p. 12, HOW
Bouvier and Grant;
Sierra Club Books, 1994; ISBN 0-87156-496-3
Environmental and Natural...
by Tom Tietenberg
Harper Collins, 1992; ISBN
One end of the spectrum is defined by an ambitious study
published in 1972 under the title
The Limits to Growth. Based on
a technique known as systems dynamics, developed by Professor
Jay Forrester at MIT, a large-scale computer model was
constructed to simulate likely future outcomes of the world
The most prominent feature of
systems dynamics is the use of feedback loops to explain
behavior. The feedback loop is a closed path that connects an
action to its effect on the surrounding conditions which, in
turn, can influence further action. As the examples presented
subsequently in this chapter demonstrate, depending on how the
relationships are described, a wide variety of complex behavior
can be described by this technique.
Conclusions of Pessimist Model
Three main conclusions
were reached by this study. The first suggests that within a
time span of less than 100 years with no major change in the
physical, economic, or social relationships that have
traditionally governed world development, society will run out
of the nonrenewable resources on which the industrial base
When the resources have been
depleted, a precipitous collapse of the economic system will
result, manifested in massive unemployment, decreased food
production, and a decline in population as the death rate soars.
There is no smooth transition, no gradual slowing down of
activity; rather, the economic system consumes successively
larger amounts of the depletable resources until they are gone.
The characteristic behavior of the system is overshoot and
collapse (see Figure 1.1).
The second conclusion of the study is that piecemeal approaches
to solving the individual problems will not be successful. To
demonstrate this point, the authors arbitrarily double their
estimates of the resource base and allow the model to trace out
an alternative vision based on this new higher level of
resources. In this alternative vision the collapse still occurs,
but this time it is caused by excessive pollution generated by
the increased pace of industrialization permitted by the greater
availability of resources.
The authors then suggest that if
the depletable resource and pollution problems were somehow
jointly solved, population would grow unabated and the
availability of food would become the binding constraint. In
this model the removal of one limit merely causes the system to
bump subsequently into another one, usually with more dire
As its third and final conclusion, the study suggests that
overshoot and collapse can be avoided only by an immediate limit
on population and pollution, as well as a cessation of economic
growth. The portrait painted shows only two possible outcomes:
the termination of growth by self-restraint and conscious
policy—an approach that avoids the collapse—or the termination
of growth by a collision with the natural limits, resulting in
Thus, according to this study, one
way or the other, growth will cease. The only issue is whether
the conditions under which it will cease will be congenial or
The Nature of the Model
Why were these
conclusions reached? Clearly they depend on the structure of the
model. By identifying the characteristics that yield these
conclusions, we can examine the realism of those
The dominant characteristic of the model is exponential growth
coupled with fixed limits. Exponential growth in any variable
(for example, 3% per year) implies that the absolute increases
in that variable will be greater and greater each year.
Furthermore, the higher the rate of growth in resource
consumption, the faster a fixed stock of it will be exhausted.
Suppose, for example, current
reserves of a resource are 100 times current use and the supply
of reserves cannot be expanded. If consumption were not growing,
this stock would last 100 years. However, if consumption were to
grow at 2% per year, the reserves would be exhausted in 55
years; and at 10%, exhaustion would occur after only 24 years.
Several resources are held in fixed supply by the model. These
include the amount of available land and the stock of depletable
resources. In addition, the supply of food is fixed relative to
the supply of land. The combination of exponential growth in
demand, coupled with fixed sources of supply, necessarily
implies that, at some point, resource supplies must be
exhausted. The extent to which those resources are essential
thus creates the conditions for collapse.
This basic structure of the model is in some ways reinforced and
in some ways tempered by the presence of numerous positive and
negative feedback loops.
Positive feedback loops are
those in which secondary effects tend to reinforce the basic
An example of a positive feedback
loop is the process of capital accumulation. New investment
generates greater output, which, when sold, generates profits.
These profits can be used to fund additional new investments.
This example suggests a manner in which the growth process is
Positive feedback loops may also be involved in global
warming. Scientists believe, for example, that the
relationship between emissions of methane and global warming may
be described as a positive feedback loop. Since methane is a
greenhouse gas, increases in methane emissions contribute to
global warming. As the planetary temperature rises, however, it
could release extremely large quantities of additional methane,
and so on.
