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Population, technology and lifestyle: The transition to sustainability
84
Book Reviews/Ecological Economics 10 (1994) 83-88
“Typical economist swine!” I think I hear someone saying. Well, let’s try a couple of tests that can’t be criticized as based on an indefensible economic aesthetic. l For many of the submodels (or equations) discussed, Watt used data series 200 years long. A reasonable test of the theory, not to say the specific model, would have been to “spend”, say 125 of those in estimation, reserving 7.5 for test predictions. So far as one can tell, Watt’s “predictions” are all done within the estimation data set. l Since he published in 1992, how has he done in predicting 1993 results? Now, in principle, one could use the equations to generate the predictions. But reviewers aren’t paid enough to do this. So let me take one of Watt’s own predictions. On p. 149 in a box labelled, “Are these results credible?“, he predicts a “world oil price” of $4.36 per barrel of crude in 1993 in current dollars. (This assumes “the Persian Gulf War had never occurred”, which is what he would have been looking at, had he made the prediction in 1988 at the end of his data set.) On 21 October 1993, depend-
Population,
technology and lifestyle
Population, Technology and Lifestyle: The Transition to Sustainability. R. Goodland, H. Daly and S. El Serafy (Editors). Island Press, Washington, USA, 1992, 154 pp., ISBN 1-55963-199-6. This book starts off with a warning and then provides counsel on how to proceed along the straight and narrow path towards sustainability. To readers of this Journal both the warning and the advice need hardly an introduction. This raises the question, however, to whom is this book addressed? Clearly not to the converted. The editors belong to, or are associated with, the World Bank; and here lies the moral of the tale. Most of the contributors to this volume are economists, practitioners of the dismal science, and are thus conscious of being cast in the role of priests of sustainable development. Despite .the logic, the telling statistics, and scientific observations, they are also aware that their admonitions are as much likely to go unheeded than heeded. While this book is unlikely to end up on the desktops of senior economic bureaucrats, its influence, nonetheless, may be felt at the secondary level, that is to say, through the advisors to those sitting behind these desks.
ing on market and quality, crude prices were reported in the range of $14 to $22 per barrel. While there have been ups and downs over the year, $4.36 was well below the lowest down and certainly below any reasonable average. Is it unfair to criticize him for missing the price by 75% when he wouldn’t have known about the war, if he had in fact made the projection in 1988? I think not, given the implication of chapter 7, that war is essentially an endogenous result of energy price fluctuations and investment cycles. Readers will arrive at their own verdicts. Mine is that we do not yet have to worry about facing the agony of a certain, foreknown future based on the Watt technique. Clifford S. Russell Vanderbilt Institute for Public Policy Studies 1207 18th Ave.South Nashville, TN 37212 USA SSDI 0921-8009(93)E0097-Z
The strength of the book lies not only in the rational statement of the guiding principles for transition to sustainability, but also in the quality and authority of the authors, among whom are two Nobel Laureates, Trygve Haavelmo (1989) and Jan Tinbergen (1969). Indeed, the value of these ten brief statements is that they reflect the distillation of thoughtful scholarship from around the world about the highly complex, and to some perplexing, problems that need to be well understood by those-in-charge. As is often the case with unheeded warnings, the world will compel; but at what costs in accumulated ecological debts? While the general tone of the book is optimistic, in the sense that action now can prevent future disaster, the authors were unable to exorcise the ghost of the “iron law of wages”, implying reforms in our wasteful ways for a frugal, but hopefully a qualitatively improved, lifestyle. The underlying premise is that “. . . growth cannot be maintained and must yield to economic ends which are less resource intensive”. The authors contend in their distinctive ways with the problem of transition to frugality and the North-South redistribution of the finite wealth of the planet. The scene is set by Robert Goodland’s essay on “The Case That the World Has Reached Limits”. The crux of the argument is that Brundtland Commission’s assumptions about the ca-
Book Reviews/
Ecological Economics
