An Outdated Economic Blueprint

The world is very different, physically and philosophically, from the one that Adam Smith, David Ricardo, and other early economists knew—different in ways that make key features of conventional economics dysfunctional for the twenty-first century. Humanity's relationship to the natural world, the understanding of the sources of wealth and the purpose of economies, and the evolution of markets, governments, and individuals as economic actors—all these dimensions of economic activity have changed so much over the last 200 years that they signal the close of one economic era and the need for a new economic beginning.

In Smith and Ricardo's time, nature was perceived as a huge and seemingly inexhaustible resource: global population was roughly 1 billion—one seventh the size of today's—and extractive and production technologies were far less powerful and environmentally invasive. A society's environmental impact was relatively small and local, and resources like oceans, forests, and the atmosphere appeared to be essentially infinite.5

At the same time, humanity's perception of itself was changing, at least in the West. The discoveries of Enlightenment-era scientists

Seeding the Sustainable Economy suggested that the universe operated according to an unchanging set of physical laws whose unmasking could help humans understand and take control of the physical world. Once the Swiss mathematician Daniel Bernoulli, for example, worked out key ideas of the physics of flight in 1738, it was only a matter of time before humans claimed the air for themselves. After eons of helpless suffering from the effects of plagues, famines, storms, and other wildcards of nature, this growing sense of human prowess—along with a seemingly inexhaustible resource endowment—encouraged the conviction that humanity's story could now be written largely independent of nature.6

This radically new worldview became entrenched within economics, and even late in the twentieth century most economic textbooks gave little attention to nature's capacity to absorb wastes or to the valuable economic role of "nature's services"—natural functions from crop pollination to climate regulation. One Nobel economist in the 1970s made the claim (since recanted) that "the world can, in effect, get along without natural resources." Even as growth in population and technological power in the last century raised concerns about resource scarcity, economists predicted confidently that price signals from free markets would prompt more-efficient production and consumption or that human effort would produce or discover substitutes. Nature would not be a roadblock to human progress.7

But the assumed independence of economic activity from nature, always illusory, is simply no longer credible. Global population has expanded more than sixfold since 1800 and the gross world product more than 58-fold since 1820 (the first year for which nineteenth-century data are available). As a result, humanity's impact on the planet—its "ecological footprint"—exceeds

Earth's capacity to support the human race sustainably, according to the Global Footprint Network. (See Chapter 2.) For rich countries, the overshoot is especially high. Industrial economies today survive by dipping ever more deeply into reserves of forests, groundwater, atmospheric space, and other natural resources—practices that cannot continue indefinitely.8

The assumed independence of economic activity from nature, always illusory, is simply no longer credible.

These changing circumstances demand the upending of some fundamental economic notions. With the Industrial Revolution, for instance, factories, machines, financing, and other forms of created capital replaced land as the principal drivers of wealth production. Factories and funding remain important today, but resource scarcity has made "natural capital" an increasingly vital consideration in economic advance. Declines in oceanic fish catch, for example, are often caused by the growing scarcity of fish stocks (natural capital) rather than by a lack of fishing boats (created capital). (See Chapter 5.) Modern fishing practices now overpower nature's fish endowment: a 2006 study showed that the populations of 29 percent of oceanic species fished in 2003 had collapsed (meaning that catch had fallen to 10 percent or less of their peak abundance). Similar losses of natural capital are found at the regional level for forests, water, and other key resources.9

A second outdated tenet is that growth ought to be the primary goal of an economy. This remains the central operating assumption in finance ministries, stock markets, and shopping malls worldwide despite the clear threat to natural capital, because rapidly growing populations and the creation of consumer-

Seeding the Sustainable Economy driven economies have made growth seem indispensable. But growth (making an economy bigger) is not always consistent with development (making it better): the nearly fivefold expansion of global economic output per person between 1900 and 2000 caused the greatest environmental degradation in human history and coincided with the stubborn persistence of mass poverty.10

Markets do little to provide public goods such as parks and mass transportation.

A third shaky axiom of conventional economic thinking is that markets are always superior to government spending and policies as economic tools. Markets are adept at generating vast quantities of private goods, but some of these—such as the dozens of redundant breakfast cereal choices—are of dubious social value. At the same time, markets do little to provide public goods such as parks and mass transportation. And although they help to allocate scarce resources "efficiently" across different products and modes of production, according to Tufts University economist Neva Goodwin, "the very definition of efficiency contains an acceptance of inequality." In economics, efficiency means allocating every resource to its highest value use, where value is defined mainly by purchasing power, so "a market works efficiently when the rich get a lot of what they want and the poor get just as much as they can pay for." Markets thus do little to ensure a just distribution of goods: those with the greatest wealth get the most, no matter that 40 percent of the global population lives in wrenching poverty.11

Finally, humans themselves differ sharply from the model of "economic man" held by early economists. The celebrated insight of Adam Smith was that the "invisible hand" leads self-interested individual actions to pos itive collective outcomes. This is a powerful idea, but it has overshadowed the equally important communitarian dimension of human societies—a dimension with deep roots in evolutionary history. People are motivated not only by self-interest but also by the desire to participate in a larger community, as with volunteer work or in response to local or national disasters. Recognizing the strong communitarian impulse of human beings, as sustainable economics does, offers a fuller and more realistic understanding of humans as economic actors.

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