Bay Journal

Economist asks: We are growing, but are we more prosperous?

Proponents say steady state economy is healthier and more sustainable for the country and world at large

  • By Tom Horton on January 06, 2012
  • Comments are closed for this article.
The solar panels on the home of Herman Daly, one of the world's leading proponents of a steady state economy, appear to have been installed long before renewable energy was in vogue.  (Dave Harp) Herman Daly, who is credited with coining the term  (Maryland Department of Natural Resources)

Imagine a thrillingly powerful sports car whose speedometer dominates the dash, obscuring gauges that warn of fuel guzzling, overheating, needed maintenance and pollution. Not to worry! If you run into any problems, just keep pushing on the accelerator, the car's designer says.

It's not really a sports car, of course. It's the economy - and the population increase that goes hand in hand with it - that has grown large enough to disrupt nature on scales from global climate change to dead zones in Chesapeake Bay and the nice little woods and farm you used to walk by.

Decades of applying regulation, technology, environmental education and "smarter" growth to this sports car economy have made it less bad for the environment; but its fundamental need for speed, for constant expansion, leaves places like the Chesapeake still far from restored.

As the global economy has doubled in the last few decades, an estimated 60 percent of the world's ecosystems have been degraded, according to the United Kingdom's Sustainable Development Commission. That's not about to end. Growth targets sought by most states and the federal government would keep doubling the economy every 25 years.

What choice do we have? In economic downturns like the one we are in, environmentalists often observe the irony that nature benefits as commerce lags and development projects are postponed. There's less pollution, less land developed, a lower demand for natural resources. But the toll this takes on peoples' jobs and finances only reinforces the notion that we must "grow or die."

But what if there is an economic middle ground; like the human body's obvious middle ground between growing fatter and starving - eating wisely and maintaining a healthy weight? What would a healthy and sustainable economy look like?

The concept of a steady state economy with a stable population is neither new nor reserved to the radical fringe:

"We have looked for, and have not found, any convincing argument for continued growth. The health of our country does not depend on it, nor does the vitality of business, nor the welfare of the average person," concluded a bipartisan Commission on Population and the American Future appointed by President Richard M. Nixon in 1970.

And more than 200 years ago John Stuart Mill, a giant of philosophy and economics, saw a time when growth should end:

"If the Earth must lose that portion of its pleasantness - that unlimited increase of wealth and population would extirpate (just) to support a larger, but not a happier or a better population, I sincerely hope for the sake of posterity they will be content to be stationary, long before necessity compels them to it," he wrote.

Today, Herman Daly, one of the world's leading exponents of a steady state economy, lives a short walk from the University of Maryland's College Park campus. The weathered solar panels on Daly's modest brick home appear to have been installed long before renewable energy was in vogue.

Daly, 73, has been widely celebrated for his seminal 1977 text, "Steady-State Economics" and other writings; as well as a founder of Ecological Economics, the study of human economies that operate within natural limits. Mainstream economists recognize no such limits to growth, which explains why Daly in his 18-year professorship at Maryland was in the School of Public Affairs, not Economics.

Over coffee in his sunny living room, Daly recalls when he was a senior economist with the World Bank, trying to modify a diagram in the bank's 1992 annual development report. "I suggested drawing a big circle around the box labeled 'the economy'; "It would represent the ecosystem, to make it clear the economy got its inputs from nature - soil, minerals, timber and such - and expelled its wastes back into nature.

"After three drafts, they just left the diagram out. The idea that economic growth should be constrained by the environment was too much, and it still is today - better to omit the diagram than deal with the troubling questions it raised."

Daly, who is credited with coining the term "uneconomic growth," said growth used to make more sense, when the world was relatively empty. No longer.

"In my lifetime I've seen population rise from 2 billion to 7 billion, and an even more enormous increase in the size of the human economy and all of its stuff. Our current economics developed when human capital (the means of production) was scarce and natural resources were abundant.

"Now, there's been this profound change in what's scarce. It's no longer our ability to produce fishing boats and nets that limits harvests, it's fish. Are oil rigs and drills limiting energy production, or is it oil? Is it chain saws and paper mills that limit forest products now?"

And as the growth economy depletes natural resources, Daly said, its wastes are filling nature's sinks, the capacities of the air and water to absorb more pollution. Chesapeake Bay, with six or seven times the polluting nitrogen it had in pre-European times, is an example of a natural sink that is overflowing.

