Capitalism

Bad Growth vs Good Growth: How to Protect the Earth and Have a Vibrant, More Equitable Market Economy

How do we weed out the negative and accentuate the positive forms of growth?

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By Peter Barnes

I’ve been a businessman. My first venture, back in the 1970s, was a worker-owned cooperative that installed solar water heating systems. Our six co-founders wanted the business to stay small and democratic—one person, one vote. And for a while we did, until some of us had kids and others wanted to learn new skills. So we grew the business, became more hierarchal, and earned more income.

My second venture, Working Assets (now Credo Mobile), is a traditionally structured private company with a self-chosen mission: to support progressive causes while earning a profit. It seeks growth as a way to reward early investors and increase its social impact.

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Given my business experience, it’s hard for me to imagine a market economy in which firms (except mom-and-pops) don’t strive to grow. Every private company has powerful reasons to grow, not least the attainment of economies of scale, and every publicly traded corporation must grow or it will die or be acquired. Growth is in the DNA of businesses—even state-owned businesses and many non-profits—as well as of the market itself. Take it away and the whole economic engine stalls.

So we can’t and shouldn’t try to eliminate growth per se. But that doesn’t mean we must let capitalism destroy our planet—we can’t do that either. Our challenge is to curb bad growth and encourage the good kind, a daunting challenge but one that is at least imaginable.

To imagine a solution—including an answer to the question, how do we get there from here?—let’s start with definitions. By bad growth I mean growth that is either damaging to ecosystems or shifts non-productive rent to a privileged minority. (For example, our financial sector grew enormously in the last twenty years, in exchange for which we got a bubble, a crash, and skyrocketing inequality.) By good growth I mean the kind that adds to broadly shared wealth, does none of the aforementioned bad things, and specifically doesn’t violate ecological boundaries.

How do we weed out the negative and accentuate the positive forms of growth? I’d start with Johan Rockström’s notion of ecological boundaries and add Herman Daly’s vision of limits on physical throughput. According to Rockström, there are nine biophysical thresholds to human activity, three of which we’ve already crossed. Daly would put physical limits on the chemicals or activities that push us closer to, or further beyond, these thresholds. For example, limits might be applied to carbon-based fuels, methane, nitrogen, phosphorus, water use, and tree-cutting, among other things. Someone (we’ll get to who in a minute) would enforce those limits by auctioning the available usage rights to the highest bidders. Businesses that engage in the limited activities without permits would be steeply fined. In this way, bad business activity would be limited, and growth steered toward benign activities. (I would add, as Daly would, limits on banks’ ability to create debt out of thin air.)

So far so good. But a couple of big questions remain. First, who would impose the limits and collect the revenue? And second, where would all the new money go? These aren’t small details; trillions of dollars are at stake.

More significantly, it is by no means clear that our dysfunctional, bought-and-paid-for government is the ideal setter of limits and dispenser of newly internalized costs. Those responsibilities might better be assigned to non-political entities that are bound by law to serve future generations and all living citizens equally, somewhat like the Federal Reserve Board married to the Alaska Permanent Fund. Such entities would be free (or freer) from the political power of badly behaving corporations than would our expensively elected politicians. And if they failed to protect their designated beneficiaries, they could be sued and held accountable in courts.

As for where the new money goes, we must first pose such questions as who owns our air, water, and ecosystems? As it turns out, the best answer to those questions is all of us together,as co-inheritors and co-trustees of the earth.Which means that all of us together should get most or all of the money that flows from renting limited access to our property. This isn’t just a matter of principle; it’s also the right political choice.

If throughput of vital resources is limited, the prices of those resources—and everything made with them—will rise. Unless incomes rise in tandem, there won’t be enough popular support to keep lowering ecosystem limits to their necessary levels. For example, a thirty-dollar-a-ton carbon tax in British Columbia has been stuck at that level for five years. If British Columbia paid equal dividends from its carbon revenue, as Alaska does with oil revenue, there’d be a lot more support for raising its carbon price.