Human responses can intensify environmental problems. When
shortages of a commodity are imminent, for example, consumers
typically begin to hoard the commodity. Hoarding intensifies the
shortage. Similarly, people faced with shortages of food
commonly eat the seed that is the key to more plentiful food in
the future. Situations giving rise to this kind of downward
spiral are particularly troublesome.
A negative feedback loop is self-limiting rather
than self-reinforcing, as illustrated by the role of death rates
in limiting population growth in the model. As growth occurs, it
causes larger increases in industrial output, which, in turn,
cause more pollution. The increase in pollution triggers a rise
in death rates, retarding population growth. From this example
it can be seen that negative feedback loops can provide a
tempering influence on the growth process, though not
necessarily a desirable one.
Perhaps the best-known planetary-scale example of a negative
feedback is provided in a theory advanced by James Lovelock,
an English scientist. Called
the Gaia hypothesis after the Greek concept for
Mother Earth, this view of the world suggests that the earth is
a living organism with a complex feedback system that seeks an
optimal physical and chemical environment.
Deviations from this optimal environment trigger natural,
nonhuman response mechanisms which restore the balance. In
essence, according to the Gaia hypothesis the planetary
environment is a self-regulating process.
The model of the world envisioned by the Gaia hypothesis
is incompatible with that envisioned by the Limits to Growth
team. Because of the dominance of positive feedback loops,
coupled with fixed limits on essential resources, the structure
of the Limits to Growth model preordains its conclusion
that human activity is on a collision course with nature.
While the values assumed for various
parameters (the size of the stock of depletable resources, for
example) affect the timing of the various effects, they do not
substantially affect the nature of the outcome.
The dynamics implied by the notion of a feedback loop is helpful
in a more general sense than the specific relationships embodied
in this model. As we proceed with our investigation, the degree
to which our economic and political institutions serve to
intensify or to limit emerging environmental problems will be a
Is the portrait of the fate of the world economy painted by the
Limits to Growth model an accurate one? Because Herman
Kahn and his associates did not think so, they presented an
alternative vision in a book titled
The Next 200 Years: A Scenario for America
and the World. 8
This vision is an optimistic one
based in large part on the continuing evolution of a form of
technological progress that serves to push back the natural
limits until they are no longer limiting.
Conclusions of Optimist Model
The basic conclusion
reached by this study is stated in the opening pages of the book
[Herman Kahn, William Brown, and Leon Martel, The Next 200
Years: A Scenario for America and the World]:
... 200 years ago almost
everywhere human beings were comparatively few, poor and at
the mercy of the forces of nature, and 200 years from now,
we expect, almost everywhere they will be numerous, rich and
in control of the forces of nature [p. 1].
The future path of population growth
is expected by Kahn and his associates to approximate an
S-shaped logistic curve. This image suggests that an omniscient
observer during 1976 looking backward through time and then
forward into the future would see rather different things.
The retrospective glance would
reveal a period of exponential population growth, while the
glance into the future would reveal continued growth, but with
steadily declining growth rates, until, at the end of the next
200-year period, growth would automatically come to a halt. By
that time, however, the population would have increased four
times its current level and the average person in the world
economy would be earning $20,000 a year (in constant dollars)—a
far cry from the 1976 average of $1300 (see Figure 1.2).
To Kahn and his associates, interference with this
natural evolution of society would not only be unwarranted, it
would be unethical. As they see it, tampering with the growth
process would consign the residents of the poorest developing
countries—and, indeed, the poorest residents of the developed
countries—to a life of poverty, a life without hope. In
contrast, they see continued growth as providing continued
betterment for both groups; although, due to an expected decline
in the gap between the rich nations and the poor, those in the
poorest nations would benefit most from continued growth.
The Nature of the Model
The Kahn model is more qualitative than the Limits to
Growth model and therefore its structure is less specific.
It is not a computer program that simulates the future. Rather,
Kahn and his associates devised scenarios they believed
to be plausible and then verified that the various components of
these scenarios were consistent with each other. The book is
filled with reasons why the chosen scenario is reasonable.
