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Sustainable Economics

Economics began as a discipline of moral philosophy concerned with the use of natural resources to produce and allocate goods and services for the common good. Moral philosophers reasoned that economics “should not be devoted to the most efficient means of producing material goods, but rather to the most efficient means of producing human wellbeing.”1

What has gone wrong? The short answer is that our economic system has hidden the real costs of economic growth, including the enormous damage to our natural environment. It has always been true that: “All economic decisions have an environmental consequence, just as all environmental decisions have economic consequences.”2 Yet, economists have ignored the environmental impact of economic growth.

To understand why our environmental crisis is an economic as well as an ethical crisis, we first look at how the real economy differs from the idealized economy of neoclassical economic theory. Then we consider how globalization in trade exacerbates the degradation of the environment and the depletion of natural resources, before suggesting revisions to economic theory and practice that may make our global economy environmentally sustainable.3

INVISIBLE HAND?

Modern economics began in 1776 with the publication of The Wealth of Nations by the Scottish moral philosopher Adam Smith.4 He argued that free trade would foster civil and political freedom, and that laws encouraging the pursuit of individual self-interest would result in the greater good. Smith offered two ethical arguments in support of his economic theory: that human dignity requires political and economic freedom and that the consequences of a free market system are generally beneficial.

Every person, Smith wrote, “endeavors as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labors to render the annual value of society as great as he can.”5 In the pursuit of self-interest, Smith believed, each individual is “led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of society more effectually than when he really intends to promote it.”6

Smith’s economic philosophy reflects the worldview of eighteenth-century Newtonian mechanics, for Smith “conceived of the economy as a closed system in which interactions between parts (consumers, producers, distributors, etc.) are controlled by forces external to the parts (supply and demand).”7 His belief that an “invisible hand” ensures the common good is an analogy to Newton’s law of gravity, which sustains the universe. “In the real economy,” however, “the invisible hand does not exist.”8

There are relationships between supply, demand, and market prices, but there is no “invisible hand” that prevents economic growth from damaging the environment and causing global warming. “Market fundamentalists claim that human governance is always an impediment to markets, but in fact human governance is what makes markets possible.”9 We now need to regulate markets to ensure that they are environmentally sustainable.

“Here’s the problem in a nutshell. Industrialism developed in a different world from the one we live in today: fewer people, less material well-being, plentiful natural resources. What emerged was a highly productive, take-makewaste system that assumed infinite resources and infinite sinks for industrial wastes. Industry [now] moves, mines, extracts, shovels, burns, wastes, pumps and disposes of four million pounds of material in order to provide one average, middle-class American family their needs for a year. Today, the rate of material throughput is endangering our prosperity, not enhancing it.”10

 Fifteen hundred of the world’s leading scientists confirm this conclusion.  “The earth is finite. Its ability to absorb wastes and destructive effluents is finite. Its ability to provide food and energy is finite. Its ability to provide for growing numbers of people is finite. And we are fast approaching many of the earth’s limits.”11 Current economic practices “cannot be continued without the risk that vital global systems will be damaged beyond repair.”12

Therefore, we must address these economic and ethical issues:

·        Many natural resources are nonrenewable and cannot be fully recycled.

·        Renewable resources are being harvested beyond their optimal scale.

·        The waste absorption capacity of the environment has been exceeded.

·        The loss of ecosystem benefits due to economic exploitation is a real cost.

ECONOMIC AND ETHICAL ISSUES

First, many natural resources are nonrenewable and cannot be fully recycled. This includes metals and fossil fuels that are extracted from the earth.13 The supply of these natural resources is finite and in some cases is rapidly diminishing. Yet, in neoclassical economics, those mining these nonrenewable resources are not required to include in their costs any calculation of the investment required to find or create replacements, or to make that investment. These issues are simply left to the marketplace.

Both ethics and economics agree that we have a duty to allocate and use resources to ensure the common good. Chapter 4 argues that in using natural resources we have, as well, a duty to give moral consideration to future generations.  Therefore, we need to ensure that those who profit from using nonrenewable resources at least fund investment in developing replacements. As markets do not impose this cost on producers, it must be assessed by law. 

Second, renewable resources are being harvested beyond their optimal scale. Renewable resources (such as fish and forests) will not be used up, as long as these organisms are harvested at or below an optimal scale that allows their populations to replenish. Yet, nothing in an unregulated market prevents the loss of these renewable resources.14 In fact, as renewable resources become scarce, those harvesting these natural resources tend to intensify their efforts in order to maximize their short-term profit before a resource is depleted.

Harvesting renewable resources at greater than the optimal scale is wasteful, for this depletes a natural resource that otherwise is self-sustaining. This waste cannot be morally justified when there is scarcity and the loss of resources allocates greater costs to others. Thus, governments need to restrict the harvesting of renewable resources to less than optimal scale.

Third, the waste absorption capacity of the environment has been exceeded. In neoclassical economics waste left in the environment is treated as an externality—a consequence external to the market economy that does not need to be included as a cost in determining the market value of an economic activity.15 “When firms compete with each other in the free market, their decisions are not guided by environmental considerations. They can produce more cheaply when they dispose of their wastes in the least expensive way—for example, in the nearest river.”16 So, they do.

Nature has evolved many ways of recycling waste, but the natural processes that purify air and water and reconstitute the soil take time and have limits. To protect these natural processes, we must support laws that require the effective treatment of waste before it is emitted into the environment. This not only makes good economic sense, but reflects our ethical duty to one another and to other species.

Fourth, the loss of ecosystem benefits due to economic exploitation is a real cost. Neoclassical economic theory has failed to recognize that renewable resources provide not merely stock-flow resources,17 such as fish to eat and wood to use, but also fund-service resources18 that have significant ecological benefits. For example, in addition to providing lumber that may be harvested, forests are ecosystems that absorb carbon dioxide and release oxygen, provide habitats for other organisms, and regulate rainfall and prevent soil erosion.

 The loss of these ecological benefits19 when forests are cut is presently contributing to global warming due to increased carbon dioxide levels in the atmosphere, which has significant economic costs. Yet, neoclassical economic theory ignores the loss of ecosystem benefits (by identifying these costs as externalities) in calculating the costs used to set the price of lumber.

What Went Wrong?

