Van: Herman Daly
Verzonden: vrijdag 28 maart 2008 20:43
Aan: Roefie Hueting
Onderwerp: your de-growth conference paper.
Dear Roefie,
Robert sent me a copy of your paper, and I just wanted to say that I think it is an excellent summary and convincing exposition of your important work over many years. I hope they pay attention to it at the conference.
"Asyms' have by others also been called "anti-bads" (as opposed to goods) and that term may help some readers understand the asymmetry–
you can't add the anti-bad unless you previously subtracted the bad. That is a very minor point of possible clarification. I think the article is a masterpiece.
All good wishes,
Herman
Paper prepared for the conference: “Economic de-growth for ecological sustainability and social equity”, Paris, 18-19 April 2008
Abstract
The concepts of welfare, economic growth, production, environmentally sustainable national income, environmental sustainability, environmental function and asymmetric entering are defined, because of the confusion about these concepts that hampers sound information. Based on these concepts an enumeration is given of the arguments why it is plausible that environmental sustainability most probably cannot be attained with a growing production level (NI) and why broad acceptance of de-growth of production will make attaining this goal much easier.
Some consequences of unsustainable development are given and the alleged conflict between employment and environment is refuted. The conclusion is that our planet is threatened by a wrong belief in a wrongly formulated growth. Keywords: Environmental function; Environmentally sustainable national income; Asymmetric entering; Environmental sustainability.
1. The concepts of welfare and economic growth The view now accepted by the mainstream of economic thought is that the problems of choice arising from scarcity together form a logical entity, irrespective of the end for which the scarce means are employed. This is referred to as the formal or indifferent concept of welfare, a term probably introduced by Rosenstein-Rodan (1927). It was Robbins (1952) and Hennipman (1962, 1995), who elaborated the formal concept of welfare and formulated its consequences for economic theory.
For these authors, the subject matter of economics is demarcated by the criterion of scarcity. In Hennipman’s view economic activity can serve all kinds of ends. The ends themselves are meta-economic and are not for economists to judge. They cannot be derived from economic theory, but must be taken as given, as data. Maximising or even just increasing national income should therefore not be considered a necessary end that can lay claim to logical priority. In the same vein, Robbins writes: “There are no economic ends as such; there are only economic problems involved in the achievement of ends”.
Proceeding from the work of these authors, Hueting (1974) posits the following. All economic activity is aimed at the satisfaction of wants (welfare), and consequently the term ‘economic growth’ can mean nothing other than increase in welfare, defined as the satisfaction of wants derived from our dealings with scarce goods. Welfare is not a quantity that can be measured directly ‘from outside’; it is a category of individual experience. It is for this reason that the statistician focuses in practice on charting trends in factors that can be measured and that can plausibly be argued to influence welfare.
These factors will not generally be strictly proportional to welfare but must at any rate satisfy the condition that they tend consistently in the same direction as the welfare they are indicating, positive or negative. Some important welfare-influencing factors are: (1) the package of goods and services produced, (2) scarce environmental functions, (3) time, i.e. leisure time, (4) the distribution of scarce goods, i.e. income distribution, (5) the conditions under which scarce goods are acquired, i.e. labour conditions, (6) employment c.q. unemployment, (7) future security, to the extent that this depends on our dealings with scarce goods, and specifically the vital functions of the environment.
These factors are often in conflict with one another, although this is not always the case. For scarce goods it holds by definition, however, that more of one is less of another, for a good is scarce when something else has to be sacrificed in order to obtain it (sacrificed alternative, opportunity cost). Nowadays environmental functions are scarce goods. All other things remaining equal (including the technological state of the art), more production therefore means less environment and vice versa.
When preference is given to the environment over production and a government imposes controls on production processes and consumption habits that lead to a smaller volume of goods and services produced, there will be an increase in the overall satisfaction of wants obtained by means of scarce goods. A decrease in production will then lead to greater welfare. It is therefore misleading to identify growth of national income with an increase in welfare, economic growth and economic success, as is still common practice even today. This terminology is fundamentally erroneous in its implications, to the detriment of the environment, and it should therefore be outlawed, in much the same way as discriminatory language against women.
