Sustainable Growth: Irreconcilable Visions?

By Daniel O'Connor of Integral Ventures, LLC

In the opening chapter of his signature book, Beyond Growth, Herman Daly shares an unforgettable story from his days as an economist at the World Bank.  Having just listened to Lawrence Summers, then Chief Economist at the World Bank, make a presentation critical of the Limits to Growth thesis, Daly referred Summers to a picture of the economy as an open sub-system of the world's ecosystem, consistent with what I present below as Figure 1.  He then asked Summers if, given this picture, it might make sense to start thinking about the growth of the economy in relation to the natural limits of the ecosystem.  Dodging the question, Summers responded dismissively, "that's not the right way to look at it." End of discussion.

What is the right way to look at it, according to Summers?  Daly says it is something like Figure 2, where the ecological context has been removed and, therefore, the circular flow of economic growth appears to be free from any natural limits beyond the economic system. This is not just Summers' radical vision of the economy.  It represents the orthodox view of the great majority of economists who, if not outwardly hostile to the ecological view, generally set it aside as irrelevant to the analysis at hand.

Recalling Joseph Schumpeter's notion of a pre-analytic vision, Daly summed up this fundamental economic dilemma that divides so many economists, politicians, and citizens:

"Unless one has the preanalytic vision of the economy as subsystem, the whole idea of sustainable development—of a subsystem being sustained by a larger system whose limits and capacities it must respect—makes no sense whatsoever.  On the other hand, a preanalytic vision of the economy as a box floating in infinite space allows people to speak of "sustainable growth"—a clear oxymoron to those who see the economy as a subsystem.  The difference between these two visions could not be more fundamental, more elementary, or more irreconcilable."  (Beyond Growth, p. 7)

The compelling thing about this particular ideological debate is that the objects of the debate, Earth's natural systems, don't much care whether or not they prevail in some intellectual discussion among the various schools of economic thought.  Natural systems have a unique way of asserting their perspectives on human economic activity without regard for human priorities and convictions and without need for human understanding and consensus.  Still, we are fools if we choose to wait for the world ecosystem to break the ideological impass between ecological and non-ecological economists.  The stakes are too high. 

Toward an Integral Reconstruction

I agree that these competing visions are fundamentally anti-thetical as they have been presented, by Daly, Summers, and countless other economists over the years.  They are so antithetical that even a veritable encyclopedia of economic thought like Mark Blaug's breathtaking 700-page Economic Theory in Retrospect completely ignores the ideological challenge presented by the ecological vision of the economy--a challenge which, in partial defense of Blaug, has been largely ignored by most of the economists of the past 250 years.  But just because this ecological view of the economy has been marginalized by the more dominant schools of thought does not mean that it is wrong, nor that it has necessarily failed in the overrated "efficient market in economic ideas."  Where I disagree with Daly's assessment of the economic dilemma is in his claim that these pre-analytic visions are irreconcilable.  I think they can be reconciled within a more integral vision that honors the partial truth in each, while providing some practical guidelines for post-visionary analyses of sustainable economic growth. 

As I see it (Figure 3), the physical dimension of the economy, which can be measured in terms of the scale of material, energy, chemical, and biological throughput, does indeed comprise an economic sub-system of the world's physical biosphere, which includes the sources and sinks for the economic throughput.  This is the partial truth in the ecological vision of the economy and it affirms the existence of certain physical limits to the scale of economic growth--but, strictly speaking, these limits only apply to physical economic growth.

In my view, the economy also has a non-physical, or mental dimension--e.g., psychological development, intersubjective exchange, subjective valuation, intellectual capital--that contributes to the overall depth of economic growth.  The mental economy is inextricably linked to, and entirely dependent upon, the physical economy, which is, in turn, governed by the natural logic and limits of the Earth's physical systems.  However, the mental economy is not a sub-system of the Earth's physical biosphere and it is not governed directly by the rules of the natural world.  Quite the opposite.  The mental economy, for better and for worse, is where we make all our economic decisions and direct the economic growth in two-dimensions--mental depth and physical scale.  Beyond this, I find it useful to frame the mental economy as a sub-system/culture within a more encompassing mental super-system/culture that we might define as the non-physical, depth dimension of human civilization.  Following the philosopher Ken Wilber, we may call this the noosphere in relation to the biosphere.  Wilber has been particularly articulate about the contrast between the depth of the noosphere and the scale (though he calls it span) of the biosphere, and I think these distinctions apply equally well to the economy.  This reframing reveals the partial truth in the orthodox view of economic growth beyond the scale of ecological limits--but this truth is only valid to the extent that we are speaking of non-physical economic growth.

