by Rob Dietz
According to mainstream economic theory, then, becoming rich not only takes care of poverty and social problems, but also provides a remedy for environmental troubles. But the theory, in this case, fails to match the reality. Empirical evidence casts serious doubts on both types of Kuznets curve.17 Moreover, as described in Chapter 2, it is not possible to solve problems of poverty and inequality by continuing to grow the global economy, because of the biophysical limits imposed by the planet.
Unfortunately, the mainstream view of growth and development has blocked other ideas from materializing on the global policy agenda. The Millennium Development Goals, the result of an enormous United Nations effort, present objectives for reducing poverty and ensuring that all people have the ability to meet basic needs.18 From the time the Goals were published in 2000, most of the discourse about attaining them has focused on economic growth as the policy tool to employ. Consequently, discussions about development generally revolve around stimulating and expanding trade. Governments and international organizations seldom consider alternative strategies for improving social, technological, or environmental conditions among all nations.19
The result is that both rich and poor countries have become tangled in a convoluted web of international trade. The ongoing African land grab is one egregious example. Another is provided by Charles Wheelan in his book Naked Economics (even though he is attempting to praise the unscripted effectiveness of the market). In considering the question “Who feeds Paris?” he writes:
Somehow the right amount of fresh tuna makes its way from a fishing fleet in the South Pacific to a restaurant on the Rue de Rivoli. A neighborhood fruit vendor has exactly what his customers want every morning—from coffee to fresh papayas—even though those products may come from ten or fifteen different countries. In short, a complex economy involves billions of transactions every day, the vast majority of which happen without any direct government involvement.20
Wheelan’s “right amount” of fresh tuna may correspond to the demand for tuna sandwiches in Parisian bistros, but it also corresponds to a disappearing population of tuna. An Australian newspaper reported in 2008 that tuna fishing was being banned in two vast areas of the South Pacific “in an attempt to halt the chronic over-exploitation of the highly prized fish.”21 The plight of tuna reflects how global trade can deplete stocks of natural resources, but other impacts are also troubling. The transport of products around the world (e.g., shipments of papayas to Paris) involves elaborate, energy-intensive processes. For example, in manufacturing and marketing a product, raw materials are typically sourced from numerous nations. After these materials have been assembled in some other far-flung location (or locations), the finished products are distributed to yet other regions for consumption. Sometimes nonsensical trade is the result, as nearly identical products are traded back and forth.22
Stuck in this web of trade, nations in the North have come to depend on the South for raw materials, cheap labor, and markets for their products. In turn, nations in the South depend on the North for manufactured goods, direct investments, and revenues from exports. Such dependencies, although beneficial to some parties, come with risks and the potential for problems.23 This potential was realized in the aftermath of the financial crisis of 2008 when the effects of irresponsible financial decisions and reduced consumption in wealthy countries cascaded to relatively poor, trade-dependent countries and plunged many of them into economic hardship.24 According to the United Nations, the financial meltdown in the wealthy countries drew almost 100 million more residents of low-income countries into extreme poverty.25
We need to avoid such systemic failures and find alternatives to the labyrinth of international trade. Much as a traveler needs a roadmap to find the best route and avoid getting lost, we need a map for economic development that properly accounts for the environmental, social, and economic challenges of modern times.
WHAT COULD WE DO INSTEAD?
If the current development map (i.e., pursuit of continuous economic growth through increasing international trade) is leading us to degraded environmental conditions and resource-grabbing behavior like the land deals in Africa, then it’s time to consult a better map. This new map must be able to guide not only high-income nations that need to reduce consumption, but also low-income nations that need to increase well-being while maintaining a sustainable ecological footprint. In other words, the map must be able to direct any nation from its current economic starting point to the destination of an optimal steady state.
Such a map, therefore, must be able to show which countries should pursue degrowth, which countries should still aim for economic growth, and which countries are closing in on a steady-state economy. It seems likely that wealthy countries in Western Europe and North America need to degrow their economies before establishing a steady state. It seems equally likely that poor countries in sub-Saharan Africa can still benefit substantially from economic growth (provided that the benefits of growth are distributed equitably). But what about China? Should it continue to pursue rapid growth, or has resource use already reached an unsustainable level? What about India, or countries in South America and Eastern Europe?