Further, we need to acknowledge that, apart from ecological constraints, our economy is already changing in fundamental ways. Thanks to globalization and other forces, in the United States, good-paying jobs are being replaced by low-paid work and erratic gigs. In addition, technology is making many jobs obsolete and artificial intelligence will accelerate that trend. The point is, if we want people to put up with a lot of rapid change, driven by globalization, automation and nature, we need to make them economically secure. The best way to do that is with a guaranteed monthly income—and the best source for that is the currently unpaid costs we should be collecting.

What about getting from here to there? I suggest an evolution-inspired approach. In natural ecosystems, if one species gets out of control, the entire ecosystem suffers. The same is true for our economic ecosystem. Like humans in nature, corporations in our economy have become unconstrained predators. They need to be counter-balanced by another species—dividend-paying ecosystem trusts—that has equally strong personhood, property rights and constituents. Nature herself won’t create that new species, but we can.

In nature, evolution isn’t smooth; it proceeds through long periods of near-equilibrium interrupted by short bursts of rapid change—what biologist Stephen J. Gould calledpunctuated equilibrium. Economic and political evolution appears to proceed in the same way. Once or twice a century, a major crisis sparks big evolutionary leaps.

The last time we went through a major upgrade in America’s economic system was in the 1930s; the crisis of 2008 was sadly wasted. For multiple reasons, we’re due for another crisis soon. So in my view, our present task is to get ready to use the next crisis. Pre-design a set of non-political, legally accountable trusts that can set and enforce ecological thresholds and pay equal dividends to all, dividends that rise automatically as ecological valves are tightened. Popularize and politicize this model. And make sure that, after the next crisis, trusts of this type proliferate as rapidly as corporations did in the nineteenth century.

With such potent new agents on the playing field, the market itself will do an increasingly good job of harmonizing human activity with nature, maintaining good growth and sharing our abundance broadly.

This piece is a response to the question: How can we create a successful economy without continuous growth? for the Center for Humans and Nature’s Questions for a Resilient Future series. Read more responses to this question and add your own response at HumansandNature.org.

2016 October 27


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  • Several problems with this thesis.

    The claim “In nature, evolution isn’t smooth; it proceeds through long periods of near-equilibrium interrupted by short bursts of rapid change” – not true.
    What we see in nature is constant change, what varies is the rate of change. What we see is complex systems in action that have been selected by the process of differential survival over eons of time.
    What we see is systems limited in their productivity by some factor, usually energy, often nutrients, sometimes water or temperature, or wind or ……
    The idea of equilibrium in nature is mostly illusion imposed by the actual limits to growth.
    What we see is some systems developing ever more powerful ways of exploring the systemic spaces available in the infinitely dimensional space of all possible systems.

    In respect of using trusts, the sort of trust proposed require coercive power, and traditionally that is the prerogative of the state

    The claim made “With such potent new agents on the playing field, the market itself will do an increasingly good job of harmonizing human activity with nature, maintaining good growth and sharing our abundance broadly.” is false.

    The idea that a market can share abundance loses cohesion as the degree of abundance increases.
    Universal abundance must, by definition, have a zero price in the market (as air does).
    In an age where we have the technical capacity to create universal abundance in an exponentially expanding set of goods and services, retaining markets as a lead valuation mechanism delivers a strong set of incentives against any universal abundance.

    Because markets require unmet demand to work, they have meta incentives to maintain poverty for some (often many).

    Markets are internally incentivised to prevent the deliver of universal abundance.

    Poverty is a structural feature of a market based system.

    I say we need to start thinking beyond markets, and exploring other set of technologies that can perform the many very useful functions that markets performed in our past, without the structural incentives against the delivery of universal abundance.

  • Thank you Peter for an excellent article. I especially like the aim of this piece—sustainable prosperity without harm to the ecosystems and environment on which humanity depends, nor harm to future generations.

    That said, I’m unsure of trusts as a solution. I’d like to know of cases where dividend-paying ecosystem trusts as a countervailing power of competing species against corporations as unconstrained predators actually worked.

    Initially, I’m preferring another scenario for constraining corporations—democracy.

