Steady-State Economy

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= a P2P-informed approach in which non-human life, future generations, and 'nature' are taken as partners, from which no more can be taken, than its ability to regenerate itself.


Contents

Citation

"The closer the economy approaches the scale of the whole Earth the more it will have to conform to the physical behavior mode of the Earth. That behavior mode is a steady state—a system that permits qualitative development but not aggregate quantitative growth. Growth is more of the same stuff; development is the same amount of better stuff (or at least different stuff)."

- Herman Daly [1]



Definition

a "steady state" economy = an economy a roughly constant output of goods and services

or

A steady state economy is "a sustainable economy with stabilized population and consumption."


Characteristics

"A steady state economy requires adherence to four basic rules or system principles:

(1) Maintain the health of ecosystems and the life-support services they provide.

(2) Extract renewable resources like fish and timber at a rate no faster than they can be regenerated.

(3) Consume non-renewable resources like fossil fuels and minerals at a rate no faster than they can be replaced by the discovery of renewable substitutes.

(4) Deposit wastes in the environment at a rate no faster than they can be safely assimilated." (http://www.standardsoflife.org/Sustainable_Economics)


History

CASSE:

"For centuries, economists have considered a transition from a growing economy to a stable one, from classical economists like Adam Smith down to present-day ecological economists. Adam Smith is famous for the ideas in his book The Wealth of Nations. A central theme of the book is the desirable consequences of each person pursuing self interests in the marketplace. He theorized and observed that people trading in open markets leads to production of the right quantities of commodities, division of labor, increasing wages, and an upward spiral of economic growth. But Smith recognized a limit to economic growth. He predicted that in the long run, population growth would push wages down, natural resources would become increasingly scarce, and division of labor would approach the limits of its effectiveness. He even predicted 200 years as the longest period of growth, followed by population stability.

John Stuart Mill, pioneer of economics and gifted philosopher, developed the idea of the steady state economy in the mid-19th century. He believed that after a period of growth, the economy would reach a stationary state, characterized by constant population and stocks of capital. His words eloquently describe the positive nature of such an economic system:

It is scarcely necessary to remark 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; as much room for improving the Art of Living and much more likelihood of its being improved, when minds cease to be engrossed by the art of getting on.

John Maynard Keynes, the most influential economist of the twentieth century, also considered the day when society could focus on ends (happiness and well-being, for example) rather than means (economic growth and individual pursuit of profit). He wrote:



that avarice is a vice, that the exaction of usury is a misdemeanour, and the love of money is detestable… We shall once more value ends above means and prefer the good to the useful.

and

- The day is not far off when the economic problem will take the back seat where it belongs, and the arena of the heart and the head will be occupied or reoccupied, by our real problems – the problems of life and of human relations, of creation and behavior and religion.


Nicholas Georgescu-Roegen recognized the connection between physical laws and economic activity and wrote about it in 1971 in The Entropy Law and the Economic Process. His insight was that the second law of thermodynamics, the entropy law, determines what is possible in the economy. Georgescu-Roegen explained that useful, low-entropy energy and materials are dissipated in transformations that occur in economic processes, and they return to the environment as high-entropy wastes. The economy, then, functions as a conduit for converting natural resources into goods, services, human satisfaction, and waste products. Increasing entropy in the economy sets the limit on the scale it can achieve and maintain.


Around the same time that Georgescu-Roegen published The Entropy Law and the Economic Process, other economists, most notably E. F. Schumacher and Kenneth Boulding, were writing about the environmental effects of economic growth and suggesting alternative models to the neoclassical growth paradigm. Schumacher proposed “Buddhist Economics” in an essay of the same name, included in his book Small Is Beautiful. Schumacher’s economic model is grounded in sufficiency of consumption, opportunities for people to participate in useful and fulfilling work, and vibrant community life marked byBoulding peace and cooperative endeavors. Boulding used the spaceship as a metaphor for the planet in his prominent essay, The Economics of the Coming Spaceship Earth. He recognized the material and energy constraints of the economy and proposed a shift from the expansionist “cowboy economy” to the conservative “spaceman economy.” In the cowboy economy, success is gauged by the quantity and speed of production and consumption. In the spaceman economy, by contrast, “what we are primarily concerned with is stock maintenance, and any technological change which results in the maintenance of a given total stock with a lessened throughput (that is, less production and consumption) is clearly a gain.”

Georgescu-Roegen’s student, Herman Daly, built upon his mentor’s work and combined limits-to-growth arguments, theories of welfare economics, ecological principles, and the philosophy of sustainable development into a model he called steady state economics. He later joined forces with Robert Costanza, AnnMari Jansson, Joan Martinez-Alier, and others to develop the field of ecological economics. In 1990, these prominent professors established the International Society of Ecological Economics.