When it comes to analyzing economic growth, households and the factors of production they supply to firms, as well as firms and the products they supply to households, all have a physical scale dimension that is subject to the logic and limits of the physical world and a mental depth dimension that is subject to the logic and limits of the mental world (hence the checkerboard pattern of green scale and yellow depth).  In addition to natural resources, the other classical factors of production, labor and capital, also have physical properties that contribute to the growing scale of the economy.  And although the common differentiation between products, services, and experiences is intended to denote a gradation from physical to mental, we should remember that even the most ethereal of experience-goods has a physical component and even the most material of commodities has some mental component that is part of the cycle of two-dimensional growth.

People can reasonably disagree on the precise scale of the physical economy and therefore the timing of our future encounters with the biospheric limits to physical economic growth.  But reasonable people, in my opinion, cannot deny the fact that there are very real limits to the physical growth of the economy.  Given this premise, its seems entirely sensible to promote economic growth that is progressively less physical and more mental until such time as we can enjoy economic growth that is truly sustainable--limited in scale, yet mentally innovative, enriching, and developmental.  Innovators like Amory Lovins have demonstrated how superior design can yield products whose physical-to-mental ratio is much lower than competing products, at the time of sale and over the useful life of the product, while still providing the same essential service as the more physically-intensive alternative (e.g., hypercars vs. gas-and-steel cars).  We can even find some suggestive evidence in macroeconomic statistics indicating that some countries may be much further along in the shift to less scale-intensive economic growth, perhaps because of differences in cultural values, geography, political philosophies, etc.   

To the extent that we adopt either of the partial visions of the economy, I believe we create patterns of unsustainable economic action.  An exclusive application of the non-ecological vision may result in a pattern of economic growth that is physically unsustainable, relying on eventual, but certain, ecological crises to force policy makers, business leaders, and market participants to learn, in the double-loop sense, their way out of the unsustainable patterns.  Similarly, if we were to apply only the ecological vision and pursue a strategy of zero economic growth, we might lock a majority of the world's population into poverty and perhaps, ironically, preclude the economic innovations that would otherwise, in time, establish the foundation for an integral economy that is physically sustainable, yet mentally growing.  Calling for limits to all growth is just as unsustainable as ignoring all limits to growth.

Reconstructing Daly's Analyses

What puzzles me about Daly's book, which outlines in considerable detail the post-visionary analyses that he believes to be consistent with his pre-analytic vision (Figure 1), is that his post-visionary analyses are actually much more consistent with my pre-analytic vision (Figure 3).  But I wonder if he and his readers have realized this inconsistency, obscured as it is by some semantic issues.

First, Daly chooses not to use the standard economic definition of the word growth, which is basically a change in the aggregate prices of the economic product, such as Gross Domestic Product.  He prefers instead to re-define growth as a change in the physical scale of this economic product, measured not in money prices but in matter-energy flows.  This re-definition is the less-than-obvious justification for his unequivocal claims that sustainable economic growth is an oxymoron, an impossibility theorem.  In my opinion, the very large number of people, both critical and supportive, who believe that Daly and other ecological economists are against all economic growth, as in GDP, has its origin in this unnecessary re-definition of the term growth.

Second, Daly adopts the term development to denote the non-quantitative, qualitative improvement component of the growth in economic product, consistent with what I have referred to generally as the mental depth dimension of economic growth.  This allows him to build his case against the re-defined and exclusively quantitative growth while still acknowledging that qualitative development may continue.  More than just another semantic issue, this is actually inconsistent with his espoused pre-analytic vision (Figure 1), which allows no room for what he calls development, and only reinforces the first problem of his perceived indictment of all growth.

Finally, and perhaps most importantly, Daly doesn't appear to acknowledge that his versions of quantitative growth and qualitative development are both measured quantitatively in terms of money prices and therefore, as I said above, contribute to what everyone else calls economic growth--e.g., changes in GDP.  It's not that he isn't reflectively aware of this (obviously he is), it's that he repeatedly critiques all quantitative growth while occasionally acknowledging the value of purely qualitative development without emphasizing that both really do contribute to what everyone else in the world sees as quantitative economic growth.  It's no wonder that so many people think that Daly and other ecological economists are against all quantitative economic growth: because they are, and yet they aren't, depending upon which definition one is using.

