Critique of Steady-State Capitalism

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  • Richard Smith, “Beyond Growth or Beyond Capitalism?”, real-world economics review, issue no. 53, 26 June 2010, pp. 28-42

URL = http://www.paecon.net/PAEReview/issue53/Smith53.pdf


Abstract:

"Recent publications have revived interest in Herman Daly’s proposal for a Steady-State Economy. This paper argues, first, that the idea of a steady-state capitalism is based on untenable assumptions, starting with the assumption that growth is optional rather than built-into capitalism. I argue that irresistible and relentless pressures for growth are functions of the day-to-day requirements of capitalist reproduction in a competitive market, incumbent upon all but a few businesses, and that such pressures would prevail in any conceivable capitalism. Secondly, this paper takes issue with Professor Daly’s thesis, which also underpins his SSE model, that capitalist efficiency and resource allocation is the best we can come up with. I argue that this belief is misplaced and incompatible with an ecological economy, and therefore it undermines Daly’s own environmental goals. I conclude that since capitalist growth cannot be stopped, or even slowed, and since the market-driven growth is driving us toward collapse, ecological economists should abandon the fantasy of a steady-state capitalism and get on with the project figuring out what a post–capitalist economic democracy could look like."


...


"In what follows, I will argue that Herman Daly, Tim Jackson, Andrew Simms and the rest of the anti-growth school of ecological economists are right that we need a new macro-economic model that allows us to thrive without endless consumption. But they are wrong to think that this can be a capitalist economic model. I will try to show why ecologically suicidal growth is built into the nature of any conceivable capitalism. This means, I contend, that the project of a steady-state capitalism is impossible and a distraction from what I think ought to the highest priority for ecological economists today – which is to develop a broad conversation about what the lineaments of a post-capitalist ecological economy could look like."


...


"I will address the problems of the pro-growth “sustainable capitalist” models of Paul Hawken et al. in a separate paper. Here I am going to focus on the problems and contradictions of the pro-market anti-growth school whose foremost theorist is Professor Herman Daly."



Excerpts

Introduction

Under the headline “Economic Growth ‘Cannot Continue’” the BBC on January 28, 2010 summarized a report issued by the New Economics Foundation (NEF) which asserts that “continuing economic growth is not possible if nations are to tackle climate change.” The NEF says that “unprecedented and probably impossible” carbon reductions would be needed to hold temperature rises below 2°C (3.6°F) without which we face catastrophic global warming. “We urgently need to change our economy to live within its environmental budget,” said NEF’s policy director Andrew Simms, adding that “There is no global, environmental central bank to bail us out if we become ecologically bankrupt.” 1

In Growth Isn’t Possible Simms and his co-author Victoria Johnson reviewed all the existing proposed models for dealing with climate change and energy use including renewable, carbon capture and storage, nuclear, and even geo-engineering, and concluded that these are “potentially dangerous distractions from more human-scale solutions” and that there are “no magic bullets” to save us. The report concludes that even if we were to rapidly transition to an entirely clean energy -based economy, this would not suffice to save us because: “Globally, we are consuming nature’s services – using resources and creating carbon emissions – 44 percent faster than nature can regenerate and reabsorb what we consume and the waste we produce. In other words . . . if the whole world wished to consume at the same rate it would require 3.4 planets like Earth.” Given these facts and trends, Simms and Johnson argue, we have no choice but to bring average global growth to a halt (with sharp reductions in growth in the industrialized countries balanced by accelerated growth in the developing countries to approximate equity but tend toward stasis on balance) and to radically reconstruct the global economy to conform to “environmental thresholds, which include biodiversity and the finite availability of natural resources.” The authors conclude that “a new macro-economic model is needed, one that allows the human population as a whole to thrive without having to rely on ultimately impossible, endless increases in consumption” and they point to Herman Daly’s idea of a “Steady-State Economy” as their model. For a reaction to this report, the BBC asked Tom Clougherty, executive director of the Adam Smith Institute, a free-market think tank, for his response. Clougherty remarked that the NEF’s report exhibited “a complete lack of understanding of economics . . . “ 2

The NEF report comes on the heels of a new book published in December 2009 by Tim Jackson, Economics Commissioner on the Sustainable Development Commission, the UK government’s independent advisor on sustainable development. In Prosperity Without Growth Jackson argues that our ever-increasing consumption adds little to human happiness, even impedes it, and is destroying our children’s future. Jackson calls for a new vision of “prosperity without growth” and, like the NEF, points to Daly’s Steady-State Economy as the best model.3

Now there is no doubt that the NEF is right that if CO² emissions continue to climb, catastrophic global warming will result. The NEF is also right that if there are no magic technofixes currently available, or in the foreseeable future, then the only way to stop global warming before it exceeds 2°C is to put the brakes on growth. But Tom Clougherty still has a point: pro-market but anti-growth economists don’t understand capitalist economics. In rejecting the notion of a no-growth capitalism, Clougherty was just reaffirming the orthodox view of economists across the spectrum from Adam Smith to Karl Marx that growth is an iron law of capitalist development, that capitalism cannot exist without constant revolutionizing of productive forces, without constantly expanding markets, without ever-growing consumption of resources. 4 Indeed, it was precisely this market-propelled “motor” of economic development that for Karl Marx so sharply distinguished the capitalist mode of production from all previous historical modes of production like slavery or feudalism which contained no such in-built motor of development and so suffered repeatedly from stagnation, crises of underproduction, famine and collapse.5 But of course pace the New Economics Foundation, the Adam Smith Institute believes that endless growth and ever-rising consumption are good things.


