While it is usual in politics for individuals to develop new ideas they are of little avail if they are not taken seriously by the general community. Usually there is an organisation or group which faciltates the move from a good idea to mass community acceptance. There is no idea which is more important today than that of moving from the present perpetual economic growth economy to a stable or steady state economy. This would be a third major change in human history, the others being the first change from a hunter gatherer to a farming and livestock economy and the second the move from that to the present way which followed the agricultural and industrial revolutions which began some 300 years ago.
The idea of moving to a steady state economy can be traced back to John Stuart Mill in his chapter ‘On the Stationary State’ in his 1848 book Principles of Political Economy but the principal exponent of this third way over the last four decades has been the economist Herman Daly who has throughout used the term ‘the Steady-state Economy’.
The obvious group to take on the role of developing community interest and support for the steady state economy alternative is the environmental conservation movement. This is because of the fact that the basic cause of the escalating global environmental degradation is the near universal policy of continuous economic growth. This role would include explanation and further development of the idea including fleshing out the nature of the change and the necessary transitional measures through community consultation and political advocacy.
It is equally clear that to date the work of the environmental conservation movement has been almost entirely taken up with making efforts to mitigate the environmental effects of economic growth driven development and monitor the situation and the mainly downward trends. Most of this effort has been and is concerned with the defence of particular parts of the environment such as natural areas and wildlife. There are few organisations at the national and international level that have a broad scope and those that do would be expected to provide any leadership in the promotion of the third way – the steady state economy alternative. The failure of these bodies to engage with this task is a serious obstacle to the development of a catalytic movement in favour of the steady state in the wider community. Perhaps if we can understand the reasons for their reluctance we would be better able to overcome them.
This paper concerns my personal experience of the rationale for non-engagement developed within Australia’s chief national conservation body the Australian Conservation Foundation (the ACF).
The ACF was established in 1965-66 with the broad primary purpose of making “every effort to ensure that the land and waters of the Commonwealth and its Territories are used with wisdom and foresight and that competing demands upon them are resolved in the best long-term interests of the nation”. Up until recently policy in the ACF was determined by a Council of some 35 members, the great majority of which were elected by the organisation’s membership. In 2006 constitutional changes resulted in an appointed Board becoming the policy determining body.
Over the last 45 years there has been much discussion of the causes of national and global environmental degradation but little action. In August 1995, thirty years after the Foundation’s inception, ACF Council appointed Task Force 2025 to report on what the goals of the organisation should be over the following thirty years and how they were to be achieved. In May, 1996 a discussion paper on the broad future role options was circulated for comment by the ACF members. It listed and discussed three broad future role options. The third of these included attacking the cause of the problem by helping to develop a new economic and social system and bring about its acceptance while continuing the previous standards work but with greater attention to the grass roots.
The membership consultation, which included discussion at member meetings in three state capitals, resulted in strongly expressed majority support for option three which was subsequently supported by ACF Council but not implemented.
In late 2007 ACF Council decided that in future at each Council meeting it would have a Friday evening session on major topic involving guest speakers. The subjects selected for the three 2008 meetings were: indigenous issues (April/March meeting); population and consumption (July); and economic growth (November). In the event the proposed Friday evening session on economic growth was moved to the Saturday morning and renamed “transformative economy and consumption”. In a parallel development at the July 2008 meeting of Council, bearing in mind the forthcoming November discussion on economic growth, I foreshadowed a motion calling for ACF to endorse the Position on Economic Growth of the Center for the Advancement of the Steady State.
During the debate on the subsequent substantive motion to endorse the Position a further motion - “That ACF consider the Position on Economic Growth as part of its transformative economy policy” - was foreshadowed. Amongst the arguments put against endorsement were that the ACF had to work with the business community and support market solutions. After the endorsement motion was lost (with a vote of 22 against and 3 for) the foreshadowed motion was passed. Viewed optimistically, this outcome took the ACF back to the Task Force 2025 recommendations concerning action in 1998/99 with the major difference that it is envisaged that the leadership role would be performed by staff.