My bottom line on Daly's book: it is an outstanding read by a brilliant heterodox economist, full of insightful critiques and valuable contributions to the economic dialogue, though it can be more clearly understood by supporters and critics alike if reconstructed to fit my pre-analytic vision.

Conclusion

This reveals a shortcoming in all three of the above figures, which ignore the flow of currency that runs counter to the flow of production and consumption.  This currency flow, depicted in Figure 4, is the index that everyone really uses to measure economic growth, because we do not have any other way to quantitatively measure aggregate product or the aggregate factors of production except for the aggregate prices they yielded in exchange.  The dizzying variety of economic products and factors of production are incommensurable without money prices.  When we factor into this slightly more integral vision of the economy our understanding of our debt-based currency design and the inherent need for sustainable growth in money and credit independent of any growth in physical or mental product, we see just how important it is to include the counter-cyclical flow of income and expenditures and just how difficult it is to convince anyone that economic growth, however it is defined, must cease.

In the reconciliation of a more Integral Economics, sustainable growth is not an oxymoron, but a double entendre, denoting the very real possibility of sustainable economic growth that satisfies the very real necessity of economic growth that is sustainable.  The key to the riddle is that there are two kinds of growth--scale and depth--that are being measured in units of the same common medium, money prices, and fused into a single, undifferentiated indicator of economic growth.  The primary goal of our post-visionary analysis is therefore to craft public policies, business strategies, and personal practices that will move the economy toward a pattern in which physical growth is systematically replaced by mental growth even while overall growth in terms of aggregate prices continues to rise.

© 2006 by Daniel J. O'Connor.  All Rights Reserved.

Related Essays:

• Allocation, Distribution, Scale, and Depth
• What is Right?  Who Decides?

Comments

[Dan Landau]

You are making it all too complicated. The physical limits of “spaceship earth” are light years beyond the resources we use today. We aren’t running out of anything we need.

[Daniel O'Connor]

Well Dan, your opinion certainly does simplify things a bit. Anyone who believes as you do that the scale of the economy is irrelevant can certainly do without an economic framework that admits of scale. You are certainly entitled to your opinion on this.

I suppose those who regard depth of thought, value, trust, innovation, and development as irrelevant can also do without an economic framework that includes a depth dimension.

Come to think of it, those who consider distribution of resources and income among different people to be an unnecessary complication can likewise do without an economic framework that addresses distribution.

This would leave us with a very simple, powerful framework addressing nothing but allocation at the margin via singular acts of exchange--a powerful place to take an intellectual stand, I do admit.

But when we look deeply at how these singular acts of exchange actually happen, via the mutual pursuit of transparency, choice, and accountability, we discover that each and every one of them has direct implications for allocation, distribution, depth, and scale, whether or not our economic worldview includes these added complications.

As I see it, we can whittle the intellectual whole down to our favorite part, but we cannot avoid finding the whole again within that part.

Daniel

[Dave Iverson]

Daniel,

Nice post, as always.. I'm rounding up a few folks to launch a new multi-authored blog titled "Ecological Economics: A Cross-Disciplinary Conversation." I think I just about have enough people from that group to do a launch, and might do so this week.

Would you be interested in participating? (Your participation might be limited to "cross-posting" ecological econ stuff from here to there, or taking a more active role there if you find time or interest).

If you are interested, we might use this post as a launching platform for that blog. It would serve perchance to draw some more of that group into this discussion of Daly's intent and actualities, since I would send a synopsis of the post to the US Ecol Econ "Listserve" that would hit about 500 folks--hoping to attract some of them into this and later discussions.

Think it over and drop me an email if interested..

[Tuff Ghost]

Really interesting post.

"The physical limits of “spaceship earth” are light years beyond the resources we use today. We aren’t running out of anything we need."

Not to be alarmist, but... oil?

[Daniel O'Connor]

Tuff Ghost,

Welcome. Yes, oil... and fresh water... and of course it isn't just an issue of "sources" but of "sinks" which process wastes... so even if we are not running out of many or any sources, we may encounter scale limitations due to natural systems incapacity to deal with the wastes we output.

[ebuddha]

Great post. In the diagram above, where would you put the process of "ephemeralization" - doing more with less? (harder substances than steel, but lighter, more processing power, with smaller circuits, etc).

