Economics: Sustainable Development

Over the past twenty-five years the word “sustainable” has crept increasingly into our vocabularies when talking about the future.  The Oxford English Dictionary definition of sustainable is “able to keep going continuously.”  It is used as an adjective applied to something that can be kept going without breaking down.  The reason why the word is never far from the front of our minds these days is a growing awareness that some things we are doing on the planet are NOT sustainable; we just can’t keep doing them the way we are very much further into the future—like, for example, the way we are taking the best fish stocks out of the ocean.  However, people by and large don’t like to think this way, particularly if they live in Western industrialized countries where more of everything is taken as a given.  In such a psychological climate the idea that something we like to do may be described by someone else as NOT sustainable is an irritant.  We don’t like to be told that we should stop doing things, even if they are bad for us, like over-eating and smoking.  Our culture is full of stories and mindless chatter about such things.

However, despite what some people like to think, the issue of sustainability has become a deadly serious matter in the early 21st century.  The evidence is now abundantly clear that the way humanity as a whole is living on the planet is NOT sustainable, even into the near- term future, when today’s young children will be running the world.  This means that we have to become more precise about exactly what we mean when we use the word “sustainable.”

 In the previous post I wrote about “sustainable capitalism” in the sense that John Ikerd used the term in his book by that title.  The implication was that the kind of capitalism we have today is NOT sustainable, and we need to change in certain specific ways the way we run our capitalist societies so that they do become sustainable, while retaining all of the best features of the capitalist way of doing things.

 In this post I am writing about “sustainable development” in the sense that Herman Daly uses that term in his book Beyond Growth (1996).  Daly takes great pains to distinguish between “development” and “growth,” and even greater pains to say that “sustainable development” is the goal we should be pursuing with economic policy, while “sustainable growth” is an oxymoron, because in a finite world growth is NOT sustainable.  It cannot go on continuously forever.  However development is another matter.  People and societies can develop in many ways that are quite sustainable and good for us, and this should be the aim of economic policy.

 So the next time you hear your favourite (or perhaps unfavourite) politician, or economist, or industrialist, or business person lamenting the fact that the economic growth numbers are down, you can say: “Not so fast; the important thing is how we are doing on development.  Talk to me about that.”  And that could become a very interesting conversation, because both of you would have to be clear about what you mean by “development”—which would be a very good thing, because the clearer we can be about what we mean by development, the more likely it is we will get things that are good for us and society as a whole.

Confusion between Growth and Development

 Herman Daly comes to the nub of this issue about how economic policy as currently practiced in the industrialized countries tends to focus on growth and confuses that with development.  The way to understand how confusion can occur is to consider another factor called throughput.  I referred to this concept previously in post #13, but here I will explore it further.  Daly defines throughput as a flow.  It begins with raw materials (like wood or iron ore or oil) as inputs.  This is followed by the conversion of these raw materials into commodities (like furniture, or steel products, or plastic items).  At the end of the flow these commodities and other agents used in their manufacture turn into waste (though there may be some recycling along the way). The whole process is throughput.  Diagramatically, it looks like this:

 RAW MATERIALS     COMMODITIES              WASTE

 wood →→→→→→→→ furniture →→→→→→ disposal

 iron ore →→→→→→ steel products →→→→→ disposal

 oil →→→→→→→→  plastic items →→→→→  disposal

 ————————————THROUGHPUT  ————————-

 Daly then says we can define “growth” as increase in throughput, that is, increase in the flow of raw materials being turned into commodities and ending up eventually as waste.  Defined in this way growth is seen to be quantitative expansion.  Development, on the other hand, is defined as qualitative improvement, whether it be better products, better service, better living conditions, better health services, or improved educational levels of people or more opportunities for them to engage in art and music, and so on. It may well be that to get some of these improvements requires some quantitative expansion (more schools and hospitals, for example), but the point is that the focus is on getting the improvements, not on expanding the system.  With this clarification we can define “sustainable development” as “qualitative improvement without increasing throughput beyond the ability of the environment to regenerate itself and to absorb waste from human activity.”  If the improvement cannot be accommodated without exceeding environmental limits, then it is NOT sustainable and has to be discontinued or changed so that it does become sustainable.

 Clearly what we need to be aiming for in society is this sustainable qualitative improvement.  Daly says that the problem with current economic practice is that “politicians and economists are so wedded to growth that they insist that economic growth (increase in throughput) is itself the main characteristic of sustainable development, and they therefore speak in muddled terms like ‘sustainable growth’.”  He goes on to say that “it is precisely the recognition that growth in scale ultimately becomes impossible—and already costs more than it is worth—that gives rise to the urgency of sustainable development.  Sustainable development is development without growth in the scale of the economy beyond some point that is within biospheric carrying capacity.” That is why we now need to be focusing urgently on measures of this carrying capacity to make sure it is not exceeded.  Any political or economic manoeuvring that diverts us from this requirement is at best irresponsible and at worst detrimental to the future of civilization.

