Tag Archives: economic growth

12 “sustainable” countries

This post from Alternet says we should admire the following 12 countries for their sustainable policies:

  1. Iceland
  2. Switzerland
  3. Costa Rica
  4. Sweden
  5. Luxembourg
  6. Germany
  7. Cuba
  8. Colombia
  9. Singapore
  10. France
  11. Norway
  12. Finland

Now all these countries definitely have progressive policies that other countries can learn from. But with the possible exceptions of Costa Rica, Cuba, and Colombia, all these countries have a lot of heavy industry and finance. They have large carbon emissions. They have replaced a lot of their original natural habitat with ecologically sterile urban development and factory farming. They house corporate headquarters and investors that exploit natural resources and export urbanization and heavy industry abroad. It simply won’t work to take these best-of-business-as-usual, relatively-low-footprint models and copy them in developing countries on a much larger scale. The resulting footprint will still be much too large, and lead to collapse. So what we need to do is take bits and pieces of what they do well, but come up with a completely new, truly sustainable model.

genuine progress indicator

Vermont is going to have a go at the Genuine Progress Indicator, a GDP alternative:

Estimating the GPI begins with household consumption, the major component of Gross Domestic (or State) Product (GDP), followed by twenty-four separate adjustments including:

  • Additions for benefits not included in GDP, for example the values of volunteer and household work, and non-market benefits from the services of forests (e.g. water purification) and wetlands (e.g. buffer storm events);
  • Deductions for depletion of our environmental assets, harm to human health, costs of underemployment, and loss of leisure time; and
  • Adjustment for the distribution of income received by citizens, more accurately measuring the ability of the economy to provide for all.

The website explains in detail how the calculations are done.

the gospel of shareholder value

This article from the Boston Globe talks about the idea that maximizing profits and shareholder value (which hypothetically is the present value of all future profits) is the sole function of a corporation.

Experts on the history of business say the Market Basket saga is a window onto something deeper than a power struggle among the Demoulas clan that owns it. They see it as emblematic of a war over the future of the American corporation—what its purpose is, how it should be run, and whom it should be engineered to benefit. They argue that maximizing profit and shareholder value—an approach to running companies that drives investment on Wall Street and serves as the closest thing to modern management gospel—is only one way of defining corporate success, and a fairly new one at that…

Post and others argue that a well-run company can—and should—be managed in a way that benefits not just the investors who own its stock, but a wide range of constituents. As opposed to “shareholders,” they call these people “stakeholders”: a group that includes employees, customers, suppliers, and creditors, as well as the broader community in which the company operates, and even the country that it calls home. According to that view, Market Basket’s employees and customers are essential to the firm’s success and, thus, rightful beneficiaries of its prosperity.

It also links back to a 1970 Milton Friedman article in which he argued that it is unethical for a person employed by a corporation to try to be ethical on the company dime:

In a free-enterprise, private-property sys­tem, a corporate executive is an employee of the owners of the business. He has direct re­sponsibility to his employers. That responsi­bility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while con­forming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.

The main problem I have with this is that the ownership of corporations is so diffuse these days that it is almost impossible for shareholders to exercise any sort of ethical control. Many shareholders are large institutions that collectively have no motives beyond the profit motive, even if individuals among them are ethical. No, the only way for society as a whole to behave ethically is for the vast majority of individuals to consciously act ethically every day – be they shareholders, employees, or customers. I don’t see that happening today.

Lords of Finance

Lords of Finance: The Bankers Who Broke the World

This book was kind of a hard read, but I’m glad I read it. My favorite part of the book was the last five pages, particularly these quotes explaining just how bad the Depression really was.

Anyone who writes or thinks about the Great Depression cannot avoid the question: Could it happen again? First it is important to remember the scale of the economic meltdown that occurred in 1929 to 1933. During a three-year period, real GDP in the major economies fell by over 25 percent, a quarter of the adult male population was thrown out of work, commodity prices fell in half, consumer prices declined by 30 percent, wages were cut by a third. Bank credit in the United States shrank by 40 percent and in many countries the whole banking system collapsed. Almost every major sovereign debtor among developing countries and in Central and Eastern Europe defaulted, including Germany, the third largest economy in the world. The economic turmoil created hardships in every corner of the globe, from the prairies of Canada to the teeming cities of Asia, from the industrial heartland of America to the smallest village in India. No other period of peace time economic turmoil since has even come close to approaching the depth and breadth of that cataclysm…

[The Great Depression was] a crisis equivalent in scope to the combined effects and more of the 1994 Mexican peso crises, the 1997-98 Asian and Russian crises, the 2000 collapse in the stock market bubble, and the 2007/8 world financial crisis, all cascading upon one and other in a single concentrated two-year period. The world has been saved in part from anything approaching the Great Depression because the crises that have buffeted the world economy over the past decade [writing in 2009] have conveniently struck one by one, with decent intervals in between.