2. The concepts of environmental sustainability, eSNI and environmental function
Environmental sustainability is defined as the situation in which vital environmental functions are safeguarded for future generations. So the issue at stake is that the possibilities to use them remain available.
Environmentally sustainable national income (eSNI) is defined as the maximal attainable production level by which vital environmental functions remain available for future generations, based on the technology available at the time (Hueting and De Boer, 2001).
Thus the eSNI provides information about the distance between the current and a sustainable situation. In combination with the standard national income (NI), the eSNI indicates whether we are approaching environmental sustainability or drifting farther away from it. Because of the precautionary principle, future technological progress is not anticipated in the calculation of eSNI. When constructing a time series of eSNI’s, technological progress is measured after the event on the basis of the development of the distance between the eSNI and standard NI over the course of time.
The theory of and the necessary statistics for an eSNI has been worked on since the mid 1960’s at the department for environmental statistics of Statistics Netherlands, founded by the author. A first rough estimate of the SNI for the world in 1991 by Tinbergen and Hueting (1991) arrives at fifty percent of the production level of the world: the world income. The Institute of
Environmental Studies estimate for The Netherlands in 2001 also arrived at fifty percent of the production level or national income of The Netherlands (Verbruggen et al., 2001). That corresponds with the production level in the early seventies. Estimates for the years 1990, 1995 and 2000 show that in the period 1990 – 2000 the distance between NI and eSNI increased by 13 billion euros (10%) (Milieu- en Natuurplanbureau, 2006).
In the theoretical basis for the calculation of sustainable national income, the environment is defined as the non-human-made physical surroundings, or elements thereof, on which humanity entirely depends, whether producing, consuming, breathing or recreating.
In our physical surroundings, a great number of possible uses can be distinguished, which are essential for production, consumption, breathing, et cetera, and thus for human existence. These are called environmental functions, or in short: functions (Hueting 1969, 1974, 1992).
As long as the use of a function does not hamper the use of an other or the same function (by overuse), so as long as environmental functions are not scarce, an insufficiency of labour (that is: hands and brains, intellect or technology that increases traditional productivity) is the sole factor limiting production growth, as measured in standard NI. As soon as one use is at the expense of another, though, or threatens to be so in the future, a second limiting factor is introduced. The emergence of competition between functions marks a juncture at which functions start to fall short of meeting existing wants.
Competing functions are by definition scarce and consequently economic goods, indeed they are the most fundamental economic goods at the disposal of humanity. In the situation of severe competition between functions, which prevails today, labour is not only reducing scarcity, and thus causing a positive effect on our satisfaction of wants (welfare); but it is also increasing scarcity, thus causing a negative effect on welfare. The same holds for consumption.
The availability of functions, or, in terms of the System of National Accounts (SNA), their volume, decreases from ‘infinite’ (abundant with respect to existing wants) to finite, that is falling short. As a result, the shadow price of environmental functions rises, and with it their value, defined as price times quantity, from zero to an ever-higher positive value. This rise in value reflects a rise in costs. To determine the extent of the loss of function, in order to estimate the eSNI, we must know the value of the function. Since environmental functions are collective goods that are not traded on the market, supply and demand curves have to be constructed.
For, according to standard economic theory, determination of value is impossible without data on both preferences (demand) as well as on opportunity costs (supply).
The estimated costs of measures necessary to restore functions, that rise progressively per unit of function restored, can be seen as a supply curve. We call this the cost-effectiveness curve or the elimination cost curve, because it refers to measures that eliminate the pressure on the environment. Except in the case of irreparable damage, this curve can always be constructed.
Preferences for environmental functions (demand), on the contrary, can only partially be determined, since these can be expressed only partially via the market, while willingness to pay techniques cannot yield reliable data precisely for vital functions (Hueting, 1992). Therefore, it is not possible to construct a complete demand curve. Expenditure on compensation for loss of function and restoration of physical damage resulting from loss of function, however, constitute revealed preferences for the availability of functions, so that some impression of these preferences can be obtained.