The three founding positions of the society and the field of ecological economics are:

  • The human economy is embedded in nature, and economic processes are actually biological, physical, and chemical processes and transformations.
  • Ecological economics is a meeting place for researchers committed to environmental issues.
  • Ecological economics requires trans-disciplinary work to describe economic processes in relation to physical reality.


Ecological economics has become the field of study most closely linked with the concept of a steady state economy. Ecological economists have developed a robust body of theory and evidence on the biophysical limits of economic growth and the requirements of a sustainable economy." (http://steadystate.org/discover/definition/ )

Policy Proposals

1.

URL = http://www.theoildrum.com/node/3941


Dave Pollard:

"Herman Daly submitted a paper "Toward a Steady-State Economy" to the UK government's Sustainable Development Commission outlining and explaining the 10 public policy steps needed to achieve such an economy. The whole paper is essential reading for those wanting an understanding of the current economy, why it is not sustainable, and what is required to make it so. The 10 steps in a nutshell (I've altered and added to his words to explain technical terms):

Use cap-auction-trade systems for basic resources (energy, wood and other raw materials). Set caps according to source (scarcity of resources) or sink (waste produced in using the resources and loss of carbon absorption) constraint, whichever is more stringent. In other words, cap the maximum amount of usage of each natural resource at levels that are sustainable, and then allow the market, by auction, to determine how to allocate that maximum amount of usage by setting the price where the demand is greatest.

Institute ecological tax reform—shift the 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), through the economy, and back to nature (pollution). This internalizes external costs and raises revenue more equitably. It prices the scarce but previously unpriced contribution of nature. In other words, tax 'bads' (depletion, pollution and waste) not 'goods', by lowering social and income taxes and taxing extraction and pollution instead.

Limit the range of inequality in income—set 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 inequality. The minimum, he argues, should be sufficient for a comfortable life; the maximum probably not more than 100 times the minimum.

Free up the length of the working day, week, and year — allow greater option for leisure or personal work. Full-time external employment for all is hard to provide without growth. In today's automated world, there is no need for everyone to work all day every day to produce a comfortable living for everyone. I have argued before that one day a week, or one hour a day, should be all that is needed; most of our labour is wasted in bureaucracy, hierarchical politics and the production of junk.

Re-regulate international commerce — move away from free trade, free capital mobility and globalization, and adopt compensating tariffs to protect efficient national policies of cost internalization from standards-lowering competition from other countries. This is not an argument for reducing trade, but rather for eliminating the component of trade that exploits weak social and environmental standards and unsustainably low long-distance transportation costs.

Reduce and amend the authority of the IMF-WB-WTO, to something like Keynes’ plan for a multilateral payments clearing union, charging penalty rates on surplus as well as deficit balances—seeking balance on current accounts, and avoiding large capital transfers and foreign debts. Instead of being an ideological force for globalization and deregulation at any costs, it would become an arbiter and a check on reckless and unsustainable national policies.

Move to 100% reserve requirements instead of fractional reserve banking. Return control of money supply and purchasing power to governments rather than private banks. This step is designed to curb irresponsible lending and borrowing practices, speculation and currency devaluation, and allow elected bodies to manage fiscal and monetary policy, not private sector parties with an inherent conflict of interest.

Move all remaining publicly-owned natural capital (the 'commonwealth' of land and resources) to public trusts 'priced' at their true value, while freeing from private ownership the 'commonwealth' of knowledge and information, making it free. Stop treating the scarce (natural capital) as if it were non scarce, and the non scarce (intellectual capital) as if it were scarce.

Stabilize population. Work toward a balance in which births plus immigrants equals deaths plus out-migrants.

Reform how we measure and manage national well-being—separate GDP into a cost account and a benefits account. Compare them at the margin, stop 'growing' the economy when marginal costs start to exceed marginal benefits. Never add the two accounts. This reflects the fact that many economic activities (e.g. the clean-up of the Exxon Valdez disaster) actually add to GDP, and that hence GDP is not in any way a meaningful measure of economic prosperity or well-being." (http://blogs.salon.com/0002007/2008/05/07.html#a2145)


2.

"The only way out is to abandon the Industrial Growth Economy and shift to a Steady State Economy. As the chart below describes, such a shift requires three interventions (shown in square boxes) to bring it about:

   * laws against living beyond your means (essentially a prohibition on long-term indebtedness)
   * laws against waste, pollution and non-renewable resource use
   * laws encouraging smaller families

These interventions could eliminate debt-driven inflation and consumption, waste and pollution, population growth and the degradation and loss of natural capital. Instead of the Industrial Growth Economy's vicious cycles we would have a virtuous cycle of stability in prices, purchasing and consumption." (http://blogs.salon.com/0002007/2009/04/02.html#a2357)

Discussion

Quoted in an interview with Thomas Homer-Dixon, author of the book. The Upside of Down: Catastrophe, creativity and the renewal of civilization .