pacity of further per capita income growth, albeit sustainable, is invalid. The article assembles evidence of the incapacity of the planet to assimilate the waste and toxics produced in the industrial world and the resource/land limits to sustain both the growing populations and incomes in the Third World. This is followed by Herman Daly’s “From Empty-world Economics to Full-world Economics: Recognizing the Historical Turning Point in Economic Development”. Here it is argued that the limiting factors to economic growth are no longer paucity of manmade capital, but natural “Empty-world economics” is a capital depletion. metaphor for the relationship between the growth in manmade capital (scarce) and global resources (abundant) that made possible an unprecendented economic expansion of the past 250 years. Now that the threshold of ecological carrying capacity has been reached, humankind is suddenly faced with an unfamiliar “fullworld economics”. Since it is argued, rightly, that there are limits between substitution of these two forms of capital, the future agenda of public policy must be redirected towards investments in conservation, restoration and enhancement of natural capital. The third essay “On the Strategy of Trying to Reduce Economic Inequality by Expanding the Scale of Economic Activities” by Trygve Haavelmo and Stein Hansen points to the futility of the obviously popular strategy that one may have one’s cake and eat it too (i.e., trickle-down effect). While from a short-run perspective, economic expansion is manifest in growing trade, inherent in the nature and structure of the North-South trade are critical externalities, which in the long run exacerbate the factors that impoverish poor countries. The solution is to establish international protocols (enforceable) which insure that the costs of these externalities are internalised in international commodity prices. The article contributed by Jan Tinbergen and his former student, Roefie Hueting, “GNP and Market Prices: Wrong Signals for Sustainable Economic Success That Mask Environment Destruction”, is a hardhitting attack, as the title suggests, on the underlying assumptions of national accounting and the associated prxce signals. The points made are based on the Dutch GNP to evaluate the loss of experience in “correcting” environmental functions. It was noted in this inquiry that the engine of economic growth was confined to a relatively small number of industries, like the petrochemical, agriculture and transportation (i.e., 30% of GNP), but these activities accounted for the bulk of the appropriated “environmental functions”. Further carlculations suggested that a change in lifestyle could
10 (1994) 83-88
x5
make a great difference in the rate, and level, of environmental destruction. While it was noted that sustainable development paths may be achieved with relatively small adjustment in household consumption (e.g., forego the car for the bicycle) in the industrial world, the global scale would require substantive transfer of ecological and financial capital to the South. Salah El Serafy demonstrates in “Sustainability, Income Measurement and Growth” a sustainable income concept to be applied to national accounting, a method now associated with his name. In essence it is the separation of income accounts into a natural resource “user cost” component to be invested in future income generation and an income component available for current consumption. For exhaustible resources “user costs” replace depleted assets with new production capacity, for renewable resources “user costs” are equal to their restoration. This concept suggests a “conserved value” inherited from the previous period and passed on to the next period. This value, which is currently treated as income, must be subtracted to obtain “sustainable income” GNP. Application of this method can be found in Raymond Mikesell’s article “Project Evaluation and Sustainable Development” in connection to extended benefit-cost analysis of project evaluation. In essence the calculation of current and future losses to social well-being of capital investment due to the elimination (or reduction) of environmental goods and services (broadly defined to include human health and ecosystem integrity). While discounting methods (i.e., net present social value) is flawed with respect to cultural/ecological values, the author believes it is better to employ second-best techniques than the traditional evaluation based on internal rate of returns of invested capital. The theme of redirecting investment from manmade to natural capital is explored by Bernd von Droste and Peter Dogs6 in “Sustainable Development and the Role of Investment”. The authors identify several obstacles in switching unsustainable into sustainable investment. The major difficulties lie in (i) the time horizon factor (returns may not be realised in decades and even future generations), (ii) the nature of public investments (benefits accrue to society as a whole rather than individual investors), (iii) resistance to global (rejdistribution of capital (the best marginal returns of investments in natural capital, from a global perspective, are likely to be in the South and Eastern Europe). The authors examine the pros and cons in the different forms of investment in energy, bio-technology and research in appropriate technology. Bob Costanza makes the case for merging the disci-