 Since World War II the richest and most powerful nations have been “cooperating for the sake of the growth of the global economy” on the assumption that this “massive shift of power from nations to transnational corporations” will yield the greatest good for the world’s peoples.20 Emphasizing economic growth, “while on balance quite useful in a world with empty land, shoals of undisturbed fish, vast forests, and a robust ozone shield, helped create a more crowded and stressed one.”21

Economic theory “did not adjust to the changed conditions it helped to create; thereby it continued to legitimate, and indeed indirectly to cause, massive and rapid ecological change.”22 Moreover, democratic institutions have “been weakened by three decades of market fundamentalism, privatization ideology and resentment of government.”23

In the last third of the twentieth century the environmental movement in the United States fought back in Congress and in the courts.24 Nonetheless, in the first decade of the twenty-first century the “Bush administration, which favors energy production over energy conservation, has engineered a reversal of a generation of progress on environmentalism that threatens to leave the [hazardous wastes cleanup] Superfund program underfunded, air-quality standards compromised and global warming unchecked. These politics can be traced directly to that proud disdain for the public realm that is common to all market fundamentalists, Republican and Democratic alike.”25

 The ethical measure of an economic policy is its contribution to the common good. This not only requires political decisions that protect the environment, but also economic policies that ensure a fair distribution of the economic benefits that are realized. Adam Smith argued that political freedom requires economic freedom, and this seems to be true. Yet, ethics requires that laws protect political freedom by regulating economic freedom.

Wealth Disparity

Has the common good been realized by our growth economy? Increasing wealth disparity is evidence to the contrary. “According to the United Nations Human Development Report in 1999, the income differential between the fifth of the world’s population in the wealthiest countries and the fifth in the poorest was 30 to 1 in 1960, 60 to 1 in 1990, and 74 to 1 in 1995.”26 In 2006 the wealth of the world’s 475 billionaires exceeded the income of the poorest three billion people on earth, and this disparity is growing.27

 Economic inequity is also rising in the United States. “Virtually all of the growth in wealth between 1983 and 1989 in the US went to the top 20 percent. The bottom 80 percent was excluded from this growth and the bottom 40 percent saw their wealth decline in absolute terms.”28 Ten years later, “the richest 1 percent of Americans controlled 95 percent of the country’s financial wealth. . . .”29 In addition, “There is a growing inequity in pay. From 1976 to 2006, the average salary of workers in the bottom 90 percent of the income distribution—nearly everybody—rose by only 2.3 percent, to $38,800, tax data show. Among the top 10 percent, [however,] average salaries rose 57 percent, to $195,000.”30

Why is this disparity an ethical concern? It favors speculation over rational investment31 and drives up prices. Investment funds that bet on rising prices for oil32 and other commodities, and on currency exchange rates, have turned the economy into “a very gigantic version of Las Vegas.”33 Even a fund manager, who benefits from this speculation, warns “that the widening divide among the richest and everyone else” is a problem: “We are clearly in a period of excess, and we have to swing back to the middle or the center cannot hold.”34

Economist Robert J. Samuelson agrees that “productivity gains (improvements in efficiency) are going disproportionately to those at the top,” and that this growing inequality “threatens America’s social compact.”35 By this “social compact” Samuelson means the implicit agreement among Americans to accept the authority of government and its lawfully imposed restrictions on individual freedom—which is expressed by individuals who obey the law, pay taxes, and participate in the political process.36

Two centuries ago Thomas Jefferson and Benjamin Franklin were so concerned about economic disparity weakening democratic government that they opposed legislation protecting inheritance rights.37 Now economic globalization is increasing wealth disparity and threatening democracy, as well as undermining efforts to protect the natural environment.38

GLOBALIZATION AND ECONOMIC GROWTH

The neoclassical economic theory of comparative advantage holds that trade between two countries should not be restricted by government tariffs (taxes) or other restraints because, in general, “free trade” will benefit both societies.39 “If our country can produce some set of goods at lower cost than a foreign country, and if the foreign country can produce some other set of goods at a lower cost than we can produce them, then clearly it would be best for us to trade our relatively cheaper goods for their relatively cheaper goods. In this way both countries may gain from trade.”40 This argument asserts that unregulated markets yield the common good.

Absolute Advantage

Today, however, goods are not produced by countries, as the theory of comparative advantage assumes, but by corporations that are often transnational. The theory of comparative advantage also assumes that capital will be invested at home in the country of the investor, but now capital goes wherever there is absolute advantage for profit.

“A country has absolute advantage if it can produce the good in question at a lower absolute cost than its trading partners.”41 To maximize profits, financial capital is invested where production costs are lowest. When trade takes place between two countries and one country has an absolute advantage in the goods traded, the other country will likely lose both income and jobs as financial capital is shifted to the country with absolute advantage in order to yield a higher return.42

Why is this relevant for environmental ethics? First, achieving absolute advantage usually involves minimizing the costs of extracting or processing natural resources and disposing of waste. Therefore, investors seeking absolute advantage in their pursuit of short-term profits avoid countries with strong environmental protection policies, or use their influence to weaken the enforcement of laws intended to protect the environment. This is why, in the past twenty years, “a large share of the world’s polluting industries have migrated to the largest low-wage country of all, China, helping to turn big swaths of its landscape into an environmental disaster zone.”43

Second, the theory of comparative advantage promises mutual benefits for countries involved in trade, but absolute advantage offers economic gain largely for investors. The pursuit of absolute advantage moves financial capital from one country to another, when there is greater profit to be realized, causing a loss of jobs and income in the first country that makes it even harder to protect or clean up its environment.44

Economic globalization is the pursuit of absolute advantage everywhere. “Globalization is the effective erasure of national boundaries for economic purposes.

National boundaries become totally porous with respect to goods and capital, and increasingly porous with respect to people, viewed in this context as cheap labor, or in some cases cheap human capital.”45 The main beneficiaries of economic globalization are multinational corporations, which gain power over economic decision-making as national governments lose control over their economies.

Neoclassical economists, however, defend economic globalization by arguing that it has many benefits, including:

·        Greater efficiency in using resources and more rapid economic growth.

·        More national specialization on the basis of competitive advantage.

·        Global enforcement of “trade-related intellectual property rights.”

·        Control by international organizations over local and national decisions.46

Some of these claims, however, actually contradict the principles of neo classical economics.