In November, 2009 the ACF CEO Don Henry reported that policy development on economic transformation was continuing and that a policy paper ‘Better than Growth’ was being developed. The intention was to engage with all political parties on big-picture economic transformation over the coming 12 months.
Summarising the reasons used by those opposing the adoption by ACF of a goal of trying to win public acceptance for a new economic and social system during the debates referred to above the following appear to be the main concerns and counter arguments:
While the ACF has been used as a case study there is little doubt that the problem is more widespread and is typical of the dilemma facing some major overseas environment groups. So what can be done?
For this we need better explanation of the situation, including the nature of the fundamental conflict between economic growth and environmental protection, and of the benefits the Steady State Economy would bring (comparing the alternative two roads into the future in terms of social and environmental well being and how it is the economic growth-without-end road which is extreme) . Explaining the illusional nature of the belief that one can have indefinite economic growth is obviously crucial. It represents a disconnect with reality, a delusion and self deception. The focus needs to be on the connections and the costs (cause and effect) as well as on how things are likely to get worse with continued economic growth. In this context, stressing that the steady state economy concept involves qualitative growth in the form of development and creativity is also important.
Here two points need to be stressed: a) that it is essential that the work of mitigating the effects go on while we make the change and acknowledge that these can also be important avenues for education and ethical transformation; and b) that while the traditional work on dealing with symptoms will continue to be important, on its own it is currently having the side effect of putting off attention to fundamental causes and in this way is being counterproductive. It is losing us valuable time.
Efforts to develop confidence for undertaking the new role are obviously also critical. First, it needs to be stressed that most movements have small beginnings and that the build up will be gradual but sure. Most new ideas are initially seen as being extreme or unachievable. Eventually there will be a tipping point in public opinion. The role of environment groups will be primarily as catalysts and educators. The members of ACF can be a bridge to the wider community. Understanding and solidarity in the environment movement will be very important. We need to understand the arguments of the pro-growth supporters and counter them at every turn. We have been bold in the past with our standards work (eg establishing Antarctica as a demilitarised natural reserve free from mining, and nuclear development) and although the problem is more difficult the same qualities of boldness and persistence are required. This includes moving out of our comfort zones and countering criticism head and intimidation head on. With regard to the claim that it is too late, the answer lies in comparing the likely consequences of making no change with those changing to a steady state economy.
Here the comparison of the likely outcomes of the two options of endless economic growth and the steady state is also crucial. It needs to be carefully explained that the latter does not mean a static state and that in many ways life will be better under it than today. We particularly need to deal head on with the false claims concerning living in caves and poverty by giving substance to the likely nature of a steady state economy. It needs to be explained that since equity will be a major feature of the change many will have a higher material standard of life than at present and that environmental security will replace expensive military security.
We need to fully acknowledge the importance of the move to a steady state being international. Australia can do two things: a) set an example; and b) provide help to other countries to make the transition. We are probably better placed to perform those roles than any other country on earth.
By means of this analysis of arguments used against dealing with the basic causes of environmental degradation I hope I have shown that the ACF, while tinkering with the issue, has been reluctant to engage with the role of working for fundamental social and economic change. It has been clearly uncomfortable with the idea of embarking on this voyage into unfamiliar territory. The fear is that such work would be seen as radical and extreme, particularly by the media, and that it would lose public support for its existing role which concentrates on defending the environment against the multitude of attacks emanating from the economic growth oriented society and particularly at present on the threat from carbon emissions.
