Economics for a full world—A commentary

:: I remember vividly the first time I came across Herman Daly’s work. It was in a crowded upstairs meeting room in London sometime in 1989 during a presentation on the relative costs of different carbon abatement options. Among the slides on display—acetates and overhead projectors in those days—was one showing Herman Daly and John Cobb’s Index of Sustainable Economic Welfare alongside the GDP. It fascinated me not simply because it illustrated so clearly Daly’s concept of uneconomic growth, but also because it proved to me that it was possible to think in economic terms about economics without falling prey to common ecological follies such as the idea that economic growth is unequivocally good (or indeed even possible in perpetuity on a finite planet).

Together with Nic Marks, I set out to replicate the ISEW for the UK and very soon after that, at the request of the Stockholm Environment Institute, for Sweden. Both examples confirmed the findings of the US ISEW, as did many others for different countries since: uneconomic growth is not just a theoretical construct; it is a quantifiable present reality.

But the exercise also underlined something else for me. Economists didn’t much like it. Even the friendliest ones found all sorts of reasons to rubbish the exercise—some of them of course with more than a grain of truth. It was always painfully obvious to us that the statistical basis for a real measurement of the environmental and social costs of economic activity is woefully inadequate. And besides, in the ISEW, we were also being asked to put monetary values on all sorts of things, which resisted a robust monetary valuation. Ultimately of course, as many have pointed out, some things just cannot be valued in money terms and we probably should not even try.

Nonetheless, this exercise like so much of Daly’s work stands out precisely because of his refusal to stop thinking. Thinking clearly. Thinking even when the answers are inherently difficult to come by. The easiest thing in the world to do, when you have discovered near fatal flaws at the heart of the most influential scientific discipline of our times, would be to reject that discipline in its entirety.

Many people do reject economics. Many of my students come to me with absolutely no wish at all to have anything to do with a subject that they feel has failed so many, so spectacularly. Some of their reasons are good. Economics has let us down on all sorts of counts, not least of course in providing a robust understanding of economic instability. Economists have often been more arrogant than they should have been, swept away by their own secular importance, rather than being persuaded, as Keynes once exhorted them, to become a bit more like dentists, providing a vital service in terms of our economic health, but otherwise maintaining a relatively low profile.

The extent to which this rejection of economics per se has become an acceptable intellectual position never ceases to surprise me. At a conference recently, after I had presented some economic analysis of a stationary state economy, I was approached by one of the most prominent advocates of the degrowth movement. In my opinion, he told me, the idea of post-growth economics is an oxymoron.

This is why Herman Daly’s work matters so much: despite the flaws of the particular economic paradigm in which we are currently embedded, he refuses to give up on economics, on an economic way of thinking about society. He applies a ruthless rigor to it, which is often sadly missing in his more orthodox counterparts, and in doing so, he points us towards solutions. Not all the work is done, for sure. But the vision that he presents is a valuable, sophisticated and important one. When it comes to a comparison between Daly’s steady-state economics and conventional economics, there is no contest.

Three specific issues struck me as I read Daly’s essay and the responses to it.

1) Political will for change: On page 12 of his essay, Daly accepts that articulating a “general outline” of policies by no means guarantees the political will to enact them. For some people, the lack of political will is proof of the corruption and vested interest at the heart of contemporary government; for others, it is evidence that “we” just haven’t made our case clearly enough, forcefully enough, or attractively enough. I have a slightly different take on this. There is of course a kind of nonsensical political resistance to even thinking about alternatives to a growth-based paradigm. This much is true. But there are also good reasons for politicians to be wary of such a change. Keynes once said that the principal objective of the economy is to maintain social stability. If social stability depends on economic stability (it broadly seems to) and economic stability depends on growth (Keynes certainly thought that it did), then perhaps after all the government’s relentless pursuit of growth is a bit more understandable—even where it becomes uneconomic. True, the pursuit of growth can also lead to instability, as we saw only too clearly in the crisis. But the examples of social instability from economic decline are legion: Russia, Greece, Germany in the interwar years, etc. There are one or two exceptions: Cuba turned round better well-being outcomes following the collapse of the Soviet Union in spite of desperate economic circumstances. But they tend to be the exception rather than the rule. Degrowth advocates insist that “their recession is not our degrowth.” But more needs to be done to flesh out this aspiration in a meaningful way. Politicians are right to seek some form of convincing that a steady state economy or a degrowth economy will not lead to collapse. When economies collapse, bad things happen. There is an urgent need here for more work. We do need a post-growth economics whatever the degrowth advocates say. We need to be prepared to engage in thorough, robust, peer-reviewed economic analysis—even if we don’t entirely trust the language within which (for now) we have to work.