These lists of reasons frequently
include new technologies that, when certain limits are reached,
will be introduced. These technologies effectively either remove
the limit or buy time until a subsequent technology can remove
The principles underlying Kahn's work can best be illustrated
through the use of two examples: food and energy. One of the
sources of collapse in the Limits of Growth model was the
inability of food supply to keep up with consumption. Kahn,
by contrast, sees food production rising so rapidly as to create
an eventual abundance of food.
This vision, in turn, depends on
some specific sources of optimism:
(1) physical resources
will not effectively limit production during the next 200
(2) substantial increases
can be expected in conventional foods produced by
conventional means, conventional foods produced by
unconventional means, and unconventional foods produced by
All of these sources of optimism are
related to technological progress. The availability of physical
resources can be expanded through the use of better
(solar-powered, for example) irrigation systems. Conventional
food production can be increased by the spread of better farming
techniques and by the development of new hybrid seeds. If soils
become depleted or scarce, then food can be raised with
hydroponics, a process using no soil. 9
Finally, Kahn points to the
development of a single-cell protein as a viable means of
converting municipal waste into a food supplement.
A similar approach is taken when describing the world energy
future. The authors of The Next 200 Years construct a list of
technologies that can provide the transition to solar energy,
making the case that solar energy can ultimately sustain a high
level of economic activity.
The list includes technologies that
use coal, either directly or indirectly (such as gas produced
from coal); those which exploit the vast world reserves of shale
oil; nuclear power (fission, in the near term, replaced
subsequently by fusion); and new solar technologies including
windmills, photovoltaics, and ocean thermal power.
When all of these lists are combined, the prevailing message is
that currently recognized technologies can overcome the
limitations envisioned by the Limits to Growth view. The
Next 200 Years staff, then, believes that the creators of
Limits to Growth erred in being myopic; they were
too tied to conventional technologies. When the need arises,
they argue, these new technologies will be developed.
The cliche, "Necessity is the mother
of invention," captures the flavor of the belief of Kahn
and his associates that these technologies will be developed as
they are needed.
[I believe this is the standard university text for this
Meadows, et al.
Chelsea Green Publishing
Company, 1992. ISBN 0-930031-62-8.
Phone: 800-639-4099 or 603-448-0317 ; FAX: 603-448-2576.
"In Scenario 1 the world society
proceeds along its historical path as long as possible without
major policy change. Technology advances in agriculture,
industry, and social services according to established patterns.
There is no extraordinary effort to abate pollution or conserve
resources. The simulated world tries to bring all people through
the demographic transition and into an industrial and then
post-industrial economy. This world acquires widespread health
care and birth control as the service sector grows; it applies
more agricultural inputs and gets higher yields as the
agricultural sector grows; it emits more pollutants and demands
more nonrenewable resources as the industrial sector grows.
"The global population in Scenario 1 rises from 1.6 billion in
the simulated year 1900 to over 5 billion in the simulated year
1990 and over 6 billion in the year 2000. Total industrial
output expands by a factor of 20 between 1900 and 1990. Between
1900 and 1990 only 20% of the earth's total stock of
nonrenewable resources is used; 80% of these resources remain in
1990. Pollution in that simulated year has just begun to rise
noticeably. Average consumer goods per capita in 1990 is at a
value of 1968-$260 per person per year—a useful number to
remember for comparison in future runs. Life expectancy is
increasing, services and goods per capita are increasing, food
production is increasing. But major changes are just ahead.
"In this scenario the growth of the economy stops and reverses
because of a combination of limits. Just after the simulated
year 2000 pollution rises high enough to begin to affect
seriously the fertility of the land. (This could happen in the
'real world' through contamination by heavy metals or persistent
chemicals, through climate change, or through increased levels
of ultraviolet radiation from a diminished ozone layer.) Land
fertility has declined a total of only 5% between 1970 and 2000,
but it is degrading at 4.5% per year in 2010 and 12% per year in
2040. At the same time land erosion increases. Total food
production begins to fall after 2015. That causes the economy to
shift more investment into the agriculture sector to maintain
output. But agriculture has to compete for investment with a
resource sector that is also beginning to sense some limits.
