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Special series: Ecological economics, part 4
NewsNotes, July-August 2009

Earlier in this series, we focused on the overall size and growth of the economy. The issue of scale or overall size is the key difference between ecological economics and traditional economics: Proponents of ecological economics believe that scale is an economy’s primary challenge, while traditional economists rarely consider it. Since these two groups hold dissimilar opinions about the limits to an economy’s size, they also hold very different views on the distribution of wealth and allocation of resources, which we will consider in this fourth part of the series.

If you accept the premise that we cannot continue to grow the global economy indefinitely, then distribution becomes the only real solution to overcoming poverty. As Brian Czech, president of the Center for the Advancement of the Steady State Economy, wrote, “Given a global economy exceeding its maximum sustainable scale, the only ethical and ecologically economic approach to alleviating poverty while moving closer to sustainable scale is the capping of income and wealth, with pre-existing excess used to alleviate poverty.” This cap should be defined democratically and could start with voluntary caps that gradually move to mandatory caps. Another approach would be to define a maximum proportion in income between the highest paid and lowest paid people in a company, city, state, nation, or even on a global level.

A more equitable distribution of costs and benefits is considered controversial for those who believe that the rules of the current market system are fair -- in this mindset, someone accumulates wealth due to his or her hard work or ingenuity. To distribute the “hard-earned” wealth of the rich to the “lazy” poor in such a situation would be an injustice. But when we consider a person’s wealth, ecological economists look at how that wealth was created and who bore the costs of that creation. Wealth is often created by nature or society, and many costs of production are borne by society instead of by the producer. Wealth created by nature or society is part of the commons and should be distributed equitably.

For example, when a subway station is built near a house or business, the value of those homes and businesses increases through no work of their owners. This is wealth created by society. Similarly, if the government were to demand cuts in oil production, this would raise oil prices and profits for oil companies. Again, this wealth was created not by the hard work of oil companies, but by a societal decision. Low income families that spend larger parts of their income on rent and energy would be most heavily affected by both decisions.

Looking at costs, when a business pollutes a stream without penalty, it can maintain its profits since it is not paying to clean up the waste. In this country, those costs are currently covered by society through the Environmental Protection Agency’s massive Superfund. Yet the human costs of that contamination are shared unequally as polluting industries are statistically much more likely to be located in communities of color.

Ecological economists design policies that governments could use to reduce overall scale, capture the value created by nature and society, and address unequal distribution. In the case of cutting oil production, for example, the government could create a mechanism to capture the excess profits that oil companies make and distribute the excess to those most affected by rising prices. The cap and dividend system -- money raised from auctioning off carbon rights is then disbursed evenly to every member of the country -- is another workable option that has been proposed by Rep. Chris Van Hollen (D-MD).

Many environmentally focused economists think that pricing is the issue. That is, if we could account for all the externalities of production – costs or benefits, like those above, not counted for in the market – into the prices of goods and services, then we could rely on the market to achieve the economy’s correct scale and a good distribution. Yet determining all externalities is nearly impossible. First, many goods and services provided by nature have no price – consider the ozone layer, climate stability, natural water systems and dozens of others. There is some movement to measure the value of some of these services, but it is incredibly difficult, perhaps impossible, to measure their true value. Second, to correct all the prices in an economic system would be a staggering task. Resource extraction and waste emissions are part of every economic activity, so at least two new costs must be calculated into most every input in the production of all goods and must be fed into the market to be reflected in prices. Then as the market adjusts to these new prices, it will change costs of inputs, entailing new measurements and new prices. This would require monitoring by a centralized body, which goes against the original notion of using the free market to solve the problem. As Herman Daly and Joshua Farley wrote in the workbook for their ecological economics textbook, “There is … little reason to believe that market economists can calculate the efficient price of nonmarket goods any better than Soviet planners could calculate the efficient price of market goods.”

According to ecological economists, the necessity of maintaining the size of the global economy within the limits of earth means that wealth distribution is critical. We can no longer rely on endless growth to fight poverty; without growth, wealth distribution is the only way to achieve poverty reduction. It is only after addressing issues of scale and distribution that ecological economists look to questions of allocation. Only when the economic limits have been established within the possibilities of nature, and a legal framework is established that distributes costs and benefits equitably, will a market system work within the limits of the planet, without creating unsustainable inequalities.

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