In certain ways, because of the process of ephemeralization, the resources of spaceship earth "last longer". Of course, as noted, with oil and water (and isn't that scary), there still ARE limits, as ephemeralization itself is limited.

Are you pointing to this a bit, when adding the dimension of depth? Growth along the "spiral" settling into a "higher", yet stable, medium?

I'm thinking of the energy equation. I read recently that energy scales can be divided into how many carbon atoms are used, per hydrogen atom.

Wood to coal to oil to natural gas to - eventually - a hydrogen economy.

Anyway, I may be far off, I'd love to hear your thoughts.

[Daniel O'Connor]

ebuddha,

You're not far off, but right on. Ephemeralization, as in Buckminster Fuller, yes definitely. Design intelligence is a big part of the business strategy angle, figuring out how to design a product that will provide as good or better service to a customer for the same or lower price before others can think of it first and for a much longer time... "better, faster, cheaper, longer" as i frame it for my clients.

The speed of our transition from scale growth to depth growth is a function of the:
- biospheric logic and limits (e.g., what can be done within the laws of matter, energy, etc. and when must it be done to at least maintain quality of life and avert ecological crisis) and
- noospheric logic and limits (e.g., cognitive, affective, and moral developmental capacity to deal with the complexity and uncertainty of the world we've created, second-order changes in value functions necessary to actually value the changes we need to make, and innovation to create what has never been created before).

[David Jeffery]

That's an excellent summary of the physical limits to growth issues. It's always surprised me that the debate seems to ignore or at least gloss over the fact that there are obviously physical limits to the physical manifestations of economic growth but not the non-physical manifestations. So we can't all keep increasing our consumption of resources but hopefully we can increasingly decouple our wellbeing from the consumption of resources - and so still increase our 'wealth' as far as it reflects health, wellbeing, quality of life etc, rather than simply possessions.

[Daniel O'Connor]

Thanks David,

Based on the premise that we all tend to make our market decisions on the basis of an expectation that we will be better off for having made the exchange, I wonder just how long it will take before enough of us are valuing depth over scale at the margin sufficient to yield an ecologically sustainable economy. The nature of the change we're talking about seems overwhelming, yet imperative.

[Daniel O'Connor]

I republished this article over at the new Ecological Economics group weblog -- http://forestpolicy.typepad.com/ecoecon/

What follows is a republication of my conversation over there:

Dave Iverson comments: http://forestpolicy.typepad.com/economics/

Daniel,

You say "Where I disagree with Daly's assessment of the economic dilemma is in his claim that these pre-analytic visions are irreconcilable. I think they can be reconciled within a more integral vision that honors the partial truth in each, while providing some practical guidelines for post-visionary analyses of sustainable economic growth." I don't think that Daly and others would disagree that "they can be reconciled." I think that the main point is that they continue not to be reconciled, since so many faith-based practitioners and TV-blinded followers seem to keep focusing on narrow so-called "economic reasoning." And I think that is the reason Daly and others have spoken out: to point out blindspots in our cultural mindmaps.

Another point: Although I love your references to double-loop learning, I can not believe in your reliance on "eventual, but certain, ecological crises to force policy makers, business leaders, and market participants to learn." People seem incapable of learning from the mistakes of others. I'm drawn to Robert Heinlein's line, paraphrasing: "People don't learn from the mistakes of others. They seldom learn from their own mistakes. Never underestimate the power of human stupidity."

Finally, your conclusion: "The primary goal of our post-visionary analysis is therefore to craft public policies, business strategies, and personal practices that will move the economy toward a pattern in which physical growth is systematically replaced by mental growth even while overall growth in terms of aggregate prices continues to rise."

I don't think that any would disagree with this, although I might quibble a bit with the "while overall growth in terms of aggregate prices continues to rise." My Austrian economic roots force me to think that we are deluding ourselves currently with what we might call naive monetary Keynesianism. We might be setting ourselves up for a major-league deflationary crash. But that is the stuff for other blogs and conversations dealing with international finance and geopolitics.

My response:

Dave,

I have to assume that Daly meant what he said in the introduction to his book: "The difference between these two visions could not be more fundamental, more elementary, or more irreconcilable." Having demonstrated a reconciliation, I would expect some ecological economists and their students to agree, upon reflection, that the two competing visions can be reconciled. Some probably already see it this way, but I just haven't discovered their writings. Others, even after seeing the reconciliation will find ways to dismiss it and revert back to the materialist vision.

