In order to successfully implement our eco-currency, we have to have an overview of the world we are living in. In our case there are two very important ecologies that we have to include in this view: the economical/financial system, and the environmental world – the biosphere.
An important aspect of an healthy eco system, such as a rainforest, is that it is self sustainable. I won’t go into great detail about that here, but this is a point where it is vastly different from our economic model.
Current Economy
The main concept of our economy is that it is based on growth. The whole system works under the assumption that tomorrow will be bigger than yesterday. People will lend you money, and claim interest. This interest is only payable when you actually create more value/ money and be able to pay up for that interest.
A fact that has also helped to create this ever growing system and let it grow out of control is the fact that the gold standard has been finally abandoned in 1971. This meant that money can be created out of thin air.
This idea is not so strange. Almost all problems can be solved using this mechanism. Poverty? Grow the economy, increase production of goods and consumer spending. Overpopulation? When economic growth is pushed, the birth rate will go done (this can be empirically verified). There is one catch though. The biosphere, of which the economy is a part, is not unlimited in size.
If the economy grows, the environment shrinks.
The finite biosphere cannot maintain an unlimitedly growing economy. This means that if the economy grows, it essentially will take away parts of the biosphere. Although this might be a very simplified version, this is the ultimate consequence. As Herman E. Daly put it: “Once we pass the optimal scale, growth becomes stupid in the short run and impossible tom maintain in the long run.”
Marginal cost refers to the cost of producing one more unit of a good or service. Marginal benefit is the benefit gained from one more unit. This graph shows the marginal costs and benefits of GDP growth. Costs tend to rise and benefits tend to decrease for each additional unit of growth. We should stop growing GDP, therefore, when marginal costs are exactly equal to marginal benefits (Q*V*). If costs are less than benefits, then GDP growth is economic (the green part of the graph). When costs rise above benefits, GDP growth is uneconomic (the brown part). Image courtesy of http://steadystate.org
Not a Natural System
A big misconception that people have is that the market (economy) is treated as it were a natural system. That is not the case at all. It has been made an engineered by specific people with a specific goal in mind.
In the Late Middle Ages there was a rise of a merchant class. This class was creating and exchanging value, in a way that is very comparable with a peer-to-peer economy. There was no dependency on central employers or central currency.
There were two important changes introduced by the Feudal lords and the aristocracy to prevent this rise.
The first one was the introduction of a central currency, creating an artificial scarcity. Local currencies were made illegal. The central currency was easier to tax, and central banks could easily extract value by removing gold content.
The second ‘innovation’ was the idea of chartered economies. Here kings could grant exclusive rights to certain companies in return for profit. For example, in the American Colonies the British East India Trading Company was the only company that was allowed to trade. Colonists who grew cotton were not allowed to sell it to other companies, or make clothes. Instead, the cotton was shipped to England, were (another chartered monopoly) company made the clothes. These clothed were shipped back to America to be sold to the colonists. Everyone can see that this is not an efficient system, but it is good for the few who are in the chartered monopoly.
But what happened in essence is that there was a shift in an economy that used to be based on abundance and collaboration. This became scarcity and competition. These ideas are still with us, and are so normal that we mistake them for laws of economic activities. There are voices that big change is needed.
Steady State Economy
Herman E. Daly
Herman Daly, an ecological economist professor who was Senior Economist in the Environment Department of the World bank, has been working on policy guidelines regarding sustainable development.
In his view, the main problem for the future is that the economic system we have now cannot maintained long int o the future. Possible, and likely, results will be loss of well-being and ecological catastrophe.
Three points have to be addressed in a plan to make the economy sustainable on the long run.
- Limit use of all resources to rates that ultimately reslt in levels of waste that can be absorbed by the ecosystem.
- Exploit renewable resources at rates that do not exceed the ability of the ecosystem to regenerate the resources.
- Deplete nonrenewable resources at rates that, as far as possible, do not exceed the rate of development of renewable substitutes.
A so-called steady state economy can provide an answer on how to solve these issues. It is also more specific about the implications this has for our economic system and society as a whole. Daly defines a steady state economy as:
…an economy with constant stocks of people and artifacts, maintained at some desired, sufficient levels by low rates of maintenance “throughput”, that is, by the lowest feasible flows of matter and energy from the first stage of production to the last stage of consumption
The Ten Point Policy Summary for a steady state Economy
- Cap-auction-trade systems for basic resources. Cap limits to biophysical scale according to source or sink constraint, whichever is more stringent. Auction captures scarcity rents for equitable redistribution. Trade allows efficient allocation to highest uses.
- Ecological tax reform—shift 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). Internalizes external costs as well as raises revenue more equitably. Prices the scarce but previously unpriced contribution of nature.
- Limit the range of inequality in income distribution—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.
- 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.
- Re-regulate international commerce—move away from free trade, free capital mobility and globalization, adopt compensating tariffs to protect efficient national policies of cost internalization from standards-lowering competition from other countries.
- Downgrade 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—seek balance on current account, avoid large capital transfers and foreign debts.
- Move to 100% reserve requirements instead of fractional reserve banking. Put control of money supply and seigniorage in hands of the government rather than private banks.
- Enclose the remaining commons of rival natural capital in public trusts, and price it, while freeing from private enclosure and prices the non rival commonwealth of knowledge and information. Stop treating the scarce as if it were non scarce, and the non scarce as if it were scarce.