    For example, Peter, you wrote:

    “…it is by no means clear that our dysfunctional, bought-and-paid-for government is the ideal setter of limits and dispenser of newly internalized costs. Those responsibilities might better be assigned to non-political entities that are bound by law to serve future generations and all living citizens equally, somewhat like the Federal Reserve Board married to the Alaska Permanent Fund. Such entities would be free (or freer) from the political power of badly behaving corporations than would our expensively elected politicians. And if they failed to protect their designated beneficiaries, they could be sued and held accountable in courts.”

    “Like humans in nature, corporations in our economy have become unconstrained predators. They need to be counter-balanced by another species—dividend-paying ecosystem trusts—that has equally strong personhood, property rights and constituents. Nature herself won’t create that new species, but we can.”

    My concern is the accepting of a “dysfunctional, bought-and-paid-for government.” Instead, it would be better, more workable to alter, amend or abolish that government and replace with a modern, democratic government.

    An alternative would be, in America for example, to bring about a government that would change corporate governance as Germany has by requiring a national registrations of corporations and requiring corporate boards of directors to include 50 percent or more of its seats to elected employees. This system of economic co-determination doesn’t eliminate governance by financial investors, nor by experts on boards. It adds employee governance to decision-making.

    Another approach is to pass laws or re-write constitutional law to require the public trust doctrine as a set of criteria to protect public domains, including environmental domains, ecosystem domains, resource domains, the domains that affect future generations.

    The problem with any entity not accountable to the citizenry via democratic processes is a bureaucracy accountable only to itself, akin to the Eurozone finance ministers in their rule-following encounter with Yanis Varoufakis and Greece to inflict great harm on the Greek people with no process by Europeans to counter their decisions.

    It is a matter of strategy for national and global universal abundance. Rather than trusts as band-aids on an undemocratic, dysfunctional system, let’s bring about a democratic, functional system to implement such a strategy, for until all are prosperous and secure, no one will be. The time to act is now.

  • Structural and institutional changes within our societies when their emergence is not caused by severe disruptions only seem to happen through political change, no matter how problematic or difficult that process. I have arrived at conclusions similar to those expressed in Kelly’s comment that deep constitutional changes are in order at least in America if not everywhere. A reordering of our constitutional values at a deep level is needed to address some of the deepest structural issues noted by Ted in his comment. Otherwise our efforts are constantly deflected towards merely superficial patch work fixes that can never truly address the deeper structural problems, like expressing abundance in an economic system that only thrives on scarcity. Layer upon layer of new laws will never fix the core problem as long as the foundational values remain inverted.

    What would a healthy value system look like? Nature Laws as we are best able to understand them are the foundation. Individual basic human rights that arise from recognized Natural Laws should be considered secondary. All other legal entities as constitutionally recognized should be considered tertiary.

    Thomas Paine described the foundations of the thinking on individual basic human rights in “The Rights of Man”(1791) though I am still debating in my own mind his inclusion of the right to “private property” in his essays as a failure on his part to recognize the Natural Commons as primary over every human notion including “private property”. Even Thomas Paine remained immersed within a deep cultural conditioning that had yet to recognize the full impact of immutable Natural Law on human civilization. Every human law, all constitutional laws included are always subjugate to Natural Law. The only qualification to this absolute value is in the limitations of human understanding of our relationship to Natural Law. As far as I can determine, no where in Natural Law is there a provision that guarantees the right to “private property” but only the necessity for a sustainable commons access to guarantee life for any and all life, including human.

    Given these understandings and this order of value, all functions related to money as an extension of the notion of “private property” are tertiary to all Natural Law and to basic human rights. A constitution built on this foundation will allow for the creation of institutional structures of governance that are not internally inconsistent. This would allow for the greatest degree of individual “freedom” possible within the constraints of Natural Law as you express in your desire for maximum individual “freedom” Ted. “Life, Liberty and the Pursuit of Happiness” is still a strong expression of individual “freedom”. Natural Law is the constraining boundary to the human ecosystem.

