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---December 3, 1998---
SUSTAINABLE DEVELOPMENT, PART 4
Sustainable development means achieving human well being without exceeding the Earth's twin capacities for regeneration (trees and water, for example) and for waste absorption (carbon dioxide, for example). As we have seen in recent weeks (REHW #624, #625, and #626), there is growing evidence that humans have already exceeded both of these capacities and that further growth in throughput (making more stuff using more energy) will only make things worse. Of course, increasing efficiency (making more useful things with fewer materials and less energy) can buy us a short reprieve. But it appears that we are approaching (or have already exceeded) the Earth's limits for handling many kinds of wastes. Sooner rather than later total throughput (measured as the total number of humans multiplied by their furnishings and the energy they require) must soon decline or we face a harsh future with (for example) more big, costly storms and more poisoned wildlife and people. Recall that hurricane Mitch just killed over 10,000 people and devastated several national economies.
To bring human economic activity into line with Earth's limits, we will need to understand the forces that are pushing us in wrong directions. Chief among these is the drive toward "free trade," according to economist Herman Daly.[1,2] If there is one thing that most economists, politicians, and business leaders agree on, it is the desirability of free trade. Daly, on the other hand, says free trade undermines environmental standards, drives down wages, weakens our capacity to do better, and undermines our sense of community.
Free trade is the absence of barriers to international trade. There are three common barriers: tariffs, quotas, and restrictions on the flow of capital. A tariff is a tax on goods coming into a country --for example, a tax on Egyptian cotton imported into the U.S. A quota is a limit on imports --for example, the U.S. might accept only a certain number of Japanese automobiles. A third limit on free trade might restrict the amounts of foreign capital that could flow into a country. For example, in response to its recent (and ongoing) financial crisis, Malaysia is now severely restricting the amount of foreign capital that it will accept.
Almost all traditional (neoclassical) economists favor free trade. Among economists, free trade has taken on the character of a religious faith, its power to do good unquestioned. Among traditional economists, Herman Daly is viewed as a heretic. He believes free trade is bad for everyone (except transnational corporations) for the following reasons:
** Free trade tends to lower environmental and social standards internationally. Take the example of two nations: One nation internalizes environmental and social insurance costs to a high degree (enforcing strict environmental laws; providing benefits such as health care and social security). The second nation refuses to internalize these costs --providing no social security, and throwing toxic waste into its rivers. Products from the second country will sell for less and will tend to drive competitors in the first country out of business. Thus there is a clear conflict between a national policy of internalizing environmental and social insurance costs and a policy of free trade. The country that exploits its environment and its citizens is rewarded. The country that protects its environment and its citizens is penalized.
Of course if we had a world government to enforce environmental rules and minimum standards for human well being, this problem would disappear. But no such government is in sight. Furthermore, the world's economists cannot even agree on how to measure the costs of environmental degradation; the vast majority of economists continue to account for depletion of natural resources as if it were income --a preposterous and wrongheaded accounting practice that is nearly universal. (Any business that treated depletion of its assets as income would be bankrupt in short order.)
One solution would be a tariff on goods imported from countries that refuse to internalize environmental and social insurance costs. Such a tariff would aim not to protect an inefficient domestic industry but to protect an efficient national policy of setting prices to reflect the full costs of maintaining community.
** Wage levels are set mainly by population size and growth rates. Countries with large populations, rapidly growing, tend toward low wages. This is especially true because the laboring class tends to have a much higher birth rate than the owning class, often twice as high. Labor is the main cost in most consumer goods. Therefore, cheap labor means low prices, creating an advantage in trade. Capital therefore tends to move to low-wage countries. Herman Daly believes that the effect of unrestricted capital mobility is the same as the effect of unrestricted labor mobility. If the U.S. had unrestricted borders, we would enjoy endless cheap labor, but wages would plummet. Unrestricted capital flow will have the same effect, Daly says. "United States capital will benefit from cheap labor abroad followed by cheap labor at home, at least until checked by a crisis of insufficient demand due to a lack of worker purchasing power resulting from low wages," Daly wrote in 1996.
