Authors: Paul Craig Roberts
"Steady-state economics" permits growth that is produced by developments
in science and technology and better agricultural practices. This growth would be muted but sustainable compared to growth that depends on the exhaustion of natural resources and the pollution of the planet.
Most of the Western population would not notice the change to steady-state economics. The traditional notion of economic growth no longer works for the bulk of the population. For example, in the US there has been no growth in the real incomes of
the vast bulk of the population for several decades. Households have maintained "steady-state" income by putting both husband and wife in the work force. Two people now provide the real income formerly provided by one, so the "growth model" no longer works. The growth model today in the West only serves the 1%.
The growth model works in China and India because of the relocation of First World economic activity to those countries. Thus, Chinese incomes rise, while US incomes fall. In other non-western lands, the growth model destroys sustainable economic life and substitutes in its place monocultures. Consequently, countries where life was sustainable now have to import their food.
Over the course of American history, economic growth has made income inequality acceptable, because economic growth, as President John F. Kennedy put it, is “a tide that lifts all boats.” What becomes of a society based on the rise in real incomes when ecology imposes its limits? Can costs that outweigh the benefits be forever ignored?
Can a society, which is based on children doing better economically than their parents, survive when policy mistakes, such as offshoring, together with ecological exhaustion disrupt this traditional outcome?
Just as there are social costs associated with the failure of economics to account for the full costs of production, there are social costs associated with the integration of all countries into a “global economy.” For many countries, being integrated into the global economy means that the society loses control over itself. Entire occupations and ways of life are destroyed as specific countries are forced to forego diversification and to specialize in the products that globalism dictates, regardless of the needs and wants of the domestic population.
Economic globalism is far in advance of global government. As Herman Daly writes, globalism is the “space into which transnational corporations move to escape regulation by national governments.” Economic globalism in the absence of global government permits transnational corporations to escape accountability.
This means that today corporations are escaping accountability for costs that they impose on the rest of the world. If these “externalized” costs were included in their cost of production, would there be any basis for CEOs to be paid 300, 400, or 500 times the pay of a production employee?
If ecology imposes limits on growth, ladders of upward mobility cease to function. How would society distribute income in order to ensure social peace? This new distribution would certainly require the end of the current large inequality in income and wealth, but would people be locked into place, requiring luck and extraordinary ability to rise?
In the founding days of the discipline of economics, Adam Smith and Alfred Marshall endeavored to explain reality in order that policy might improve the human condition. Whether they succeeded or failed, they were sincere. Today, economists create artificial reality with assumptions and equations. Smith and Marshall were interested in truth and its discovery. Economists today are interested in money, and they provide apologies for “globalism” that bring grants to their university departments from transnational corporations. Today a person who speaks economic truth has no future in the economics department of a university dependent on outside money.
If economics is to serve humankind, the limits imposed by ecological resources must be acknowledged. Externalities are not very important in an “empty world,” but in a “full world” ignored externalities can offset the value of increased output. When the last species is gone, how is it replaced? How are exhausted natural resources replenished and the climate reclaimed? To treat resources created by nature over millions of years as devoid of costs other than the costs of extraction is absurd. If economics is to be of any use to humanity, it must cease being absurd.
If humankind is to contend successfully with depleting natural capital, planning will be required. In their book,
Ecological Economics: Principles and Applications
, Herman Daly and J. Farley point out that in the 20th century both the Soviet Union and the US had economic growth as their first priority. In the Soviet Union, Marx’s “new socialist man” would appear only with the disappearance of scarcity, which required the maximum growth in output. In the US high growth was seen as the best way to avoid class conflict by producing a larger pie to divide.
Despite their vaunted mathematics, economists have failed to understand that infinite growth in a finite system is impossible. The Soviet economy failed first, because its gross output indicator was more inefficient than the price and profit indicators used in the West.
The West saw Soviet economic failure as proof of market capitalism’s superiority. This conclusion was correct up to a point, but the “end of history” euphoria neglected the real end of history implicit in the exhaustion of environmental capital. For organized human society to deal with the consequences of this exhaustion, planning is essential. But planning is discredited by Soviet failure.
Fortunately, the planning required bears no resemblance to Soviet planning, which was ideological in origin. As I proved in my book,
Alienation and the Soviet Economy
(1971, 1990), the purpose of Soviet planning was to eliminate the market and the price and profit signals upon which it relies, and to organize the entire economy as if it were a self-sufficient farm producing for its own use. In a modern economy with large numbers of input and output combinations, this is a strict impossibility. Marxian central economic planning is simply not achievable. This is not the kind of planning needed to stave off societal collapse from environmental exhaustion.
Despite the inefficiency of its gross output success indicator, the Soviet economy had features that insulated citizens to some degree from economic breakdown. It would be worthwhile to incorporate some of these features in the organization of the US economy. In 2006 Dmitry Orlov identified some of these features when he compared the Soviet economic collapse with a future US economic collapse and concluded that Soviet citizens were better positioned to survive economic disruption.
One large difference is America’s dependence on depleting water and energy resources, especially petroleum energy in which it is not self-sufficient. In contrast, Soviet Russia was energy self-efficient, and today Russia is an exporter of energy.