Book Reviews /Ecological
86
phnes of economics and ecology to produce a new transdiciplinary science of ecological economics. “The Ecological Economics of Sustainability: Investing in Natural Capital” starts off with the premise that the economic system is a sub-system of the planet’s productive processes. While Daly’s “full-world economics” breaks the symmetry of the general economic equilibrium system, Costanza’s “ecological economics” suggests new symmetries in economic analysis in context of the general equilibrium system of the planet itself. The case is somewhat weakened, however, by stereotyping the (unsustainable) assumptions of neoclassical economics. Environmental economics, an off-shoot of the neo-classical school, assumes many of the restrictions to economic growth, among which are the limits of assimilative capacity, the need to conserve environmental goods and services well into future generations, and the importance of using social or shadow prices in public and private investment decisions (Solow, 1992). The challenge to develop plausible sustainable development models has undoubtedly narrowed the gap between the two analytical frameworks, the underlying value system may, nonetheless, result in quite different policy prescriptions. Confirmed, perhaps, by the author’s choice of fiscal and policy instruments, hardly an acceptable outcome of neo-classical analysis! “From Growth to Sustainable Development”, authored by Lester Brown, Sandra Postel and Christopher Flavin, summarises the ills that beset the world. Large numbers are evoked to lay down the dimension of the problem: “. . . the global economy produces in 17 days what it took an entire year to generate in 1900”. The conclusion drawn is that further economic growth will not resolve these ills, only a redistribution of wealth from North to South, a point made, albeit in another
context
in
John
Stuart
Mill’s
essay
Of
the
Stationary State: ‘L. what is economically needed is better distribution, of which one indispensable means is a stricter restraint on population . . It is scarcely necessary to remark that a stationary state of capital and population implies no stationary state in human improvement. There would be as much scope as ever for all kinds of mental culture. and moral and social progress: as much room for the Art of Living, and much more likelihood of its being improved, when the mind ceases to be engrossed by the art of getting on.”
Economics 10 (I 994) 83-88
The final essay by Goodland and Daly entitled “Ten Reasons Why Northern Income Growth is Not the Solution to Southern Poverty” reinforces the books thesis that economic growth (defined as material energy throughput) must stabilize in the North in order for the South to escape the poverty trap by allowing room (i.e., ecological carrying capacity) for further economic growth. It is argued that the traditional trickledown effect does not work in a finite planet and Northern growth can only be maintained by appropriating the South’s dwindling ecological capital. While the ten reasons given are familiar enough to the readers of this Journal these arguments fall short of a realistic assessment of the nature of the North-South inequalities. Firstly there is no historical precedence of transfer of wealth from those that hath to those that hath not. Secondly, the causes of the poverty trap are not only economic (i.e., low productivity) but cultural (e.g., high birth rates). The essential problematique is perhaps best summed up in Manhatma Gandhi’s quotation found in the beginning of the book: “It took Britain half the resources of the planet to achieve its prosperity: how many planets will a country like India require . . . ?” Anthony M. Friend 103 Gilmour St. Ottawa Ontario K2P ON5 Canada
References
Mill, J.S., 1985. Principles of Political Economy, Books IV and V. Penguin Classics, p. 116. Solow. R.. 1992. An almost practical step towards sustainability. (An invited lecture on the occasion of the fortieth anniversaty of Resources for the Future). Resources for the Future, Washington, DC. SSDI 0921-8009(93)E0096-Y
Book Reviews/Ecological Economics 10 (1994) 83-88