    The present American constitution and other existing constitutions are deeply flawed at a foundational level of thinking when viewed from our emerging understandings of our relationship to Nature. What are constitutions? They are agreements arrived at by various groups of humans about the rules to be used for the management of recognized bounded common areas of interest. At the moment, the largest bounded common area of interest for humanity is the natural ecosystem of the Earth. Perhaps what we need is a planetary constitution with a solid foundational set of values, not the jumbled, inverted value system mess upon which the United Nations and the American constitution are founded? Maybe then we could begin to get serious about the emergence of a global human society we could call civilized? All other efforts are merely triage, not cures to the existing structural violence of our present institutions that make triage necessary.

  • Nicholas Gruen

    Thanks Peter,

    I don’t think you can solve the problem of ‘who guards the guardians’ the problem of how power (whether economic, political, cultural or otherwise) by a fairly casual reference to “the Federal Reserve Board married to the Alaska Permanent Fund”. You say “Such entities would be free (or freer) from the political power of badly behaving corporations than would our expensively elected politicians. And if they failed to protect their designated beneficiaries, they could be sued and held accountable in courts.”

    So here we have three entities – two mentioned explicitly – the Fed and the fund and they’re being taken to ‘court’. And how is each of these constituted? Via the current political system. So there’s a circularity in this reasoning which is pretty unsatisfying.

    And what does it mean to hold these bodies “accountable in courts”. Who is ‘they’. Janet Yellen. She doesn’t have very deep pockets, so she can’t make good anything she does wrong. The Fed and Alaska fund balance sheets. Well perhaps, but they’re public assets. So we have the public being compensated for the wrongdoing of these organisations by running down public assets.

    I’ sorry to say I don’t think this part of your essay took us very far.

    • Peter Barnes

      There’s no perfect solution to the problem of ‘guarding the guardians.’ If Nicholas Gruen or anyone else has a better solution, I’m totally open to it. So far the best solution humans have come up with is the legal form known as a ‘trust.’ A trustee is legally bound to be 100% loyal to the trust’s beneficiaries. If s/he isn’t, s/he can be sued in court, in which case the ultimate guardian becomes a judge. I assume we trust judges in this country to be fair; or at least we trust the appeals process to be fair. The question in a trusteeship case is pretty straightforward: was the trustee 100% loyal to the beneficiary? The remedy isn’t to imprison or fine the trustee but to restore the beneficiaries. If we can’t trust our courts to resolve that, we’re sunk in any case.

      • Nicholas Gruen

        I can’t see how you can ‘restore the beneficiaries’ except with funds that are from the beneficiaries.

  • Duncan Cairncross

    Excellent article – I really like the idea of making a Carbon Tax totally revenue neutral by simply giving the revenue back to the citizens
    I would make some changes – the Alaskan model is intended to set up a permanent fund
    This (IMHO) would give too much temptation to the “spend it for our own good” which can too easily be subverted to spend it for MY good
    (Or at least give the impression that was happening which is nearly as bad)

    Instead I would have the Carbon Fund give all of it’s income into the dividend that would go to all citizens (whatever age) except for a small amount for administration – 5%??

    By it’s very nature such fund would reduce with time as technology improves – but the cost per tonne should also be increasing
    I would have a simple target – the cost per ton should increase to keep the per person payout from the fund the same until the levels of CO2 in the atmosphere are down to say 250ppm

  • Peter Mersch

    it’s hard for me to imagine a market economy in which firms (except mom-and-pops) don’t strive to grow. Every private company has powerful reasons to grow, not least the attainment of economies of scale, and every publicly traded corporation must grow or it will die or be acquired. Growth is in the DNA of businesses

    It’s easy to imagine markets in which firms don’t strive to grow: Markets with just one firm.

    And growth is not the DNA of businesses, but comparative competency loss prevention. If there is no competition (because there is just one company) there is no need to grow and to improve. But especially in highly innovative and competitive markets there is a strong need for firms to constantly improve its competencies otherwise the competition will improve. If the competition improves its competencies in relation to one firm, this one firm experiences a (comparative) competency loss. If this process continues it will probably go out of business.

    Groth is therefore only a side-effect of a more fundamental behavior: comparative competency loss avoidance.