Added to this obvious feeling of discomfort with the idea of a role expansion the focus on important issues such as climate change, water, forests and nationally important areas has acted as a distraction from the consideration of the causes of the problem. Here its role is reactive to the threats rather than proactive. Finally, there is denial by some that the problem is that big and that there is a fundamental conflict between economic growth and environmental protection. This latter aspect partly hinges on a semantic issue. Whereas those advancing the case against the economic growth paradigm define it as involving quantitative growth in material throughput (or, “continuous increase in the production of goods and services”) and point out that a steady state economy will involve qualitative economic development, including technological innovation, others have proposed that through sustainable use and efficiency measures the adverse effects of economic growth can be avoided. The significance of this is that more effort needs to be put into explaining that economic growth is the increase in the use of material resources and that the steady state involves no growth of this kind. In other words that the switch means a move from quantitative to qualitative growth or development; from a society which continues to use up nature’s capital to one that lives on its interest. ‘Sustainable economic growth’ it should be pointed out is an oxymoron. Clearly it is crucial to have agreement on this point and for those proposing the third way to be united in their view that the earth’s resources are limited and that we cannot go on using more and more of them without reaching the limits and wrecking the environment on the way. Also, of course, the sceptics need to be reminded that to–date attempts to apply sustainability measures within the context of economic growth have been a conspicuous failure.
The solution to these problems mainly lies in the further development of the steady state economy model. Of necessity this will involve discussion with the wider community beginning with the basic principles which will form the foundation of the new approach. Population stabilisation is an integral principle.
To date the ACF has over most of its history procrastinated on beginning the process even though it is the body most suited to the role. A factor in this is the very high turnover of personnel both on the council and the staff so that there is very little awareness of previous efforts. A great deal of time has been lost through this corporate amnesia because each time the matter is raised the discussion begins from scratch. The problem is compounded by the felt need to not offend financial sponsors and by the need to achieve consensus. These are powerful forces that encourage inertia. In turn this leads to frustration and to loss of vision, where the main issues can disappear from sight.
These hazards are common to most environmental organisations, and are not confined to NGOs. They lead to a concentration on what can be agreed on and militate against a wider and more important view of the problem. We can spend our time and money on mitigating the effects of our growth-dominated way of life, but unless we address the main cause of environmental destruction, the obsession with growth and more growth, then environmental destruction will continue, small victories not withstanding. Hopefully this history and the documents mentioned will help overcome the inertia experienced so far. There will never be a better time to act.
As explained, the findings of the paper were based on an analysis of the history of dealings with this issue within one national organisation, the Australian Conservation Foundation. The purpose was to learn from this what might be done to advance the cause of the steady state economy in the future. It was certainly not intended to be an attack on that body. Before finalising the text I did my best to take on board suggestions I received on a widely circulated draft. Further comments are of course welcome.
Nearly all of the current effort of the ACF is concerned with mitigating the effects of our growth dominated way of life and very little with the causes. Since the aim was to find ways of overcoming the impasse there was no attempt made to allocate blame. Unless there has been a change following the 2009 Council election it appears that there is a strong majority on ACF Council, its principal policy advisory body, opposed to engagement with the development of a non-economic growth society. The past record shows a clear pattern of initial warming to the idea followed by deferment of action. If anyone is at fault for this it is those, such as myself, who have for many years advocated a broadening of the role of the Foundation and, to-date, have failed to persuade it to act.
Geoff Mosley*
17 December 2009
* Geoff Mosley moved to Canberra to be a part of the ACF team in 1966. He became Assistant Director in 1968 and Director in 1973. He has been a member of ACF Council since 1987. He is the Australian Director of CASSE. A longer paper giving a more extensive history of ACF’s discussion of the basic causes of environmental degradation is available from the author – contact jandemosley -at- bigpond. com
Herman E. Daly [1]
School of Public Policy University of Maryland
USSEE Lecture, 1 June 2009
A steady-state economy is incompatible with continuous growth—either positive or negative growth. The goal of a steady state is to sustain a constant, sufficient stock of real wealth and people for a long time. A downward spiral of negative growth, a depression such as we are entering now, is a failed growth economy, not a steady-state economy. Halting an accelerating downward spiral is necessary, but is not the same thing as resuming continuous positive growth. The growth economy now fails in two ways:
(1) positive growth becomes uneconomic in our full-world economy;
(2) negative growth, resulting from the bursting of financial bubbles inflated beyond physical limits, though temporarily necessary, soon becomes self-destructive.
