A New Paradigm is Needed

by Joshua Farley, Professor, University of Vermont

Economists in general want to improve human welfare. Mainstream economists claim welfare improvements are best achieved by maximizing the monetary value of what we consume. This requires allocating raw materials to the production of goods and services with the greatest value, then apportioning those products to the individuals who value them most, where value is measured by willingness to pay. In theory, markets based on private property rights, individual choice, and private profits efficiently maximize monetary value. Over time, welfare is increased by continuous economic growth.
Ecological economics is an alternative to mainstream theory that acknowledges we live on a finite planet subject to the laws of physics and ecology. Nature provides humans with invaluable benefits that are degraded or destroyed by economic activity. Endless growth in material consumption is impossible. Whether economic growth enhances human welfare depends on who gets it. Over the past two years, 63% of all new wealth went to the top 1%, with the remaining 37% shared by the bottom 99%.1 The rich get little benefit from ever greater consumption while the costs of growth fall disproportionately upon the poor.2 Per capita consumption has increased nine-fold over the past century even while the human population has quadrupled. The economy has not grown into an empty void, but rather has encroached upon the natural systems that sustain us all. Ecological sustainability and just distribution must now be priorities. Rather than striving to maximize monetary value, we must strive to ensure sufficiency for all at the lowest ecological cost. The rest of this essay focuses on what is economically possible and desirable on a finite planet.

A Finite Planet

From physics, we know it is impossible to make something from nothing or vice versa, and impossible to do work without energy. We also know that you can’t burn the same match twice: energy becomes disordered and useless upon doing work. Ecosystems transform solar energy into plants and animals that supply humans with food, fiber, building materials, and fuel, as well as life sustaining ecosystem functions ranging from climate stability to oxygen production. The economy transforms existing raw materials and energy into economic products and waste, and natural ecosystems into human-made ones.
Humans have access to two types of energy. Endless flows of solar power strike the earth at a fixed rate over time. We use technology to concentrate these diffuse flows into electricity, heat, and other usable forms. In contrast, finite stocks of fossil fuels and uranium are extracted and consumed, and cannot be replaced. We have chosen to consume half of all oil ever used in the last 30 years.3
Fossil fuels currently account for about 80% of energy use.4 Most likely every human made product with which you have interacted today used them in its production. To appreciate their importance, consider how far you can drive your car on a quart of gasoline – currently about $1.00 in the US to go perhaps six or eight miles. Now consider how long it would take you to push your car that far. Now multiply that amount of labor by the nearly 16 billion quarts of oil the world consumes per day to get an idea of how much fossil fuel increases human productivity and, in the process, greenhouse gases. In our current economy, the individual consumer gains all the benefits from burning a liter of gas but shares the ecological costs with everyone on the planet.
Our finite planet offers finite stocks of raw materials, both living and non-living. We can extract these as fast as our technologies and preferences allow and transform them into economic products. But we cannot view nature simply as a source of raw materials. Biotic resources alternatively serve as the structural building blocks of ecosystems, which generate a continuous flux of ecosystem services. Humans and virtually all other species depend on these services for their survival.
Ecosystems are not physically transformed into the services they generate: a forest sequesters carbon dioxide, regulates water flows, and provides habitat for myriad species, yet remains a forest. However, when economic production transforms the structural building blocks of the ecosystem into economic products and waste emissions, it diminishes the ecosystem’s capacity to generate these vital functions and to regenerate itself. Again, the individual home buyer gains all the benefits from transforming a forest stand into a house but shares the ecological costs of forest loss with everyone on the planet.
Among the most important questions in economics is how much of nature can be converted into economic products and waste, and how much must be left intact to provide vital ecosystem services? A few simple rules must inform our decisions:
· Do not use renewable resources faster than they can regenerate.
· Do not use essential non-renewable resources (such as oil) faster than we can develop renewable substitutes.
· Do not emit waste products faster than they can be absorbed.
· Ensure the resiliency of vital ecological functions.
· When in doubt, err on the side of caution.
These rules impose limits on the size of the economy and human populations (which currently weigh 10x as much as all wild terrestrial vertebrates combined!),5 though not necessarily on human well-being. Humanity, or to be specific, the world’s wealthiest people, have broken all these rules and must dramatically reduce current rates of consumption.

A New Kind of Economics

Mainstream economics considers collective costs, such as climate change and the loss of ecosystem services, to be negative externalities, which means they do not figure into market decisions. Any economic theory that treats society’s most important economic problems as ‘externalities’ is fatally flawed!
When benefits are private and costs are collective, individual choice and the private profit motive create an invisible foot that kicks the common good to pieces. Individual property rights to a stable climate, healthy ozone layer, and global biodiversity are impossible. Society’s most important economic problems are social dilemmas, situations in which society benefits from cooperation but individuals benefit from behaving selfishly, regardless of what others do. Such problems require cooperation and collective action to solve.
Major evolutionary transitions occurs when a living entity once capable of survival on its own can no longer survive apart from a group. Human cells are composed of archaea and bacteria that can no longer survive independently. Humans are composed of cells that can no longer survive independently. Society is composed of humans that can no longer survive independently.
Mainstream economists typically postulate that people are atomistic individuals solely concerned with their own self-interest, and the individual should be the central focus of economic analysis. Ecological economists in contrast claim that people can be self-interested but are inherently social “persons-in-community,” and are frequently altruistic. Modern, multi-level selection theory in evolution, as described below, supports this ecological economics perspective.
Multi-level selection theory recognizes that groups of humans (i.e. cultures) with more altruistic members outcompete other groups, even if more selfish individuals outcompete more cooperative ones within a group. Natural selection can therefore favor self-interest or altruism, depending on the circumstances. Cultures develop morals and ethics primarily to promote cooperation when faced with social dilemmas, which have been ubiquitous throughout human history. A moral group member puts the interests of the group ahead of the individual; an immoral member does the opposite.6,7
Human domination of the Earth has been driven by our ability to cooperate in larger and larger groups, requiring new moral values. Morals, ethics, and social norms are to cultural evolution what genes are to biological evolution. For example, in most US states, only white, landowning males originally enjoyed the full rights of citizenship. This would be considered appallingly unethical today. Addressing climate change and other ecological crises will require cooperation at a global scale, which will mean putting the interests of humanity ahead of the interests of individual countries and the interests of ecosystems ahead of the interests of any single species.

