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Synthesis/Regeneration 37   (Spring 2005)

Outline of a Green Economic Theory

by Frank Rotering

The Green movement is based on humanistic values, a sound philosophical core, and enlightened policy proposals. These positive attributes have permitted the movement to grow rapidly and to become a leading force in the activist world. Despite this success, Greens do not yet enjoy widespread public support, possibly due to a missing key element—an economic theory. Conservative forces ignore ecological realities and reject the precepts of social justice, but their views are firmly grounded in the dogmas of mainstream economics. This foundation gives their statements an appearance of depth and validity that Greens cannot currently claim.

Given this situation, the Green movement should take the next step in its evolution and develop an economic theory of it own. This step would provide a solid conceptual basis for the movement’s activist initiatives and electoral platforms, allow candidates to debate opponents with confidence and intellectual coherence, and it would demonstrate to the broader activist world that the time for a progressive economics has finally arrived.

Economic issues are of central importance for Greens because social injustice and environmental degradation frequently have economic roots. This fact is underscored by the movement’s key values and philosophical statements. Of the Green Party’s Ten Key Values, eight have strong economic content. These include grassroots democracy, social justice, ecological wisdom, decentralization, community-based production, gender equity, responsibility, and sustainability. Only non-violence and respect for diversity are arguably outside this scope.

The UK Green Party has published a “Philosophical Basis” document which refers repeatedly to the economic underpinnings of Green thought. It includes the following declaration:

Conventional political and economic policies are destroying the very foundations of the well-being of humans and other animals. Our culture is in the grip of a value system and a way of understanding the world which is fundamentally flawed.

Of the Green Party’s Ten Key Values, eight have strong economic content.

Based on these values and philosophical statements, referred to collectively in this article as the Green worldview, Greens support a wide range of economic policy proposals: replacement of fossil fuels with renewable energy sources, internalization of costs, development of new economic indicators, etc. Many of these proposals are useful and progressive, but they would be decisively strengthened if they were based on a convincing economic logic.

The current approach assumes that a correct worldview is sufficient to generate well-founded economic policies. These assumptions are incorrect, for two reasons. First, personal and group biases can interfere with systematic thought, resulting in solutions that lack an adequate conceptual basis. Second, the solutions to many problems are too complex to be derived directly from a worldview—they require a method of analysis.

A more rigorous approach, and the one I propose, is to make the Green worldview the foundation for a new economic theory, and then to use this theory to generate the policies. My aims in this article are to explore the nature of this task and to outline my suggestions for the theory’s key concepts.

Where to begin?

We could try an approach that has been used many times—start with mainstream economics and modify it to suit our purposes. This is what John Maynard Keynes did when he set out to cure Depression-era unemployment, and what ecological economists like Herman Daly are doing today in order to account for “Natural Capital.”

A key problem with mainstream economics is that it is largely a description of how a market-based economy does operate. The required theory, however, must specify how any economy should operate. Stated more technically, mainstream economics is a positive theory about Capitalism, whereas Greens need a normative theory that applies to local, global, market-based, socialized, and any other type of economic system.

What also disqualifies this approach is the bias of mainstream economics towards business interests, as demonstrated by its core concepts. In mainstream thought, for example, value refers to subjective assessment, thus embracing everything that can be sold, including deadly cigarettes and trivial pursuits. In a Green economic theory, value would refer to concrete human well-being. The converse of value, cost, has been replaced in mainstream economics by opportunity cost, which is defined as forgone consumption and thereby skirts real sacrifices entirely. In a Green economic theory, cost would refer to worker suffering and natural destruction.

The stark truth is that a new theory must start afresh. Although some useful ideas can be retrieved from the long history of economic thought, no previous generation has faced the crises that confront us today, and no economic theory has therefore arisen to address them. This is particularly true for the ecological crisis, a latecomer to Humankind’s challenges that threatens civilization and possibly human survival itself.

The most contentious issue is the relationship between Humankind and nature, and where an economy fits into this relationship. To illustrate this, note that economics is the study of human production, exchange, and consumption. It touches many areas of social existence, but its conclusions are not necessarily superior to those derived from politics, ethics, culture, or spirituality. A society may decide, based on its relatively narrow economic logic, that it should extract a certain amount of timber from its forests. It may then override this conclusion, significantly lowering the amount, because of the inherent worth of species, the cultural or spiritual significance of the area, or other non-economic factors.

A Green economic theory must begin with a clear economic objective—one that is consistent with the Green worldview and that provides the necessary focus for the theory’s concepts. My choice for this objective is the long-term maximization of human health. Despite the absence of nature or non-human species in this objective, I believe it is correct for the following reasons.

It makes human well-being the central aim of an economy. This is critical, because it avoids what is an important error among progressive forces—the notion that economics has focused on Humankind while neglecting nature. Economics has focused on business, neglecting both Humankind and nature. The logical consequence of this error is to shift the aim of an economy to ecological protection, which repeats the mainstream offense of disregarding Humankind.

The stark truth is that a new theory must start afresh.

The use of health as the index of human well-being serves several purposes. One is that the protection of human health implies the protection of non-human health. Environmentalists correctly assert that humans are part of nature, and that our species is tightly interconnected with other species. This being the case, concern for Humankind entails concern for the rest of nature. By analogy, if you want a pet fish to remain healthy, you will automatically clean its tank. A “tank-centric” approach to fish ownership, analogous to a “biocentric” approach to economics, is unnecessary.