 However, many economists and the politicians who follow them, still use the term ‘sustainable growth” by which they mean “that growth is still the number one goal,” and that all you need to do is to make growth “a bit more environmentally friendly.”  It is this kind of misguided if not malicious approach to management that is so reprehensible in those who have either been elected to office or are in positions of power and influence in society.

 We need to be as clear in our understanding of this point as Daly is emphatic.  Sustainable development is development without growth, without increase in throughput—and the task of economic and political leadership is to figure out how to get such sustainable development in a modern economy and to implement the policies to achieve it, so that people are employed in good sustainable work and can live enjoyable lives without destroying the environment for their children and all the generations who follow.  As Daly points out, it “does not imply the end of economics—if anything, economics becomes more important.  But it is a subtle and complex economics of maintenance, qualitative improvement, sharing, frugality, and adaptation to natural limits.  It is an economics of better not bigger.”

 Throughput Is the Problem

 An economics of “better” rather than “bigger” would take direct aim at limiting throughput.  Remember what throughput is: the process of converting inputs of material and energy into outputs of products and waste.  In our modern industrialized economies we have too much throughput: too many materials and too much energy being converted into too many commodities and producing too much waste for the planet’s health and our own good.

 Awareness of the problem of throughput is not new.  A 1979 Canadian report entitled The Conserver Society: A Workable Alternative for the Future emphasized the importance on “limits to throughput” as a way to think about curtailing the “one-sided industrialization which has characterized our society so far.”  The authors point out that “low throughput satisfaction” comes from “enjoyment” while “high input satisfaction” comes from “consumption.”  We need more of the former and less of the latter.  For example, “a walk through a forest, contemplating a sunset, or listening to birds sing may yield great satisfaction without in the process destroying the forest, the sunset or the birds.  This is in marked contrast to eating a steak, which effectively destroys it, or driving a car, which uses up gas and hastens the eventual depreciation of the car itself.  It is high throughput. . . What should be kept in mind is that throughput, as a process which is intended to provide for human needs, must be of the type and quantity which in fact serves and does not frustrate that purpose.”

 Given that way of looking at an economy, we can readily see how thoughtful policy could encourage citizens to pursue low throughput activities and substantially reduce the impact on nature of the high throughput extractive and consumption processes that are rapidly diminishing the stock of natural capital and polluting the environment with massive amounts of toxic waste, as well as upsetting the delicate balance of life support systems on the planet as a whole.  The important point to recognize in all of this is that in order to get the change we need we have to have a better way of looking at things.  Our grandchildren are depending on us to get our heads around how to live more lightly on the planet.  The concept of limiting throughput by fostering low throughput activity is one way to do this.

 The Way to Look at It

 Herman Daly provides some additional perspective on sustainable development and why most orthodox economists are wary of the term.  “The term rose to the prominence of a mantra—a shibboleth,” says Daly, “following the 1987 publication of the UN-sponsored Brundtland Commission Report, Our Common Future, which defined the term as development which meets the needs of the present without sacrificing the ability of the future to meet its needs.”

 I have a copy of this twenty-five year old report on my bookshelf, and it is instructive to note some of the key points made in its introductory overview entitled “From One Earth to One World.”  Under the heading of “The Global Challenge” the report states: “Through our deliberations and the testimony of the people at the public hearings we held on five continents, all of the commissioners came to focus on one central theme: many present development trends leave increasing numbers of people poor and vulnerable, while at the same time degrading the environment. . . We came to see that a new development path was required, one that sustained human progress not just in a few places for a few years, but for the entire planet into the distant future.  Thus ‘sustainable development’ becomes a goal not just for the ‘developing’ nations, but for the industrialized ones as well.”

 So the concept of sustainable development was launched, and it’s important to note that the commissioners recognized that the “industrial nations” had a problem with development as well as the rest of the world.  They implied that the industrial nations were, at least to some extent, pursuing a wrong kind of development.

 But, the authors were hopeful, for the report goes on to say, “Humanity has the ability to make development sustainable—to ensure it meets the needs of the present without compromising the ability of future generations to meet their own needs.”  Unfortunately, however, the authors of the report immediately muddied the waters by making this statement: “Technology and social organization can be both managed and improved to make way for a new era of economic growth.” (emphasis added).  In that statement the report confused development with growth.  By so doing they gave the orthodox economists free rein in the twenty-five years since then to argue that improved technology and organization are solving the problems identified by the report by fostering continuous economic growth.  Little wonder than that in the past twenty-five years economic growth has increased manifold, but the problem of environmental degradation has grown worse and the reality of human-induced climate change is now manifesting around the world.