Contradictions

Consider the following three arguments concerning efficiency. First, neoclassical theories hold that economic efficiency requires market competition involving a large number of companies. The moral justification offered in support of market competition makes sense, because ensuring competition is fair to all and the overall consequences of competition are likely to be beneficial. Yet, economic globalization reduces competition, as only large businesses have the resources to compete in foreign markets. Moreover, these giant firms can lower their prices until small firms are forced into bankruptcy or into accepting a buyout.

“As a rule of thumb, many economists agree that if 40 percent of a given market is controlled by four firms, the market is no longer competitive. Such concentration is not at all unusual in the agricultural sector: in the US Midwest, four firms control well over 40 percent of the trade in most major agricultural commodities, and the top four agrochemical corporations reportedly control over 55 percent of the global market.”47 In 1995, with unusual candor, the chairman of one of these firms admitted: “There is not one grain of anything in the world that is sold in the free market.”48

Second, neoclassical economists rail against central planning by governments as being inefficient. Why then should we assume that an economy dominated by the corporate planning of larger multinationals will be more efficient? Nobel laureate economist Ronald Coase argues that “firms are islands of central planning in a sea of market relationships.”49 We should not expect larger corporations due to globalization to increase economic efficiency.

Third, neoclassical theories oppose regulatory controls over the market, claiming that government intervention is inefficient. Yet, globalization relies on regulations by international institutions, which undercut local and national decision-making. Three of these institutions now wield enormous power over international trade:  the International Monetary Fund (IMF), the World Bank, and the World Trade Organization (WTO).

Why are these ethical issues? Efficiency reduces waste, which means less environmental damage. In fact, however, transnational corporations may not only be less efficient, but may use their vast financial resources to resist environmental regulations imposed by national governments—by threatening to curtail investment in a nation, or by appealing to international institutions, like the WTO, to override a nation’s laws. Economic globalization, therefore, is largely unjust as well as unsustainable.

Intergovernmental Institutions

In the last half of the twentieth century international institutions were created by the most powerful national governments to promote human welfare through economic development. The purposes of the IMF include facilitating international trade, promoting high employment and sustainable economic growth, and reducing poverty.50 The World Bank was charged with the duty “by wise and prudent lending, to promote a policy of expansion of the world’s economy.”51 The WTO was created to reduce tariffs and other barriers to multi national trade.52

These institutions, however, have uncritically promoted neoclassical economics. In 1991, Lawrence Summers, as chief economist at the World Bank, suggested that “the bank should encourage the world’s dirty industries to move to developing countries. The forgone earnings of workers sickened or killed by pollution would be lower in low-wage countries, he noted, while people in poor countries also cared less about a clean environment. ‘The economic logic of dumping a load of toxic waste in the lowest-wage country is impeccable,’ he wrote.”53

A 2007 report on the World Bank concludes: “The World Bank, financed by rich nations to reduce poverty in poor ones, has long neglected agriculture in impoverished sub-Saharan Africa, where most people depend on the farm economy for their livelihoods.”54 Imposing neoclassical economics via international intervention and regulation has not, in fact, contributed to the common good of the people in sub-Saharan Africa.55

Critics of the IMF and the World Bank argue that these institutions “are no longer serving the national interests of their member countries, according to their charters.”56 Renato Ruggiero, former director general of the WTO, has admitted that the purpose of the WTO is no longer to facilitate multilateral trade, but to create a globalized economy. “We are no longer writing the rules of interaction among separate national economies,” he acknowledged in 1996, because the WTO is involved in “writing the constitution of a single global economy.”57

 What are the ethical issues here? Actions of the IMF, the World Bank, and the WTO have undercut the authority of national governments and strengthened transnational corporations, which has made it harder for countries to protect their natural environments. Also, the economic policies of these institutions have not alleviated the chronic poverty of hundreds of millions of people, and have increased the disparity between rich and poor.58

The total number of people in the world living on less than a dollar a day has declined between 1990 and 2002, although it remains at about 1.1 billion. But this decline in poverty is largely due to the rapid development of China’s economy, which was achieved largely without World Bank assistance and regulation.  Poor countries that have relied on World Bank loans—and have accepted conditions promoting free trade and requiring cuts in public spending for health and education—have generally not made progress in alleviating poverty.59

The consequences of WTO regulation are also discouraging. WTO rules prohibit national trade policies that promote small businesses, if the effect of such national policies may be interpreted as discriminating against foreign companies, even though such policies are needed for small businesses to compete with transnational corporations. The WTO also requires participating nations to protect intellectual property rights for twenty years, which puts domestic firms at a disadvantage in competing with foreign corporations that own most of these patents.60

Environmental Consequences

Neoclassical economic theory affirms the utilitarian goal of producing the greatest good for the greatest number of people. Do the consequences of economic globalization and the decisions of international institutions that support globalization meet this ethical standard?

Continuing poverty has a direct impact on the environment, for the poorest of the poor destroy their environment to survive when they are desperate. In many countries the poor have been pushed to marginal lands, and there have cut trees for wood and planted crops that can only be grown inefficiently. This unsustainable economic activity damages the local environment and reduces the capacity of the earth’s ecosystems to replenish and recover.

Also, WTO policies promoting economic growth and trade have required national governments to set aside laws intended to limit environmental externalities.  “While technically countries are allowed to pass environmental legislation, the WTO frequently declares such laws barriers to trade.”61 For example, “Challenged by Venezuela, the United States was forced to allow the import of gasoline that does not comply with US Clean Air Act regulations.”62

WTO support for global trade has benefits, but has also made it harder for countries to regulate businesses in order to protect nature.63 “[T]he need to compete for market share reduces national incentives to legislate against externalities in what is known as standards-lowering competition (a race to the bottom). The country that does the poorest job of internalizing all social and environmental costs of production into its prices gets a competitive [absolute] advantage in international trade. More of world production shifts to countries that do the poor job of counting costs—a sure recipe for reducing the efficiency of global production.”64

To sum up, support for economic globalization and neoclassical economics by the IMF, the World Bank, and the WTO has exacerbated environmental problems by:

·        Stimulating environmentally destructive economic development.

·        Decreasing the ability of national governments to protect the environment.

·        Undermining local control over the use of natural resources.

·        Supporting corporate power and the ideology of economic growth.65 To address these environmental issues, we have to change our global economic system.