Despite being energy self-sufficient, Soviet Russia was not dependent on an automobile economy. Russians could meet their occupational and shopping needs with public transportation.
Occupants of Soviet housing, as bad as it was, were not subject to mortgage foreclosures and homelessness.
Soviet citizens were inured to hardships and accustomed to bartering for their needs.
Soviet families tended to be in the same place and supportive. U.S. families are widely scattered and less able to come to one another’s help.
Soviet appliances could be repaired. American ones are disposable. Thus, a shut-down of imports has different consequences in the U.S. than in the USSR.
Despite the notorious failure of Soviet agriculture, basic foodstuffs--cabbages, onions, potatoes--were close at hand. Many residents of cities had access to garden plots. The largest metropolitan areas had surrounding agricultural areas. In the U.S. food is trucked in from vast distances. Garden plots are rare outside of rural areas.
Soviet medicine focused on prevention with immunization programs, infectious disease control, and basic care. The state run clinics and hospitals were not profit-based. In the U.S. health care is a profit system in which doctors refuse to diagnose, instead ordering expensive tests in order to protect themselves against liability claims. If profits leave the system, financing collapses.
My summary barely does justice to Orlov. But the point comes across. The U.S., unlike the former Soviet Union, is import-dependent for energy and manufactured goods. Americans are dependent on private cars for access to their jobs, food, and medical care. A disruption in gasoline supply automatically disrupts food deliveries to stores and the ability of the work force to show up for work. Americans are not inured to hardship and lack survival skills.
The development pattern of the U.S. was based on abundant and cheap gasoline. Urban areas became huge metropolitan areas of suburban sprawl, with people traveling large distances on a daily basis in order to commute to their jobs and shop for their needs. The man hours lost in commuting are substantial.
Surplus U.S. food stocks that were the products of agricultural subsidy programs have been eliminated. Agriculture is increasingly concentrated in large factory farms, whether for grains or meat. Even dairy farms are falling into concentrated hands. Food output is increasingly centralized in locations distant from most cities. A transportation disruption will disrupt food distribution. The crowded and unsanitary conditions in which meat and eggs are produced permit the rapid spread of diseases that could decimate food production.
If the future is left to take care of itself, organized society in the U.S. could fail.
Risks could be minimized by giving thought to the energy implications of suburban development and perhaps subsidize, if necessary, food production near population concentrations. Development plans could be required to specify the water resources. Public transportation systems could be created that can be run by renewable energy. All measures that reduce the rate of exhaustion of nature’s resources and preserve the U.S. dollar as world reserve currency are useful forms of planning.
The problem with planning is not only government inefficiency, but also the power of organized interest groups to use planning to elevate their interests above those of society. Much thought would have to be given to preventing planning from becoming just another tool of interest groups. Perhaps giving key roles to bodies of independent experts and scientists could mitigate the political corruption, assuming there are still any experts and scientists who are independent and not corruptible.
There is no doubt that the efforts of humans, being imperfect creatures, to plan for life in a full world would be beset with errors and miscalculations. But however imperfect the product would be, the result would be better than what must result from the economists’ assumption that man-made capital is a perfect substitute for nature’s capital and that, therefore, resources are inexhaustible. To conclude that our future is a continuation of the past is a death warrant for society.
The failures of economic theory and the disastrous consequences that result from applying failed theories to policy are more extensive than those I have related. My account is selective in order to emphasize that globalism is a mechanism for bringing poverty to the First World, while accelerating the economic development of India and China.
There is a great deal of failure in economic theory and policy, and the failures punish both rich and poor countries alike. Some thoughtful economists interpret the theory on which International Monetary Fund (IMF) structural adjustment programs are based as a conspiracy of the First World against the Third World. Structural adjustment imposes economic distress on Third World populations in order to direct income flows to First World creditors and corporations. (See, for example, Michel Chossudovsky,
The Globalization of Poverty
, 2003, and the work of Michael Hudson especially
Trade, Development and Foreign Debt,
2nd edition, 2009) But the same theory that imposes austerity on the world’s poorest people is also wrecking the prospects of First World labor.
Consider what is known variously as the Heckscher-Ohlin theorem, Heckscher-Ohlin trade theory, or Heckscher-Ohlin factor endowment theory. (By “factor endowment” economists mean a country’s supplies of land, labor, and capital. Capital refers to technology embodied in machinery.) This theory assumes that every country’s land, labor, and capital resources are as productive as every other country’s. What, then, accounts for countries having international cost advantages? According to the theory, cost advantage is based on countries having different abundances (larger or smaller supplies) of the three factors of production.
The implication of this theory for international trade is that countries with the largest supply of capital should focus on producing capital-intensive goods for export; those with the largest supply of labor should focus on labor-intensive goods; those with the most land should focus on agriculture or extractive industries such as mining.
Among the theory’s assumptions is that land, labor, and capital provide unique contributions to production and, thus, cannot take the place of one another. The production of each product has its own ratio of land, labor, and capital. Thus, capital is not competitive with labor and is not a substitute for it.
One implication of this theory is that increased US capital investment in China, for example, cannot result in the displacement or unemployment of US labor. As we will see, US policymakers following this theory have wrecked the economic prospects for US labor.