So the world is now full, Daly said. Yet even as natural sources and sinks become limiting, "we still act as if further expanding human capital is what's needed."

In an idealized economic world, the free market and the rising price of things would signal when economic growth was becoming uneconomic, the costs surpassing the benefits, Daly says.

But in real life that isn't happening. First, he says, while free markets can make growth more efficient, they have no mechanism for saying "enough." He compares it to loading a boat. "You can distribute the load very efficiently, but at some point if you keep loading, the boat sinks to the bottom - very efficiently."

Skeptics of smart growth have made a similar analogy about the guiding land use policy in Maryland and other states that would save open spaces by allocating development more efficiently in areas planned for growth. At some point, critics charge, without saying "enough" to growth - i.e. more people, you lose a lot of open space, no matter how smartly.

Growth economics also confuses price with value, Daly says. "Our national method of accounting for growth, the Gross Domestic Product, doesn't separate costs from benefits." GDP only counts economic activity. The resulting tally shows only the positive side of things, some of which have huge environmental and social costs. For example, the costs of oil spill cleanup expenditures, divorce lawyers' fees, health-care cost increases, rising police and defense budgets are all counted, but none of the environmental and social costs of the oil spills, divided families, illnesses, crime or wars are subtracted.

Nor does the GDP acknowledge the value lost from degrading nature's services. The keepers of the GDP don't subtract value when a wetland that filters polluted runoff is filled in or when a forest that produces oxygen and absorbs climate change gases is cut down. This value can be significant. Wetlands along just one Bay river, the Patuxent, are calculated to be performing a million dollars worth of pollution control annually. Forest destruction worldwide erases $2.5 trillion annually in (uncounted) "natural capital," a German Deutsche Bank economist has calculated.

Daly and others developed an alternative to the GDP that takes into account environmental and social factors. Now on the web as the Genuine Progress Indicator, GPI produces a much soberer view of whether continued growth is making most of us richer; it shows that progress has nearly flat-lined since the 1970s (See "Genuine Progress Index offers a more honest view of MD economy"). Polling since World War II also shows that for the last several decades there has not been any rise in people saying they are happy as material wealth rises sharply.

But if an economy based on growth looks undesirable, what does the alternative, a steady state economy look like, and how do we get there?

Daly and other ecological economists say a shift to a steady state economy, while revolutionary, would not mean abandoning democracy or capitalism, or even overtly banning growth. Rather, growth would cease to be the primary directive of government as it is now, the lens through which all other policies, including environmental protection, are evaluated.

"We should be more concerned with freedom, justice, equity, quality of life, happiness, well-being," writes ecological economist Peter Victor in "Managing Without Growth" (Edward Elgar Publishers, 2008).

Taxes on savings and earnings would fall to make more money available to the economy, and taxes on pollution, consumption and extraction of natural resources would rise to promote the more efficient use of natural resources, from oil to seafood.

The emphasis on production of goods would shift from "more" to "better" - away from disposables and planned obsolescence to higher quality, more durable, repairable and recyclable goods. The growth economy's heavy emphasis on new home construction would shift to rebuilding existing cities and towns, to rehabbing and making more energy-efficient existing buildings. Agriculture would shift its emphasis to locally produced, healthier food grown with less pollution.

Innovation and technological improvement would be at more of a premium than ever; they would be the keys to continued progress in an economy no longer counting on sheer growth in output to deliver the goods.

Wall Street and the whole financial sector, now the source of 40 percent of total U.S. profits, would shrink. Steady-staters advocate a gradual return to the historical practice of requiring banks to only lend out as much as they take in as deposits. Current policies require them to have on reserve only a small fraction of what they lend, allowing the vast, modern expansion of credit and debt to fuel more growth.

A steady state economy would lead to a stable population because it would be more about maintaining, not expanding jobs.

Government revenues in a steady state economy would fall dramatically, but so would expenditures.

Steady state does not mean stagnation. Many things need to grow in such an economy, Daly says: meaningful work, incomes of the poor, affordable health care, education, green technologies. Much as a human can still develop intellectually and spiritually and acquire different skills and experiences long after physical growth ceases, so would a stable economy continue to change.

Victor compares the process to a forest: "quite dynamic, trees growing, falling down, sprouting up, species composition shifting - even though the overall size of the forest changes little."