GREEN ECONOMICS

Economist Duncan K. Foley wrote A Guide to Economic Theory “to give people more confidence in their own moral judgments” about economics.66 He argues that simply promoting self-interest will not lead to the best world for the greatest number of persons, and that globalized trade will not “solve the problems of poverty and inequality.”67 Nor will an economic theory based on an uncritical view of self-interest and open markets resolve the environmental crisis. 

Economist Paul Krugman agrees, quoting Franklin D. Roosevelt to make the point: “We have always known that heedless self-interest was bad morals.  We know now that it is bad economics.”68 Krugman says, “These words apply perfectly to climate change. It’s in the interest of most people (and especially their descendants) that somebody do something to reduce emissions of carbon dioxide and other greenhouse gases, but each individual would like that somebody to be somebody else. Leave it up to the free market, and in a few generations Florida will be underwater.”69

What are we to do? Our analysis supports four ethical and economic presumptions.

Ethical and Economic Presumptions

First, our goal should be an environmentally sustainable economy.70 We have a duty to protect our habitat, whether we understand this only as a duty to other people or also as a duty to other species. In addition, I argue that we have a duty to give our descendents moral consideration, because we feel our ancestors had a duty to consider our well-being in making decisions about the environment.71

Therefore, we must ensure economic policies that value ecosystem functions and biodiversity, as well as efficiency, by supporting laws that effectively regulate our use of finite natural resources. The harvest of renewable resources (such as fish and forests) should be limited to less than the optimal scale, so these populations may replenish. The extraction of nonrenewable natural resources that are being depleted (such as oil) should be taxed to fund the development of alternative ways, utilizing other material, to meet the same needs.

Second, we should pay as we go for the costs of environmental externalities. We cannot rely on an “invisible hand” to repair the environmental damage due to economic development. Moreover, if we accept that our moral community includes future generations as well as the living, we have a duty to limit the adverse impact of our economy on the environment.72

Therefore, we should include in our economic accounting the investment needed to develop substitutes for nonrenewable resources being depleted, treat waste that exceeds the environment’s absorption capacity, and restore degraded environments.73 Environmental costs should be assessed by law to the business that generates them or, if this is not feasible, to the country under whose jurisdiction the business is operating.74

Third, environmental policies should affirm the precautionary principle, “which states that when a practice or product raises potentially significant threats of harm to human health or the environment, precautionary action should be taken to restrict or eliminate it.”75 This ethical principle puts the burden of proof for an action, which may likely harm the environment or human life, on those who propose to take the action, rather than on those who caution against it.

Reasoning on the basis of the precautionary principle involves rejecting the claim that environmental issues should be decided simply by predicting likely consequences. The precautionary principle asserts that we have a duty to do no harm to the environment when consequential predictions are not sufficiently confirmed by scientific evidence to address the risks of taking an action.

Ecosystems are poorly understood and thus unpredictable, so to be on the safe side economic policies should leave a margin for error. For instance, harvesting a renewable resource, such as fish or trees, should be limited to less than the predicted optimal scale, as this estimate is inherently imprecise.

Acting on the precautionary principle also requires protecting ecosystem processes from market pricing. The emergent properties of ecosystems (fund-services resources) are of great value for life, and the consequences of damaging these processes are unpredictable. Although market pricing is efficient for manufactured goods, it does not adequately protect ecosystem benefits. (The value of a forest, for example, is not simply the market value of its cut lumber.) Governments have a duty to protect the integrity of ecosystems.76

Fourth, economic power should be constrained by the rule of law. Both economic freedom and political freedom require decision-making with checks and balances, so that power is distributed and limited. This basic principle of civics is an ethical imperative as well.

At the global level this will require new international treaties that place the activities of international economic institutions, such as the IMF, the World Bank, and the WTO, under the political control of the United Nations. As this change would also strengthen national governments, it might foster a political process with greater checks and balances, which is the only effective way to promote economic trade and also protect the natural environment.

“The primacy of the political over the economic, combined with weakening global economic institutions [such as the World Bank, the IMF, and the WTO], would make possible economic decentralization. It would be possible for nations and even regions within nations to develop relatively self-sufficient economies. They would then trade with one another only as this did not weaken their capacity to meet their own basic needs. They would cooperate in establishing larger markets for goods that cannot be efficiently produced for smaller ones.”77

In this new political and economic order, environmental problems would be the responsibility of those making decisions on the same scale as the problem.  Garbage collection takes place in municipalities and thus should be managed by local authorities. “By contrast, global warming is fundamentally a global problem, because emissions anywhere affect the climate everywhere. Here we really do need global policy.”78

Growing wealth disparity should be checked at all levels of the economy, and this means replacing the rhetoric of “free trade” with procedures that ensure fair trade.79 Both employees and the environment should be protected by laws that are effective and fair. Workers ought to be guaranteed a living wage and safe working conditions, and producing and trading goods should be subject to regulations that ensure environmental sustainability.80 This means international as well as national constraints on the economy.

Our primary focus, however, should be local. Seeing the world as a global economy through the lens of neoclassical economics has hidden for too long an alternative view of the world as a biosphere of diverse political and economic communities. Embracing this new view now matters.

“For example, most of the rapid deforestation of the planet is for the sake of export, either of lumber or of beef that can be raised on formerly forested land. If the focus of attention is on the local economy, the value of the standing forest counts for more. In this and other ways, in regions which were not heavily oriented to export, the people would often be concerned that their region continue to provide a habitable home to their children, and they would be more likely to adopt sustainable relations to the environment.”81

Steady-State Economy

Unfortunately, “Instead of recognizing that the human economy is a dependent subset of the biosphere, many economists still assume that economic growth and liberalization, with wealth creation, is the key to affording adequate environmental management. Environmental quality is believed to be most effectively achieved through market forces, even as social and environmental costs are ‘externalized.’”82

To ensure that economic development is ecologically sustainable, perhaps our long-term goal should be a steady-state economy—an economic system that would “maintain constant stocks of wealth and people at levels that are sufficient for a long and good life.”83 John Stuart Mill, who supported both political and economic freedom, argued that “a stationary condition of capital and population implies no stationary state of human improvement. There would be as much scope as ever for all kinds of mental culture, and moral and social progress . . . when minds cease to be engrossed by the art of getting on.”84

