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PAPERS ON ENVIRONMENT AND SUSTAINABLE DEVELOPMENT
[This paper has not been subject to editorial review by the IEF]
THE ECOLOGY OF ECONOMICS
Arthur Lyon Dahl
The science of ecology, as it has developed from the study of natural biological systems, emphasizes the dynamic relationships between the various components of a system. Economics, with its nineteenth century origins in mechanistic concepts influenced by the industrial revolution, takes a more static view of the balance of accounts at the end of each accounting cycle. It can therefore be instructive to apply an ecological systems view to various economic concepts, if only to raise some provocative questions about the basic premises underlying modern economic thinking which have too often been taken for granted.
All functional systems must respect certain basic principles to ensure their stability and survival. In nature, systems follow cycles of growth, reproduction or renewal, and death, which assure both the perpetuation of the systems and allow evolution to adapt to changing circumstances. In this process, the system may change form and composition, but it preserves its most essential characteristics in its information content. This determines its structure, organization and forms of communication with the outside environment and other systems. In biological systems, this information is stored in the genetic code; in human systems, this information is perpetuated and transmitted in our social values, institutions, culture, science, knowledge and wisdom.
In comparison with the whole spectrum of human society, the Western view of economics is particularly narrow, dealing with only one facet of a complex system. While the flow of money in an economy is rather like the flow of blood in the body, and equally essential, a doctor who looked only at blood supply when trying to heal a patient would miss most of the causes of ill health. Indeed, since economics can only value what is traded in the market, it misses even major areas of productive activity, such as legislation, housework or subsistence agriculture. As a result, it fails to measure and respond to important trends in society. Despite this narrowness, economics provides the standards most ofen used today to assess development and progress.
One result of the over-emphasis on economic measures is that we ignore many of the ways in which present society is accumulating debt. We already see governments burdened by national debt accumulated by continuing deficit spending, not to mention extensive corporate and consumer debt. However, other kinds of debt also represent a burden on present and future society, such as the pollution debt representing the costs of cleaning up the many ways we have fouled our environment, and the resource debt created by the degradation of productive agricultural soils, overexploitation of forests and fisheries, damage to water supplies, and other reductions in the potential of renewable resources. These debts result from living off of the natural capital of our planet, rather than from the interest potentially generated by that capital. In addition, there are those kinds of human debt represented by the under-educated, the unemployed, and the poverty-stricken people who cannot fulfil their productive potential. This wasted human capital cannot contribute to society without significant additional investment. The failure of economics to account for these parts of the human system has encouraged the erosion of much of the resource capital with which this planet was endowed. This flawed economics creates strong pressures to replace what is renewable and durable by ephemeral short-term profits. Economic measures such as GNP favour turnover rather than increasing welfare and capital accumulation.
Part of the problem comes from the implied analogies between economics and mechanical engineering that dominated the thinking of classical economists. Accounts and statistics are seen to drive a kind of "mechanical" free market efficiency divorced from social values. The "invisible hand" is assured to lead to collective good. This value framework reinforces individualism, selfishness and aggression in a social expression of Darwin's survival of the fittest. Economic efficiency and profits are all-important; other problems are someone else's responsibility. The result, if unmoderated by social controls, produces domination by monopoly interests and growing extremes of wealth and poverty, which must inevitably lead to social instability. This is not to say that economic efficiency is wrong, only that it is insufficient. The larger human society requires other measures of well-being besides economic measures. General welfare should not be sacrificed on the altar of economic efficiency.
An ecological systems view can also produce many other insights about aspects of economics that can only be mentioned briefly here as a challenge to reflection and reexamination.
Growth cannot be endless in any closed system such as the Earth. Each type of system has its optimal size, with larger systems generally made up of nested sub-systems. Economies and businesses thus cannot grow forever in the same dimension, but ultimately must seek a balance of different interests. Gains in one area are often counterbalanced by losses elsewhere. Wealth transfers do not necessarily imply improvements in net welfare. Once growth has reached the boundaries of a system, improvements can only come from efficiency gains within resource and market limits. While there will always be some unfulfilled opportunities to be exploited, unlimited economic growth is an impossibility. The implications of this general principle need to be given careful thought in economic and business planning.
Capital is much more than man-made material infrastructure. It must include natural environmental capital, and human social, intellectual and even spiritual capital. Sustainable development involves the accumulation and maintenance of all of these forms of capital. Wealth is therefore much more that money, and includes many things that cannot be measured in monetary terms or traded in the market.
