Administrator’s note: I’m honored to feature on GIM an essay by Herman Daly. Dr. Daly teaches at the School of Public Policy at the University of Maryland. Previously, he was a Senior Economist in the Environment Department at the World Bank where he helped develop policy guidelines pertaining to sustainable development. He is a co-founder of the journal, Ecological Economics, and author of many books including Steady-State Economics, Valuing the Earth, and Beyond Growth. He’s received numerous awards including an Honorary Right Livelihood Award, commonly known as the “Alternative Nobel Prize.”
Dr. Daly has often been called the “founding father of ecological economics.” And rightly so.
The following essay is a preview from his forthcoming book, Ecological Economics and Sustainable Development: Selected Essays of Herman Daly. It appears in the section of the book titled, “Issues with the World Bank.” My thanks to Dr. Daly for his permission to post it here on GIM. — JF
I have a short answer and a long answer.
Short answer: My short answer is “No.”
But suppose some of you think the short answer should be “Yes.” My question to you then would be—After you grow your way to an environmentally sustainable world, then what? Would you then be willing to stop growing? Or would you want to keep on growing? Is it a state of the world, or the process of economic growth, that you want to sustain? I think the World Bank wants to sustain growth—that is, a process, not a state of the world. I would like to sustain that subsystem of the world called the “economy” in a state compatible with human well-being. I contend that the attempt to sustain growth will be inimical to that end.
When the economy grows it does not grow into the void, displacing nothing and incurring no opportunity costs. Rather it grows into the finite, non-growing ecosystem and incurs the opportunity cost of displaced natural capital and ecological services. Beyond some point growth in production and population will begin to increase social and environmental costs faster than it increases production benefits, thereby ushering in an era of uneconomic growth—growth that on balance makes us poorer rather than richer, that increases “illth” faster than wealth, and that is likely to be ecologically unsustainable. There is evidence that the US has already reached such a point.
That is my short answer. But it would be more productive to debate the longer, more nuanced, answer.
Long answer: A longer answer requires consideration of three subsidiary questions:
- Growth in what? Exactly what is it that is supposed to be growing when we say “grow our way to an environmentally sustainable world . . .”?
- What is environmental sustainability? Is it just a pair of words that make a rhetorically soothing sound, or does it have an operational definition?; and
- Who is “we.”
Let us consider each question.
Growth in what?—throughput, GNP, or welfare? Let’s take the easy ones first—continual growth in physical throughput in a finite, non-growing, and entropic world is impossible, and beyond some point throughput growth becomes the main reason for environmental unsustainability by overwhelming environmental source and sink capacities. At or before that point throughput growth becomes “uneconomic growth.”
What about growth in welfare? That is easy too.Welfare is a psychic magnitude, not a physical one; an experience, not a thing. Maybe welfare can grow forever, but if it can there is no problem since it is non-physical, and the environment is only disturbed by physical throughput. If welfare can grow forever with a constant throughput that is wonderful. Ecological economists usually call that “development” (qualitative improvement) rather than growth (quantitative increase), but that usage, although authorized by most dictionaries, has not caught on with neoclassicals. Most economists use growth and development as near synonyms, conflating quantitative and qualitative change—two very different things.
What economists usually mean by “growth” is growth in GNP. And GNP is the difficult case—is it physical or non-physical; quantitative or qualitative? It is the conflation of both. GNP is measured in value units. Value is price times quantity—P x Q. Now Q is certainly physical—goods are physical, and even services are always of some thing or some body for some period of time, and therefore have a physical dimension. Relative price changes can reflect qualitative improvement in particular goods, but not for goods in general, since the relative price of all goods cannot increase. The absolute price level could increase forever with a constant Q, but that would be inflation, and I am sure no one wants to count inflation as growth. Economists take pains to calculate real GNP in order to eliminate aggregate changes in P and capture only changes in Q.
Certainly J.M.Keynes, one of the founders of the World Bank, defined the growth of the world economy, to which the World Bank would be dedicated, in physical terms—“by expansion we should mean increase of resources and production in real terms, in physical quantity, accompanied by a corresponding increase in purchasing power.” This is the overwhelmingly dominant meaning of “growth.” We can increase GNP to some extent without increasing throughput, but by how much? Just how tight the coupling is between GNP growth and throughput growth is a debatable question—some (Amory Lovins) think GNP can grow tenfold or more with a constant throughput—that is, a tenfold increase in resource efficiency. I tend to doubt it, to believe that the coupling is tighter than that, but if Amory is right that is fine with me—let GNP grow forever as long as throughput is held constant.
In general ecological economists think the throughput–GNP coupling is relatively tight, while neoclassicals tend to think it is loose. Indeed, neoclassicals frequently omit natural resources altogether from their production functions—implying no coupling at all! The coupling may well be a bit loose at the margin in rich countries, but in poor countries (most relevant to World Bank) the throughput intensity of GNP is likely to remain high for some time, since food, clothing, and shelter are resource-intensive. The Global South needs food on the plate—not 10,000 recipes on the Internet.