That leaves a non-growing or steady-state economy as the only long run alternative. The level of physical wealth that the biosphere can sustain in a steady state may well be below the present level. The fact that recent efforts at growth have resulted mainly in bubbles suggests that this is so. Nevertheless, current policies all aim for the full re-establishment of the growth economy. No one denies that our problems would be easier to solve if we were richer. The question is, does growth any longer make us richer, or is it now making us poorer?
I will spend a few more minutes cursing the darkness of growth, but will then try to light ten little candles along the path to a steady state. Some advise me to forget the darkness and focus on the policy candles. But I find that without a dark background the light of my little candles is not visible in the false dawn projected by the economists, whose campaigning optimism never gives hope a chance to emerge from the shadows.
We have many problems (poverty, unemployment, environmental destruction, budget deficit, trade deficit, bailouts, bankruptcy, foreclosures, etc.), but apparently only one solution: economic growth, or as the pundits now like to say, “to grow the economy”-- as if it were a potted plant with healing leaves, like aloe vera or marijuana.
But let us stop right there and ask two questions that all students should put to their economics professors.
First, there is a deep theorem in mathematics that says when something grows it gets bigger! So, when the economy grows it too gets bigger. How big can the economy be, Professor? How big is it now? How big should it be? Have economists ever considered these questions? And most pointedly, what makes them think that growth (i.e., physical expansion of the economic subsystem into the finite containing biosphere), is not already increasing environmental and social costs faster than production benefits, thereby becoming uneconomic growth, making us poorer, not richer? After all, real GDP, the measure of “economic” growth so-called, does not separate costs from benefits, but conflates them as “economic” activity. How would we know when growth became uneconomic? Remedial and defensive activity becomes ever greater as we grow from an “empty-world” to a “full-world” economy, characterized by congestion, interference, displacement, depletion and pollution. The defensive expenditures induced by these negatives are all added to GDP, not subtracted. Be prepared, students, for some hand waving, throat clearing, and subject changing. But don’t be bluffed.
Second question; do you then, Professor, see growth as a continuing process, desirable in itself-- or as a temporary process required to reach a sufficient level of wealth which would thereafter be maintained more or less in a steady state? At least 99% of modern neoclassical economists hold the growth forever view. We have to go back to John Stuart Mill and the earlier Classical Economists to find serious treatment of the idea of a non-growing economy, the Stationary State. What makes modern economists so sure that the Classical Economists were wrong? Just dropping history of economic thought from the curriculum is not a refutation!
Here are some reasons to think that the Classical Economists are right.
A long run norm of continuous growth could make sense, only if one of the three following conditions were true:
(a) if the economy were not an open subsystem of a finite and non-growing biophysical system,
(b) if the economy were growing in a non physical dimension, or
(c) if the laws of thermodynamics did not hold.
Let us consider each of these three logical alternatives. (If you can think of a fourth one let me know.)
(a) Some economists in fact think of nature as the set of extractive subsectors of the economy (forests, fisheries, mines, wells, pastures, and even agriculture....). The economy, not the ecosystem or biosphere, is seen as the whole; nature is a collection of parts. If the economy is the whole then it is not a part of any larger thing or system that might restrain its expansion. If some extractive natural subsector gets scarce we will just substitute other sectors for it and growth of the whole economy will continue, not into any restraining biospheric envelope, but into sidereal space presumably full of resource-bearing asteriods and friendly highlyevolved aliens eager to teach us how to grow forever into their territory. Sources and sinks are considered infinite.
(b) Some economists say that what is growing in economic growth is value, and value is not reducible to physical units. The latter is true of course, but that does not mean that value is independent of physics! After all, value is price times quantity, and quantity is always basically physical. Even services are always the service of something or somebody for some time period, and people who render services have to eat. The value unit of GDP is not dollars, but dollar’s worth. A dollar’s worth of gasoline is a physical amount, currently about half a gallon. The aggregation of the dollar’s worth amounts of many different physical commodities (GDP) does not abolish the physicality of the measure even though the aggregate can no longer be expressed in physical units. True, $/q x q = $. But the fact that q cancels out mathematically does not mean that the aggregate measure, “dollars’ worth”, is just a pile of dollars. And it doesn’t help to speak instead of “value added” (by labor and capital) because we must ask, to what is the value added? And the answer is natural resources, low-entropy matter/energy—not fairy dust or frog’s hair! Development (squeezing more welfare from the same throughput of resources) is a good thing. Growth (pushing more resources through a physically larger economy) is the problem. Limiting quantitative growth is the way to force qualitative development.