 Writing in 1996, Herman Daly identified clearly the conceptual issues preventing necessary change:  “There are enormous forces of denial aligned against this necessary shift in vision and analytic effort [from growth to development], and to overcome these forces requires a deep philosophical clarification, even religious renewal.”  Likening the necessary change to “religious renewal” implies that telling an economist who believes that economic growth is the engine of development that he is wrong is like telling a person of faith that his belief in God is wrong.  No amount of argument or evidence will make any difference. The implication is flat out denial and rejection.  It is simply “not the right way to look at it.”

 Daly describes a confrontation he had in 1992 with Lawrence H. Summers, the World Bank’s Chief Economist of the time, when he, Daly, used a diagram showing the economy nested within the ecosystem to ask the question, “What is the optimal scale of the macro economy relative to the environment.”  The diagram is shown below.

The original is found in Herman Daly, Beyond Growth (1996), page 49 

The point of the diagram is that if the ecosystem remains constant (because it is a closed system and can’t grow) while the man-made economy grows continuously, it is inevitable that over time the economy becomes larger relative to the containing ecosystem.  Daly calls this a transition from an “empty world,” as it was in the days of Adam Smith, the Father of Economics, in the 18th century, to a “full world” as it arguably is today.  In a full world the remaining natural capital becomes the limiting factor on further development—that is, if you believe the diagram represents reality.  The World Bank’s Chief Economist did not believe this, so his reply to Daly was “immediate and definite: ‘That’s not the right way to look at it’.”

 Well, what is the right way to look at it, according to orthodox economic thinking?  Daly shows this in the following diagram.  

The original is found in Herman Daly, Beyond Growth (1996), page 47

In this model of the economy as an isolated system, there is no exchange of matter or energy with the environment.  This is based on what Daly calls “a pre-analytic vision” of the “abstract exchange value” of goods and services flowing in a circle from firms to households and back again.  In other words, the economists eliminate from their model the messy stuff of real goods made from real materials using real energy in a real environment, and just focus on the money being exchanged.  In this way there can be “no problem of natural resource depletion, nor environmental pollution, nor any dependence of the macro-economy on natural services, or indeed on anything at all outside itself.”  With such a model economists are free to talk about substituting new and better technology for old, and increasing productivity to increase economic growth to get more goods and services flowing in the system.  Other measures are implemented to increase the money supply, and the whole thing goes on its merry way.  The economy is improving because it’s bigger, people are employed in jobs and everything is fine—except that the model is wrong.  It is based on an incorrect vision.  In the real world all this human activity takes place inside a finite natural environment and depends heavily on that environment for ecosystem services like air, water, forests, metallic ores in the Earth, and so on.  As the man-made economy expands rapidly on an exponential growth curve with an ever increasing human population demanding more and more from it, the certainty that it will one day be brought up short by the limits within the environment increases.  But orthodox economic theory will not see this coming, because it is not looking for it.

 Could the Whole World Live Like the United States?

 If you disregard the economy’s dependence for services from the environment, then you can indulge in fantasies and imagine a future in which the average resource consumption of people everywhere in the world is the same as the average in the United States.  Daly calculates that it would take a roughly sevenfold increase in the annual resource flows of the world to achieve this, even without factoring in a growing world population.  With current rates of material and energy use already doing serious damage to the life-support capacity of our globe, Daly asks: “Could we really get away with a sevenfold increase? And if so, for how long?”

 Technological optimists will argue that technology can increase resource productivity without limit and therefore all nations can become richer.  However, that argument ignores the fact that the problem is not about productivity, but about resource limits—keeping physical flows within ecological limits.  So what level of resource consumption is feasible for the so-called “underdeveloped” world in order to reach something we might call a feasible world standard?  That is by no means clear, but it is certainly not the current level of the so-called “developed” countries.

 Understanding the reality of ecological limits leads Daly to suggest a concept of “overdevelopment” for countries like the US: “An overdeveloped country might be defined as one whose level of per capita resource consumption is such that if generalized to all countries could not be sustained indefinitely.”  That would put the US, Canada, Australia and Western Europe all in the category of “overdeveloped.”  Can you imagine political leaders in those countries going to their citizens with policies to reduce their levels of development so that the underdeveloped countries might be able to raise their levels?  Not a chance!  You are more likely to hear economic arguments that the rich countries should consume more so that the poor countries can sell their resources and become richer.  When you live inside a free-floating fantasy-world bubble there is no such word as impossible—that is, until the bubble bursts!

 Unfortunately, the laws of physics will see to it that that this man-made bubble of absurdity does burst during the lifetime of our grandchildren.  If we care about that, we should be taking every step possible now to gradually deflate the bubble and get on track with the concept of sustainable development instead of non-sustainable growth.