What might such an economy be like? “Material well-being would almost certainly be indexed by the quality of the existing inventory of goods, rather than by the rate of physical turnover. Planned obsolescence would be eliminated.  Excessive consumption and waste would become causes of embarrassment, rather than symbols of prestige.”85

This would mean discarding the gross national product (GNP) and gross domestic product (GDP) indices86 used to measure economic growth, for these do not measure economic well-being but only the quantity of economic activity.  “GNP reflects all expenditures, including many corrective measures such as policing, prisons, hospital services, homeless shelters, lawsuits, and every form of pollution and waste. . . . The onwards-and-upwards rise of GNP presumes that the more people spend, the better their lives must become. But GNP makes no distinction between desirables and undesirables; it only distinguishes more from less.”87

The genuine progress indicator (GPI)88 and the index of sustainable economic welfare (ISEW)89 offer alternative ways of measuring economic success.  “Computation of the ISEW begins with personal consumption, but then adjusts this in relation to income distribution. (Our assumption is that the wellbeing of the society as a whole is affected by the condition of the poorest.) The index then adds for household services, chiefly the contribution of housewives.  It subtracts for ‘defensive costs,’ that is, costs that result from economic growth and the social changes, such as urbanization, that accompany it. (For example, the cost of commuting to work should not be viewed as an addition to welfare just because it adds to the GNP.) This applies also to the cost of pollution.   Since it is an index of sustainable welfare, it subtracts for the reduction of natural capital, and adds or subtracts for change in the net international position.”90 Also, we need to construct “economic models that provide a better cost accounting of the short- and long-term impacts of real-world economic activities and that privilege, through taxation and incentives, the development and implementation of nonpolluting technologies and processes.”91

Becoming a Green Economy

Given the complexity of the real economy, “the task of developing new economic models must be an intensely interdisciplinary activity. Any realistic evaluation of the costs of doing business in this economy will require the use of models in which economic systems, or parts, are treated as open systems that mutually interact within the single system of the whole biosphere.”92

We must transform our growth economy into a green economy. Only a joint effort by business and government leaders, at the prodding of citizens, will lead to the economic and political changes needed to make our industrial society environmentally sustainable. William McDonough and Michael Braungart, who make their living by creating sustainable products, buildings, and communities, are convinced that this is our future.

“We believe that humans can incorporate the best of technology and culture so that our civilized places reflect a new view. Buildings, systems, neighborhoods, and even whole cities can be entwined with surrounding ecosystems in ways that are mutually enriching. We agree that it is important to leave some natural places to thrive on their own, without undue human interference or habitation. But we also believe that industry can be so safe, effective, enriching, and intelligent that it need not be fenced off from other human activity.”93

McDonough and Braungart affirm that we will have an environmentally sustainable and productive economy when people and industries are committed to creating:

·        buildings that, like trees, produce more energy than they consume and purify their own waste water

·        factories that produce effluents that are drinking water

·        products that, when their useful life is over, do not become useless waste but can be tossed onto the ground to decompose and become food for plants and animals and nutrients for soil; or, alternately, that can return to industrial cycles to supply high-quality raw materials for new products

·        billions, even trillions, of dollars’ worth of materials accrued for human and natural purposes each year

·        transportation that improves the quality of life while delivering goods and services.94

NOTES

1.     Herman E. Daly and Joshua Farley, Ecological Economics, 396.

2.     Jim MacNeill quoted in Norman Myers and Jennifer Kent, Perverse Subsidies: How Tax Dollars Can Undercut the Environment and the Economy (Washington, DC: Island Press, 2001), 26.

3.     John B. Cobb, Jr. believes “the basic principles that govern the global economy today inherently lead to increasing injustice and unsustainability. Policies based on these principles concentrate wealth in fewer hands, leaving the poor more destitute. They transfer wealth from poorer to richer countries. And they speed the destruction of natural resources, especially in the poorer countries.” John B. Cobb, Jr., “Toward a Just and Sustainable Economic Order,” in Andrew Light and Holmes Rolston III, eds., Environmental Ethics, 359.

4.     The full title is An Inquiry into the Nature and Causes of the Wealth of Nations.

5.     Adam Smith, The Wealth of Nations, online at http://en.wikipedia.org/wiki/Adam_Smith.

6.     Ibid. Italics added. Smith believed the “invisible hand” would bring about “a distribution of the necessaries of life that is ‘nearly the same’ as it would have been if the world had been divided up equally among all its inhabitants.” Peter Singer, One World: The Ethics of Globalization (New Haven, CT: Yale University Press, 2002), 30.

7.     Robert Nadeau and Menas Kafatos, The Non-Local Universe, 199. Smith thought that “forces external to the individual units function as an invisible hand . . . [that] frees the units to pursue their best interests, moves the economy forward, and in general legislates the behavior of parts in the best interests of the whole.”

8.     Ibid., 207.

9.     Ted Nordhaus and Michael Shellenberger, Break Through, 234.

10.   Interface Incorporated, “Why Is Striving for Sustainability So Important”?, online at http://www.interfaceinc.com/goals/sustainability_overview.html. Italics added.

11.   The statement is reprinted in Renewable Resource Journal (Summer 2001): 169, in James Gustave Speth, Red Sky at Morning, 17. Italics added.

12.   Ibid.

13.   Most “recycling” is actually better identified as “downcycling,” because it “reduces the quality of a material over time” and may even “increase contamination of the biosphere.” For recycling to be effective products must be designed to be reused, which is generally not the case today.  William McDonough and Michael Braungart, Cradle to Cradle: Remaking the Way We Make Things (New York: North Point Press, 2002), 56–57.

14.   “Since industry is the sector of the economy capable of continuing growth, growth- oriented policies emphasize the export of whatever is available in order to bring in the capital needed for industrialization. In many countries the available resource most desired by the global market is lumber. Accordingly, the earth as a whole is being rapidly deforested.” John B. Cobb, Jr., “Toward a Just and Sustainable Economic Order,” in Andrew Light and Holmes Rolston III, eds., EnvironmentalEthics, 362.

15.   An externality is defined formally as: “An unintended and uncompensated loss or gain in the welfare of one party resulting from an activity by another party.” Herman E. Daly and Joshua Farley, Ecological Economics, 433.

16.   John B. Cobb, Jr., “Toward a Just and Sustainable Economic Order,” in Andrew Light and Holmes Rolston III, eds., Environmental Ethics, 361.