The one type of wealth that can grow and be accumulated without limit is information or knowledge. Indeed, the value of information to society (as opposed to its value to special interests) increases the more it is shared, since it can be multiplied endlessly without generating scarcity. To try to operate an information society by traditional market rules would be counterproductive. Artificially maintaining information scarcity simply deprives many users of its benefits in order to procure profits for a few. Just as ecosystems increase in richness and efficiency with higher diversity and interaction, so should society aim to maximize its information content, flow and integration through its multiple levels of organization. This means sharing technology, science, culture and other forms of information as widely as possible, creating a knowledge-based civilization.
Since the wealth of information or knowledge becomes useful when it is held and used by people, it is human resources that should be the true foundation of society, and development should aim to maximise the productivity and use of all available human resources. Employment should aim not just to use a single skill of a worker, but all of the available human potential. This will mean reexamining the concept of jobs and careers as presently conceived. Education, including all the processes by which information and knowledge are transmitted between generations, is essential for sustainability. It is the most important investment a society can make in its future.
The values that motivate people to produce goods and services also warrant reexamination. The cultivation of self-interest and encouragement of private profit is not essential to economic efficiency. An individual desire to be of service and to increase the wealth of the whole society can be an equally strong motivation. Work does not need to be seen as a necessary burden, but as a desirable activity with physical, social and spiritual significance and benefits, allowing each person to have a recognized role and to make a constructive contribution to society. Just as the total productivity of an ecosystem is the sum of the net productivity of each organism within the system, so does each incremental contribution of some good or service add to the total wealth of the community.
The same shift in values is possible and even desirable institutionally. At present, corporate structures operate by the same values as individuals, essentially corporate self interest. Yet there are already institutions in the form of non-profit corporations and charitable foundations that exist primarily to provide services to society. There is no reason why they cannot be just as efficient economically as profit-making businesses with the same calibre of management. Free enterprise is quite distinct from self-aggrandizement, and corporations could easily combine profitability and service functions. In fact, the free-enterprise concept can easily be extended to areas of social service often relegated to the state. Philanthropic corporations chartered by voluntary giving could easily vie for the most effective ways to provide social services, in a common search for the greatest good.
In natural systems, individual organisms are not controlled or "owned" from outside, but function autonomously. Therefore, the concept of ownership can be reexamined, without falling into the pitfalls of socialist state ownership. In theory, ownership in the Western freehold sense is not absolutely necessary, although in an imperfect world, private property does ensure a certain stability. Ownership of corporations by shareholders is no more a requirement than is ownership by the state. Corporate legal entities could in fact own their own capital, and many large corporations that generate their capital internally could dispense with shareholders entirely, perhaps by buying them out. In an appropriate legal framework, this could allow a corporation to concentrate all its resources on a particular economic and social mission.
These points raise the issue of the present compartmentalization of public and private spheres of activity. The past century has seen many experiments ranging from laissez faire to complete government ownership and everything in between. In recent years, many countries have privatized employment, but left unemployment a public responsibility, requiring transfers of wealth that are a frequent source of conflict. The issue also touches on basic mechanisms for the redistribution of wealth and the control of extreme inequalities. Some mix of public and private mechanisms may well encourage both efficiency and justice.
The market system, in its abstract idealized state, is very close to natural ecological systems, where each species and individual evolves and acts on its own, free to interact with others. Decentralized decision-making allows for diversity and adaptation. This is inherently more efficient in a variable environment. However a perfect market requires perfect information, and the ideal is never attained in practice. Again the problem is one of values and motivation. Self-interest can lead to manipulation, distortion of information and domination, requiring controls to keep the market functioning effectively. If fact, the market mechanism would function more efficiently, like a natural system, where there is a free sharing of information with consultation and consensus.
No system can remain stable if some components are pushed to an extreme. The value of moderation is another concept that may seem alien to modern consumerism, but that logically follows from the need to reduce overconsumption by the wealthy in order to free resources for the reduction of poverty. The idea that one might be content with a simple life-style regardless of wealth clashes with the need of economies that require accelerated consumption in order to create employment. A much broader planetary view of both economic systems and essential interests will be necessary to break out of the fundamental inconsistencies of such current economic thinking.
Ecological systems have the advantage of millions of years of proven success. The interplay of ecological and economic thinking raises fundamental questions about the basis of our present society. Finding answers to these issues will not be simple, but challenging shaky or unfounded assumptions is an important first step towards laying the foundations for a renewed economic system capable of leading us towards sustainable development.
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International Environment Forum - Updated 18 April 1999