Towards a Steady-State Economy

ecological economics
H
erman Daly is recognized as a pioneer in Environmental & Social Economics, and I’ve reviewed his work in these pages before. Recently he submitted a paper “Toward a Steady-State Economy” to the UK government’s Sustainable Development Commission outlining and explaining the 10 public policy steps needed to achieve such an economy. The whole paper is essential reading for those wanting an understanding of the current economy, why it is not sustainable, and what is required to make it so. The 10 steps in a nutshell (I’ve altered and added to his words to explain technical terms):

  1. Use cap-auction-trade systems for basic resources (energy, wood and other raw materials). Set caps according to source (scarcity of resources) or sink (waste produced in using the resources and loss of carbon absorption) constraint, whichever is more stringent. In other words, cap the maximum amount of usage of each natural resource at levels that are sustainable, and then allow the market, by auction, to determine how to allocate that maximum amount of usage by setting the price where the demand is greatest.
  2. Institute ecological tax reformóshift the tax base from value added (labor and capital) and on to ìthat to which value is addedî, namely the entropic throughput of resources extracted from nature (depletion), through the economy, and back to nature (pollution). This internalizes external costs and raises revenue more equitably. It prices the scarce but previously unpriced contribution of nature. In other words, tax ‘bads’ (depletion, pollution and waste) not ‘goods’, by lowering social and income taxes and taxing extraction and pollution instead.
  3. Limit the range of inequality in incomeóset a minimum income and a maximum income. Without aggregate growth poverty reduction requires redistribution. Complete equality is unfair; unlimited inequality is unfair. Seek fair limits to inequality. The minimum, he argues, should be sufficient for a comfortable life; the maximum probably not more than 100 times the minimum.
  4. Free up the length of the working day, week, and yearóallow greater option for leisure or personal work. Full-time external employment for all is hard to provide without growth. In today’s automated world, there is no need for everyone to work all day every day to produce a comfortable living for everyone. I have argued before that one day a week, or one hour a day, should be all that is needed; most of our labour is wasted in bureaucracy, hierarchical politics and the production of junk.
  5. Re-regulate international commerceómove away from free trade, free capital mobility and globalization, and adopt compensating tariffs to protect efficient national policies of cost internalization from standards-lowering competition from other countries. This is not an argument for reducing trade, but rather for eliminating the component of trade that exploits weak social and environmental standards and unsustainably low long-distance transportation costs.
  6. Reduce and amend the authority of the IMF-WB-WTO, to something like Keynesí plan for a multilateral payments clearing union, charging penalty rates on surplus as well as deficit balancesóseeking balance on current accounts, and avoiding large capital transfers and foreign debts. Instead of being an ideological force for globalization and deregulation at any costs, it would become an arbiter and a check on reckless and unsustainable national policies.
  7. Move to 100% reserve requirements instead of fractional reserve banking. Return control of money supply and purchasing power to governments rather than private banks. This step is designed to curb irresponsible lending and borrowing practices, speculation and currency devaluation, and allow elected bodies to manage fiscal and monetary policy, not private sector parties with an inherent conflict of interest.
  8. Move all remaining publicly-owned natural capital (the ‘commonwealth’ of land and resources) to public trusts ‘priced’ at their true value, while freeing from private ownership the ‘commonwealth’ of knowledge and information, making it free. Stop treating the scarce (natural capital) as if it were non scarce, and the non scarce (intellectual capital) as if it were scarce.
  9. Stabilize population. Work toward a balance in which births plus immigrants equals deaths plus out-migrants.
  10. Reform how we measure and manage national well-beingóseparate GDP into a cost account and a benefits account. Compare them at the margin, stop ‘growing’ the economy when marginal costs start to exceed marginal benefits. Never add the two accounts. This reflects the fact that many economic activities (e.g. the clean-up of the Exxon Valdez disaster) actually add to GDP, and that hence GDP is not in any way a meaningful measure of economic prosperity or well-being.

It’s an interesting list, but Daly has acknowledged that he’s not optimistic that governments and those who would have to cede power to achieve these policy changes will ever voluntarily agree to such economic (and political) reforms, or that they could collaborate and do so even if they were so inclined. I share his pessimism. People with wealth and power simply don’t give it up without a fight, and I know of few governments that would have the heart for such an ‘unpopular’ fight.

Nevertheless, even though it’s probably impossible, it’s interesting to know what we would haveto do, top-down, to achieve a truly sustainable global economy.

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3 Responses to Towards a Steady-State Economy

  1. Dave Pollard says:

    BTW, thanks to The Oil Drum for publishing this paper.

  2. All good ethics. However, I think that in many respects, the approach is 180º reversed from what would be effective.I think there’s an engine that’s missing which would make all of these hopes and dreams work properly – which undergird these models. Let me draw up an analogy. Think about children being raised by parents. It is not cool to raise children in a way which involves a rule-bound, authoritarian style of parenting. Rather, you have to help those children come into their own – and pursue their own aspirations and visions for their lives. The ethics you teach them are for their own benefit. Their lives will be better, if they live them ethically. Government regulation can often become like the authoritarian parent. In the usa, folks revere “the free market” – because it’s more like allowing people to put together their own future with their own hands, and with their own vision.Another idea I was writing about today elsewhere on the net was the idea that government should be designed not to take a place in a heirarchy where it controls a society – but instead it should be facilitating those people in that society. Ideally, government ought to be a small thing. Really, a society does what it does day in and day out with government as a peripheral thing. People themselves interact with eachother, and go about their daily lives – and those actions are the fabric of that society. How often does government come into the picture? Not often. So, an image that came to mind today for me is the idea of a hand and a glove. The glove is made to fit the hand… and the best kinds of gloves don’t get in the way of folks’ dexterity. So here, I envisioned an ideal government being like a glove upon the hand of the society. The society is the important thing, and the government is tailor made to fit the needs of that society.So, a summary of my thoughts is that one has to work to nurture one’s society; you have to work to further the self-interest of the people ofthat society. And you have to encourage people and facilitate their pursuit of the hopes and dreams which would fulfill them.I really condensed my thoughts here, Mr. Pollard, because I realize you probably will understand what I’m saying here, and how it refers to the thrust of your weblog entry, and to the thrust of Herman Daly’s essay. This is not a comment which is pressing some disingenuous simplistic idea. Yes, I am talking in generalities, but this generality I’m bringing up I think provides some good contrast to your thrust. It’s a major concern of mine when I see a person such as yourself who has these amazing ideas, and yet I notice that the approach he is proposing would not be effective, in my estimation.My suggestion is that if intellectuals such as yourself would strategize to create a mainstream media organization in Canada, you could teach ethics, and provide ideas about sustainable economies. I think that media would be a better avenue for helping your society, than trying to get your government to institute policies which regulate actions.

  3. Meryn Stol says:

    Thanks for the heads up. You’re back to making sense again.

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