One example is the additional measures for the production of drinking water as a result of the loss of the function ‘drinking water’ because of pollution (overuse of the function ‘water as dumping ground for waste’), Another example is the restoration of damage caused by flooding due to excessively cutting forests etc. (overuse of the function ‘provider of wood’ etc.) that consequently are losing their function ‘regulation of the water flow’.
Because individual preferences can be measured only partially, shadow prices for environmental functions, which are determined by the intersection of the first derivatives of the constructed curves for demand and supply (see Figure 1), cannot be determined. Consequently, these shadow prices remain unknown. This means that the correct prices for the human-made goods that are produced and consumed at the expense of environmental functions remain equally unknowable.
However, to provide the necessary information, assumptions can be made about the relative preferences for environmental functions and produced goods. One of the possible assumptions is that the economic agents, individuals and institutions, have a dominant preference for an environmentally sustainable development. This assumption is legitimate since governments and institutions all over the world have stated support for this. Another possible assumption is that the economy is currently on an optimal path that is described by the changes in the standard NI. So both the SNI and the standard NI are fictitious in the context of what is at issue in economic theory and statistics, namely to provide indicators of the effect of our actions on our welfare.
When assuming dominant preferences for sustainability, the unknown demand curves must be replaced by physical standards for sustainable use of the physical environment. The standards are scientifically determined and in this sense objective. They must, of course, be distinguished clearly from the subjective preferences for whether or not they should be attained. Examples are: the man-made rate of extinction of species should not exceed the rate at which new species come into being, for safeguarding the many functions of ecosystems; the emission of greenhouse gases has to be reduced by 70 to 80 % in order to let the life support systems restore the climate; the rate of erosion of topsoil may not exceed the rate of formation of such soil due to weathering, for safeguarding the function: ‘soil for raising crops’.
From an economic perspective, sustainability standards approximate demand curves that are vertical in the relevant area of a diagram that has the availability of functions measured in physical units on the x-axis and the demand for functions and their opportunity costs on the y-axis. The shadow price for environmental functions based upon the assumed preferences for sustainability then follows from the intersection of the vertical line and the marginal cost-effectiveness curve. In this manner the distance to sustainability, denoted in physical units on the x-axis, is translated into monetary units. This is shown in the well-known figure taken from New Scarcity and Economic Growth, More Welfare through Less Production? (Hueting, 1974). Figure 1 shows the relationship between economy and ecology.
For a correct approximation, such calculations have been done with the aid of a general equilibrium model, which also generates the shadow prices for produced goods in a sustainable economy. From this, the level of sustainable national income follows.
Figure 1. Translation of costs in physical units into costs in monetary units: s=supply curve or marginal elimination cost curve; d=incomplete demand curve or marginal benefit curve based on individual preferences revealed from expenditures on compensation of functions, and so on; d' = 'demand curve' based on assumed preferences for sustainability; BD = distance that must be bridged in order to arrive at sustainable use of environmental functions; area BEFD=total costs of the loss functions, expressed in money; the arrows indicate the way in which the loss of environmental functions recorded in physical units is translated into monetary units. The availability of the function (B) does not need to coincide with the level following from intersection point (E)
3. The phenomenon of asymmetric entering (asyms)
Producing is, according to standard economic theory, adding value. National income (NI) equals the sum of the values added. So NI measures – the fluctuations in the level of -production. It does so according to its definition and according to the intention of the founders of its concept to get an indicator for one of the factors influencing welfare – and a tool for quite a few other purposes. See Tinbergen and Hueting (1991) (Nobelist Jan Tinbergen was one of the founders of the concept of NI and its quantification)
This value is added to the non human-made physical surroundings. Consequently, environmental functions remain outside the measuring of standard NI. This is logical and easy to understand, because water, air, soil, plant and animal species and the life support systems of our planet are not produced by humans. So losses of functions, caused by production and consumption, are correctly not entered as costs. However, expenditures on measures for their restoration and compensation are entered as value added. This is asymmetric. These expenditures should be entered as intermediate, as they are costs.