 The Ethical Principle of Sustainable Development

 Herman Daly concludes his treatise on sustainable development by speaking of it in ethical and religious terms.  He argues that we need a new “central organizing principle” of society—a fundamental ethic that will guide our actions in a way more in harmony with basic religious insight (of fairness, justice and compassion) “and the scientifically verifiable limits of the natural world.”

Reworking Jeremy Bentham’s 19th century guide of “the greatest good for the greatest number,” Daly suggests the principle humanity should strive for is “sufficient good for the greatest number” where sufficient means adequate for a good life and number is defined as cumulative number over time (it applies to not just a specific time, but to all time in the future as world population changes).  He points out that standard economics is quite happy to discount the future, which implicitly says that “beyond some point the future is worth nil and might as well end.  Rejection of this view is part of the thrust of the concept of sustainability.”

 “If something like the ethic offered above is accepted,” Daly goes on to say, “then we will have to find economic policies for putting it into practice.  Without such an ethic we will be led astray by sophists who argue that we have no obligation to the future because future people do not exist, and rights cannot inhere in nonexistent people, and without rights there can be no obligations.”  The blunt truth of the matter, however, is that future citizens do exist.  They are the little ones we call our grandchildren.  We, the older generations, happen to live at a time when the false assumptions and failed policies of standard economics are treating those children as if their future lives have little worth—despite the conventional rhetoric to the opposite.

I will give Herman Daly the last word on the tragic misconceptions of today’s ideologically blinded leaders and the experts who guide and reassure them:

“But the value of a sawmill is zero without forests; the value of fishing boats is zero without fish; the value of refineries is zero without remaining deposits of petroleum; the value of dams is zero without rivers and catchment areas with sufficient forest cover to prevent erosion and siltation of the lake behind the dam.  Empty verbiage about the intergenerational invisible hand and the near-perfect sustainability [I think this should read ‘substitution’] of man-made for natural capital is just the usual confused attempt to give a technical non-answer to a moral question.”

In following posts I will look at arguments for how to move our economies away from growth toward sustainable development, and how we might embrace a new concept of “prosperity without growth.”

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2 Responses to Economics: Sustainable Development

  1. John Wong says:

    Thank you for your last 3 great posts Desmond. I have been on vacation and am just catching up with your clear delineation of the status quo and where we have to go from here if we are to leave a good and necessary legacy to our grandchildren.

    Here are my own thoughts so far:

    Today could be considered as a bad day or a good day. Bad because we discovered the flaws of both capitalism and democracy. Good because we can now move forward to improve the status quo. Of course, as Winston Churchchill said, democracy is the worst form of governance except for all the other alternatives.
    John Wong
    June 11, 2012

    The Flaws of Capitalism
    Capitalism followed from scientism, scientific enlightenment, or scientific materialism which rejected spiritualism completely, causing an imbalance in a ying-yang universe. The world as a machine is one such falsity. Now, quantum physics proved that conclusively.

    The Descartes notions that the mind is separate from the body, as well as ourselves being separate from each other and nature caused a world of duality. A transformation is needed to go back us to a world of unity consciousness. We are part of nature, not the other way around.

    The other problem is, Smith’s economic philosophy was based on colonialism and imperialism, including slavery and forced religious conversion which we now know is wrong. His “invisible hand” theory did not work in the 2008 Wall Street Collapse scenario. Moreover, competitive markets and free trade were never really free due to needed regulation and protectionism. Globalization shows the equalizing of market place until there is more homeostasis.

    Fascism, Communism failed and now it seems capitalism is failing due to its flawed assumption that natural resources in a finite world is infinite. The need to forever grow the economy is killing Mother Earth and eventually, its inhabitants.

    GDP measured by industrial output, commercialism, and consumerism without the regard to the environmental problems is not sustainable. A Happiness Index may be a better gauge of human progress.
    JLW: June 11, 2012

    The Flaw of Democracy
    Today, I discussed with friends how the Harper government changed Canada’s peaceful role to an offensive role, even though the majority of the Canadians do not want that changed.

    Even though Harper got the majority government, he did not get the majority popular vote. This means that an unmajority of the people becomes the majority, which can pass laws with little difficulty! In this respect, our democracy is flawed. A proportional representation system for voting for Parliament would be more democratic.

    JLW: June 11, 2012

    • Thank you, John, for your thoughtful response. You are right that the good news is that we are becoming increasingly aware of how captialism and democracy are letting us down, and hopefully this gives thoughtful people a way to implement necessary changes. The difficulty is the inertia of the old system created largely by the people who benefit most from maintaining it being unwilling to change. It will require dedicated activism on the part of those who can see the faults to try to shift the structure. This blog is intended to unravel some of the comlexity and expose the deficiencies of current institutions so that thoughtful people like yourself are encouraged to collaborate to bring pressure in the right places to shift the system, for the sake of our grandchildren, who will otherwise be deprived of what they coud have had.

      Desmond

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