"In 1990 the nonrenewable resources remaining in the ground
would have lasted 110 years at the 1990 consumption rates. No
serious resource limits were in evidence. But by 2020 the
remaining resources constituted only a 30-year supply. Why did
this shortage arise so fast? Because exponential growth
increases consumption and lowers resources. Between 1990 and
2020 population increases by 50% and industrial output grows by
85%. The nonrenewable resource use rate doubles. During the
first two decades of the simulated twenty-first century, the
rising population and industrial plant in Scenario 1 use as many
nonrenewable resources as the global economy used in the entire
century before. So many resources are used that much more
capital and energy are required to find, extract, and refine
"As both food and nonrenewable resources become harder to obtain
in this simulated world, capital is diverted to producing more
of them. That leaves less output to be invested in basic capital
"Finally investment cannot keep up with depreciation (this is
physical investment and depreciation, not monetary). The economy
cannot stop putting its capital into the agriculture and
resource sectors; if it did the scarcity of food, materials, and
fuels would restrict production still more. So the industrial
capital plant begins to decline, taking with it the service and
agricultural sectors, which have become dependent upon
industrial inputs. For a short time the situation is especially
serious, because the population keeps rising, due to the lags
inherent in the age structure and in the process of social
adjustment. Finally population too begins to decrease, as the
death rate is driven upward by lack of food and health
A Report to the Club of Rome
Wouter Van Dieren, Editor;
Springer-Verlag,1995; ISBN 0-387-94533-4; Phone: 1-800-SPRINGER
In 1972, a report was published by a mysterious club nobody had
ever heard of, which shocked the world—a report about the
forthcoming collapse of life on earth, not written by some
sectarian doomsday prophet but by scientists of high repute,
working with that new device of modernity, the computer.
"Limits to Growth," the report was called, and besides a shock
it also caused outrage worldwide. Several years after the first
phase of environmental awareness and shortly before the first
oil crisis (1973), "Limits" brought the message that the world
was heading for disaster because of unfettered population growth
and industrial expansion, exhaustion of stocks of natural
resources, environmental destruction, and food shortages.
"Limits" was based on a so-called simulation model, a
mathematical representation of the main variables and their
dynamic interactions known as the WORLD III model. Some of the
key features of these dynamics are feedback loops, which show
that an intervention in one part of a system has unexpected
effects on other variables of that system.
The forms of exhaustion predicted in the various scenarios
simulated in the model start to emerge in the early twenty-first
century, as the world population grows to a peak of 10 billion,
per capita food production drops to a mere 15-25 percent of 1970
levels, pollution has risen tenfold, and the most important
resources, such as oil and gas, have become depleted.
Because of the so-called exponential
character of growth and depletion, half-hearted or one-sided
measures are of little avail. A drastic program of technological
improvement such as energy conservation, for example, achieving
50 percent savings in 20 years against a background of, say, 2
percent growth in consumption, postpones the date of depletion
by a mere 3 years.
"Limits" became the subject of heated controversy, and the
Club of Rome soon gained the reputation of being a
neo-Malthusian movement of doomsayers. The report became
world famous, an indication that its message was not only
controversial but also supremely recognizable.
Although thousands of scientists have devoted their efforts to
the question of how reliable WORLD III was and whether it is
even at all possible to forecast the future in this manner,
"Limits" has, in our view, come through all the criticism
untarnished. In the first place, because the primary aim was not
to make a prediction but "to improve the insight," in the words
of Jay Forrester, one of the contributing authors; and secondly,
because nobody has yet really succeeded in finding fault with
the main calculations and the underlying hypotheses.
Since 1972, countless studies and books have been published that
confirm the message of "Limits"; but even more extensive than
this scientific work has been the worldwide denial of the limits
to growth, and the impassioned attempts to remain one step ahead
of the imminent shortages through policies of continued economic
Meanwhile, additional new insights
have arisen, which not only confirm the impending disasters but
also indicate that the limits to growth may well have been
exceeded and that the world has been in a state of decline for
some years already. The most important study in this context is
For the Common Good (1989), in
which Daly and Cobb develop an information theory
to replace or supplement the incomplete data function of what is
known as the Gross National Product.