Pollution would still have to be dealt with, though not on so grand a scale. Daly favors the cap-and-trade systems already used to an extent in the growth economy, where polluters buy and sell credits, creating markets that promote effective cleanup.

And what of poverty? A tenet of growth economics is that only by getting richer can the developed nations pull up the less fortunate parts of the planet. The track record for this is decidedly mixed. A smaller percentage of people live in poverty now than 50 years ago; but because of population growth, the absolute number of people in poverty has risen - to around 2 billion people.

Daly says a steady state economy has no magic solution; "but it would make us face up to poverty - pretending growth is the solution has been our way of not having to share, and when it hasn't worked, our answer has been more growth. We would have to devise a more equitable distribution of resources, and I suppose if people want to say that is more socialist, they have a point."

Victor argues in his book that the developed world, whose citizens have by far the largest per capita impacts on the environment, needs to stop growing in part to free resources for the impoverished nations who still need growth. Even within a non-growing United States, there might be places like Baltimore City, built for a million, home to half that, where growth would be desirable.

Daly would remove royalties on patents and other price barriers to sharing technology and information with developing countries. On the other hand, he thinks tariffs would be necessary for a time to protect the economy of the United States or other nations trying to shift to a steady state in a world still bent on growth.

Major progress toward a steady state economy "is not going to happen until we accept that economic growth is causing more problems than it solves," said Brian Czech, founder in 2004 of the Center for the Advancement of a Steady State Economy (CASSE on the web). "Only then can you get support to reform fiscal, trade and other policies," he said.

Czech is a professional wildlife biologist who did his Ph.D. on the federal Endangered Species Act, an analysis that found "an incredibly tight correlation between the rise of endangered and threatened species and the increase in U.S. economic growth — highly unlikely to be a coincidence."

During a two-decade career, he said he has heard "so much rhetoric about how there is no conflict between economic growth and nature. The idea that we can have this "win-win," that we can grow and restore nature, is what everyone desperately wants to believe - a cardinal tenet even among most environmental organizations. But it does not square with the facts."

CASSE's website features links to a host of research and writings on alternatives to the growth economy, including a blog by Herman Daly. Czech has received endorsements from Jane Goodall; Harvard biologist E.O. Wilson; Lynn Greenwalt, a former director of the U.S. Fish and Wildlife Service; and The Wildlife Society, a prestigious organization of wildlife professionals.

CASSE eschews political rhetoric and anti-capitalist sentiment on its website, but its blogs can be thought-provoking: "What if we stopped fighting to preserve land and just fought economic growth instead?" Tim Murray, one CASSE contributor, began.

Murray took his cue from the late Sir Peter Scott, the legendary British environmentalist and wildlife painter who once argued the World Wildlife Fund might have saved more African wildlife if they had invested in condoms than in nature reserves.

Herman Daly says he thinks it will "probably take some sort of large, ecological shocks" to make the mainstream seriously question growth. But one in-depth article recently listed several signs of growing acceptance of steady state economics. Not the least was the article itself, done for the staid New York Society of Investment Professionals.

In the Netherlands, Triodos Bank has been operating for years along the lines of Daly's prescription for lending based on dollars deposited rather than highly leveraged capital. And recently it has joined the Global Alliance for Banking with 13 similar banks, including two in the United States, with combined assets of more than $10 billion.

Today's world mistakenly assumes "there is value in the mere circulation of money," said Triodos' CEO Peter Blom.

In the United Kingdom, a company called Trucost analyzes corporate pollution and natural resource depletion to reach a company's real value. It subtracts the downsides a company would face if it were made to pay for its environmental waste and damage, producing a sort of corporate GPI.

Their analysis of American Electric Power, a big U.S. utility with many coal-burning plants, found a true worth of negative $4.8 billion based on growing pressures to reduce greenhouse gases. The company's balance sheet showed a worth of plus $134 million.

The article also discussed five nations that are achieving two central objectives of steady state economics - relatively stable population and relatively stable energy use and consumption. All five - Denmark, Sweden, Switzerland, Germany and Japan - rated high in quality of life surveys as of 2009, and had low unemployment (except for Germany).

Asked where he puts his own money in an economy he regularly maintains is mad, Daly said, "I'm a CD sort of guy. It is very important to have enough, but more than enough is not very important; so I try to protect enough, don't try to get more.

"All this steady state may seem radical and politically impossible right now," he said, "but the alternative, to keep growing when all the evidence shows we are well beyond the limits of the Earth to sustain it - that's truly absurd."