This asymmetry is often defended by the remark that these expenditures contribute to welfare and generate income (De Haan, 2004; Heertje, 2006). This is of course self-evident, counting from the moment at which the loss of environmental functions and the consequential adverse effects have already occurred. However, the production factors, used for the measures, do not add any value counting from the moment that the functions were still available.
With respect to that situation there is consequently no increase in (1) the quantity of final goods produced and (2) the availability of environmental functions. Opposite to the income earned with carrying into effect the measures there stays consequently no increase in production volume (= final goods produced) with respect to that situation. By entering these expenditures as final instead of intermediate, the growth of production is overestimated, thus obscuring what is happening with both the environment and the production.
Asyms (asymmetric entries) can relate to events in the past, to events in the current financial year (e.g. oil spills) and, as prevention, to events expected in the future due to loss of function; that does not make any theoretical difference. It always boils down to undo the effects by production growth that should not contribute to the same growth. Asyms are clearly in conflict with the original intention of the founders of NI, such as Jan Tinbergen, as a measure of fluctuations in the level of production (Tinbergen and Hueting, 1991).
4. Arguments why environmental sustainability can most probably not be attained with growing production and without broad acceptance of de-growth
The official policy of all countries in the world is that standard NI, that is: production, must increase in order to create scope for financing environmental conservation and thus attain a sustainable situation. The theoretical mistake of this reasoning is shown by Hueting, 1996. Of course, the future cannot be predicted. But the plausibility of whether (a) the actual production level and (b) environmental sustainability will develop in the same direction can be examined. This is a minimum prerequisite for assuming a causal relation. On the grounds of the data discussed below such development is extremely unlikely.
We feel the opposite is more plausible for the following seven reasons.
(1) Theoretically, the possibility that growth of production and consumption can be combined with restoration and maintenance of environmental quality cannot be excluded. However, such combination is highly uncertain and scarcely plausible. It would require technologies that:
(i) are sufficiently clean, (ii) do not deplete renewable natural resources,(iii) find substitutes for non-renewable resources, (iv) leave the soil intact, (v) leave sufficient space for the survival of plant and animal species and (vi) are cheaper in real terms than current available technologies, because if they are more expensive in real terms growth will be reduced.
Meeting all these six conditions is hardly conceivable for the whole spectrum of human activities. Especially simultaneously realising both (i) through (v) and (vi), which is a prerequisite for combining production growth and conservation of the environment, is extremely difficult. To give one example: as a rule, renewable energy is currently much more expensive than energy generated using fossil fuels.
The costs of implementing renewable energy throughout society are high, and this substantially lowers production growth. Internalising the costs of eliminating the emissions of burning fossil fuels will reduce the production level considerably. Anyhow, technologies necessary for the combination of production growth and full conservation of the functions of the environment are not yet available. Anticipating on their future availability conflicts with the precautionary principle, and consequently with sustainability. As explained above, in this application of the precautionary principle no future technological progress is anticipated.
(2) An analysis of the basic source material of the Dutch national accounts shows that roughly one third of the activities making up standard NI (measured as labour volume) does not contribute to its growth.
These activities include governing, the administration of justice and most cultural activities. One third contributes moderately to the growth of NI, while the remaining one third contributes by far the largest part to the growth of production. Unfortunately, this latter part consists of activities associated with production and consumption that cause the greatest damage to the environment in terms of loss of nature and biodiversity (by use and fragmentation of space), pollution and depletion of resources.
These activities include the oil and petrochemical industries, agriculture, public utilities, road construction and mining. These results are almost certainly valid for other industrialised countries and probably valid for developing countries (Hueting 1981; Hueting et al. 1992).
(3) The burden on the environment as represented in standard NI equals the product of the number of people and the volume of the activities per person. Reducing this burden by decreasing the population lowers growth or leads to a lower production level.
