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Transformative Common Sense in Vermont

by Eric Zencey

Eric ZenceyChances are that when you hear the phrase “Comprehensive Economic Development Strategy,” you don’t immediately think of dramatic change in the established political-economic order of things. The words don’t seem revolutionary. They certainly don’t call to mind images of furtive guerillas toting rifles or of throngs in public squares using chains and ropes to topple statues. Chances are equally good that unless you hang out with economic development officers or land use planners, you’d have a hard time rounding up a dozen people who’d sit still long enough to hear what a CEDS is, let alone why it might be of interest to them. But despite the dry name, the document recently released by Vermont’s Department of Commerce and Community Development portends a quiet, far-reaching revolution in governance in the Green Mountain State–and perhaps on a larger stage.

The potential for this enormous change is signaled in a short, clear statement from the report’s Executive Summary:

…This CEDS sets out a unique, overarching goal: it proposes to not only grow jobs and wages and increase our Gross Domestic Product, but also to improve the Genuine Progress Indicator (GPI)…by 5% over baseline over the next five years.

With this language, Vermont becomes the first state to make explicit use of an alternative indicator in setting goals for economic development. The commitment to use the GPI in this way places Vermont in the forefront of a growing national movement to integrate the GPI into social and economic policy. Because GDP-based economic development is so wrong-headed, this commitment is a matter of common sense; and yet, because GDP-based economic development is so deeply woven into the substance and texture of our political economy, using basic common sense here is a powerfully transformative act.

The faults and flaws of GDP as a measure of economic progress are well known and don’t need to be repeated in detail here. It was never intended to serve as a measure of economic wellbeing, and one of the largest problems in using it for that purpose is that it doesn’t subtract environmental damage as a cost of economic development. Instead, it simply ignores these losses as externalities–until and unless money is spent to correct them, at which time the remediation of the cost is transformed, as if magically, into an apparent economic benefit. (This is a macroeconomic instance of what is generally called the broken window fallacy.) Negative environmental externalities occur when economic activity exceeds one of the planet’s local, regional, or global source-and-sink limits and thereby imposes harm, damage, cost or loss on innocent third parties–people who neither produce nor consume the goods whose production damages the environment. (Traditional economists don’t talk of “innocent” third parties when they discuss externalities, but the morally charged language is appropriate. Why should it be acceptable for profit-seekers to impose uncompensated loss on the general public?)

Because these externalities have their origin in ecosystem limits, and GDP treats the externalities as if they didn’t exist, it’s fair to call GDP an infinite planet statistic. Brian Czech has argued recently that what GDP measures best is environmental impact. While GDP isn’t a perfect measure of environmental impact—some of the things we consume cause less environmental damage per dollar than others—it seems a decent proxy, since in general it’s true that the larger the economy in GDP terms, the larger its environmental impact.

In contrast, the Genuine Progress Indicator subtracts environmental and other costs from the ledger, giving a more accurate bottom line. In doing so, GPI applies the principles of double-entry bookkeeping to the economy as a whole. The invention of double entry bookkeeping was a crucial to the growth of capitalism; a business can’t stay in business for long if its managers have no idea how its debits stack up against its credits, how its costs compare to revenues. And what’s true at the micro scale is true, in this instance, at the macro scale: because GDP systematically miscounts costs as benefits, we’re about to go environmentally broke–the entire economy may go out of business as climate change and loss of biodiversity bring dramatic, civilization-threatening change.

Mushroom Ecosystem

Economic growth will eventually cost more in ecosystem damage than it brings in economic gains. Photo Credit: Scott McCracken, Cambridge, VT

There is nothing in the Genuine Progress Indicator that says, explicitly, “there are ecological limits to economic growth.” But because it subtracts environmental costs from economic benefits, the GPI is a finite planet indicator that will, if implemented accurately, lead policy makers to this realization. Consistent, accurate compilation of the GPI will make clear that for any given ecosystem, at some point economic growth that is rooted in that system costs more in ecosystem service losses than it brings in economic gains.

This means that there are limits to the amount of economic production the planet’s ecosystems can support. Obviously, that fact has implications for economic development and the policies that promote it. Foremost among those implications is the necessity of abandoning the traditional “jobs and GDP” focus of development policy. As noble as it may be to aim to assure every aspiring worker the dignity of useful work, and as comforting as it is to think that we can continually add to our national stock of wealth by perpetually growing our national income, neither goal can be accomplished forever (or even, arguably, in the near term) through policies that take GDP growth or job growth as their sole and solitary focus. A commitment to perpetual full employment that is not also connected to an effort to limit population growth is at bottom a commitment to perpetual economic growth, a chimerical ideal. And because GDP so badly miscounts costs and benefits, failing to keep them separate, any policy effort that aims solely at increasing GDP is destined to be fatuous.