(c) If resources could be created out of nothing, and wastes could be annihilated into nothing, then we could have an ever-growing resource throughput by which to fuel the continuous growth of the economy. But the first law of thermodynamics says NO. Or if we could just recycle the same matter and energy through the economy faster and faster we could keep growth going. The circular flow diagram of all economics principles texts unfortunately comes very close to affirming this. But the second law of thermodynamics says NO.
So—if we can’t grow our way out of all problems, then maybe we should reconsider the logic and virtues of non-growth, the steady-state economy. Why this refusal by neoclassical economists both to face common sense, and to reconsider the ideas of the early Classical Economists?
I think the answer is distressingly simple. Without growth the only way to cure poverty is by sharing. But redistribution is anathema. Without growth to push the hoped for demographic transition, the only way to cure overpopulation is by population control. A second anathema. Without growth the only way to increase funds to invest in environmental repair is by reducing current consumption. Anathema number three. Three anathemas and you are damned—go to hell!
And without growth how will we build up arsenals to protect democracy (and remaining petroleum reserves)? How will we go to Mars and Saturn and “conquer” space? Where can technical progress come from if not from unintended spin-offs from the military and from space research? Gnostic techno-fantasies of escaping earth to outer space, and of abolishing disease and death itself, feed on the perpetual growth myth of no limits. Digital-brained tekkies, who have never heard of the problem of evil, see heaven on earth (eternal growth) just around the corner. Without growth we must face the difficult religious task of finding a different god to worship. Too scary, we say, let’s try to grow some more instead! Let’s jump-start the GDP and the Dow-Jones! Let’s build another tower of Babel with obfuscating technical terms like sub-prime mortgage, derivative, securitized investment vehicle, collateralized debt obligation, credit default swap, “toxic” assets, and insider slang like the “dead cat bounce”. (If you drop it from a high enough tower of Babel even a dead cat will bounce enough to make some profit.)
Well, let us not do that. Let us ignore the anathemas and instead think about what policies would be required to move to a steady-state economy. They are a bit radical by present standards, but not as insanely unrealistic as any of the three alternatives for validating continuous growth, just discussed.
Let us look briefly at ten specific policy proposals for moving to a steady-state economy, i.e., an economy that maintains a constant metabolic flow of resources from depletion to pollution—a throughput that is within the assimilative and regenerative capacities of the ecosystem.
1. Cap-auction-trade systems for basic resources. Caps limit biophysical scale by quotas on depletion or pollution, whichever is more limiting. Auctioning the quotas captures scarcity rents for equitable redistribution. Trade allows efficient allocation to highest uses. This policy has the advantage of transparency. There is a limit to the amount and rate of depletion and pollution that the economy can be allowed to impose on the ecosystem. Caps are quotas, limits to the throughput of basic resources, especially fossil fuels. The quota usually should be applied at the input end because depletion is more spatially concentrated than pollution and hence easier to monitor. Also the higher price of basic resources will induce their more economical use at each upstream stage of production. It may be that the effective limit in use of a resource comes from the pollution it causes rather than from depletion—no matter, we indirectly limit pollution by restricting depletion of the resource that ultimately is converted into wastes. Limiting barrels, tons, and cubic feet of carbon fuels extracted will limit tons of CO2 emitted. This scale limit serves the goal of biophysical sustainability. Ownership of the quotas is initially public—the government auctions them to the individuals and firms. The revenues go to the treasury and are used to replace regressive taxes, such as the payroll tax, and to reduce income tax on the lowest incomes. Once purchased at auction the quotas can be freely bought and sold by third parties, just as can the resources whose rate of depletion they limit. The trading allows efficient allocation; the auction serves just distribution, and the cap serves the goal of sustainable scale. The same logic can be applied to limiting the off-take from fisheries and forests.
