Sustainable Growth: Irreconcilable Visions?: "In the opening chapter of his signature book, Beyond Growth, Herman Daly shares an unforgettable story from his days as an economist at the World Bank. Having just listened to Lawrence Summers, then Chief Economist at the World Bank, make a presentation critical of the Limits to Growth thesis, Daly referred Summers to a picture of the economy as an open sub-system of the world's ecosystem, consistent with what I present below as Figure 1. Figure 1. He then asked Summers if, given this picture, it might make sense to start thinking about the growth of the economy in relation to the natural limits of the ecosystem. Dodging the question, Summers responded dismissively, "that's not the right way to look at it." End of discussion.
What is the right way to look at it, according to Summers? Daly says it is something like Figure 2, where the ecological context has been removed and, therefore, the circular flow of economic growth appears to be free from any natural limits beyond the economic system. This is not just Summers' radical vision of the economy. It represents the orthodox view of the great majority of economists who, if not outwardly hostile to the ecological view, generally set it aside as irrelevant to the analysis at hand.
Recalling Joseph Schumpeter's notion of a pre-analytic vision, Daly summed up this fundamental economic dilemma that divides so many economists, politicians, and citizens:
"Unless one has the preanalytic vision of the economy as subsystem, the whole idea of sustainable development—of a subsystem being sustained by a larger system whose limits and capacities it must respect—makes no sense whatsoever. On the other hand, a preanalytic vision of the economy as a box floating in infinite space allows people to speak of "sustainable growth"—a clear oxymoron to those who see the economy as a subsystem. The difference between these two visions could not be more fundamental, more elementary, or more irreconcilable." (Beyond Growth, p. 7)
I agree that these competing visions are fundamentally anti-thetical as they have been presented, by Daly, Summers, and countless other economists over the years. They are so antithetical that even a veritable encyclopedia of economic thought like Mark Blaug's otherwise breathtaking 700-page Economic Theory in Retrospect completely ignores the ideological challenge presented by the ecological vision of the economy--a challenge which, in partial defense of Blaug, has been largely ignored by most of the economists of the past 250 years. But just because this ecological view of the economy has been marginalized by the more dominant schools of thought does not mean that it is wrong, nor that it has necessarily failed in the overrated "efficient market in economic ideas."
Regardless, the compelling thing about this particular ideological debate is that the objects of the debate, Earth's natural systems, don't much care whether or not they prevail in some intellectual discussion among the various schools of economic thought. Natural systems have a unique way of asserting their perspectives on human economic activity without regard for human priorities and convictions and without need for human understanding and consensus. Still, we are fools if we choose to wait for the world ecosystem to break the ideological impass between ecological and non-ecological economists.
Where I disagree with Daly's assessment of the economic dilemma is in his claim that these pre-analytic visions are irreconcilable. I think they can be reconciled within a more integral vision that honors the partial truth in each, while providing some practical guidelines for post-visionary analyses of sustainable economic growth. As I see it (Figure 3), the physical dimension of the economy, which can be measured in terms of the scale of material, energy, chemical, and biological throughput, does indeed comprise an economic sub-system of the world's physical biosphere, which includes the sources and sinks for the economic throughput. This is the partial truth in the ecological vision of the economy and it affirms the existence of certain physical limits to the scale of economic growth--but, strictly speaking, these limits only apply to physical economic growth.
In my view, the economy also has a non-physical, or mental dimension--psychological development, intersubjective exchange, subjective valuation, intellectual capital--that contributes to the overall depth of economic growth. The mental economy is inextricably linked to, and entirely dependent upon, the physical economy, which is, in turn, governed by the natural logic and limits of the Earth's physical systems. However, the mental economy is not a sub-system of the Earth's physical biosphere and it is not governed directly by the rules of the natural world. Quite the opposite. The mental economy, for better and for worse, is where we make all our economic decisions and direct the economic growth in two-dimensions--mental depth and physical scale. Beyond this, I find it useful to frame the mental economy as a sub-system/culture within a more encompassing mental super-system/culture that we might define as the non-physical, depth dimension of human civilization. Following the philosopher Ken Wilber, we may call this the noosphere in relation to the biosphere. Wilber has been particularly articulate about the contrast between the depth of the noosphere and the scale (though he calls it span) of the biosphere--I think these distinctions apply equally well to the economy. This reframing reveals the partial truth in the orthodox view of economic growth beyond the scale of ecological limits--but this truth is only valid to the extent that we are speaking of non-physical economic growth.
When it comes to economic growth, households and the factors of production they supply to firms, as well as firms and the products they supply to households, all have a physical scale dimension that is subject to the logic and limits of the physical world and a mental depth dimension that is subject to the logic and limits of the mental world (hence the checkerboard pattern of green scale and yellow depth). In addition to natural resources, the other classical factors of production, labor and capital, also have physical properties that contribute to the growing scale of the economy. And although the common differentiation between products, services, and experiences is intended to denote a gradation from physical to mental, we should remember that even the most ethereal of experience-goods has a physical component and even the most material of commodities has some mental component that is part of the cycle of two-dimensional growth.
