient economy with optimal pricing can grow too big for the finite ecosystem to sustain, and once it is too big then improving allocative efficiency within the too-big economy is like rearranging deck chairs on the Titanic.

Efficiency and Entrepreneurship: Key Ingredients for Infinite Growth

by Milton Mountebank

Editor’s note: In order to present a “fair and balanced” point of view, the Daly News occasionally invites Dr. Mountebank (the award-winning economist and originator of infinite planet theory) to write an editorial.

Limits-to-growth ideology often bullies its way into what would otherwise be an astute dialogue about how to grow the economy. It’s easy to understand why. Some people deny the power of perpetual economic growth because of facts like these:

  • There is a finite pool of raw materials and energy resources on the planet;
  • The atmosphere is filling up with carbon dioxide, disrupting the planet’s climate;
  • Billions of people are struggling to get by on less than $2 per day;
  • Natural habitats and the species that inhabit them are disappearing at increasing rates;
  • The world’s oceans contain four hundred dead zones.
  • Debt loads in nations around the world are spiraling out of control.

The ignorant masses who don’t understand infinite planet theory tend to wallow unnecessarily in the muddy bogs of these facts. Even worse, in the hands of certain wrong-headed scoundrels, these facts can be aligned into an enticing argument against the economic imperative of perpetual growth. The counterintuitive heart of infinite planet theory is that ever-increasing efficiency can turn that which seems finite into a limitless reservoir of consumer products. Efficiency enables us to grow the economy forever, to fulfill any consumptive desire that may occur to us, and to keep the flow of products skyrocketing to infinity and beyond.

To illustrate this magical ability of efficiency, consider a case study from the malodorous field of solid waste disposal. Carl Grifter is a genuine garbage entrepreneur. After the financial meltdown and home foreclosure frenzy of 2008 and 2009, Grifter noticed that his local government couldn’t bring in enough revenue to pay the bills. Some people would view such a situation as cause for alarm, but not Grifter. He says, “While other people were out occupying the public squares and wasting their time on protests, I was busy cornering the garbage market.” In a wave of privatization in which the county sold off its public services to corporations, Grifter got in on the ground floor by purchasing the landfill at what he calls “a deep discount.”

Although it’s worth pausing to applaud such a fine example of entrepreneurship, we need to save the real ovation for Grifter’s efficiency innovations. After acquiring the landfill, he undertook a profitability analysis and classified five key processes that affect landfill operations:

  1. Advertisers induce demand for cheap, plastic products.
  2. Factory workers in China produce the needed supply of doodads and gizmos, pack them onto immense cargo ships, and export them to America.
  3. American consumers transfer cartloads of plastic schlock from the colossal aisles of Walmart, Target, and Costco to the colossal holds of their SUVs and the colossal garages of their colossal homes.
  4. Within one year’s time, consumers discard the remains of their original purchases.
  5. Enormous fleets of garbage trucks gather the plastic refuse and deliver it to the landfill where it will break down over the next several geologic epochs.

It’s tough to be more efficient than this!

Any economist can tell you that efficiency is a measure of how quickly and how cheaply a desired outcome can be achieved. Obviously, the more efficient a business, an industry, or an entire economy is, the better off we all are. Grifter combed through these five processes trying to find room for improving efficiency. He says, “It was real tough going. You can’t get any more efficient than those giant cargo ships. And look at how efficient Americans already are at transporting plastic crap to their homes. I was stumped.”

Grifter could have given up at that point. He concedes that at times, he even started to believe that maybe there were limits to efficiency and growth. But you can’t hold down the spirit of a devout growthist for long. He went back to square one and wrote down a simple equation for his business model:

More refuse = more revenue = more profit.

The desired outcome for a landfill business is to import as much refuse as fast as possible. Once Grifter fully understood this fact, he saw the golden pathway to efficiency: cut out the middleman. He says, “What’s the point of waiting an entire year for consumer products to come through the gates of my landfill? I contacted the factories and shipping guys in China and arranged to have the goods delivered straight from the ships.” Now Grifter’s fleet of garbage trucks meets the cargo ships on the docks and delivers products straight to the landfill. He adds, “It’s pretty much the same process as before, but I expedite things and make a killing!”

It’s a win-win-win situation. The first win: Grifter’s corporation earns higher profits, paving the way for growth and job creation. Projecting corporate growth out five years shows that 78 percent of adults in the county will soon be working at the landfill. The second win: with these products flowing straight to the landfill, advertisers and consumers can focus their attention on other useless and superfluous products — a surefire way to establish new branches on the tree of economic growth.

The third win should appease the environmental doomsayers clamoring about the limits to growth. There’s a clear environmental advantage to Grifter’s improvement. For starters, consider the carbon footprint reductions given the shorter travel distance that products take from factory to landfill. And as Grifter notes, “It’s a lot easier to bury the products in our landfill when they’re still in the packaging — there are less pieces of plastic to fold under the dirt, so we can save a lot of energy.”