2. Ecological tax reform—shift tax base from value added (labor and capital) and on to “that to which value is added”, namely the entropic throughput of resources extracted from nature (depletion), and returned to nature (pollution). This internalizes external costs as well as raises revenue more equitably. It prices the scarce but previously un-priced contribution of nature. Value added is something we want to encourage, so stop taxing it. Depletion and pollution are things we want to discourage, so tax them. Ecological tax reform can be an alternative or a supplement to cap-auction-trade systems.
3. Limit the range of inequality in income distribution—a minimum income and a maximum income. Without aggregate growth poverty reduction requires redistribution. Complete equality is unfair; unlimited inequality is unfair. Seek fair limits to the range of inequality. The civil service, the military, and the university manage with a range of inequality of a factor of 15 or 20. Corporate America has a range of 500 or more. Many industrial nations are below 25. Could we not limit the range to, say, 100, and see how it works? People who have reached the limit could either work for nothing at the margin if they enjoy their work, or devote their extra time to hobbies or public service. The demand left unmet by those at the top will be filled by those who are below the maximum. A sense of community necessary for democracy is hard to maintain across the vast income differences current in the US. Rich and poor separated by a factor of 500 become almost different species. The main justification for such differences has been that they stimulate growth, which will one day make everyone rich. This may have had superficial plausibility in an empty world, but in our full world it is a fairy tale.
4. Free up the length of the working day, week, and year—allow greater option for part-time or personal work. Full-time external employment for all is hard to provide without growth. Other industrial countries have much longer vacations and maternity leaves than the US. For the Classical Economists the length of the working day was a key variable by which the worker (self-employed yeoman or artisan) balanced the marginal disutility of labor with the marginal utility of income and of leisure so as to maximize enjoyment of life. Under industrialism the length of the working day became a parameter rather than a variable (and for Karl Marx was the key determinant of the rate of exploitation). We need to make it more of a variable subject to choice by the worker. And we should stop biasing the labor–leisure choice by advertising to stimulate more consumption and more labor to pay for it. Advertising should no longer be treated as a tax deductible ordinary expense of production.
5. Re-regulate international commerce—move away from free trade, free capital mobility and globalization, adopt compensating tariffs to protect, not inefficient firms, but efficient national policies of cost internalization from standards-lowering competition. We cannot integrate with the global economy and at the same time have higher wages, environmental standards, and social safety nets than the rest of the world. Trade and capital mobility must be balanced and fair, not deregulated or “free”. Tariffs are also a good source of revenue that could substitute for other taxes.
6. Downgrade the IMF-WB-WTO to something like Keynes’ original plan for a multilateral payments clearing union, charging penalty rates on surplus as well as deficit balances—seek balance on current account, and thereby avoid large foreign debts and capital account transfers. For example, under Keynes’ plan the US would pay a penalty charge to the clearing union for its large deficit with the rest of the world, and China would also pay a similar penalty for its surplus. Both sides of the imbalance would be pressured to balance their current accounts by financial penalties, and if need be by exchange rate adjustments relative to the clearing account unit, called the bancor by Keynes. The bancor would serve as world reserve currency, a privilege that should not be enjoyed by any national currency. The IMF preaches free trade based on comparative advantage, and has done so for a long time. More recently the IMF-WB-WTO have started preaching the gospel of globalization, which, in addition to free trade, means free capital mobility internationally. The classical comparative advantage argument, however, explicitly assumes international capital immobility! When confronted with this contradiction the IMF waves its hands, suggests that you might be a xenophobe, and changes the subject. The IMF-WB-WTO contradict themselves in service to the interests of transnational corporations. International capital mobility, coupled with free trade, allows corporations to escape from national regulation in the public interest, playing one nation off against another. Since there is no global government they are in effect uncontrolled. The nearest thing we have to a global government (IMF-WB-WTO) has shown no interest in regulating transnational capital for the common good.