“Typical economist swine!” I think I hear someone saying. Well, let’s try a couple of tests that can’t be criticized as based on an indefensible economic aesthetic. l For many of the submodels (or equations) discussed, Watt used data series 200 years long. A reasonable test of the theory, not to say the specific model, would have been to “spend”, say 125 of those in estimation, reserving 7.5 for test predictions. So far as one can tell, Watt’s “predictions” are all done within the estimation data set. l Since he published in 1992, how has he done in predicting 1993 results? Now, in principle, one could use the equations to generate the predictions. But reviewers aren’t paid enough to do this. So let me take one of Watt’s own predictions. On p. 149 in a box labelled, “Are these results credible?“, he predicts a “world oil price” of $4.36 per barrel of crude in 1993 in current dollars. (This assumes “the Persian Gulf War had never occurred”, which is what he would have been looking at, had he made the prediction in 1988 at the end of his data set.) On 21 October 1993, depend-
Population,
technology and lifestyle
Population, Technology and Lifestyle: The Transition to Sustainability. R. Goodland, H. Daly and S. El Serafy (Editors). Island Press, Washington, USA, 1992, 154 pp., ISBN 1-55963-199-6. This book starts off with a warning and then provides counsel on how to proceed along the straight and narrow path towards sustainability. To readers of this Journal both the warning and the advice need hardly an introduction. This raises the question, however, to whom is this book addressed? Clearly not to the converted. The editors belong to, or are associated with, the World Bank; and here lies the moral of the tale. Most of the contributors to this volume are economists, practitioners of the dismal science, and are thus conscious of being cast in the role of priests of sustainable development. Despite .the logic, the telling statistics, and scientific observations, they are also aware that their admonitions are as much likely to go unheeded than heeded. While this book is unlikely to end up on the desktops of senior economic bureaucrats, its influence, nonetheless, may be felt at the secondary level, that is to say, through the advisors to those sitting behind these desks.
ing on market and quality, crude prices were reported in the range of $14 to $22 per barrel. While there have been ups and downs over the year, $4.36 was well below the lowest down and certainly below any reasonable average. Is it unfair to criticize him for missing the price by 75% when he wouldn’t have known about the war, if he had in fact made the projection in 1988? I think not, given the implication of chapter 7, that war is essentially an endogenous result of energy price fluctuations and investment cycles. Readers will arrive at their own verdicts. Mine is that we do not yet have to worry about facing the agony of a certain, foreknown future based on the Watt technique. Clifford S. Russell Vanderbilt Institute for Public Policy Studies 1207 18th Ave.South Nashville, TN 37212 USA SSDI 0921-8009(93)E0097-Z
The strength of the book lies not only in the rational statement of the guiding principles for transition to sustainability, but also in the quality and authority of the authors, among whom are two Nobel Laureates, Trygve Haavelmo (1989) and Jan Tinbergen (1969). Indeed, the value of these ten brief statements is that they reflect the distillation of thoughtful scholarship from around the world about the highly complex, and to some perplexing, problems that need to be well understood by those-in-charge. As is often the case with unheeded warnings, the world will compel; but at what costs in accumulated ecological debts? While the general tone of the book is optimistic, in the sense that action now can prevent future disaster, the authors were unable to exorcise the ghost of the “iron law of wages”, implying reforms in our wasteful ways for a frugal, but hopefully a qualitatively improved, lifestyle. The underlying premise is that “. . . growth cannot be maintained and must yield to economic ends which are less resource intensive”. The authors contend in their distinctive ways with the problem of transition to frugality and the North-South redistribution of the finite wealth of the planet. The scene is set by Robert Goodland’s essay on “The Case That the World Has Reached Limits”. The crux of the argument is that Brundtland Commission’s assumptions about the ca-
Book Reviews/
Ecological Economics