New Scientist: "Isn't there another problem, in that solutions may run counter to our economic model, which relies on perpetual growth?

THD: Yes. In rich countries we need to figure out if there are feasible alternatives to our hidebound commitment to economic growth, because it's increasingly clear that endless material growth is incompatible with the long-term viability of Earth's environment. We need to know what a "steady state" economy - one with a roughly constant output of goods and services - might look like. What economic and ethical values might it have? Could it include some (albeit radically transformed) version of market capitalism? Would it be compatible with personal and social liberty? How would the political and social conflicts that would inevitably arise if there were no growth be resolved?"


The difference between failed growth and steady state

"A failed growth economy and a steady-state economy are not the same thing; they are the very different alternatives we face. The Earth as a whole is approximately a steady state. Neither the surface nor the mass of the earth is growing or shrinking; the inflow of radiant energy to the Earth is equal to the outflow; and material imports from space are roughly equal to exports (both negligible). None of this means that the earth is static—a great deal of qualitative change can happen inside a steady state, and certainly has happened on Earth. The most important change in recent times has been the enormous growth of one subsystem of the Earth, namely the economy, relative to the total system, the ecosphere. This huge shift from an “empty” to a “full” world is truly “something new under the sun” as historian J. R. McNeil calls it in his book of that title. The closer the economy approaches the scale of the whole Earth the more it will have to conform to the physical behavior mode of the Earth. That behavior mode is a steady state—a system that permits qualitative development but not aggregate quantitative growth. Growth is more of the same stuff; development is the same amount of better stuff (or at least different stuff). The remaining natural world no longer is able to provide the sources and sinks for the metabolic throughput necessary to sustain the existing oversized economy—much less a growing one." (http://www.theoildrum.com/node/3941)


Herman Daly does not break with capitalism

Richard Smith:

"But despite his “radical” break with the mainstream’s fetish of growth, Daly did not at all break with his colleagues’ fetish of the market organization of production, the capitalist market economy. On the contrary. His proposal for a Steady-State Economy was based, he said, “on impeccably respectable premises: private property, the free market, opposition to welfare bureaucracies and centralized control.”14 So in his Steady-State model, Daly embraces capitalism but he rejects the consequences of market-driven economic development, especially overconsumption and environmental destruction. Now one might reasonably ask, how can he have it both ways? Daly tries to get around this contradiction by abstracting from the day-to-day workings of capitalism, from the demands on corporate CEOs by shareholders, from the pressures of market competition, from the implications of a no-growth capitalism for employment, and so on, and talks instead about the economy at a highly abstract meta level. So Daly says that if we are not to overdrive our ecology, there must be a "macro, social decision" about limiting the scale of growth.”15 He says that “In my view,” the industrialized countries, must “attain sustainability in the sense of a level of resource use that is both sufficient for a good life for its population and within the carrying capacity of the environment if generalized to the whole world. Population growth and production growth must not push us beyond the sustainable environmental capacities of resource regeneration and waste absorption. Therefore, once that point is reached, production and reproduction should be for replacement only. Physical growth should cease, while qualitative improvement continues.” (http://www.paecon.net/PAEReview/issue53/Smith53.pdf)

Source: Critique of Steady-State Capitalism‎. Richard Smith.

Critique

  • Essay: Beyond growth or beyond capitalism? Richard Smith [USA]

URL = http://www.paecon.net/PAEReview/issue53/Smith53.pdf

Abstract: "Recent publications have revived interest in Herman Daly’s proposal for a Steady-State Economy. This paper argues, first, that the idea of a steady-state capitalism is based on untenable assumptions, starting with the assumption that growth is optional rather than built-into capitalism. I argue that irresistible and relentless pressures for growth are functions of the day-to-day requirements of capitalist reproduction in a competitive market, incumbent upon all but a few businesses, and that such pressures would prevail in any conceivable capitalism. Secondly, this paper takes issue with Professor Daly’s thesis, which also underpins his SSE model, that capitalist efficiency and resource allocation is the best we can come up with. I argue that this belief is misplaced and incompatible with an ecological economy, and therefore it undermines Daly’s own environmental goals. I conclude that since capitalist growth cannot be stopped, or even slowed, and since the market-driven growth is driving us toward collapse, ecological economists should abandon the fantasy of a steady-state capitalism and get on with the project figuring out what a post–capitalist economic democracy could look like."


More Information

  1. Introduction by Herman Daly at http://www.theoildrum.com/node/3941
  2. Casse, the Center for the Advancement of a Steady State Economy, is an advocacy organisation promoting its principles, see at http://www.steadystate.org/
  3. See our entry on Abundance vs. Scarcity
  4. A related movement is the Decroissance Movement which stresses that not only do we need a steady -state economy, but that we need "ungrowth" to arrive at sustainable levels of resource depletion.