By processing U.S. statistical data
on some twelve so-called welfare indicators, they drew the
conclusion that for the last twenty years the link between
production growth and the creation of welfare has become
progressively weaker; prior to that date, production growth had
achieved exactly what Adam Smith foresaw in 1752: the
addition of value so as to indeed create the "Wealth of
In the 1970s this link began to be
lost, however, and this process is proceeding at such an
accelerating pace that we are now confronted with the curious
phenomenon of production growth leading to a decline in welfare;
stated differently, the limits to growth have been reached
without us even noticing it, because we have been interpreting
the figures wrongly.'
Our aim is to undertake a further analysis of the concept of
growth within this framework; and above all, of the opposition
to information that is critical of this growth. "Limits" evoked
extreme opposition, but nonetheless there is fascination
worldwide with the Club of Rome and its first and
greatest message. The latest insights tell us that their message
is not only being confirmed daily, but that it has in fact been
surpassed by reality. The limits to growth no longer merely lie
ahead, in the future; they are with us today, and have been for
the last twenty years.
The international community does not know how to handle this
reality, however. Discussions in international forums where the
necessity of growth or its significance are challenged
inevitably lead to emotional scenes, and all the agendas of all
the world's political and economic bodies call for growth in the
restricted sense of the word, because of an unabashed conviction
that this is always good for the world.
But this is simply not the case: a
steady growth of output does not necessarily lead to more jobs
or a better environment, it does not combat famine or promote
social security, neither does it improve education or public
health. On the contrary, most of these aspects of welfare seem
to suffer under unrestricted economic expansion, which has
become a law unto itself.
The main thrust of opposition to "Limits" lies in the belief
that economic growth is a kind of law of nature, which humanity
must obey. Since Adam Smith invented the Invisible
Hand, this power has been a guiding principle for all those
who believe that free trade, or the market, will ultimately lead
to a natural order of things, a moment when everything will fall
neatly into place: free trade will provide income and
employment, welfare for all, equality, peace, and a future.
In this way of thinking, the
problems outlined by "Limits," are a result of obstacles to free
trade—and if things are not well with the world, that is a
logical consequence of these obstacles; for example, too much
government intervention, too high social benefits, too much
environmental and labor legislation, an overly expensive
quaternary sector, and so on. Allow the free market to do its
curative work, in other words, and the Divine ordination of the
invisible hand will balance out the world economy.
It is no coincidence that this kind of metaphysical notion was a
nursemaid to the industrial revolution, nor that it is part and
parcel of modern economics. Adam Smith certainly intended
the Invisible Hand to serve as a metaphysical, divine
principle, which effortlessly took over the role of Divine
Providence, on which western humanity had focused its
aspirations until the Enlightenment.
The Enlightenment blocked
this Providence, because it called for science,
technology, and mechanization, and thus distracted attention
from God's will. By introducing the invisible hand, Smith
took up the deistic thread once more; now the economy too, or
precisely the economy, was to be driven by supernatural laws,
and in the industrial age, too, the role of God would
remain of decisive importance.
It is our conviction that this metaphysic is still as topical as
ever. The opposition to "Limits" is so strenuous that clearly
forces other than science are at work. One would expect humanity
to take up the challenges of "Limits" and set up an
international organization to halt the decline. The opposite has
been the case.
A veritable crusade of economic
expansionism has been unleashed, as if to prove that "Limits"
was pessimistic and in error, and everywhere the conquests of
this crusade are praised as providing the desired proof, such as
the economic miracles embodied in the Asian growth figures. And
for the sake of convenience we then ignore the enormous price of
these miracles, the ecological destruction, the plundering of
the surrounding oceans, the consumption of the region's natural
capital, the -underpaid workers, the absence of social security.
And while these miracles are seen as
proof of the power of the invisible hand, nobody is prepared to
answer the question of why the same metaphysic has caused war
and famine in Africa.
Does the invisible hand pick
Or are the Africans paying
the penalty of disobeying the laws of natural economic
Or is it the case that
here—and in the former Soviet Union—the law of Keynes
holds: that suffering is a precondition, albeit
temporary, for later success?