In announcing a development goal that is couched in terms of the GPI, Vermont has put itself on a path that will lead away from traditional “jobs and GDP” thinking–though the divergence of the two paths is not yet fully clear to policy makers. (Recall that the CEDS document aims not only at improving the GPI but also to “grow jobs and wages and increase…GDP.”) No doubt many of the legislators and policy makers who supported the state’s adoption of GPI as a better accounting system did not and would not embrace the notion that there are limits to economic growth. But the contrast between new-think and old-think, between finite and infinite planet thinking, between promoting sustainable economic activity and continuing the “growth forever, business-as-usual” mindset can only become clearer with time. As awareness of the GPI and its precepts filters into state decision-making processes, Vermont will find itself increasingly led to develop in ways that are sustainable and that do not damage the delivery of ecosystem services to its citizens. That kind of development will give the state a competitive edge in the region and nation, as it lays a foundation for the sustainable, post-petroleum, post-perpetual-growth economy that must come to the entire planet, in one version or another, sooner or later. (After all, the one thing you can know about an unsustainable system is that it won’t last.) Vermont’s policy use of the GPI is transformative common sense that will make that inevitable transition smoother and less disruptive for all Vermonters.

A Shift in the Burden of Proof

by Herman Daly

Preface for Sustainable Welfare In The Asia-Pacific: Studies Using the Genuine Progress Indicator, by Philip Lawn and Matthew Clarke, 2008

It is no small thing to shift the burden of proof. Yet that is what Lawn and Clarke, and their colleagues, have done in this remarkable study. The presumption in the “empty world” has been that growth in GDP is “economic” in the sense that it increases benefits faster than costs, as well as in the sense that this thing we call the economy is getting physically bigger. It was not previously considered necessary to distinguish the two meanings of “economic” growth. Lawn and Clarke have shown that in a large part of today’s “full world” growth in GDP often costs more than it is worth at the margin, and thus should be called “uneconomic” growth. (In this book’s language uneconomic growth occurs after a threshold at which the Genuine Progress Indicator (GPI) levels off or declines while GDP keeps on increasing). Advocates of GDP growth, who generally point to Asia as their best success story, heretofore were never asked to prove that such growth was in truth economic. Now, after the theoretical demonstration that uneconomic growth in the macroeconomy is quite possible, followed by the empirical demonstration that it is in fact often the case, the burden of proof in policy arguments must shift from the shoulders of growth critics to the shoulders of growth advocates. This is quite an accomplishment and needs to be strongly claimed and emphasized.

For many years I have worked with ideas that are used in this book — steady state economy, Index of Sustainable Economic Welfare, contradictions between comparative advantage and international capital mobility, and others. It is a pleasure to see these ideas not only applied, but sharpened and polished as well. Although I have very little knowledge of Asia, I cannot resist recounting one relevant episode out of my limited experience. Around 1992 I was part of a World Bank mission to Thailand. This was at the end of a decade in which Thailand’s GDP had doubled. Now doubling is a big change, and ten years was within the easy memory of most adult Thais. In conversations I began to ask people how much their lives had been improved over that decade. Many said that life had been better ten years ago. I suggested that maybe life always feels better when you are ten years younger. They assured me that they had corrected for that! Some thought things were a little better, but the suggestion that life might be twice as good was considered laughable by all. This experience led me to suggest to my bosses at the World Bank that we finance a study — a scientific survey asking people how much life had improved over the decade in which GDP doubled, and to give the main reasons for their answer. History had given us a unique experiment, and we should take advantage of it and learn something. My proposal was turned down, I think because the World Bank, the prime pusher of growth, was worried that it might learn an “inconvenient truth.” In 1992 the burden of proof was on me. Now, with Lawn and Clarke to appeal to I think the burden of proof will be on the World Bank.

The study I had proposed to the World Bank was to look at what is now called “self-evaluated happiness,” whereas Lawn and Clarke look at a more objective index of welfare, the GPI. Studies of self-evaluated happiness have now come into fashion, and generally support the same conclusions that Lawn and Clarke reach on the basis of more objective data. The finding is that self-evaluated happiness rises with absolute income up to a threshold beyond which increases in absolute income do not increase happiness. The emphasis in these studies is on psychological phenomena of satiation and relative position with its self-canceling effects, rather than biophysical phenomena of rising external costs imposed by a full world. The two approaches are not in conflict but in fact are quite complementary. The fact that they yield broadly similar conclusions regarding the futility of growth to increase welfare beyond a threshold is a devastatingly important point worthy of intense study and reflection. But beware; we may have to conclude that growth is becoming uneconomic and that we need a new principle and new policies by which to organize our separate national commonwealths and their international federation. That is a very big problem. Thanks to Lawn and Clarke for suggesting many specific policies rooted in a clear analysis of that very big problem.

Recession — An Opportunity We Should Not Pass Up

by Peter Seidel

We are currently facing a worldwide recession. Many people cannot find employment, and many things are poorly done or not done at all, because businesses and governments say they don’t have the money to fund them. Political and business leaders keep calling for more growth to get us out of this recession. I am not an economist nor do I have a complete understanding of the economy, nevertheless, like the boy who pointed out that the emperor was naked, I see things that strike me as odd.