17.   Stock-flow resources are: “Resources materially transformed into what they produce (material cause); can be used at virtually any rate desired (subject to the availability of fund-service resources required for their transformation); their productivity is measured by the number of physical units of the product into which they are transformed; can be stock-piled; are used up, rather than worn out.” For example, trees are a stock-flow resource, when logged for timber. Herman E. Daly and Joshua Farley, Ecological Economics, 440.

18.   Fund-service resources are: “Resources not materially transformed into what they produce (efficient cause); which can only be used at a given rate, and their productivity is measured as output per unit of time; cannot be stockpiled; and are worn out, rather than used up.” Forests provide many fund-service resources such as releasing oxygen into the atmospheres, providing habitats for other animals, and preventing soil from being eroded by rainfall. Herman E. Daly and Joshua Farley, Ecological Economics, 433.

19.   I agree with William McDonough and Michael Braungart that it is best not to call ecological benefits “fund-service resources,” as it is misleading to think of these natural processes as “services” for human beings. William McDonough and Michael Braungart, Cradle to Cradle, 80.

20.   The assumption is flawed because it continues to reflect an uncritical faith in the “invisible hand” of an unregulated marketplace. John B. Cobb, Jr., “Toward a Just and Sustainable Economic Order,” in Andrew Light and Holmes Rolston III, eds., Environmental Ethics, 359–360.

21.   J. R. McNeill, Something New Under the Sun, 334–336, in Herman E. Daly and Joshua Farley, Ecological Economics, xx.

22.   Ibid.

23.   Benjamin Barber, “A Failure of Democracy, Not Capitalism,” The New York Times (July 29, 2002), A23, in James Gustave Speth, Red Sky at Morning, 111.

24.   “Since the 1960s the environmental movement has changed the world. It is arguably one of the most successful social movements in human history.” Louis P. Pojman and Paul Pojman, eds., “Introduction,” Environmental Ethics, 2.

25.   Benjamin Barber, “A Failure of Democracy, Not Capitalism,” The New York Times (July 29, 2002), A23, in James Gustave Speth, Red Sky at Morning, 111.

26.   Edward O. Wilson, The Future of Life, 150.

27.   The International Forum on Globalization (IFG), online at http://www.ifg.org/about.htm. For more information see the United Nations Development Programme’s 1999 Human Development Report, online at http://hdr.undp.org/en/reports/global/hdr1999. In contrast, Peter Singer notes various findings about inequality in the world and concludes: “No evidence that I have found enables me to form a clear view about the overall impact of economic globalization on the poor.” Peter Singer, One World, 89.

28.   Herman E. Daly and Joshua Farley, Ecological Economics, 262. Historically, economic growth has been good for workers. “It is the rapid economic growth since the Industrial Revolution that has created a broad middle class in the United States and that accounts for much of what is great about American society today.” William Wolman and Anne Colamosca. The Judas Economy: The Triumph of Capital and the Betrayal of Work (Reading, MA: Addison-Wesley, 1997), 160.

29.   Ibid., 395. “Between 1979 and 1989, the richest 1 percent of American households increased their income from $280,000 to $525,000 per year.” Ted Nordhause and Michael Shellenberger, Break Through, 165. See Lisa Lambert, “Poor Get Poorer as Recession Threat Looms: Report,” Reuters (Apr. 9, 2008), online at http://www.reuters.com/article/topNews/idUSN0838901420080409.

30.   Editorial, “Is Trade the Problem?” The New York Times (Apr. 27, 2008), online at http://www.nytimes.com/2008/04/27/opinion/27sun1.html. “Outrageous executive pay and excesses in financial markets also play a big part. The richest 1 percent of the population has captured more than half of the nation’s total income growth since 1993.”

31.   In his critique of current economic policies, John C. Bogle, founder of Vanguard Mutual Fund, quotes favorably the comment by John Maynard Keynes: “When the capital development of a country becomes the by-product of the activities of a casino, the job is likely to be ill-done.” John C. Bogle, The Battle for the Soul of Capitalism (New Haven, CT: Yale University Press, 2005), xvii.

32.   See Susan Tompor, “Speculation Drives Oil Prices, Not Demand,” Detroit Free Press (Mar.

23, 2008), online at http://www.freep.com/apps/pbcs.dll/article?AID=/20080323/COL07/803230648/1002/BUSINESS, and David Cho, “Investors’ Growing Appetite for Oil Evades Market Limits: Trading Loophole for Wall Street Speculators Is Driving Up Prices, Critics Say,” The Washington Post (Jun. 6, 2008), A01, online at http://www.washingtonpost.com/wp-dyn/content/article/2008/06/05/AR2008060504322.html. Other economists, however, emphasize rising oil consumption and supply constraints. Paul Krugman, “Running Out of Planet to Exploit,” The New York Times (Apr. 21, 2008), online at http://www.nytimes.com/2008/04/21/opinion/21krugman.html.

33.   Gary Burtless, economist at the Brookings Institution, quoted in Jenny Anderson, “Wall Street Winners Get Billion-Dollar Paydays,” The New York Times (Apr. 16, 2008), online at http://www.nytimes.com/2008/04/16/business/16wall.html.

34.   William H. Gross, chief investment officer of the Pimco bond fund. Ibid.

35.   Robert J. Samuelson, “Trickle-Up Economics?” Newsweek (Oct. 2, 2006), 40.

36.   See the “Social Contract Theory,” The Internet Encyclopedia of Philosophy, online at http://www.iep.utm.edu/s/soc-cont.htm.

37.   See chapter 4.

38.   See, for instance, Jeffrey R. Gates, Democracy at Risk: Rescuing Main Street from Wall Street—A Populist Visit for the 21^st Century (New York: Perseus Books, 2000).

39.   Economist Paul Krugman has observed that: “If there were an Economist’s Creed it would surely contain the affirmations ‘I believe in the Principle of Comparative Advantage,’ and ‘I believe in free trade.’” Paul Krugman, “Is Free Trade Passé?” Journal of Economic Perspectives (1987), 1(2): 131.

40.   Steven M. Suranovic, “The Theory of Comparative Advantage–Overview,” International Trade Theory and Policy, online at http://internationalecon.com/Trade/Tch40/T40–0.php.

41.   Herman E. Daly and Joshua Farley, Ecological Economics, 429. A country has comparative advantage “if it can produce the good in question more cheaply relative to other goods it produces than can its trading partners, regardless of absolute costs.”