It is of crucial importance to state
that the invisible hand does not exist, that there are no laws
of economic ordination, that although the notion of economic
growth can be defined, its political usage is above all
rhetorical, that economics is not really a science but a set of
theories, and that every attitude towards the limits to growth
is a question of culture, of choices, free will,
There is no inevitable fate
compelling humanity towards unlimited free trade,
over-exploitation of nature and labor, exhaustion of resources,
and finally towards a war of all against all (Hobbes) to gain
control of the last remaining resources and food. Economic
thought differs from culture to culture, and within each culture
even from school to school, from university to university. There
are myriad options to choose from, and none of them need satisfy
a single requirement of a metaphysical nature. What is of key
importance is that we rid our economies of hypocrisy, and this
forms the subject of the present Report.
The main hypocrisy lies in the system of National Accounts that
has been employed in the Western economy for nearly half a
century now, with partial implementation in most other
countries. The technical background of the National Accounts is
described elsewhere in this Report; in this introduction, our
aim is simply to set out why we consider this topic to be so
vitally important in the debate on growth and the limits to
which it is subject.
Until 1945, the notion of economic growth was used differently
from today. As elaborated in Chapter 3, it was not until about
1932 that several economists came up with the idea of measuring
a country's economic performance and not until 1950 that the
ensuing system was introduced in most industrialized countries.
It was thus inevitable that the
costs of production growth would be encountered, costs that for
decades the theory had termed negative external effects. In
former times these effects had been happily accepted, but when
production as a whole is encapsulated in a profit-and-loss
account, the costs, or negative expenditure, automatically
appear on the balance sheet. And that is where we stand today.
Surprisingly enough, users of National Accounts have long
remained deaf to recommendations to subtract these costs from
the profits, despite an information load that has become so
heavy in recent years that for some economies the point now
appears to have been reached whereby the costs are perhaps even
greater than the profits— without this being reflected in the
This is of vital importance for the
debate on the limits to growth, because these economies continue
to literally count themselves rich, while poverty is on the
rise, or in other words because the subtracted value is higher
than the added value. Phrased differently: the economy is being
kept afloat on paradoxical information, not even on
incompleteness, and the abuse of the National Accounts is at the
core of the matter.
The notion of the National Account is not employed in everyday
political parlance; instead, the public at large hears the terms
Gross National Product (GNP) and its derivative,
Gross Domestic Product (GDP). This GNP has gained
metaphysical significance: it stands for the mark given to the
country by the Invisible Hand and thus even acts as a symbol of
the degree to which that nation has been elected in the Divine
ordination that steers the Invisible Hand.
In this vision of things, one has
subjected oneself to the natural laws of the economy, and the
nation is seen to have passed the examination if the number
attached to the GNP is positive: one, two, or three percent
growth per annum, whatever that may mean. Orio Giarini
has made a comparison between the effect of GNP in heaven, in
hell, and on earth. He describes the complication of Industrial
Revolution accounting by the paradox of hell and heaven, when
applied to the notion of scarcity.
Heaven, being probably
blessed by an infinite stock of goods and services of all sorts
(material and spiritual), knows nothing of scarcity. Economics
and the economy therefore do not exist. There are no prices and
there is no money, since everything is readily available without
any restriction or work. Heaven, then, must be something
very different from earth, but it is also a place of zero GNP.
Hell, as the opposite of
heaven, is a place which consumes a lot of energy in maintaining
its celebrated image and presumed activities. It therefore
probably needs to develop a huge value added which nobody has
ever tried to measure: GNP must be very high indeed! On our
earth, the maximum possible achievement in the fight against
scarcity is to create an abundance in as many sectors as
But human and economic development
also entails identifying and coping with new scarcities.
Scarcity is ultimately the hallmark of the system of
disequilibrium within which human endeavour is destined to
operate: it is the sine qua non of man's quest for fulfillment,
so Giarini says.
One of the major paradoxes in value accounting and in defining
the development of wealth is that an increase in real wealth
corresponds in some cases merely to an increase in the cost of
pollution control (e.g. investment for waste-disposal and
environmental purposes, which is clearly a deducted value type
of cost), while on the other hand, many real increases in value
For instance, GNP growth figures
published each year by governments indicate that the economy has
grown by so many percent. However, a large part of this growth
is in fact absorbed by factors which do not necessarily add to
our wealth, while other factors that represent net increases in
our well-being are not, or are only inadequately, taken into
Going back to the paradox of hell and heaven, one of the reasons
for our reluctance to reconquer paradise is that in some weird
way we seem to be more at ease with hell.