Daly's words have a special resonance today when Asian economies have been devastated by overcapacity for cars, chemicals, and electronics. As Louis Uchitelle of the NEW YORK TIMES wrote recently, "In an open-border global economy nearly every car manufacturer, for example, is trying to have a presence in every market. But when all the factories crank out more cars than people can buy, down come car prices. Down go the profits of car companies. Out go the workers. And down go the number of people who can afford to buy cars. Economies can spiral downward toward recession, or worse.... The global economy appears, in effect, to be capable of self-destruction."[3]
The problem of uniformly low wages could be solved by maintaining low population growth everywhere, plus a fair distribution of benefits, plus policies to internalize the costs of environmental protection and social insurance. But even if all this were achieved, Daly says, free trade would still be harmful:
** Free trade and free capital mobility separate the ownership and control of businesses, and force labor to become mobile --both of which undermine human community. "Community economic life can be disrupted not only by your fellow citizen who, though living in another part of your country, might at least share some tenuous bonds of community with you, but by someone on the other side of the world with whom you have no community of language, history, culture, law. These foreigners may be wonderful people --that is not the point. The point is that they are very removed from the life of the community that is affected significantly by their decisions. Your life and your community can be disrupted by decisions and events over which you have no control, no vote, no voice."[4]
** Daly believes that free trade and free capital mobility have created economic instability by permitting huge imbalances in international payments and capital transfers resulting in debts that are unrepayable or excessively burdensome. Efforts to pay back loans while still meeting domestic needs have fostered government deficits and high inflation rates, furthering instability. Inflation then takes an additional toll: currency devaluations, foreign exchange speculation, repudiation of debts, and bank failures. Thailand, South Korea, Malaysia, Indonesia, the Philippines. Who is next?
** Free trade appears to loosen the constraints of the ecosystem, but this is a false picture. We must all live within the absorptive and regenerative capacities of the ecosystem. Trade allows us to import environmental services (including waste absorption) from elsewhere. Within limits, this makes sense. New York City cannot grow its own food and must import it from elsewhere. But, Daly says, free trade leads to a situation in which every nation is trying to live beyond its own absorptive and regenerative capacities by importing these capacities from elsewhere.
It requires 12.6 acres of land per person (5.1 hectares) to create the flows of materials and energy needed to maintain an American lifestyle, and Europeans require nearly as much. But if you divide all the good land on Earth by the present human population, you find there are only 3.7 acres (1.5 hectares) available per person. This tells us that everyone on Earth will never be able to enjoy the hedonistic lifestyle to which we are accustomed.[5]
Secondly, if you divide all the good land in the U.S. by the current U.S. population, you find that we have only 6.9 acres (2.8 hectares) per person. This means each of us is "borrowing" 12.6-6.9=5.7 acres (2.3 hectares) of someone else's land to maintain our lifestyle.[5] (Is this one reason why we spend $250 billion each year --5 times as much as any other country --maintaining our armed forces?)
Thus we in the overdeveloped north face a number of uncomfortable moral realities: with at least a billion people not getting sufficient food calories each day to maintain subsistence, they require economic growth --not merely development --to meet their needs. Yet growth is already stressing the planet's capacity to regenerate itself and absorb our wastes. It appears that the overdeveloped north will have to stop growing (and perhaps shrink) before the south can take its rightful place at the world's table.
Daly acknowledges that the roots of this problem are much deeper than free trade ideology. But, he says, "The point is that free trade makes it very hard to deal with these root causes at a national level, which is the only level at which effective social controls over the economy exist.... [T]he unit of community is the nation --the unit in which there are institutions and traditions of collective action, responsibility, and mutual help, the unit in which government tries to carry out policies for the good of its citizens...."
Daly favors not free trade but regional trade among national communities that share similar community standards regarding wages, welfare, population control, environmental protection, and conservation. "True efficiency lies in the protection of these hard-won community standards from the degenerative competition of individualistic free trade, which comes to rest only at the lowest common denominator," he writes.[2,pg.235]
Today a growing movement of workers, environmentalists, consumers, farmers, and social activists worldwide is urging an alternative to the destructive practices called "free trade." Instead of free trade, they are promoting fair trade. Fair trade is a concept developed in the U.S. (and elsewhere) in the 1940s. Fair trade is international trade based on bedrock principles: workers are paid a fair wage--whenever possible not a minimum wage but a family-sustaining livable wage; the business unit is the cooperative or producer association; raw materials are locally derived and managed in a sustainable fashion; fair trade organizations respect the cultural identity of their trading partners; and they insist on public accountability for their business operations.[6] Different. Very different.