7. Move away from fractional reserve banking toward a system of 100% reserve requirements. This would put control of the money supply and seigniorage in hands of the government rather than private banks, which would no longer be able to create money out of nothing and lend it at interest. All quasi-bank financial institutions should be brought under this rule, regulated as commercial banks subject to 100% reserve requirements. Banks would earn their profit by financial intermediation only, lending savers’ money for them (charging a loan rate higher than the rate paid to savings account depositors) and providing checking, safekeeping, and other services. With 100% reserves every dollar loaned would be a dollar previously saved, re-establishing the classical balance between abstinence and investment. The government can pay its expenses by issuing more non interest-bearing fiat money to make up for the eliminated bank-created, interest-bearing money. However, it can only do this up to a strict limit imposed by inflation. If the government issues more money than the public wants to hold, the public will trade it for goods, driving the price level up. As soon as the price index begins to rise the government must print less and tax more. Thus a policy of maintaining a constant price index would govern the internal value of the dollar. The external value of the dollar could be left to freely fluctuating exchange rates (or preferably to the rate against the bancor in Keynes’ clearing union).
8. Stop treating the scarce as if it were non-scarce, but also stop treating the non-scarce as if it were scarce. Enclose the remaining commons of rival natural capital (e.g. atmosphere, electromagnetic spectrum, public lands) in public trusts, and price it by a cap-auction–trade system, or by taxes, while freeing from private enclosure and prices the non-rival commonwealth of knowledge and information. Knowledge, unlike throughput, is not divided in the sharing, but multiplied. Once knowledge exists, the opportunity cost of sharing it is zero and its allocative price should be zero. International development aid should more and more take the form of freely and actively shared knowledge, along with small grants, and less and less the form of large interest-bearing loans. Sharing knowledge costs little, does not create un-repayable debts, and it increases the productivity of the truly rival and scarce factors of production. Existing knowledge is the most important input to the production of new knowledge, and keeping it artificially scarce and expensive is perverse. Patent monopolies (aka “intellectual property rights”) should be given for fewer “inventions”, and for fewer years. Costs of production of new knowledge should, more and more, be publicly financed and then the knowledge freely shared.
9. Stabilize population. Work toward a balance in which births plus in- migrants equals deaths plus out-migrants. This is controversial and difficult, but as a start contraception should be made available for voluntary use everywhere. And while each nation can debate whether it should accept many or few immigrants, such a debate is rendered moot if immigration laws are not enforced. Support voluntary family planning, and enforcement of reasonable immigration laws, democratically enacted in spite of the cheap labor lobby.
10. Reform national accounts—separate GDP into a cost account and a benefits account. Compare them at the margin, stop throughput growth when marginal costs equal marginal benefits. In addition to this objective approach, recognize the importance of the subjective studies that show that, beyond a threshold, further GDP growth does not increase self-evaluated happiness. Beyond a level already reached in many countries GDP growth delivers no more happiness, but continues to generate depletion and pollution. At a minimum we must not just assume that GDP growth is “economic growth”, but prove it. And start by trying to refute the mountain of contrary evidence.
While these policies will appear radical to many, it is worth remembering that they are amenable to gradual application. One hundred percent reserves can be approached gradually, the range of distribution can be restricted gradually, caps can be adjusted gradually, etc. Also these measures are based on the conservative institutions of private property and decentralized market allocation. They simply recognize that private property loses its legitimacy if too unequally distributed, and that markets lose their legitimacy if prices do not tell the whole truth about opportunity costs. In addition, the macro-economy becomes an absurdity if its scale is structurally required to grow beyond the biophysical limits of the Earth. And well before reaching that radical physical limit we are encountering the conservative economic limit in which extra costs of growth become greater than the extra benefits, ushering in the era of uneconomic growth, so far unrecognized.
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1. Our thanks to professor Daly for his kind permission to reproduce this paper here.
One of the biggest barriers to corporate social responsibility and therefore sustainability is the short-term pressure from the market for ever increasing quarterly profit results. The Business Council of Australia (BCA) [1] published a major report in 2004 arguing that market driven short-termism was threatening the long term competitiveness of Australian firms.