Inherent Growth Characteristics of Capitalism

Richard Smith:

"1. Producers are dependent upon the market: Capitalism is a mode of production in which specialized producers (corporations, companies, manufacturers, individual \producers) produce some commodity for market but do not produce their own means of subsistence. Workers own no means of production, or insufficient means to enter into production on their own, and so have no choice but to sell their labor to the capitalists. Capitalists as a class possess a monopoly ownership of most of society’s means of production but do not directly produce their own means of subsistence. So capitalists have to sell their commodities on the market to obtain money to obtain their own means of subsistence and to purchase new means of production and hire more labor, to re-enter production and carry on from year to year. So in a capitalist economy, everyone is dependent upon the market, compelled to sell in order to buy, to buy in order to sell to re-enter production and carry on.


2. Competition is the motor of economic development: When producers come to market they’re not free to sell their particular commodity at whatever price they wish because they find other producers selling the same commodity. They therefore have to “meet or beat” the competition to sell their product and stay in business. Competition thus forces producers to reinvest much of their profit back into productivity-enhancing technologies and processes (instead of spending it on conspicuous consumption or warfare without developing the forces of production as ruling classes did for example under feudalism): Producers must constantly strive to increase the efficiency of their units of production by cutting the cost of inputs, seeking cheaper sources of raw materials and labor, by bringing in more advanced labor-saving machinery and technology to boost productivity, or by increasing their scale of production to take advantage of economies of scale, and in other ways, to develop the forces of production.


3. “Grow or die” is a law of survival in the marketplace: In the capitalist mode of production, most producers (there are some exceptions, which I will note below) have no choice but to live by the capitalist maxim “grow or die.” First, as Adam Smith noted, the ever-increasing division of labor raises productivity and output, compelling producers to find more markets for this growing output. Secondly, competition compels producers to seek to expand their market share, to defend their position against competitors. Bigger is safer because, ceteris paribus, bigger producers can take advantage of economies of scale and can use their greater resources to invest in technological development, so can more effectively dominate markets. Marginal competitors tend to be crushed or bought out by larger firms (Chrysler, Volvo, etc.). Thirdly, the modern corporate form of ownership adds irresistible and unrelenting pressures to grow from owners (shareholders). Corporate CEOs do not have the freedom to choose not to grow or to subordinate profit-making to ecological concerns because they don’t own their firms even if they own substantial shares. Corporations are owned by masses of shareholders. And the shareholders are not looking for “stasis”; they are looking to maximize portfolio gains, so they drive their CEOs forward.

In short, I maintain that the growth imperative is virtually a law of nature built-into in any conceivable capitalism. Corporations have no choice but to seek to grow. It is not “subjective.” It is not just an “obsession” or a “spell.” And it cannot be exorcised. Further, I maintain that these theses are uncontroversial, even completely obvious to mainstream economists across the ideological spectrum from Milton Friedman to Paul Krugman. But Herman Daly, Tim Jackson and the rest of the pro-market anti-growth school of ecological economists must deny these elementary capitalist rules for reproduction because their project for a “steady-state” eco-capitalism rests on the assumption that capitalist economic fundamentals are not immutable, that growth is “optional,” and thus dispensable." (http://www.paecon.net/PAEReview/issue53/Smith53.pdf)


The Two Capitalist Schools of Ecological Economics

Richard Smith:

"From the earliest efforts in the 1960s and 70s to bring ecological concerns to bear on capitalist economics and corporate practice beginning with the 1972 Club of Rome report Limits to Growth , mainstream pro-market eco-futurists, eco-capitalists, and ecological economists have tried to deal with the problem of capitalist growth in one of two ways: Either, with Herman Daly and his school, they imagined that capitalism could be reconstructed such that it would more or less stop growing quantitatively but continue to develop internally – much as, Daly suggested, we ourselves stop growing physically at adolescence but continue to develop our capabilities, intellect, skills, etc. Or, with Paul Hawken, Lester Brown and other “sustainable development” proponents, they imagined that capitalism could carry on growing more or less forever but that this growth could be rendered benign for the environment by forging an eco-entrepreneurial-led “green industrial revolution” and by introducing green subsidies and imposing carbon taxes, polluter pays penalties and the like to bring the rest of industry on board. Pro-growth or anti-growth, both approaches assume that capitalism is sufficiently malleable that capitalist fundamentals can be “inverted” such that corporations can, in one way or another, be induced to subordinate profit-making to “saving the earth.” 11 But what unites both schools of thought is their a priori rejection of alternatives to capitalism, their rejection of any kind of economic planning or socialism. So Jonathan Porrit, former Chairman of the UK Sustainable Development Commission, ex-Green Party Co-chair and one-time Director of Friends of the Earth, spoke for the mainstream when he declared that “Logically, whether we like it or not, sustainability is therefore going to have to be delivered within an all-encompassing capitalist framework. We don’t have time to wait for any big-picture ideological successor.” (http://www.paecon.net/PAEReview/issue53/Smith53.pdf)


Lineaments of an ecological economy

"If we’re going to save the world, I would suggest that humanity is going to have to begin that “broad discussion” Theo Colborn proposed, with people across the whole of society and around the world to figure out how to redesign the economy. This could be the starting point of an eco-socialist economic democracy.