Figure 14.1 provides a conceptual map (really it’s a chart) that can be used to help answer these questions. We can plot each country’s position on the chart based on two factors: the size of its economy with respect to the capacity of ecosystems, and the change in its amount of resource use from one year to the next. The first of these factors corresponds to the idea of “economic scale” introduced in Chapter 3. The second measures whether the country’s economy is growing in biophysical terms. The combination of these two factors places an economy into one of four categories, or quadrants, on the chart: (1) Undesirable Growth, (2) Desirable Degrowth, (3) Undesirable Degrowth, and (4) Desirable Growth.26
Once a country identifies its position on the chart, its pathway to a steady-state economy becomes clear. A nation in Quadrant 1 (Undesirable Growth) has an economy that is consuming too many resources, and its resource use is still increasing. Degrowth is necessary before this nation can achieve a steady state. A nation that finds itself in Quadrant 2 (Desirable Degrowth) is still consuming too many resources, even though its resource use is falling. It will need to continue with degrowth until resource use reaches a sustainable level, at which point it can maintain a steady state. A nation in Quadrant 3 (Undesirable Degrowth) is experiencing something quite different. The resource use of its economy is below the optimal level and decreasing, so growth is necessary before it can achieve a steady state. Finally, a nation in Quadrant 4 (Desirable Growth) is consuming resources below the optimal level, but its resource use is increasing. This nation’s economy can continue growing until it reaches the optimal size and achieves a steady state.
FIG. 14.1. To achieve a steady-state economy (SSE), a nation must stabilize its resource use at a scale that does not exceed the capacity of ecosystems. Each nation’s path to a steady-state economy will differ depending on its starting point. SOURCE: see note 26.
Figure 14.1 provides a map for nations to follow toward a sustainable and fair economy, but to make this map useful in the real world, we need rigorous and reliable indicators of both economic scale and resource use over time. These indicators should adopt a consumption-based approach that accounts for international trade. In such an approach, the environmental impact of goods produced in China, but consumed in the United States, would be attributed to U.S. citizens.
We also need to define the optimal scale of an economy. “Optimal” could mean the “maximum sustainable” size. Under such a definition, an economy could use resources at a rate equal to the regenerative capacity of ecosystems. If the ecological footprint were used as the indicator of size, then optimal scale might be defined as a fair earthshare (the share of global ecosystem capacity that would be available to each person if it were divided equally).
Another option would be to define optimal scale somewhere below the maximum susta
inable level to provide a degree of ecological breathing room. Ideally, social indicators would also be used to help determine the optimal scale of the economy. For example, a nation could have excess ecological capacity with room to grow its economy. But if that nation achieved sufficient scores on indicators of human well-being without using its excess ecological capacity, then it might conclude that its economy had reached the optimal scale.27
Recognizing the path to a steady-state economy is one thing, but setting out on it is a different matter. A country that wants to put one foot in front of the other has to begin disengaging from unnecessary trade relationships. To do so, it must both increase its capacity for local production and overcome the doctrines embedded in current international trade agreements.
Nations can work independently to encourage local production, but they must cooperate to restructure international trade agreements. Consider a scenario in which producers in one country incorporate environmental and social costs in the prices of their products (a move in line with the transition to a steady-state economy). Their products would likely become more expensive than those produced in a second country pursuing growth through the externalization of such costs. In the absence of any remedy, the first nation would be penalized for its sustainability-seeking behavior. One solution would be for this nation to introduce compensating tariffs on cheap imports to protect its industries from unfair competition with countries where environmental and social costs were not being internalized.28 But a better solution would be for all nations to agree to internalize costs.
Now consider another potential disincentive to pursuing a steady-state economy: capital flight. If a nation began to internalize environmental and social costs, investment capital might flee that nation because of fears of lower profits. Such capital flight could be deterred by employing capital controls and minimum residency times for foreign investment. Not surprisingly, current trade agreements, which were developed with an eye toward economic expansion, fail to make provisions for tariffs or capital controls aimed at sustainability.
We need to maintain the benefits of trade, but we can’t continue to disregard the shortcomings in the current trade framework. Trade should be encouraged among nations that internalize the environmental and social costs of production, but discouraged among nations that do not. Four major benefits would result from efforts to restructure trade agreements and increase local production capacity:
1. Nations that have lost domestic industries would regain the security and resilience derived from being able to produce more goods and services locally.
2. Nations that are currently “offshoring pollution” by relying on imported products would be forced to develop clean manufacturing processes at home.
3. Low-income nations would be able to fight poverty by creating local jobs and economic opportunities.
4. All nations would be able reduce the energy used to transport products back and forth over long-distance trade routes.
A strategy to increase local production capacity could benefit a nation like Tanzania, where the proportion of undernourished people has reached the crisis stage. Development of organic agriculture on small farms could increase food production, raise incomes with locally available technologies, and prevent environmental damage.29 In fact, some Tanzanians are already making it happen. In the Mkuranga District south of Dar es Salaam, farmers have been collaborating since 2004 on organic cashew and vegetable production. The agricultural practices have improved soil and water conservation efforts, the cooperative practices have built community trust, and, best of all, the farmers have been able to provide more (and more nutritious) food for the children of the community.30 These homegrown farmers in Tanzania are laying the foundation for a better future, certainly more so than the people involved in a sell-off of lands to foreign investors.