(4) Applying technical measures has a negative effect on growth of production because they enhance real prices: more labour is needed for the same product. The research for the estimates of eSNI’s has shown that environmental sustainability cannot be attained solely by applying technology. In addition, direct shifts, such as from car to bicycle and public transport and from meat to beans, also are necessary. From point (2) above it follows that these shifts also reduce
growth or lead to a lower production level.
(5) A price rise resulting from internalising the costs of the measures which restore the environment means, like any price rise in real terms, a lowering of production growth. Depending on the situation, this decreases the production level. For a given technology, product costs will rise progressively as the yield (or effect) of environmental measures is increased. Of course, technological progress leads to higher yields. As production increases further, however, so must the yield of the measures increase in order to maintain the same state of the environment, while
the fact of progressively rising costs with rising yields remains unaltered.
(6) An unknown part of the value added in standard NI consists of asyms and should therefore not be considered as a contribution to its volume, see above and Hueting, 1974. This part will increase considerably because of the expenditures on (1) measures to eliminate the source of the climate problem (caused by damaging the functions of the life support systems due to production growth) by reducing the emission of greenhouse gases and on (2) measures to compensate the effects of climate change, e.g. by building dikes and moving to higher situated regions.
(7) A sustainable production level with available technology is about fifty percent lower than the current level, both for the world (Tinbergen and Hueting 1991) and for the Netherlands (Verbruggen et al. 2001). From this it follows that eSNI has to grow more than twice as fast as NI in order to reduce the distance between NI and eSNI. This seems to be an almost impossible task for the environmental technology, which is the only means for increasing eSNI.
5. Some consequences of unsustainable development
There are several regions in developing countries today where desire for production in the short term over production that can be sustained in the long term already has led to production levels that are most probably much lower than sustainable levels. Thus deforestation has contributed to flooding, causing loss of harvests, houses and infrastructure, and to erosion leading to loss of soil (UNEP, 2002).
Restoration of the damage constitutes costs and consequently a decrease in production. Deforestation has also caused reductions in local rainfall, thus contributing to drought (Silveira and Sternberg, 2001). Overgrazing and salination have led to decreases in the yield of agriculture (UNEP, 2002). Excessive fishing and destruction of coral reefs by using dynamite have led to lower catches (UNEP, 2002). These developments have partly been caused by companies from the rich countries.
To the extent that members of fish species are still present, catches are often well below the levels that would have been realised, had fishing activities remained on a sustainable footing. The North Sea cod fishery is currently on the brink of collapse, and the current catch of cod is less than 20 % of what would have been possible, had fishing remained sustainable (Nakken, et al., 1996; Parsons and Lear, 2001). This exemplifies a more general problem. There is now convincing evidence that the current stock in the seas of large predatory fishes is about 10% of the pre-industrial level (Myers and Worm 2003). That is raising prices sharply.
6. There exists no conflict between employment and environment
The main stumbling block on the way to environmental sustainability is the alleged conflict between environment and employment. However, the production and consumption of the same amount of goods requires more labour with safeguarding the environment than is required without. Therefore, there is, under the most logical conditions, not such a conflict. The opposite holds true. The refutation of this alleged conflict can be found in Hueting, 1996.
7. Conclusions and recommendations The arguments given above lead to the following conclusions and recommendations.
(1) Our planet is threatened by a wrong belief in a wrongly formulated growth.
(2) Environmental sustainability cannot not be attained with a growing production and without a broad acceptance of de-growth of production, that is NI ex asyms. (
3) The NI’s in all countries should be supplemented by a series of NI’s ex asyms and a series of SNI’s.
(4) The construction of these two series should be supported by the current de-growth conference, e.g. in a declaration. This declaration might include a denunciation of the fact that the promise by the Dutch government to the Dutch Parliament to provide means for further eSNI research and establishing eSNI’s in other countries, including developing countries, has not been fulfilled.
References Most articles by the present author can be downloaded from www.sni-hueting.info
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