The other important growth coupling is the one between GNP and welfare. Here neoclassicals think the coupling is relatively tight, while ecological economists think it is loose, or even non-existent beyond a sufficiency threshold. Beyond that threshold welfare is overwhelmingly a function of relative income, and of quality of social relationships and ecological services, not a function of the absolute quantity of commodities consumed. GNP growth reflects only the last, the least important component of welfare beyond the threshold.
What is environmental sustainability? To be an operational concept it has to be defined in terms of throughput—the metabolic flow through the economy from environmental sources of useful, low entropy matter-energy to environmental sinks for waste, high entropy matter-energy.
Neoclassicals try to define sustainability in terms of non-declining utility between generations. This is a non-operational non-starter for three reasons: first, it is throughput, not utility, that directly impinges on the environment; second, utility is unmeasurable; and third, utility cannot be bequeathed. Even if we could measure utility well enough to judge whether it is non-declining, we still could not pass it on from one generation to the next. As any parent knows you can only pass on things, not happiness. Future generations are always free to make themselves miserable or content with whatever we give them.We do not owe the future their happiness, but we do owe them an intact resource base.
A more reasonable and operational definition of environmental sustainability requires that the throughput be within the regenerative capacities of renewable natural resources, and within the assimilative capacities of natural sinks. For non-renewable resources there is no regenerative capacity, and strictly speaking no ecologically sustainable use rate. However, quasisustainability may sometimes be attained by depleting non-renewables at a rate equal to the development of renewable substitutes.What is bequeathed is not utility, but productive capacity, capital in the broad sense, including especially natural capital. Sustainability means maintaining capital intact, avoiding the mistake of consuming capital and counting it as income.Weak sustainability means maintaining intact the sum of natural and manmade capital on the assumption that the two are largely substitutes. Strong sustainability means maintaining natural capital intact on the assumption that the two categories are largely complements, and that natural capital has generally become the limiting factor. For example, the fish catch is no longer limited by the manmade capital of fishing boats, but by the natural capital of remaining fish stocks and suitable habitats. Efficiency requires that investment should focus on the limiting factor.
We are very far from meeting these sustainability conditions at present, so it may sound utopian even to state them. But it is more utopian to think that we can continue to ignore them, or avoid the issue with non-operational definitions that allow “sustainability” to mean growth forever.
Throughput growth is the problem, not the solution—we will not “grow our way to environmental sustainability” as long as growth means either throughput growth or GNP growth.Welfare growth with constant throughput is all to the good and would help us bear the burden of limiting throughput to a sustainable level. But this is definitely not what economists and the World Bank have so far meant by growth.
Who is “we”? Is “we” both the North and the South? The South only? The poorest of the poor? An average of rich and poor, and if so do we choose the mean, the median, or the mode as our measure of central tendency? I think the World Bank has viewed the problem of sustainable development as mainly a problem for the South. The South has yet to develop, and they are now told to do it sustainably. The North has already developed, and is falsely assumed to be sustainable now that it has reached a developed state and presumably has climbed down the far slope of the “environmental Kuznets curve,” a relationship that has absolutely nothing to do with Simon Kuznets, whose name is used only to lend the patina of credibility to a shaky concept.
Let me end with a multiple-choice question: From the viewpoint of sustainable development, what is the best growth policy for the North to adopt for itself in order to help the South overcome poverty?
a. The North should grow its GNP as fast as possible to provide markets
in which the South can sell its exports, and to accumulate capital to
invest in the South. A rising tide lifts all boats, and it doesn’t matter if
the North grows faster than the South.
b. The North should continue its welfare and efficiency development, but
stop its throughput growth, in order to free up resources and ecological
space for the South grow into—at least enough to eliminate absolute
poverty, and ideally enough to catch up with the North. If the latter is
ecologically impossible, then the North should reduce its throughput.
It is clear that the World Bank has effectively opted for (a), although without, to my knowledge, ever explicitly asking the question. The World Bank should explicitly ask the question. The closest they have come to doing so, I believe, is the question we have been asked to debate today. This is therefore an event worth celebrating!
By the way, the correct answer to the multiple-choice question is (b).
China, although considered a part of the Global South, is replacing the US as the world’s largest absolute consumer of resources, even though per capita consumption is much lower. Therefore the frugality and efficiency of China’s development strategy is even more critical to sustainability than that of the US. However, the rich cannot preach frugality and efficiency to the poor unless they practice these virtues themselves. And the sequence is also important: frugality first induces efficiency second; efficiency first dissipates itself by making frugality appear less necessary. Frugality keeps the economy at a sustainable scale; efficiency of allocation helps us live better at any scale, but does not help us set the scale itself.