Perpetually pursuing growth into the future, in a finite space with limited resources, is impossible. We have already exceeded the level of consumption our planet can sustain. According to the Global Footprint Network it would take 1.5 planets like our own to regenerate all the resources humanity now uses and assimilate our carbon dioxide emissions. If everyone lived like the average American, we would require the resources of almost 5 planets. Instead of growing, we need to scale back. Continued growth is suicide for our species. Now this may sound naïve, but why not employ people who have lost their livelihood to do things that urgently need to be done, and do this in a way that puts us back on the road to sustainability?

In trying to answer this question, more questions rise to the surface. How can we create enough jobs? Where do we get the money to pay for them? By focusing on efficiency, as we now do, and raising worker productivity, workers are continually producing more for each hour worked. Under this current economic system, people must consume more and more (at the same time placing more and more burden on the environment) just to maintain jobs. Outsourcing exacerbates employment problems, requiring even more consumption to make up for disappearing jobs. How will we ever return to earlier levels of employment with the increased efficiencies that businesses have introduced during the recession, and without the reckless spending habits people had before the recession? There are some simple ways to turn this around. We can hire more teachers to reduce class sizes in schools and restore subjects that enrich young people’s lives such as, art, music, and physical education. We can maintain our parks and protect the environment better. Employing more police, inspectors of the products we use, and people to review income tax returns would also help.

Shortening the work week and granting longer vacations would also create openings for unemployed workers, and provide more free time for all. As much of our life is spent at work, work should be less stressful, more enjoyable, something one can take pride in, and be adequately compensated for. In short, we should switch from an economy where we are slaves of the system and are obliged to consume more than we need in order keep it going, to one based on meeting human needs within the capacity of our planet.

Where can we obtain the funds to provide full employment in the kinds of jobs I have just described? Today, large numbers of people who are doing financially well simply don’t want to sacrifice for others or the common good, and there are politicians who tell them they don’t need to. When I was growing up, I was taught that it was the American way to pitch in and help one another when things were tough. Farmers helped their neighbors when their barn burned down, and we sacrificed during World War II by raising taxes and forgoing many things. Now we pass the burdens of war on to the socially disadvantaged (from whose ranks we populate our armed forces) and our children (who will end up paying the costs of war). And today our situation is far worse as we head for environmental troubles that will hurt everyone. A moderate tax increase on those who are fortunate enough to have reasonably paid jobs would solve this problem without decreasing the quality of their lives. Much research has shown that when one has enough to live comfortably, has friends, and is happy with what one does, more money does little to increase happiness. Education would help here.

New goals and mechanisms must be developed that put the long-term welfare of the planet, people, and communities above currently held beliefs and short-term profits for a few. We must replace the gross domestic product (GDP) with an indicator that includes the cost of the depletion of nonrenewable resources, pollution, medical bills, natural disasters, commuting, military expenditures, and crime. By the present means of computation, the more a nation pollutes and spends on cleaning it up, the greater the GDP! Instead we must turn to something like the Genuine Progress Indicator (GPI), which starts with the same personal consumption data that the GDP uses, but then adjusts for factors such as the fairness of income distribution, and adds factors such as the value of household and volunteer work, and subtracts factors such as the costs of crime and pollution. Instead of putting our faith in conventional economists who ignore the reality of the world beyond money and the limits of their models, we should turn to a breed of economists and thinkers now totally ignored by governments and business. Ecological economist Herman Daly, David Korten (President of the People Centered Development Forum), Peter Victor (Professor of Environmental Studies at York University), and Tim Jackson (independent advisor on sustainable development to the UK government) are good examples and have recently written books on sustainable economics.

In recent years, there has been an increasing separation of the control of business from the people and communities who are affected by those businesses. At one time business owners and their employees lived within the communities where the businesses operated, and people consumed the food that grew around them. Today, much business is owned by impersonal organizations headquartered elsewhere, and food comes from thousands of miles away. Such arrangements put people out of touch – it becomes very difficult for them to connect their choices to the consequences of those choices. Decisions tend to be based solely on monetary reasons, without regard to environmental and personal concerns. Corporations have only one obligation: making money for their stockholders without breaking the law. We need to initiate feedback systems and controls that bring environmental concerns and humanity back into business decisions.

To reach sustainability we must bring our economy back to reality. Doing so will require us to decrease human population, take money out of politics, return governments to the people, and free the media from concentrated ownership and corporate control. We need to reorient our goals and values. If the public ceased to admire conspicuous consumption and lavish living, and openly recognized the damage associated with such lifestyles, we could do away with harmful overconsumption and develop lifestyles that are healthy from both an environmental and economic perspective.

If we do not reach a level of sustainability, nothing else matters. I believe that a recession, with the suffering that goes with it, and an increased public awareness of environmental problems like those that we now have, is the easiest time to switch to a sustainable economy. Besides, it could be a seamless way to step beyond our recession into a saner, sounder future. If we do not grasp our current opportunity, when will we do what we must do?