Eco-efficiencies - While the value of investing in eco-efficiencies and eco-innovation to improve long term competitive advantage is increasingly understood by CEOs, boards and managers, the return on investment can vary from six months to four years and the market militates against it. Fund managers compete against each other for rankings based on share price performance, profits and outlook over periods as short as a month, which is ludicrous. Immediate commercial imperatives are often contrary to creating an environment for sustained growth.
Research on CEOs in Australia has found that their most cited reason for lack of progress in implementing more sustainable development/corporate social responsibility practices is the pressure placed on them by investment houses to deliver quarterly returns. There is an inherent conflict between managing for the short term or for the long term. It is possible to destroy organisations by just managing for the short term.
Superannuation funds - Whereas superannuation funds invest people’s money for quite a long period, on average twenty years, their performance is rated by the markets every quarter. Short term management is re-enforced by the fiduciary duty requirements of super fund managers and trustees. The fiduciary duty requires them to maximise returns in the best financial interests of the beneficiaries of the trust. Currently, most definitions of fiduciary duty implicitly exclude making socially and environmentally oriented investments.
However, studies by Innovest [2], amongst others, have shown that companies that pursue corporate social responsibility experience as good or better profits than those which do not. This is allowing changes to the fiduciary duties of super funds, and is beginning to turn what has been a driver of unsustainablity, the pressure for quarterly profit results, into a driver for sustainability.
Fiduciary duty - Lovins and Link [3] have argued that change to fiduciary duty regulations in the USA pertaining to super fund trustees has the potential to help facilitate the next industrial revolution to sustainability. There is now significant data showing that companies that invest in eco-efficiencies and innovation outperform their competitors. Calvert Socially Responsible Investment Funds in the US was able to win in court on the matter of fiduciary duty because it was able to demonstrate that there is no reason for pension funds not to invest in companies with a superior social and environmental performance.
The chair of the California Public Employees’ Retirement System says that what he cares about is whether the whole economy is there, and healthy, in twenty to fifty years time, when he has to pay out the pensions. He thinks that pension and super funds may well be the institutions with the greatest vested interest in seeing that sustainable development is achieved.
Australian funds - The efforts to address the fiduciary duty laws of super fund trustees in the USA have been mirrored globally, including in Australia. A Senate inquiry into Corporate Responsibility in Australia [4] found that super funds should be encouraged to include ESG considerations in their investments. They also recommended that institutional investors in Australia, including the Future Fund, should become signatories to the United Nations Principles for Responsible Investment.
ESG reporting - Forward thinking super funds in Australia are changing, with fund managers grappling with how to become better long term investors. To help them we need better information on the ESG [5] performance of companies. Our reporting on this falls well short of reform efforts around the world. Many countries have comprehensive reporting requirements, covering some or all of the following: disclosure of water, energy and other resource consumption, greenhouse and other emissions, waste management, impact on biodiversity, management policies and compliance.
The Australian Senate Inquiry missed a significant opportunity by deciding against making ESG reporting mandatory for companies above a certain size. If this were done, it would provide more objective information, in a standard framework. It would streamline analyst and community information requests. It would lead to better business performance.
There is a growing body of evidence that public reporting improves financial performance by creating organisational structures to improve resource efficiency and waste minimisation, as well as by suggesting strategic business opportunities and raising environmental awareness overall.
Major companies wanting to ensure ongoing super fund investment will increasingly see it as essential business practice to report annually on ESG criteria. Significant investment houses now recognise sustainability as a useful indicator of corporate performance and as an important indicator of corporate risk.
References
1. The Business Council Sustainable Growth Task Force (2004), Beyond the horizon: Short-termism in Australia
2. Innovest Strategic Value Advisors (2004), Corporate Environmental Governance: a study into the influence of environmental governance and financial performance, p 10
3. Lovins, L.H. and Link, W (2003), Pension funds: Key to capitalizing natural capitalism
4. Parliamentary Joint Committee on corporations and financial services (2006), Corporate responsibility: managing risks and creating value
5. ESG: Environment, Social, Governance - two-thirds of the triple bottom line