Genuine Progress Index offers alternative view of MD economy

Social factors, cost of losses also considered in calculations.

Officially, Maryland's government shows its economy soared nearly fivefold over the last half century, with the likelihood of more to come.

More honestly, the state shows how the increase may have been substantially less, with future growth prospects modest.

Give Maryland full credit for its seeming duplicity. It is the first state government in the nation to begin keeping a Genuine Progress Index (GPI), as an alternative to the traditional Gross State Product (GSP).

The boomier looking GSP still rules as it does everywhere (The federal government uses a similar index, Gross Domestic Product). But GPI "comes up in cabinet meetings; the governor refers to it," says Sean McGuire, Director of Sustainability Policies and maintainer of the web-based index (GREEN.MD.gov.mdgpi).

Ecological economists and environmentalists concerned that the "grow or die" economy is overwhelming natural systems are sharp critics of the traditional way the feds and states calculate economic progress.

Federal GDP and state GSP paint a misleading picture of growth, they point out, Anything that generates economic activity, an oil spill, a spike in crop production that increases polluting runoff, a massive development that fells a forest, is simply added, with nothing subtracted for the losses to the environment.

More honest accounting, critics say, would be an important step toward questioning whether many forms of economic growth are actually uneconomic.

McGuire said the Office for a Sustainable Future in which he works was set up a few years ago "because we need to change the game. The rules are stacked now for the status quo in economic development."

Maryland's GPI begins by subtracting from the traditional GSP to account for income inequality, which has been steadily worsening, as well as subtracting for underemployment, McGuire said. That reduces the 2010 total for economic progress from $234 billion to $157 billion.

Another $41 billion is subtracted for the environmental degradation of air, water and wetlands; the loss of farmland; and other costs.

Finally, social factors are folded in, from the value added by higher education and housework, to the costs of crime and commuting and the loss of leisure time. This shows a net addition to genuine progress of $30 billion.

In all, the GPI uses 26 indicators, each one explained on the website. Maryland began the GPI in 2009, using 50 years of data, "most of which we already had," McGuire said.

The sharpest divergence between the state's official economic progress and "genuine" progress occurs after the 1980s. "Generally, we have really been driving the economy as our highest priority, and environmentally and socially we just couldn't keep up," McGuire said.

Other websites that have been keeping track of "genuine progress" on the national level show an even sharper divergence than Maryland's indicators, nearly flatlining progress since the 1970s.

McGuire said one thing some websites include that was beyond the state's budget "is happiness indicators. These require regular polling and updating that we just don't have the capability to do for Maryland."

Nationally, "happiness," how people respond to polls asking how satisfied they are, has stayed about level for decades, after rising during the 1950s and 1960s - this is despite substantial increases in the average person's material wealth.

Another limitation of Maryland's GPI, McGuire said, is "no matter how you try to value some things like a loss of forest, we live in a system that just doesn't recognize anything that doesn't have a price attached.

"Some might say a forest is priceless. We subtract $318 an acre for losses, though we know forests may have values beyond that; we're up front about this."

McGuire said Maryland is beginning to use GPI. "One goal is to change expectations, to move toward keeping a more candid ledger." He said this is critical "because we are seeing big debts coming due now that were ignored."

A prime example is the huge costs many counties now face in trying to meet new Chesapeake Bay cleanup rules. "It's $800 million just for Prince George's County, and it represents not just today's price tag, but decades of deferred costs.

"Do you want to save Chesapeake Bay, or do you really want to save Chesapeake Bay? If all you want to do is showcase economic activity, this is what you end up with," McGuire said.

Maryland is also helping a couple of counties interested in keeping their own GPI, McGuire said.

The website has a modeling section that allows users to play with adding green jobs, renewable energy and smart growth to the state's economy in varying degrees.

"It's just a model, but it's interesting, if you invest heavily in all three," McGuire said, "the GPI not only goes up, but it outpaces business as usual - food for thought."

This is the second article in Growing Concern, an occasional series by the Bay Journal on growth. The series examines whether issues related to economic and population growth make a restored Chesapeake Bay unlikely.

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About Tom Horton

Tom Horton covered the Bay for 33 years for The Sun in Baltimore, and is author of six books about the Chesapeake. He is a freelance writer, splitting his time between Baltimore and Maryland’s Eastern Shore.

Read more articles by Tom Horton

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