Giarini believes it important to define a level for the
wealth of nations in terms of stock, its increase, depletion,
use, conservation and its diversification. Measurements of value
added are important for the organization of an industrially
productive system, which is an important subsystem of the
economy as a whole. But is only partially relevant to the
business of measuring, targeting, and organizing the wealth of
If the growth of GNP is three percent, but the uncalculated
costs of output are some four percent of GNP, then at least we
know that the quality of life in that country is declining. To
argue that these costs be discounted is to argue for
introduction of a system we term SNI, Sustainable
National Income, a national income in which interest and
yields are indeed added up, but in which depletion of resources
and nature are subtracted from the income, as it were.
Even then, the problem remains that
even a corrected GNP still says nothing about the real value and
dignity of a society. However (so say the politicians) without a
growing GNP the country will become a second-rate nation, and so
we must subject ourselves to interventions that are
progressively demolishing the whole postwar social fabric. We
are being colonized by the economy, as it were, and that was
certainly not the original aim.
In his dialogue on wealth and welfare, Giarini points at
the many paradoxical reasonings in the theory of wealth
accumulation. Classical economists, and in particular Ricardo,
were well aware that the methods for the accounting of economic
wealth that they were devising were not really comprehensive of
the real level of wealth of an individual or a country. A clear
distinction was made between the notion of riches on the one
hand and of wealth on the other. There was even an implicit
acceptance that there could be situations where an increase in
wealth would not correspond to an increase in riches.
However, these considerations remained secondary because the
main problem during the Industrial Revolution was to identify
the most dynamic system for increasing the wealth of nations,
i.e. the industrialization process, and to concentrate on its
development. Inconvenient discrepancies between wealth and
riches were considered of minor importance.
The writings of classical economists
and of some of their later commentators were very much
influenced by the fact that the first formulation of economic
theory was a description of the industrialization process: the
priority, which was quite adequate for this purpose, was to
measure a flow of goods and the value added, whether supply-, or
In the Service Economy, where the industrialization
process per se is no longer identified as the prime mover in
increasing the wealth of nations, the problem is quite different
and the contradiction between wealth and riches becomes much
The divergence of the notion of riches from the notion of wealth
corresponds to what can be called the development of deducted
values in the modern economy. Increase in these deducted values
stems from the increasingly higher allocation of economic
resources to activities which do not add to the real level of
wealth (or of riches), but which are in fact absorbed by rising
costs of the functioning of the economic system.
Let us take an example. In many households, the level of wealth
is sharply increased by the introduction of washing machines,
other electrical appliances, and new tools that make housework
easier. But with the increased level of wealth comes an increase
in the amount of waste produced in the home, which, during the
1960s, led the research divisions of companies producing
household appliances to develop new machines for getting rid of
In a traditional sense, a waste
shredder (or a waste compactor) machine adds to wealth, whereas
in reality, it is merely coming with the increased nuisance at
one place in the system (the private house) and creating a
system breakdown elsewhere (at the sewage or waste-treatment
plant). In addition, we have not become richer by having a
machine to destroy garbage, as compared to when we had no
garbage to get rid of. But, according to the economics of the
Industrial Revolution, our wealth has increased.
Examples of this trend which began in the 1960s abound. Air and
water pollution are obvious cases of diminishing real wealth (or
of diminishing riches). If money is invested to de-pollute water
or to develop alternative solutions such as bottled water,
special reservoirs for drinking water, or swimming pools next to
a polluted seashore, we are once again confronted by Catch-22
situations where investments are necessary to compensate for
riches lost through, for example, pollution: these investments
are not net added value to our wealth!
The growing discrepancies between levels of wealth and riches
(or the contradiction between economically accounted wealth and
real wealth) clearly indicate the need to refer increasingly to
stock, i.e. variations in real wealth, as a substitute for the
measurement of production flows (the bathtub example).
Furthermore, there is also a problem of matching real added
values to deducted values. A new conceptual approach to systems
for measuring the real results will have to replace the simple
analysis of the costs of an isolated activity.
The notion of deducted value implies the need to take into
consideration the notion of negative value. In terms of economic
analysis, this is already a step in the right direction, given
that in many cases the negative side of economic activities has
simply remained unaccounted for.