--Peter Montague
SUSTAINABLE DEVELOPMENT, PART 3
When Adam Smith published THE WEALTH OF NATIONS in 1776, the world was essentially empty from a human perspective, with fewer than one billion human inhabitants.[1] At that time, the planet had abundant "natural capital" of all kinds --for example, highly-concentrated metallic ores, oceans full of fish, continents covered with trees to absorb carbon dioxide from the atmosphere, and mysterious substances like petroleum oozing out of the ground spontaneously. The world of 1776 was short of HUMAN capital --techniques for extracting minerals from the deep earth, ships to catch fish efficiently, and machines to turn trees into lumber, for example.
Now, says economist Herman Daly, the situation is reversed.[2] Increasingly, natural capital is scarce and human capital is abundant.
** Today there is no shortage of huge ships to sweep nets through the oceans to harvest fish --but the fish themselves are disappearing.
** Chemical factories are abundant, producing a cornucopia of useful chlorinated chemicals, but there is a shortage of natural mechanisms to detoxify and recycle such chemicals. As a result, the entire planet is experiencing a buildup of chlorinated toxicants and scientists are discovering new harmful effects in wildlife and humans each year.
** Only recently, scientists concluded that the ecosystem's capacity to remove carbon dioxide from the atmosphere has been exceeded because of human activity. As a result, they believe, CO2 is building up in the air, pushing up the temperature of the planet. We are waiting now to learn the real consequences, but more droughts, floods, and major storms must be expected, we are told.
In sum, natural capital --both sources and sinks --are becoming scarce on a global scale for the first time ever. The Earth is no longer empty. It is full, or nearly so.
Mainstream economists do not worry about shortages of natural capital because neoclassical economic theory assumes that human capital can substitute for natural capital. To a certain limited extent, this is true. When copper becomes too expensive for making telephone wires, we substitute glass in the form of fiber optic cables (which we make by manipulating sand with large quantities of energy and accumulated know-how). However, Daly argues, traditional economists have ignored the extent to which the usefulness of human capital depends upon the availability of natural capital. Daly asks, quite sensibly, what good is a sawmill without a forest, a fishing boat without fish and an oil refinery without oil? In truth, says Daly, natural and human capital complement each other --we need them both to sustain our economy and the natural systems that support us and the other creatures. This may seem obvious to most people, but to many traditional economists it still seems like heresy.
As we have seen (REHW #624), there are two kinds of natural capital --those that renew themselves (e.g., fish, trees) and those that don't, at least not on a human time scale (e.g., copper deposits and petroleum).
How do you "improve" natural capital? Renewable natural capital can be replenished by not using it and by waiting patiently. Fish stocks will replenish themselves if we refrain from overfishing. The same is true of forests. In this new economic perspective, frugality, efficiency, and patience once again become prime virtues. As Daly says, for ecological economists, laissez faire takes on new, deeper meaning.
Somewhere in between natural capital and human capital is "cultivated capital" --fish ponds, tree farms, and herds of cattle, for example. Recent attempts to cultivate natural capital may provide some limited benefits. Tree plantations provide one of the services of a real forest --trees to cut --but they do not replace forest habitat or biodiversity. Fish farms do produce fish but they also require high-protein fish food, antibiotics to fend against disease, and some means of handling concentrated wastes. Clearly, cultivated capital has severe limitations, and it relies on natural capital for its limited successes.
The ultimate experiment in cultivated natural capital --or ecosystem management, as many modern engineers and scientists like to call it --took place between 1991 and 1993 in the desert 25 miles north of Tucson, Arizona. Here, a group of scientists built a complex ecosystem covering 3.15 acres under an airtight glass cover and 8 of them tried to live in it for two years. The materially-closed system --nothing was supposed to go in or out during the two years --was intended to replicate a tiny Earth, complete with ocean, desert, grasslands, and woodlands. The experiment was called Biosphere 2 (the Earth is biosphere 1), and it was a stunning failure. From the beginning the Biospherians encountered "numerous unexpected problems and surprises."[3]
Fifty tons of oxygen disappeared mysteriously from the closed system, reducing oxygen levels to those typically encountered at an altitude of 17,500 feet --barely sufficient to maintain human consciousness. Carbon dioxide skyrocketed to levels that threatened to poison the humans as well. Levels of nitrous oxide --laughing gas --rose high enough to interfere with vitamin B12 synthesis, threatening the humans with brain damage. Finally, oxygen had to be pumped in from the outside to keep the Biospherians from suffocating.
