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Herman Daly’s 10 policies for a steady state economy

I just got back from the American Association for the Advancement of Science (AAAS) annual meeting that was held in Washington, D.C.  There were many sessions on the issue of sustainability and how to measure and track sustainability.  One particular session regarding the concept of different measurements of ‘progress’ that might accompany a “steady state economy” was particularly interesting.  The speakers were (see here):

Peter Raven, Missouri Botanical Garden
Ward Chesworth, University of Guelph
Robert Costanza, University of Vermont
William Rees, University of British Columbia
Eric Reitan, Oklahoma State University
Herman Daly, University of Maryland

For this post, I will note a list of 10 policies that Herman Daly suggested could be used, many in combination making the most impact, for promoting a world with what he has promoted much in the past: the steady state economy.  This “steady state” for the most part means a constant population or constant use of land or other renewable environmental resources.  He made no specifications upon what level this steady state might exist.  Of course this concept is quite controversial, and certainly not excepted among the vast majority of politicians and neoclassical economists where the promotion of growth, most specifically of gross domestic product, is seen as tantamount.  Those who believe that there is an ultimate limit in resources (of any sort) of course believe that there will be a peak in GDP, population, or some other fundamental measure of human existence.  In fact, the reference United Nations projection for global human population projects approximately 9.5 billion people in the time frame of 2050 to 2070. Thus, the concept of peaking human population seems likely, if not half a century away.  This peak in population (whether dropping quickly or not afterwards) will represent a watershed moment in human history.  It is what might happen starting even now (by opinion of many theoreticians not focused only upon money as a measure of wealth) to prepare countries and governments for this impending reality that I believe Herman Daly’s list is best put into context.  Obviously his ideas are controversial, but nonetheless I list them here:

Daly’s list:

1.    Establish a “cap-auction-trade” system: for non-renewable resources or environmental sinks that can include the atmosphere (e.g. greenhouse gas emissions) and fossil fuels.  The cap sets the diet, the auction sends the economic signal of scarcity, and the trade enables the market to find optimal decision-making.
2.    Ecological tax reform: shift taxes from value added concepts (labor and capital) to the materials upon which the value is added (e.g. resource consumption, carbon tax)
3.    Limit range of inequality for income distribution:  Both 100% and 0% inequality are not fair and there needs to be a middle ground.  Daly did not know what level of inequality was the idea target, but suggested that somewhere around 200:1 (highest salary is 200 times larger than lowest salary) could be a good range for a start.
4.    Free up the length of the working day, week, and year: have more leisure as an option instead of more goods consumption and production
5.    Reregulation of international commerce away from free trade and globalization: Essentially, Daly thought that if you employed (1) and (2) in this list, then those countries that internalized resource and environmental externalities would be at a heavy disadvantage for trade.  Thus, tariffs would be necessary to protect domestic policies (not companies) from foreign policies that did not properly value the environment.
6.    Downgrade the WTO, World Bank: From someone who worked at The World Bank and left quite disgusted, this was quite a chuckle from Daly himself and those in the crowd.  Basically he thought it would be good to make these organizations closer to Keynes’ original idea of a clearing union to punish deficit balances (both surpluses and deficits).  If your goals is a steady state economy, this makes quite a bit of sense.
7.    Move away from fractional reserve banking and have 100% reserve requirements:  Essentially if you don’t want the economy to grow, then banks would be force to lend out money only at the rate they are paid back from some other borrower.  Daly said this removes the “alchemist’s dream” of private banks lending money from nothing to then make money off of that service.
8.    Stop treating scarce resources as if they are not scarce (e.g. atmosphere) and stop treating non-scarce resources as if they are scarce (e.g. airwaves, some patents): It seemed that Daly was hinting at issues of privatizing some things incorrectly.
9.    Stabilize population
10.    Reform national accounts (away from GDP to some other measures):  One simple concept that Daly suggested was to have two accounts - i) a benefit account of growth and ii) a cost account of growth.  In this way it would be easy for everyone to see which account is changing to make them balance (for steady state).

Of course as Daly suggested himself upon closing, there is no need to necessarily enact any of these policies 100% at once.  They could be gradually introduced and some of these ideas have been suggested in the mainstream of many nations and governments (e.g. a carbon tax that starts low and gradually increases over time).

Posted by Carey King on February 22, 2011 4:02 AM | Permalink