Diminishing increase in an economic
situation has in fact to be distinguished from a net negative
process. Measuring wealth through flows that do not fill a
bathtub, or even worse, that are shut off, excludes the notion
of negative flows. Only by looking at the stock can positive and
negative variations be measured and a decision taken as to
whether the flows produce values added or values deducted.
Besides the formal conversion of the GNP into an SNI, the
meta-message of this report concerns the necessity of defining
economics in a final tuning way, by pointing at not only the
paradoxes but also at its diversity.
Economics is not a law of nature,
and when it comes to output, income growth and distribution,
resource use and welfare development, any system can be chosen
and molded because what are involved are primarily questions of
culture, choices that are made and implemented by human beings,
with the economy merely a tool to help us, nothing more.
Economics should then be—and can be— an instrument to define the
HAPPENS IF WE FAIL IN THIS QUEST?
In the first place, we would reiterate our original message; in
the words of Jay Forrester:
"Over the last hundred years,
life on earth was dominated by growth. Growth of population,
of production, of income and capital formation, of
exhaustion and pollution. This growth is going to stop and
must stop, and the only question is by what means?
Voluntarily, by government and free will, or through natural
processes, which means collapse and disaster?"
Ultimately, this is the vision of
the future, and many elements of it have already become reality
in the world around us: collapse of life-support systems, of
communities, regions and nations, lack of food, scarcity of
water, climate change and, ultimately, war.
Of the approximately 100 wars now
being fought in the world, more than 70 percent originate in
part in exhausted resources and collapsing life-support systems.
This is the ultimate consequence, clearly confirmed by such
authors as Meadows, Kennedy, Kaplan, and
others (see References).
The second consequence consists in the mild precursor of this
collapse, the process of individual enrichment of the few at the
cost of growing public poverty, the decline in wealth and
welfare to be observed everywhere today, now methodologically
confirmed by the aforementioned studies of Daly and
It is important to hold modern Western political practice up to
this light, a practice consisting of ever more austerity
programs to secure the integrity of purchasing power or of
individual consumption, to which political affairs are being
Because the dominant focus of technology is to substitute labor
(a process known as productivity growth), an imbalance in income
growth sets in between those sectors where productivity rises—in
other words, industry—and those where it cannot; in health care,
education, justice, and public administration, for example.
Wage demands in these sectors cannot
be absorbed by rising output, although due attempts are made by
amalgamating schools, closing senior citizens' homes and
hospitals, abolishing police corps, and overloading the courts.
The ultimate outcome is that the modern welfare society is
disappearing, to the benefit of growing private consumption and
the enrichment of a small elite.
The neoliberal model thus becomes
the future: miserable public services, bad public transport,
decrepit and unsafe inner cities, overcrowded and ever more
unhygienic hospitals, impoverished senior citizens; unmotivated,
poor education; neglected culture, minimization of scientific
research, and environmental neglect. Every government today
holds up this agenda, and it is no wonder that they are all
concerned above all with cranking up production growth, in the
hope that this will generate funds with which to compensate for
the new poverty.
That may have worked with growth in
the past, but it does so no longer, because an ever greater
proportion of each new round of production growth consists of
negative economy: compensation and repairs, processing of waste
and controlling of complexity, in other words expenditure that
is taken to be income.
The contemporary example par
excellence is in those countries which today suffer from war,
guerrillas, and dictatorship, and where the arms industry is
earning masses of money and, when one day there is peace, so
will the demolition companies, the clear-up gangs, the
contractors, the international consultancy agencies, the whole
redevelopment business. When, twenty-five or fifty years from
now, the country has been redeveloped to its condition prior to
1990, no net achievement will have been made, but the growth
figures will be high.
This is the fate of every economy that has exceeded the limits
to growth, and this means that in those countries, monetary
policies are leading to accelerated demolition of both the
welfare state and the cornerstones on which production growth
Both forms of collapse are the result of the hypocrisy and the
metaphysic bound up in the economic information. This report is
about the unmasking of that hypocrisy and is thus a plea for a
form of rationalization that in the world of economic
metaphysics has until now proved extremely difficult. Economics
can be a beautiful instrument when applied in its original
meaning: to put the house (oikos) of mankind in order.