2) Labor and productivity: I like Herman Daly’s take on full employment. One of his ten commandments is to bring back the US Full Employment Act. Hyman Minsky had a similar idea to make government employer of last resort. These are profoundly sensible ways of approaching the question of employment under steady-state conditions. But the pursuit of labor productivity is what lies at the root of the problem of maintaining employment in a stationary or declining economy. Daly is relatively pragmatic about this, if a little offhand. Labor productivity gains should be taken, he says, as a reduction in working hours. The New Economics Foundation and many others have taken a similar line. Let’s reduce working time and thereby solve the problem of employment. It does make perfect sense, but arithmetically, there is also another option on the table: let’s be less productive.

You can maintain much more employment even with declining output if you are not continually chasing labor productivity. There are places where labor productivity growth makes sense. No one much enjoys washing sheets by hand and mixing concrete with a spade. But when it comes to human services, continually stripping out the time spent in service actually becomes (in any meaningful terms) counter-productive, even though it is counted in economics as being productive. Some things can and should still grow. The services that improve the quality of our lives—health, education, social care, renovation, refurbishment—might all fall into this category. These are activities where the value of the output is intimately related to the time that people put into it. The same is true of craft; it is the hours spent in perfecting labor that yields the value in a crafted product. And it is true of culture. What is the point (to borrow from William Baumol) of having the New York Philharmonic play Beethoven’s Fifth Symphony faster and faster each year? There is a set of activities—care, craft, culture—where the relentless pursuit of labor productivity stops making sense. This is a profoundly challenging point for economics, for two reasons. Firstly, it undercuts the broad principle of input cost minimization as a good thing. Secondly, it raises serious questions about inequality: the best way to prevent a slide in the wage-profit split is for labor productivity to increase. There are ways around these challenges, but again they require us to do hard work on economic structure.

3) Finally, a word about Ultimate Ends. My one disagreement with Daly’s essay concerns the discussion on Ultimate Ends—specifically, the appeal to grammar I found unconvincing. What makes Ends ultimate is not that they are singular, but that they are goods which are not held to be the means to some other end. To be honest, I am not even convinced that Daly really agrees with this characterization, because earlier in the essay he set out a much more convincing goal for economic activity in which he called for reductions in the entropy used to achieve “a sufficient standard of living—by sifting it slowly through efficient technologies aimed at important purposes.” The efficient technology part of this, of course, could come from any eco-modernist out there calling for green growth. The “important purposes” part is much more telling. It remains unexplored in this essay, but, to my mind, it is rightly plural. Others have explored these “important purposes” in more detail. Sen and Nussbaum’s work has been mentioned in discussion, and, to my mind, they remain at the forefront of those who have thought carefully about the question of economic ends. Both take pluralistic approaches, and my own sense is that this is correct. Singular quantities of satisfied life years are not going to get us to a nuanced understanding of human aspiration or societal progress. We need to identify qualities which we can legitimately claim as indicators of progress. Our economics should clearly serve these qualities, exactly as this essay suggests, rather than being seen as an end in itself. But the days of insisting on the predominance of a single numerical indicator should be definitively over. No one has done more to convince me of that than Herman Daly has.