WHERE DO WE GO FROM HERE?
We’ve suggested that nations need to recognize the limits to growth and help one another develop steady-state economies by reconfiguring international trade and focusing more on local production capacity. It sounds appealing, but there’s a big catch—doing so will require unprecedented cooperation. Given that global resource use is already at an unsustainable level, the world cannot wait until all developing economies reach a certain size and level of industrialization before they begin the shift to a steady state. Developing nations need to identify alternative paths to increase the well-being of their citizens, and these paths must be less materially intensive than those of today’s industrialized nations.31 At the same time, high-consuming nations need to take greater responsibility for the impacts of their consumption.
All nations, therefore, need to incorporate a robust development discourse in the global policy agenda and intensify their efforts to cooperate with one another. To make an orderly transition from the era of growth to the era of sustainability, people will have to stop seeing the world as a collection of individual countries, competing against one another for dominance. Instead we need to view ourselves as heterogeneous societies and cultures whose fates are intertwined. Wealthy economies that have reached the end of growth and those economies still in need of growth must work together on the mechanisms that will allow them to co-exist and co-develop so that all people can flourish. As a first step, international organizations such as the United Nations, World Bank, International Monetary Fund, and World Trade Organization should be democratized. These organizations should represent all people on the planet, not just the interests of a few nations.32
Once some basic agreements about the limits to growth have been reached, the wealthy nations, where the costs of further economic growth outweigh the benefits, will need to take the lead on the transition to a steady-state economy. Stabilization and even degrowth of these economies will free up ecological space to allow poor countries to expand their economies and realize the benefits of growth.33 These wealthy nations also need to demonstrate leadership on technology transfer. The transfer of technology from nations where it is abundant to those where it is scarce can help localize production and improve well-being around the globe. As this transition gets under way, trade with low-income countries will likely fall, with the potential to exacerbate the North–South divide. To manage this scenario, South–South trade should be encouraged.34 In fact, such trade is already growing, with almost 40 percent of exports from low-income countries destined for other low-income countries (although the majority of these exports originate from China, India, and five other countries).35
At the same time, the global North must learn to follow the lead of the global South. On measures of well-being and ecological stewardship, many low- and middle-income countries outperform their high-income counterparts. Grassroots movements centered in the South have also brought about significant positive social changes. For example, the fair-trade movement has worked to ensure that the benefits of trade accrue more equitably to low-income producers.
In 1776, the economist and philosopher Adam Smith published The Wealth of Nations. A little less than two hundred years later, another economist and philosopher, Leopold Kohr, published The Breakdown of Nations. Whereas Smith’s thesis is about national adoption of free-market strategies to concentrate wealth and power, Kohr’s thesis is about how bigness (achieved through unchecked economic growth and too much concentration of wealth and power) begets big wars, big social ills, and an assortment of other big breakdowns.36
For more than two centuries, free-market economies have been diligently practicing Smith’s prescriptions, such as the pursuit of enlightened self-interest and the division of labor to boost productivity. But Smith developed his ideas at a time when the world was very different, with fewer people, less human-built capital, and smaller environmental impacts. Some of his designs for growing national wealth seem antiquated, even immoral, when viewed through a modern lens. For example, in The Wealth of Nations, Smith wrote:
The colony of a civilized nation which takes possession either of a waste country, or of one so thinly
inhabited that the natives easily give place to the new settlers, advances more rapidly to wealth and greatness than any other human society. The colonies carry out with them a knowledge of agriculture and of other useful arts superior to what can grow up of its own accord, in the course of many centuries, among savage and barbarous nations.37
The nations that followed Smith’s prescriptions may have used violent or unfair means (as in the “scramble for Africa”), but these nations have certainly accumulated wealth. Along the way, however, they’ve arrived at a precipitous point on the edge of breakdown. Kohr linked the massive brutality of World War II and other conflicts throughout history to the over-accumulation of wealth and power. His theme, that smallness is the basis of sustainability, resonates more with each passing day. He wrote, “Below a certain size, everything fuses, joins, or accumulates. But beyond a certain size, everything collapses or explodes.”38 This insight cries out for the transition from more to enough. Nations need to find the political will to maintain checks and balances on economic scale and power. Now is the time to cultivate national temperance, intensify international cooperation, and achieve an economic scale that provides for the wealth, but not the breakdown, of nations.