42.   “Speaking the language of ‘free-trade’ and poverty alleviation, organizations like the WTO, the IMF, and the World Bank impose a development model which seems designed to benefit transnational corporations over workers; foreign investors over local businesses; and wealthy countries over developing nations.” The International Forum on Globalization (IFG), http:// www.ifg.org/about.htm.

43.   Editorial, “Cleaning Up China,” The New York Times (Sep. 24, 2007), online at http:// www.nytimes.com/2007/09/24/opinion/24mon1.html.

44.   “The progressive reduction of barriers to trade between the United States and Mexico during the 1980s serves as an example of the problem. As tariffs were reduced, many US companies found it more economical to relocate production across the border. One reason they could produce more cheaply there was that they did not have to spend money on expensive waste disposal.They could dump their wastes into the Rio Grande.” The costs of the cleanup are now “to be borne primarily by the taxpayers and concerned citizens of Mexico and the United States, rather than by the polluters.” John B. Cobb, Jr., “Toward a Just and Sustainable Economic Order,” in Andrew Light and Holmes Rolston III, eds., Environmental Ethics, 361–362.

45.   Herman E. Daly and Joshua Farley, Ecological Economics, 317.

46.   Ibid., 323.

47.   “Nonetheless, in 1999 the US government approved the merger of the two largest international grain trading corporations, Cargill and Continental Grain . . . [even though] over 80 percent of international trade [in grain] is controlled by ten firms.” Ibid., 324.

48.   Dwayne Andreas, chairman of Archer Daniels Midland (ADM), quoted by Dan Carney in “Dwayne’s World,” Mother Jones (Jan. 1995), in Francis Moore Lappé and Anna Lappé, Hope’s Edge: The Next Diet for a Small Planet (New York: Jeremy P. Tarcher/Putnam, 2002), 300.

49.   Ibid., 325. See Ronald Coase, “The Nature of the Firm,” Economics 4:16 (1937): 386–405.

50.   The International Monetary Fund, online at http://www.imf.org/.

51.   John Maynard Keynes, quoted in Herman E. Daly and Joshua Farley, Ecological Economics, 318.

52.   “The WTO began life on 1 January 1995, but its trading system is half a century older.

Since 1948, the General Agreement on Tariffs and Trade (GATT) had provided the rules for the system.” “What Is the World Trade Organization?,” The World Trade Organization, online at http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact1_e.htm.

53.   Editorial, “Cleaning Up China,” The New York Times (Sep. 24, 2007), online at http:// www.nytimes.com/2007/09/24/opinion/24mon1.html. “Mr. Summers later apologized, saying his words were ‘sardonic counterpoint,’ meant to spur new thinking about the environment and development.” Summers was secretary of the Treasury during the Clinton administration and president of Harvard University from 2001 to 2006.

54.   Celia W. Dugger, “World Bank Neglects African Farming, Report Says,” The New York Times (Oct. 15, 2007), online at http://www.nytimes.com/2007/10/15/world/africa/15worldbank.html.

55.   See “Trade Negotiations Cannot Solve Food Crisis Created by WTO and World Bank: Report Shows Export-Oriented Model Eroded Africa’s Food Self-Sufficiency,” CommonDreams.org News Center (Jul.24, 2008), online at http://www.commondreams.org/news2008/0724-12.htm.

56.   Herman E. Daly and Joshua Farley, Ecological Economics, 320.

57.   Renato Ruggiero, from a speech to the United Conference on Trade and Development’s (UNCTAD) Trade and Development board in October 1996, online at http://r0.unctad.org/en/ special/tb4305.htm, quoted in Herman E. Daly and Joshua Farley, Ecological Economics, 320.

58.   Even when an economic development project increases a nation’s revenue, the benefits may not aid the poor. In Chad, for instance, the corrupt government has benefitted the most from World Bank investment in an oil pipeline. See Lydia Polgreen, “World Bank Ends Effort to Help Chad Ease Poverty,” The New York Times (Sep. 10, 2008), online at http://www.nytimes.com/2008/09/11/world/africa/11chad.html.

59.   Peter S. Goodman, “World Bank Reports Poverty Programs Ineffective,” The Washington Post (7 Dec. 2006), online at http://www.washingtonpost.com/wp-dyn/content/article/2006/12/07/AR2006120700427.html. This internal report of the World Bank verifies the criticism leveled at the World Bank “by activists who accuse it of an ideological bias toward market reforms and a callous disregard for the people bearing the brunt of such policies.”

60.   “This trade is ‘free’ in the sense that the firms engaged in it are free from interference or restriction by governments. But the people of each region are not free not to trade. They cannot live without importing the necessities for their livelihood, however unfavorable the terms of trade may be.” This makes them vulnerable to price increases, especially for the food they need, as is happening in 2007 and 2008. So, what is the answer? “An alternative ideal is one in which relatively small regions are relatively self-sufficient economically. People of such regions can then make basic decisions about themselves and about the rules by which they are governed. They are free to trade or not according to the terms of trade that are attractive to them. Not to trade means to deny themselves many desirable goods, but it does not threaten their healthy survival.” John B. Cobb, Jr., “Toward a Just and Sustainable Economic Order,” in Andrew Light and Holmes Rolston III, eds., Environmental Ethics, 366.

61.   Herman E. Daly and Joshua Farley, Ecological Economics, 328.

62.   Ibid. The WTO also ruled against the US Endangered Species Act, “which prohibits the import of shrimp from countries that do not mandate turtle excluder devices.”

63.   Peter Singer argues that the WTO does “place economic consideration ahead of concerns for other issues, such as environmental protection and animal welfare, that arise from how the product is made.” He also asserts that “the WTO is undemocratic both in theory and practice, firstly because a procedure requiring unanimous consent to any change is not a form of democracy, secondly because the dispute panels and the Appellate Body are not responsible to either the majority of members or the majority of the planet’s adult population, and thirdly because the organization is disproportionately influenced by the major trading powers.” Singer does not conclude that the WTO has made “the rich richer and the poor poorer,” but thinks that the operations of the WTO “in practice reduce the scope of national sovereignty.” Peter Singer, One World, 90.