informal economies

I’m somewhat interested in the idea of informal economies. According to this paper from the National Bureau of Economic Research, economists tend to think they’re bad – either a cause of poverty and slow development, or a symptom of it:

We establish five facts about the informal economy in developing countries. First, it is huge, reaching about half of the total in the poorest countries. Second, it has extremely low productivity compared to the formal economy: informal firms are typically small, inefficient, and run by poorly educated entrepreneurs. Third, although avoidance of taxes and regulations is an important reason for informality, the productivity of informal firms is too low for them to thrive in the formal sector. Lowering registration costs neither brings many informal firms into the formal sector, nor unleashes economic growth. Fourth, the informal economy is largely disconnected from the formal economy. Informal firms rarely transition to formality, and continue their existence, often for years or even decades, without much growth or improvement. Fifth, as countries grow and develop, the informal economy eventually shrinks, and the formal economy comes to dominate economic life. These five facts are most consistent with dual models of informality and economic development.

I’ve never bought into the idea that informal economies are 100% bad. I’ve been very lucky to spend some time in central Thailand, right on the edge between a rural and urban area, and to experience a mix of the informal and formal economies. It makes perfect sense that higher-tech sectors like mining, manufacturing, banking, and so forth are run by efficient, formal, corporations. But lower-tech service sectors provide a chance for “poorly educated entrepreneurs” (a pretty condescending term, actually) to provide everyday goods and services to each other at low cost and practically no overhead. Why is it “efficient” to pay $10 for a tasteless corporate meal at the mall, with most of that money going to pay rent to a real estate corporation and its army of lawyers, accountants, human resourcers, and insurance agents, plus the gas and wasted time to get there, vs. $2 for a tastier meal from a neighborhood entrepreneur? When you stop and chat with your neighbor, that’s culture and social capital, not “inefficiency”. And when something bad happens, you and the neighbor are going to lean on each other for help, not the lawyers and accountants working for the faceless corporation that runs the mall.

21st Century Cosmopolis

This guy, Steven Colatrella, has drafted a new constitution for the world that abolishes nation-states in favor of city-states. It also abolishes debt, credit, wages, and big business. In short, it sounds like a return to the original concepts of idealized socialism or communism. I don’t know about all that, but there might be a few ideas worth pulling out. I do like the idea of treating metropolitan areas as our society’s core economic and social units – clearly that is what they already are, and our political system is not consistent with that. Another idea that is somewhat interesting is that each city has its local currency, with a universal currency available but used only in transactions between cities.

the trophic theory of money

This is Brian Czech on the “trophic theory of money”:

Due to the fundamental structure of the economy, the size of the economy – as measured by GDP – is a perfectly valid indicator of environmental impact. Agricultural and extractive sectors form the base, which must expand to support the growth of manufacturing and service sectors – yes even the “information economy.” This structure, which is the closest thing in economics to an inescapable law of physics, gives us the “trophic theory of money,” which says that the level of expenditure (GDP, in other words) is proportionate to environmental impact including such tangibles as biodiversity loss, climate change, and pollution in the aggregate.

It makes perfect sense that the overall scale of human activity is proportional to environmental impact, at least for a given level of technological knowledge, which doesn’t change very fast. Where I think he is wrong is the idea that money is a good measure of that impact. If you drew a pyramid showing the environmental impact of various sectors of the economy, starting with the lowest “trophic levels” like agriculture, forestry, and mining, and continuing up to the service and information sectors, it would indeed be a pyramid – agriculture, forestry, and mining would have the biggest ecological footprints, then the footprint of various sectors would decrease as you worked your way up the scale.

However, if you drew the same pyramid based on the contribution of each sector to GDP, it would be inverted, with agriculture, forestry, and mining representing much smaller numbers of dollars changing hands, and higher-tech sectors much more. The reason, I think, is that agriculture and mining have been around forever, and have become very efficient from an economic perspective (although we certainly don’t count their true costs in an environmental sense). The rate of technological change is low in those sectors, and we have turned them over to a small number of firms that know how to operate very efficiently and drive costs down, making small profit margins on a large scale. Relative to historical levels, prices are low enough in these sectors that we can largely take these goods and services for granted, and the majority of us have some money left over to spend on more frivolous goods like electronics.

The high-tech industries are rapidly evolving and have many players competing against each other to come up with novel things that we have just figured out we are willing and able to pay for. The profit margins in these sectors, and the total number of dollars changing hands, are much larger. This allows a larger number of players to compete at smaller scales.

A fun place to look at these statistics yourself is the U.S. Bureau of Economic Analysis’s interactive tables.