- Stabilize population. Work toward a balance in which births plus immigrants equals deaths plus out-migrants.
- Reform national accounts—separate GDP into a cost account and a benefits account. Compare them at the margin, stop growing when marginal costs equal marginal benefits. Never add the two accounts.
Whatever is going to happen is not clear, but what is clear that if we want, and on the long term we have, to change the way we are living on the planet, we have to change our whole society around it.
References
- http://www.theoildrum.com/node/3941
- http://www.eoearth.org/article/Daly,_Herman_E.
- http://www.edge.org/3rd_culture/rushkoff09/rushkoff09_index.html
- http://www.bol.com/nl/s/boeken/zoekresultaten/Ntt/bol.com+als+de+dollar+valt/search/true/searchType/qck/N/8299/Ntk/books_all/index.htm
- ECONOMICS IN A FULL WORLD , By: Daly, Herman E., Scientific American, September 2005, Vol. 293, Issue 3
- http://steadystate.org/
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Second!
Whereas yesterday’s businesses were often oblivious to their negative impacts and today’s responsible businesses strive to reduce their impacts, tomorrow’s businesses will learn to make a positive contribution. Increasingly, companies will be selling solutions to the world’s social and environmental problems, and doing so in a way that respects diversity and cultural differences. Envisioning tomorrow’s businesses, therefore, requires that we gain a fuller appreciation of a complex set of global interdependencies; we will have to understand our environment. In fact, the global economy is really composed of three different, overlapping economies: the money economy, the traditional economy, and nature’s economy.
The Money Economy
The money economy is the familiar world of industry an commerce comprising both de the developed economies and the so-called emerging economies. Roughly two billion people participate in the money economy, with less than half of those living in the wealthy countries of the developed world. Although industrialization has produced tremendous economic benefits, it has also generated significant pollution burden and continues to consume virgin materials, resources, and fossil fuels at an increasing rate (Hawken et. al., 19993). The money economy thus leaves a large ecological footprint, defined as the amount of land and resources required to meet a typical consumer’s needs. Stringent environmental regulation, the greening of industry and the relocation of most polluting activities toward emerging market economies have declined pollution in developed economies but given the much larger population base in those countries, their rapid industrialization could easily offset the environmental gains made in developed countries.
The Traditional Economy
The second economy is the traditional economy: the village-based way of life found in the rural parts of most developing countries. It is made up of roughly four billion people – fully two-third of humanity – meeting their direct needs directly from nature, while participating only sparingly in the cash or money economy. Developing countries will account for 90 percent of the predicted population growth, and most of it will occur in the traditional economy. Indigenous cultures, once able to live in a self-sufficient manner based upon the principles of community, frugality, and sufficiency, have been irreversible changed by the introduction of cash and wage employment (Norberg-Hodge, 19914). Structural adjustment, privatization, and free trade have accelerated this trend over the past two decades. Indeed, massive poverty appeared only when the spread of the money economy eroded community ties and traditional cultures. Extractive industries and the development of infrastructure have also, in many cases, degraded the ecosystem upon which the traditional economy depends. Rural populations are driven further into poverty as they compete for natural resources often made scarce through expansion of the money economy. Ironically, these conditions encourage high fertility rates because, in the short run, children help the family to garner needed resources. But in the long run, population growth in the traditional economy only reinforces a vicious cycle of resource depletion and poverty. Survival pressures often force these rapidly growing rural populations into practices that cause damage to forest, soil, and water. As it becomes more difficult to live off the land, millions of desperate people migrate to already overcrowded cities in search of wage employment, often splitting up families and fracturing village communities. Most never find full-time wage employment and instead join the burgeoning informal or extralegal sector of the economy, working in literally millions of small, unregistered enterprises. In fact, Hernando de Soto (2000) estimats that the informal sector accounts for 40-70 percent of total economic activity in developing countries. Because corrupt governments and bureaucracy make offical registration of small businesses by the poor prohibitively expensive, the informal economy has become the fastest-growing sector in much of the developing world (de Soto, 2000).
Nature’s Economy
The third economy is nature’s economy, which consists of the natural systems and resources that support the money and the traditional economy. In fact, the money and traditional economies are actually embedded in nature’s economy because the former could not exist without the latter. Nonrenewable resources such as oil, metals, and other minerals are finite. Renewable resources such as soils, fisheries, and forest will replenish themselves – as long as their use does not exceed critical thresholds. Technological innovations have created substitutes for many commonly used nonrenewable resources and in the developed economies, demand for some nonrenewable materials might actually diminish in the decades ahead because of reuse and recycling. Ironically, the greatest threat to sustainable development today is depletion of the world’s renewable resources (Hart, 2007). As we begin the twenty-first century, the money and traditional economies are slowly destroying their own support system (Brown, 20015). Increasing demands of the two economies are surpassing the sustainable yields of the ecosystems that underpin them.
Collision Course
The interdependence of the three economic spheres is plain. In fact, the three economies have become worlds in collision, creating the major social and environmental challenges facing the planet, but also opening up business opportunities of vast proportions.
source / more info at: Hart, S. (2007). ‘Capitalism at the Crossroads.
Aligning Business, Earth, and Humanity’. (2nd Ed.), Upper Saddle River: Wharton School.
First!