64.   Herman E. Daly and Joshua Farley, Ecological Economics, 329.

65.   James Gustave Speth, Red Sky at Morning, 145. Speth also argues that economic globalization stimulates transportation and energy development, contributes to the commodification of natural resources, and spreads invasive species resulting in greater biological homogenization.

66.   Peter Steinfels, “Economics: The Invisible Hand of the Market,” The New York Times, (Nov. 25, 2006), A11.

67.   Ibid.

68.   Paul Krugman, “Gore’s Derangement Syndrome,” The New York Times (Oct. 15, 2007), online at http://www.nytimes.com/2007/10/15/opinion/15krugman.html.

69.   “The solution to such conflicts between self-interest and the common good is to provide individuals with an incentive to do the right thing.” Ibid.

70.   Chapter 10 discusses the concept of sustainability.

71.   This follows, if we extend the reasoning of the Golden Rule to future generations. See chapter 4.

72.   John C. Bogle, founder of the Vanguard Mutual Fund, condemns the “shocking misuse of our world’s natural resources, as if they were ours to waste rather than ours to preserve as a social trust for future generations.” John C. Bogle, The Battle for the Soul of Capitalism, xvi.

73.   The loss of natural capital may be captured by severance and waste disposal fees on producers, and these funds should be dedicated to seeking substitute resources and more efficient ways of absorbing and recycling waste. Natural capital is: “Stocks or funds provided by nature (biotic or abiotic) that yield a valuable flow into the future of either natural resources or natural services.” Herman E. Daly and Joshua Farley, Ecological Economics, 437.

74.   Herman E. Daly and Joshua Farley, Ecological Economics, 333.

75.   The International Forum on Globalization (IFG), online at http://www.ifg.org/about.htm.

76.   “Recognizing the social and ecological value of [such] a resource leads to its equitable and sustainable use. In contrast, assessing [such] a resource only in terms of market price creates patterns of nonsustainable and inequitable use.” Vandana Shiva, Water Wars: Privatization, Pollution, and Profit (Cambridge, MA: South End Press, 2002), 6.

77.   “Since much of the unsustainability of the present economy stems from the appropriation of the resources of the poor countries by the richer ones, the ending of the present global economic system would counter this.” John B. Cobb, Jr., “Toward a Just and Sustainable Economic Order,” in Andrew Light and Holmes Rolston III, eds., Environmental Ethics, 367.

78.   Herman E. Daly and Joshua Farley, Ecological Economics, 363. The idea of dealing with problems at the lowest level of decision-making that can solve them is called the principle of subsidiarity.  The European Union has adopted this principle for implementing policy decisions. See Peter Singer, One World, 199–200.

79.   For a brief account of the fair trade movement, see Robert Traer and Harlan Stelmach, Doing Ethics in a Diverse World, 254–256. Also see http://www.globalexchange.org and Sharon Cullars, “Fair Trade: Spreading the Wealth,” OneWorld.net (May 27, 2008), online at http:// us.oneworld.net/article/view/160684/1.

80.   Treaties, such as NAFTA, should be evaluated using these criteria. Trade is on balance beneficial, if it is fair and subject to political constraints that protect the natural environment.

81.   John B. Cobb, Jr., “Toward a Just and Sustainable Economic Order,” in Andrew Light and Holmes Rolston III, eds., Environmental Ethics, 367.

82.   Anthony J. McMichael, Colin D. Butler, and Carl Folke, “New Visions for Addressing Sustainability,” in Donald Kennedy, ed., Science Magazine’s State of the Planet: 2006–2007 (Washington, DC: Island Press, 2006), 164.

83.   Herman E. Daly and Joshua Farley, Ecological Economics, 55. For example, “[T]he state of Kerala in India shows that many social needs can be met without significant economic growth.  The per capita income of Kerala is about the same as that for India as a whole. But, with regard to infant mortality and life expectancy, it ranks well in comparison with highly industrialized nations.  At the same time it has greatly reduced its rate of population growth without resorting to authoritarian measures. It has achieved this by educating its people, and especially its women, about health and population issues, providing inexpensive care to all, and meeting other basic needs.” John B. Cobb, Jr., “Toward a Just and Sustainable Economic Order,” in Andrew Light and Holmes Rolston III, eds., Environmental Ethics, 365.

84.   John S. Mill, Principles of Political Economy, Book IV, Chapter VI (1848), in Herman E.

Daly and Joshua Farley, Ecological Economics, 54, and online at http://www.econlib.org/library/Mill/mlPbl.html.

85.  D. Hayes, Repairs, Reuse, Recycling–First Steps to a Sustainable Society (Washington, DC: The Worldwatch Institute, Paper 23, 1978), in Charles J. Kibert, Jan Sendzimir, and G. Bradley Guy, “Defining an Ecology of Construction,” Charles J. Kibert, Jan Sendzimir, and G. Bradley Guy, eds., Construction Ecology, 16.

86.   “In December 1991, the Bureau of Economic Analysis (BEA), an agency within the Department of Commerce, began to emphasize gross domestic product (GDP) over gross national product (GNP) as the most comprehensive measure of production in the U.S. The difference between GNP and GDP lies in the treatment of income from foreign sources. GNP measures the value of goods and services produced by US nationals, while GDP measures the value of goods and services produced within the boundaries of the US.” “The Difference between GNP and GDP,” online at http://www.cals.ncsu.edu/course/are012/readings/gdp&lead.html.

87.   “The United States’ per capita GNP registered an increase of 38 percent during the period 1980–1998, yet a decline in GPI of 25 percent.” Norman Myers and Jennifer Kent, Perverse Subsidies, 15.

88.   “Genuine Progress Indicator,” Redefining Progress: The Nature of Economics, online at http://www.rprogress.org/sustainability_indicators/genuine_progress_indicator.htm.

89.   “Improving and Promoting the Index of Sustainable Economic Welfare,” International Institute for Sustainable Development, online at http://www.iisd.org/measure/compendium/DisplayInitiative.aspx?id=1.

90.   John B. Cobb, Jr., “Toward a Just and Sustainable Economic Order,” in Andrew Light and Holmes Rolston III, eds., Environmental Ethics, 365.

91.   Robert Nadeau and Menas Kafatos, The Non-Local Universe, 205.

92.   Ibid., 206.

93.   William McDonough and Michael Braungart, Cradle to Cradle, 87.

94.   Ibid., 90–91.

Chapter 3, Doing Environmental Ethics, by Robert Traer