“Look here,” he says as he points to a table with two identical boxes on top. “These are brand new Salad Shooters.” A big smile marks Grifter’s face as he takes one of them out of its box, picks up a hammer, and shatters the Salad Shooter into a pile of jagged pieces. “Which one of these do you think is easier to bury?”

Grifter’s corporation is a shining beacon of light for where the economy needs to go. Greater efficiency must be our mantra. Just as more efficient power plants and car engines have solved the so-called “problem” of greenhouse gas emissions, so will greater efficiency in the broader economy overcome any so-called “limits to growth.”

Dr. Mountebank is the John Q. Beelzebub Professor of Economics at Fantasia University.

The Green Transition Scoreboard: How to Invest for a Steady State Economy

by Rosalinda Sanquiche

We must take some critical steps if we want to build a truly green economy — a steady state that meets global needs without undermining the life-support systems of the planet.  Clearly we need to move beyond fossil fuels.  We need to scale back the amount of energy and materials we’re consuming, especially in OECD countries.  We need to build a durable infrastructure, supportive of a low-carbon future.  One way to take these critical steps is through smart investments.  With governments stubbornly open to dangerous Industrial Era methods like nuclear power, despite the crisis in Japan, smart investments must come from the private sector.  The good news is that private investors are taking a strong lead, as demonstrated by the most recent update of the Green Transition Scoreboard® (GTS).

The GTS is a tool for tracking private investments in green markets, and the February 2011 update reveals an encouraging $2 trillion worth of investments in the green economy since 2007.  This amount is significant because many studies, computer models and reports indicate that investing $1 trillion annually between now and 2020 can ramp up material and energy efficiencies; reduce the costs of wind, solar and geothermal energy; increase sustainable land use and forestry; and support smart infrastructure, transport, building and urban re-design, all of which are necessary to achieve the green transition to a steady state economy.

The updated numbers for 2010 put global private sector investors on track to reach $10 trillion in investments by 2020!  How can more investments support a steady state?  The key is to spur substantial investment in the right sectors.  It’s a winning proposition, as smart investing can help societies use fewer energy and material resources and provide needed employment opportunities.

The GTS tracks five sectors:

  • Renewable Energy;
  • Efficiency and Green Construction;
  • Cleantech;
  • Smart Grid; and
  • Corporate R&D.

Renewable Energy includes private technology development, equipment manufacturing, and project finance. The Efficiency and Green Construction sector includes new building construction and existing building retrofits. Cleantech is a broad sector, encompassing agriculture, air and environment, energy efficiency, infrastructure and storage, materials, recycling and waste reduction, transportation and water/wastewater. Smart Grid includes companies actually putting smart grids in place, building the infrastructure rather than designing the technology.  Together, these first four sectors account for over $1.8 trillion in investments since 2007.

INVESTMENTS in the GREEN TRANSITION
2007 – 2010

Sector (US $)
Renewable Energy 1,358,937,000,000
Efficiency and Green Construction 282,011,000,000
Cleantech 65,024,042,088
Smart Grid 135,263,000,000
Corporate R&D 163,813,743,000
Total 2,005,048,758,088

Corporate R&D in green transition technologies alone accounts for over $163 billion in investments.  The GTS is the only source of aggregate corporate green research and development investments, specifically tracking R&D dollars for  innovative technologies that reduce the use of natural resources and minimize environmental impacts.

Several subsectors, such as nuclear, biofuels and coal carbon sequestration, have been purposefully omitted either because of controversy or lack of consensus that they will make a long-term contribution to sustainability.

Green technologies often draw on available local resources in a more cost-effective, timely manner than dated technologies of the fossil fuel era.  The GTS was created by Hazel Henderson, president of Ethical Markets Media, as a public service to help develop the green economy, reform market metrics, and provide due diligence worldwide.  Many developing countries where these technologies are of paramount importance lack the resources to compile the data encompassed in the GTS.  To provide this information as widely as possible, the GTS is available to the UN agencies spearheading the UN’s Green Economy Initiative.

To meet the challenge of achieving a sustainable and fair economy, investment funds need to be shifted away from ill-conceived hedge funds and dark pools, and away from sectors that depend on fossil fuels.  A modest goal for global private investment would be to direct 10% of portfolios to companies driving the global green transition. With the data in the GTS, security analysts can update their asset allocation models to highlight green markets.

The future of the economy will be determined by the investments we choose today.  Institutional investors need information like what’s provided by the GTS to make wise decisions.  As Ethical Markets Media continues to improve the Green Transition Scoreboard and as green sectors emerge around the world, investors will play a key role in building a 21st century economy that provides prosperity within the capacity of the planet.

Rosalinda Sanquiche is the executive director of Ethical Markets Media.