Two Proposals

The fossil fuel powered, growth oriented global economy is driving irreversible change far too fast for natural selection to act. We must instead pursue intentional cultural evolution as we attempt to shape our own future. None of us fully understands the complexity of human culture and economies or their interactions with the planetary systems that sustain us, which means we can’t be certain what cultural changes and policies will prove sustainable. We must therefore take an evolutionary approach to seeking solutions. This means experimenting with a variety of different approaches, discarding those that fail to contribute to socially just sustainability and improving those that do. It also means rejecting the notion that a single economic ideology, such as capitalism or socialism, can solve all our problems.
Among the innumerable approaches we should experiment with, I suggest two, each of which uses a radically different economic framework.
The first starts from the moral position that our shared natural inheritance belongs to all species, present and future. Ecological limits determine how much greenhouse gasses humanity can emit, and how rapidly we must ramp down to zero emissions. We should declare humanity’s share of the atmosphere to be the common property of all. No one is entitled to more than their fair share. To operationalize this, everyone could be given an equal share of rationing coupons each week that limit total emissions to sustainable levels. Given the ubiquity of oil in economic production, the rich would scarcely be able to consume more than the poor. We could allow these permits to be sold, but only once, to avoid hoarding and speculation. Lower income people would be able to sell coupons to the rich, leading to a useful and moral redistribution of income. It is the nature of essential resources that the lower the supply, the greater the revenue they generate. This means that every time we reduce allowable emissions, the revenue the coupons generate would increase, thus redistributing more wealth from the rich to the rest. The bottom 90% would be clamoring for tighter caps on fossil fuel use. Compare this to a carbon tax, which forces the poor to slash consumption while the rich scarcely notice.
A second approach would complement this first one but through an entirely different approach. Knowledge improves through use. Putting a price on knowledge actually reduces its value. Consider a safe, clean form of alternative energy that relies on abundant minerals. Patents provide their owners with a monopoly on that knowledge and allow them to ration access via monopoly prices. New inventions relying on patented knowledge become more expensive or are stifled all together. Countries that cannot afford to pay those prices will burn coal, leaving everyone worse off. The value of knowledge is maximized when it is free. Universities in the US receive public funding for research, but 70% of them spend more money seeking intellectual property rights than they receive from those rights.8 Most universities would save money by making all the knowledge they generate freely available to all. Universities around the world could create a transnational knowledge commons, in which all the knowledge they generate that contributes to socially just sustainability is freely available to all, on the condition that any improvements are also open access. Technological advances will not allow us to continue our current trajectory of continuous growth, but they can help us dramatically reduce the amount of resources required to provide all humans with secure sufficiency at a minimum ecological cost.
Note that the first of these policy proposals is based on creating property rights where none currently exist, while the second calls for eliminating property rights. Each approach is based on the physical characteristics of the resources in question. If I emit my CO2 into the atmosphere, there is less capacity for it to absorb yours as well. Rationing is necessary. In contrast, if I develop a green technology, your use of it makes us both better off, and rationing is idiotic.
It is foolish to assume that any one approach, e.g. capitalism or socialism, can solve all our problems. A scientific approach to economics recognizes that the specific economic institutions we use depend on the goals we want to achieve, the physical characteristics of the resources required to achieve them, and a clear understanding of human nature and its malleability through cultural norms.

The Paradigm Must Change!

In conclusion, the world has changed dramatically over the past two centuries and especially the last 75 years.9 Economic theories suitable to the 19th century are no longer suitable to the 21st. Business as usual is impossible: the unintended ecological consequences of living beyond the planet’s carrying capacity will force radical change upon us. The current dominant paradigm of internalizing nature into the economy in the pursuit of endless economic growth assumes the economy is the whole and nature the part. 21st century economics must invert that by recognizing the economy is sustained and contained by our finite planetary ecosystems. The dominant goal of endless growth, regardless of who captures it, must be replaced by the goals of ecological sustainability and social justice, or secure sufficiency for all at the lowest possible ecological cost. Rules based on competition and self interest must be replaced by ones based on cooperation and altruism. While redesigning our economy according to these principles may sound radical, it is actually the most conservative option available.

Joshua Farley is an ecological economist, Professor in Community Development & Applied Economics, and Fellow of the Gund Institute for Environment at the University of Vermont. His broad research interests focus on the design of economic institutions capable of balancing what is biophysically possible with what is socially, psychologically and ethically desirable. He is co-author with Herman Daly of Ecological Economics, Principles and Applications, 2nd ed. Island Press (2011).