Yesterday, while getting to know Steve Keen's very impressive work on Debunking Economics -- http://www.debunking-economics.com/ -- I followed a link to the Post-Autistic Economics Review and found this page illustrating Two Worldviews: http://www.paecon.net/TwoWorldViews.htm The question at the bottom of the page sums up the debate: "Are you a view-one person or a view-two?"

I am a "view-three" person, but I have never seen anyone else offer a third view that integrates the first two views. I've been offering this reconciliation to anyone who would listen for nine years now. Most people understand it after I explain it and some even proclaim that this is how they always viewed the situation, despite the fact that the conversation began with them pronounicing the absolute limits to all growth. Despite my little work at the margin of this debate, within the overall economic dialogue, as you said, "they continue not to be reconciled."

As for double-loop Market Learning (and State Learning, Social Learning, etc.), it's not that I rely on this with some naive optimism. It just describes what will have to happen in order for us to transition to a sustainable economy. If developmental psychologists are accurate, there may only be about 1% of the population capable of intentional double-loop learning at this time. I'm not sure what it will take for critical mass, but I think we have a ways to go in our development as people in order to avert ecological and economic crises. Max Planck once said "science advances one funeral at a time." What this implies to me is that even our most disciplined intellectuals would rather die than fundamentally change their minds. This is the challenge of double-loop learning in any context.

Regarding the final point about overall growth in aggregate prices, I was trying to make explicit one of the goals that is already implicit in the current design of the monetary system as it is today, with the inherent need for sustainable growth in money and credit independent of any growth in output. I'm not endorsing the current design nor assuming that it will actually be sustainable. I have a lot of Austrian in me as well and have written perhaps too much already on the crisis-potential in our debt-based monetary system.

I hope this clarifies my statements a bit. Thanks for the push-back to move the conversation forward.

[Dan]

I would say the psychological condition that must be considered is the really amazing capacity of people to be in denial, a state of of potential awareness that is for whatever reasons kept at bay. Chris Argyris would claim that our denials help us avoid situations of threat we aren't ready to handle. We can avoid any reality we want to -- and any discussion. I think you are right, Daniel, that unless we integrate social learning processes into the discussion of resources, the chances of hitting the wall for the planet are pretty damned good. And it's going to be a painful process, both externally as economic and political systems falter, and internally as the we face up to the truth about how we've contributed to the problem. I guess my overall finding has been that when you wake someone up out of deep sleep, they are generally pretty mad about it and apt to blame you for the problem!

[Daniel O'Connor]

Thanks for the thoughts, Dan. As students of Argyris, we can both appreciate the "skilled incompetence" and "defensive routines" that can undermine the sort of learning and innovation that is needed to transition to a more sustainable economy. It is more than just an ecological challenge, isn't it--it is a challenge of psychological development.

We are not yet the peple we need to be to create the sort of world we will need to create in order to sustain economic growth while sustaining the biosphere. Much of the focus of the debate is "out there" looking at the physical world and the economic statistics, as it should be. But the focus also has to include the "in here" of our own mental models, our theories of action, and the ways in which they are contributing to the stable instability of the macro-situation.

fwiw: http://www.catallaxis.com/2005/02/stable_instabil.html

[JM]

I can't agree with the premise that the dimension of the economy is bounded by energy, material, chemical, etc. Those limits are only constraining to the extent of our current technology. For all practical purposes, energy is limitless. We just haven't figured out a better way to access energy. Yet. Oil is not a long term resource. Once oil becomes too expensive, we will find other means. Similarly, water is a limitless resource. We can make it, we can recycle it, reclaim it. That is very easy to do. Not as cheap as drawing it from a stream or well, but still "do-able" if we have to.

Instead of concentrating on our limits, we should start thinking about how to overcome our limits. We have to. You can't stay in one place. Like all things in nature, you change or die. Nothing stays the same or is limited for very long. Nature always finds a way to live even under "impossible" conditions. Your model is too static.

[Daniel O'Connor]

JM,

I don't think anything you've just argued is contrary to my thesis. If you think it is, then please quote me in context and show me why you think so.

I must say I find it baffling that you consider an open-ended model of human development and evolution and sustainable economic growth to be "too static." If this model were any less static, it would fly off the screen in front of you.

Peace.