Health also corresponds most closely to the common understanding of “human needs,” a term used by many Greens to identify an economy’s aim. According to the Canadian Green party, for example, “the economy should provide for human needs.” The Charter of the Global Greens states that we should strive for “a world economy which aims to satisfy the needs of all, not the greed of a few.” Health distinguishes nicely between needs and greeds.

Health also directs our attention to the interests of the global poor. Many of us who live in developed countries easily forget that the primary function of an economy is to satisfy basic human needs. This consideration cannot be left to our sometimes fickle compassion—it must be built into our theoretical structure.

Finally, health can to a large degree be objectively assessed. Life, death, injuries, and the presence and absence of disease are all measurable results of our economic activities. This means that, if adequate statistics are available, such results cannot be hidden behind the smokescreens of mainstream economics: choice, preference, and money.

Long-term health implies sustainability. Future human generations will enjoy healthy lives only if they have adequate natural sources and sinks to run their economies. To ensure this future health, we must minimize our own resource consumption and waste expulsion.

The key ideas

As indicated, value and cost are the core concepts of an economic theory. In general terms, value is what we gain from consuming an output, while cost is what we sacrifice in producing it. Following the 19th century social critic, John Ruskin, I split value into two concepts—intrinsic value and effectual value.

Intrinsic value is the maximum capacity of an output, over the duration of its useful existence, to maintain or increase human health. If an output has the opposite effect, if it decreases health, its intrinsic value is a negative quantity. Intrinsic value is used to judge an economy’s production.

Effectual value is the actual health gained from a final output. It accounts for the fact that an output can be lost, destroyed, discarded, allowed to spoil, or distributed to consumers who don’t need it or who are already sated. Effectual value is used to judge an economy’s consumption.

My theory avoids opportunity cost and instead uses a new concept—input cost. This refers to the health effects of production, which can be positive or negative. The direct effects, through labor, are called labor cost. The indirect effects, through the environmental impacts of production, are called natural cost. Input cost is the sum of labor cost and natural cost.

Briefly stated, intrinsic value is the potential health gain from production, effectual value is the actual health gain from consumption, and input cost refers to the health losses incurred in production.

We can now apply a general principle of rational behavior—an activity should continue until its cost exceeds its value. In the context of a human economy, this means that production of an output should increase until its effectual value, which tends to decline, is equal to its input cost, which tends to rise. This is referred to as the output’s optimal quantity.

For example, the consumption of vegetables has undoubted health benefits, but the human body can assimilate only so much per unit of time. Beyond a certain point, the benefits will decrease for each unit consumed, while the sacrifices required to produce each additional unit will eventually rise. This is because labor time will increase as more vegetables are produced, with attendant increases in occupational diseases and injuries. Negative environmental effects will also accumulate. A rational Green society will, therefore, produce vegetables, but only while the benefits from their consumption exceed the sacrifices from their production.

Humankind must now reverse course and seek a low, and hopefully stable, impact level.

This method of addressing economic issues, called marginal analysis in mainstream economics, has run into fierce opposition from some progressive critics. The most common objection is that the method is tied too closely to mainstream thought. This objection is based on a serious misconception. The essential problem with mainstream economics is not its analytical tools but its business orientation. Once this orientation is shifted towards Humankind and nature, some mainstream tools can be usefully appropriated. By far the most important of these is marginal analysis.

Despite its power, marginal analysis is limited because it assumes continuous change. It cannot address the abrupt changes associated with natural thresholds. A threshold is an ecological discontinuity—the frequently unknown point where the flow of a renewable resource into the economy, the flow of a waste back to nature, or the destruction of habitat triggers a nonlinear ecosystem change. A different logic is required here, one developed specifically to handle risk and uncertainty.

Statisticians have developed several decision-making criteria to deal with such cases. I have chosen one of these to formulate the concept of expected threshold cost. This is the anticipated loss of human health resulting from the encroachment on a natural threshold due to economic activities. The application of this concept can significantly decrease the previously determined optimal quantities, but it cannot increase them.

Using marginal analysis and threshold logic, we can estimate target quantities for final outputs (those which are directly consumed) and intermediate outputs (those which are used in the production process). Once this is done, we can estimate the minimum resource and waste flows needed to produce these outputs with the best available production technologies. Taken together, these output and flow targets provide a clear picture of how an economy should operate.

After centuries of expanding our ecological impact on the planet, Humankind must now reverse course and seek a low, and hopefully stable, impact level. The present generation is thus in a historically unique position: it stands between an expansionary past and a post-expansionary future. The task of today’s activists and progressive thinkers is to modify the operation of our economies so that this future is achieved incrementally, without collapse and chaos.

This is a formidable challenge. We must decide which existing policies to support, which new policies to propose, and which economic institutions to restructure. We must not only unify the world’s activists, we also have to convince a critical mass of the remaining population that a new way of living is inevitable and desirable. The successful completion of this task is impossible unless we speak a common economic language and apply a cogent economic theory.

Frank Rotering is a Canadian writer who specializes in alternative economic theories. He studied mainstream economics at Simon Fraser University in Vancouver, British Columbia. Web site for more information: http://needsandlimits.org. Mr. Rotering can be reached at: frotering-feedback@yahoo.com

[25 mar 05]

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