Tropical birds disappeared after the first freeze. A native species of Arizona ant somehow found its way into the enclosure and soon killed off all other soft-bodied insects. As the ants proliferated, creatures as large as snakes had to hide from them or be eaten alive. All seven species of frogs went extinct. All together, 19 of 25 vertebrate species went extinct. Before the two years was up, all pollinators went extinct, so none of the plants could reproduce themselves. Despite unlimited energy and technology available from the outside to keep the system functioning, it was a colossal $200 million failure. The scientists concluded, "No one yet knows how to engineer systems that provide humans with the life-supporting services that natural ecosystems produce for free. Dismembering major biomes [ecosystems] into small pieces, a consequence of widespread human activities, must be regarded with caution.... the initial work in Biosphere 2 has already provided insights for ecologists--and perhaps an important lesson for humanity."[3]
Thus we know that cultivated natural capital has an exceedingly limited capacity to provide the benefits that nature's own natural capital provides. We would be fools to count on replacing nature's bounty with something of our own invention. The Earth is our only home and we must protect it.
Non-renewable capital cannot be "improved" --it can only be preserved. Thus to the extent feasible, our economy should shift over to renewable resources, to be used at a rate set by nature's rate of renewal. Non-renewable resources should be left alone, or they should be liquidated thoughtfully to provide future humans with a stream of income. For example, arguably, dwindling petroleum supplies should be invested in "solar breeder" facilities --factories that make photovoltaic solar cells. The product of such a factory could be used to power the construction and operation of more factories to manufacture more photovoltaic cells, to make more factories to make more photovoltaics, and so on, providing the next generation with a legacy that allows them to tap into the endless flow of the sun's energy.
What public policies might help us make the shift to using renewable resources at sustainable rates?
1) Stop counting the consumption of natural capital as income. (See REHW #516.) Depletion should never be treated as income. It would be like burning the furniture to heat the house, congratulating ourselves on the resulting warmth. It will be short-lived. As preposterous as it may sound, most nations, including the U.S., presently treat depletion of their natural capital as if it were income, so far as national accounts are concerned --a major accounting error. Depletion is a cost, not a benefit. (The same is true of pollution --in calculating Gross Domestic Product [GDP] we count pollution, pollution illnesses, and anti-pollution expenditures as benefits, not costs. This is clearly wrong and wrongheaded but the nation's economists still endorse such a system --a sad commentary on the state of economic "science" today.)
2) Tax labor and income less, and tax throughput more. We will always need governments to
** protect the weak from the strong and tyrannical;
** provide a safety net for those plagued by bad luck;
** protect the commons (such as the atmosphere) from thoughtless or predatory individuals and businesses;
** level the playing field for individuals and businesses (making sure, to the extent possible, that people start life with equal opportunity, and that the competitive envi-ronment for businesses is preserved against monopolies and oligopolies).
The present tax structure encourages businesses to substitute capital and throughput (energy and materials) for workers. Throughput depletes resources and creates pollution, so our tax structure discourages what we want (jobs and income) and encourages what we don't want (depletion and pollution). This is backwards.
After we shift over to "green taxes" --which encourage jobs and income and discourage depletion and pollution --we will still need an income tax but not primarily to provide revenue for government. We will need an income tax chiefly to reduce inequalities in income and wealth because huge inequalities undermine the main goals of a democracy: equal opportunity, a real voice in the decisions that affect your life, and a sense of shared ownership (a "stake") in the community.
3) Move away from the ideology of global economic integration by free trade, free capital mobility, and export-led growth. Instead, move toward a more nationalist orientation that seeks to develop domestic production for internal markets as the first option, embracing international trade only in those instances where it is clearly more efficient.
Herman Daly emphasizes this point again and again: free trade as conceived by the current generation of political and economic leaders will be disastrous because it is destroying the power of national governments to control the destiny of their people. "To globalize the economy by erasure of national economic boundaries through free trade, free capital mobility, and free, or at least uncontrolled, migration is to wound fatally the major unit of community capable of carrying out any policies for the common good," Daly writes.[4] --Peter Montague
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