For my part, I would suggest that an agenda for that discussion ought to include at least the following points:

1) We’re going to have to find ways to put the brakes on out-of-control growth, even if it means drastically retrenching or shutting down coal companies, oil companies, chemical companies, auto companies, even whole economic sectors dedicated 100% to waste production like the disposable products industries.


2) We’re going to have to radically restructure production to impose sharp limits on the production, to physically ration the use and consumption of all sorts of specific resources like coal, oil, gas, lumber, fish, oil, water, minerals, toxic chemicals, and many products made from them. Some products, like coal-fired power plants, toxic pesticides, diesel fuel, bottled water, junk food, should probably be phased out and banned altogether.


3) We’re going to have to sharply increase investments in things society does need, like renewable energy, organic farming, public transit, public water systems, public health, quality schools for our children, and many other currently underfunded social and environmental needs.


4) We’re going to have to do away with production that is geared to mindless consumerism and needless repetitive consumption and the industries that support them. Too many choices and too short a lifespan for products have socially and environmentally unbearable costs. We live on a small planet with limited resources. Others need those resources too, so we can’t afford waste.


5) We’re going to have to devise a rational approach to waste which means to minimize all waste, forbid the disposal of toxics of any sort, eliminate most if not all single-use products like disposable containers, wrappings, diapers, pens, cameras,etc., eliminate throwaway containers, enforce mandatory and systematic reuse of containers, packaging, recycling, composting, etc.


6) And, if we have to shut down polluting or wasteful industries then society is going to have to provide equivalent jobs, not just retraining or the unemployment line, for those all those displaced workers because, if we don’t, there will be no social support for the drastic changes we need to make to ensure our survival."


The Question of Efficiency

"If we consider efficiency from the standpoint of society and ecology, including future as well as present generations, instead of just from the standpoint of the production unit, then the definition of efficiency is completely the opposite of market efficiency. So from a social-ecological perspective, it would be absurdly inefficient to waste resources producing goods and services we don’t need, to produce goods designed to wear out or become obsolete as fast as possible -- just so we can do the same work all over again. Why would we want to do that? It would be so much more efficient and less wasteful to build cars, appliances, computers etc. to be as durable and long lasting as possible, to need as few “model” changes as necessary, to be as upgradable and rebuildable as possible – and take longer vacations. From society’s standpoint, it would be not just inefficient, but suicidal to keep running coal-fired power plants that are killing us just because capital is sunk into them. It would be far less costly to society and the environment, for society to collectively absorb the cost of phasing these out and replacing these plants with renewable technologies we already have. From society’s standpoint, it would be ruinous to contaminate the country’s topsoil, pollute our public water supplies, and poison ourselves with an endless array of to toxic pesticides and other synthetic chemicals, just to produce corn or soybeans a few cents cheaper per bushel for a decade or so until the soil is completely exhausted and poisoned. If Monsanto can’t afford to shut down its production of toxics, society could afford to close down those polluting plants and find other, better, employment for those talented and skilled but mis-allocated chemists and workers. And even if society decides that it needs some synthetic chemicals, to some extent, an eco- social chemical policy would start from the Precautionary Principle such as has already been elaborated by scientists, doctors, and grass-roots anti-toxics organizations like Safer Chemicals Healthy Families, which calls for safer substitutes and solutions, a phase-out of persistent bioaccumulative or highly toxic chemicals, publication of full right-to-know and rights of workers and communities to participate in decisions on chemicals, publication of comprehensive safety data on all chemicals, and insistence on the immediate priority protection of communities and workers in the event of any threat.43 And so on."


Source

Richard Smith, “Beyond Growth or Beyond Capitalism?”, real-world economics review, issue no. 53, 26 June 2010, pp. 28-42, http://www.paecon.net/PAEReview/issue53/Smith53.pdf

References

  • 3 Tim Jackson, Prosperity Without Growth (London: Earthscan, 2009).
  • 4 Smith’s theorization of growth was rudimentary but clear. He believed that "division of labor is limited by the extent of the market." As division of labor increases output and sales (increases "the extent of the market"), this induces the possibility of further division and labor and thus further growth. Thus, Smith argued, growth was self-reinforcing as it exhibited increasing returns to scale. Adam Smith, The Wealth of Nations (various edns.) chaps. 1 and 3.
  • 5 For a more detailed discussion of Smith and Marx on these points, see my “The eco-suicidal economics of Adam Smith,” Capitalism Nature Socialism 18.2 9 (June 2007) pp. 22-43.