People can reasonably disagree on the precise scale of the physical economy and therefore the timing of our future encounters with the biospheric limits to physical economic growth. But reasonable people, in my opinion, cannot deny the fact that there are very real limits to the physical growth of the economy. Given this premise, its seems entirely sensible to promote economic growth that is progressively less physical and more mental until such time as we can enjoy economic growth that is truly sustainable--limited in scale, yet mentally innovative, enriching, and developmental. Innovators like Amory Lovins have demonstrated how superior design can yield products whose physical-to-mental ratio is much lower than competing products, at the time of sale and over the useful life of the product, while still providing the same essential service as the more physically-intensive alternative (e.g., hypercars vs. SUVs).
To the extent that we adopt either of the partial visions of the economy, I believe we create patterns of unsustainable economic action. An exclusive application of the non-ecological vision may result in a pattern of economic growth that is physically unsustainable, relying on eventual, but certain, ecological crises to force policy makers, business leaders, and market participants to learn, in the double-loop sense, their way out of the unsustainable patterns. Similarly, if we were to apply only the ecological vision and pursue a strategy of zero economic growth, we might lock a majority of the world's population into poverty and perhaps, ironically, preclude the economic innovations that would otherwise, in time, establish the foundation for an integral economy that is physically sustainable, yet mentally growing. Calling for limits to all growth is just as unsustainable as ignoring all limits to growth.
What puzzles me about Daly's brilliant book, which outlines in considerable detail the post-visionary analyses that he believes to be consistent with his pre-analytic vision (Figure 1), is that his post-visionary analyses are actually much more consistent with my pre-analytic vision (Figure 3). But I wonder if he and his readers have realized this inconsistency, obscured as it is by some semantic issues.
First, Daly chooses not to use the standard economic definition of the word growth, which is basically a change in the aggregate prices of the economic product, such as Gross Domestic Product. He prefers instead to re-define growth as a change in the physical scale of this economic product, measured not in money prices but in matter-energy flows. This re-definition is the less-than-obvious justification for his unequivocal claims that sustainable economic growth is an oxymoron, an impossibility theorem. In my opinion, the very large number of people, both critical and supportive, who believe that Daly and other ecological economists are against all economic growth, as in GDP, has its origin in this unnecessary re-definition of the term growth.
Second, Daly adopts the term development to denote the non-quantitative, qualitative improvement component of the growth in economic product, consistent with what I have referred to generally as the mental depth dimension of economic growth. This allows him to build his case against the re-defined and exclusively quantitative growth while still acknowledging that qualitative development may continue. More than just another semantic issue, this is actually inconsistent with his espoused pre-analytic vision (Figure 1), which allows no room for what he calls development, and only reinforces the first problem of his perceived indictment of all growth.
Finallly, and perhaps most importantly, Daly doesn't seem to acknowledge that his versions of quantitative growth and qualitative development are both measured quantitatively in terms of money prices and therefore, as I said above, contribute to what everyone else calls economic growth--e.g., changes in GDP. It's not that he isn't reflectively aware of this (obviously he is), it's that he repeatedly critiques all quantitative growth while occasionally acknowledging the value of purely qualitative development without emphasizing that both really do contribute to what everyone else in the world sees as quantitative economic growth. It's no wonder that so many people think that Daly and other ecological economists are against all quantitative economic growth: because they are, and yet they aren't, depending upon which definition one is using.
This reveals a shortcoming in all three of the above figures, which ignore the flow of currency that runs counter to the flow of production and consumption. This currency flow, depicted in Figure 4, is the index that everyone really uses to measure economic growth, because we do not have any other way to quantitatively measure aggregate product or the aggregate factors of production except for the aggregate prices they yielded in exchange. The dizzying variety of economic products and factors of production are incommensurable without money prices. When we factor into this slightly more integral vision of the economy our understanding of currency design and the inherent need for sustainable growth in money and credit independent of any growth in physical or mental product, we see just how important it is to include the counter-cyclical flow of income and expenditures and just how difficult it is to convince anyone that economic growth, however it is defined, must cease. My bottom line on Daly's book: it is an outstanding read by a brilliant heterodox economist, full of insightful critiques and valuable contributions to the economic dialogue, though it can be more clearly understood by supporters and critics alike if reconstructed to fit the pre-analytic vision depicted in Figure 4.
In the reconciliation of a more Integral Economics, sustainable growth is not an oxymoron, but a double entendre, denoting the very real possibility of sustainable economic growth that satisfies the very real necessity of economic growth that is sustainable. The key to the riddle is that there are two kinds of growth--scale and depth--that are being measured in units of the same common medium, money prices, and fused into a single, undifferentiated indicator of economic growth. The primary goal of our post-visionary analysis is therefore to craft public policies, business strategies, and personal practices that will move the economy toward a pattern in which physical growth is systematically replaced by mental growth even while overall growth in terms of aggregate prices continues to rise.
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