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What Changes are Needed?

Kenneth Boulding was a strong advocate for using markets to influence behavior. Yet he also referred to the pathologies of the market system. For example, he described the widening wealth gap as a two-decked spaceship consisting of first class and steerage. Peter Barnes identifies three dominant pathologies of markets as: 1) their destruction of nature, 2) their widening of the wealth gap and 3) their failures in humanity’s “pursuit of happiness.”11 Using the computer terminology we are now familiar with, Barnes describes these pathologies as the predictable outcomes of the economy’s current operating system. To correct them, Barnes says that we need to change the operating system.

See sidebar on Earth as a Spaceship, by Kenneth Boulding on Page 4 >>

Among those who write about the folly of the growth ideology, Lester Brown, in Plan B, proposes many ways of beginning to shift government policies in a more ecologically benign direction.12 Herman Daly and other ecological economists offer a detailed conceptual basis for an alternative, no-growth economic system.13 Peter Barnes, in Capitalism 3.0, proposes a new form of institutional ownership to protect natural resources.14

Howard and Elizabeth Odum, in A Prosperous Way Down, identify paths toward a less energy and material intensive economy, such as decreasing urban concentration, increasing lower intensity agriculture, decreasing unearned income, and constructing fewer buildings of higher quality.15 Richard Heinberg, in Power Down, deals directly with what he sees as inevitable contraction due to diminishing supplies of petroleum and other fossil fuels.16 He points unequivocally to the inability of the current monetary and financial systems to function except in a growth economy. But his focus is primarily on the need to manage diminishing supplies and rising costs of oil, not on managing an overall contraction.

None of these authors is explicit about what seems to be an obvious practical necessity. We are all familiar with the admonition about reducing excessive consumption, but our current operating system requires consumption to increase or the economic computer will crash. In order to carry out a comprehensive version of contraction and convergence for reducing humanity’s economic inequities and ecological impacts, wealthier industrial societies must shift from expanding the scale of their economic activity to reducing it.

How can the economic operating system be changed so wealthy industrial societies can orchestrate a reduction in material consumption while promoting non-material prosperity? What policies and strategies would manage a prolonged, intentional recession, while preventing a depression and promoting societal well-being? They must at the very least:

1) protect against insufficient demand and financial melt-down, 2) use the benefits of markets to meet basic needs and provide employment, and 3) promote investment to optimize the scale and productivity of all our capital stocks?

Perhaps there would be more consideration of economic contraction by high-consuming societies if there were a collective rethinking of our economic mythology, and an effort among economists to propose both a vision and some key steps for making a transition to a smaller economic scale. There might be less fear of talking about contraction and convergence, of GHG emissions and of human enterprise as a whole, if there is a ladder for Humpty Dumpty to climb safely to Earth, where the pursuit of happiness and fulfillment can go forward without jeopardizing the future.

Climbing Safely to Earth

I would like to suggest 12 possible steps toward managing a transition to a smaller scale. Some may seem foolishly unworkable, though all have been previously proposed. Also, they have been vigorously opposed for reasons rooted in the prevailing ideologies of economic growth, limited government, and civil liberties.

My 12 suggestions are obviously not discrete steps to be taken one after another. They involve fundamental, interrelated changes in our current mythologies about economics, public policy, human rights, and human responsibilities. The suggested changes in how we think about capital and productivity would provide a rationale for changes in how we think about income, employment, prices and taxes. These changes require less reorientation of our societal mythology as would the changes involving capitalism, property rights, finance, and human rights.

Theologian John Cobb suggested that to preserve hope we need to believe that miracles are possible. What now seems utterly unimaginable may become a reality if we are willing to suspend our disbelief and try to make it happen.17 Among the miracles that may be needed to avoid catastrophic resource wars is a commitment by wealthy consumer societies to voluntary contraction. For me, developing these suggestions has been an exercise in imagining the kind of miracles that can sustain faith and nurture hope.

Rethinking Capital

In my 1960s college course in Introductory Economics, “capital” referred to the physical means of production, i.e., the factories in which goods were produced from raw materials and labor. Land, labor, and capital were viewed as analytically exclusive factors of production. Manufactured capital used to be called “real” capital. Capitalists were entrepreneurs who owned the factories. Financial capital was a tool for creating real capital and was provided by financiers.

At this same time, Kenneth Boulding was asserting that capital, in its most basic sense, is better understood as a physical stock that provides a flow of a productive resource or service to the economy.18 From his perspective, natural capital, human capital, and social capital all provide productive resources, without which the economy cannot function. Raw materials and the assimilation of wastes come from stocks of natural capital. Skilled labor comes from stocks of human capital. Organizational capabilities come from stocks of social capital. In addition, stocks of publicly owned manufactured capital, such as roads and bridges, provide essential products and services, without which private enterprise could not function.

Investment traditionally meant using a surplus to improve the stock of real, i.e., manufactured, capital. Although not reflected in the way we tend to think about taxes, a significant component of public expenditures involves maintaining and increasing the stock of publicly owned manufactured capital. Currently, we are depleting our stocks of non-renewable natural capital and using renewable resources at a rate that exceeds their yields, thus consuming renewable natural capital and diminishing the yield of these stocks, rather than investing to maintain, improve, and increase their yield. Likewise, we are failing to maintain much of our publicly owned real capital, and neglecting many opportunities to invest in our stocks of human and social capital, except to invest in the capacity for endless consumption.

Rethinking Productivity

Our exploitation of stored energy from the sun in the form of fossil fuels has given us a false impression that energy is infinite, but the laws of thermodynamics universally apply. Energy can neither be created nor destroyed. Most energy on Earth comes from the sun through the transfer of heat and the capture of photons through the miracle of photosynthesis or the use of photo voltaic cells. Our supplies of energy and raw materials are natural capital, which will soon become the limiting factors in our economies. In the not too distant future, our energy supply is apt to depend entirely on our ability to capture energy, directly or indirectly, from the light of the sun, the heat of the earth, and the gravity of the moon. Likewise, our material resources will increasingly come from what we are able to cultivate and harvest.

Two years ago, sewers came to our neighborhood. I dug a trench myself and had my plumber install the pipe. My neighbor had a plumber do his entire installation with a backhoe. The task of digging and filling took me about 12 hours, while digging and filling my neighbor’s trench took the backhoe about three hours. By today’s standard, the backhoe operator was four times as productive as I was. But although I burned more food calories than the backhoe operator, there was a huge difference in the amount of energy expended with the backhoe, both in the fuel used and in the energy embodied in the backhoe, trailer, truck, etc. In terms of net energy use, I was many times more productive.

If this understanding was widespread, it would become clear that “productivity” should not be measured in output per person-hour, but output per net Calorie or BTU. Increasing productivity would then mean providing a particular good or service with less expended and embodied energy. Full cost accounting of expended and embodied energy would become an essential tool of micro-economics.

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