pacity of further per capita income growth, albeit sustainable, is invalid. The article assembles evidence of the incapacity of the planet to assimilate the waste and toxics produced in the industrial world and the resource/land limits to sustain both the growing populations and incomes in the Third World. This is followed by Herman Daly’s “From Empty-world Economics to Full-world Economics: Recognizing the Historical Turning Point in Economic Development”. Here it is argued that the limiting factors to economic growth are no longer paucity of manmade capital, but natural “Empty-world economics” is a capital depletion. metaphor for the relationship between the growth in manmade capital (scarce) and global resources (abundant) that made possible an unprecendented economic expansion of the past 250 years. Now that the threshold of ecological carrying capacity has been reached, humankind is suddenly faced with an unfamiliar “fullworld economics”. Since it is argued, rightly, that there are limits between substitution of these two forms of capital, the future agenda of public policy must be redirected towards investments in conservation, restoration and enhancement of natural capital. The third essay “On the Strategy of Trying to Reduce Economic Inequality by Expanding the Scale of Economic Activities” by Trygve Haavelmo and Stein Hansen points to the futility of the obviously popular strategy that one may have one’s cake and eat it too (i.e., trickle-down effect). While from a short-run perspective, economic expansion is manifest in growing trade, inherent in the nature and structure of the North-South trade are critical externalities, which in the long run exacerbate the factors that impoverish poor countries. The solution is to establish international protocols (enforceable) which insure that the costs of these externalities are internalised in international commodity prices. The article contributed by Jan Tinbergen and his former student, Roefie Hueting, “GNP and Market Prices: Wrong Signals for Sustainable Economic Success That Mask Environment Destruction”, is a hardhitting attack, as the title suggests, on the underlying assumptions of national accounting and the associated prxce signals. The points made are based on the Dutch GNP to evaluate the loss of experience in “correcting” environmental functions. It was noted in this inquiry that the engine of economic growth was confined to a relatively small number of industries, like the petrochemical, agriculture and transportation (i.e., 30% of GNP), but these activities accounted for the bulk of the appropriated “environmental functions”. Further carlculations suggested that a change in lifestyle could
10 (1994) 83-88
x5
make a great difference in the rate, and level, of environmental destruction. While it was noted that sustainable development paths may be achieved with relatively small adjustment in household consumption (e.g., forego the car for the bicycle) in the industrial world, the global scale would require substantive transfer of ecological and financial capital to the South. Salah El Serafy demonstrates in “Sustainability, Income Measurement and Growth” a sustainable income concept to be applied to national accounting, a method now associated with his name. In essence it is the separation of income accounts into a natural resource “user cost” component to be invested in future income generation and an income component available for current consumption. For exhaustible resources “user costs” replace depleted assets with new production capacity, for renewable resources “user costs” are equal to their restoration. This concept suggests a “conserved value” inherited from the previous period and passed on to the next period. This value, which is currently treated as income, must be subtracted to obtain “sustainable income” GNP. Application of this method can be found in Raymond Mikesell’s article “Project Evaluation and Sustainable Development” in connection to extended benefit-cost analysis of project evaluation. In essence the calculation of current and future losses to social well-being of capital investment due to the elimination (or reduction) of environmental goods and services (broadly defined to include human health and ecosystem integrity). While discounting methods (i.e., net present social value) is flawed with respect to cultural/ecological values, the author believes it is better to employ second-best techniques than the traditional evaluation based on internal rate of returns of invested capital. The theme of redirecting investment from manmade to natural capital is explored by Bernd von Droste and Peter Dogs6 in “Sustainable Development and the Role of Investment”. The authors identify several obstacles in switching unsustainable into sustainable investment. The major difficulties lie in (i) the time horizon factor (returns may not be realised in decades and even future generations), (ii) the nature of public investments (benefits accrue to society as a whole rather than individual investors), (iii) resistance to global (rejdistribution of capital (the best marginal returns of investments in natural capital, from a global perspective, are likely to be in the South and Eastern Europe). The authors examine the pros and cons in the different forms of investment in energy, bio-technology and research in appropriate technology. Bob Costanza makes the case for merging the disci-
Book Reviews /Ecological
86
phnes of economics and ecology to produce a new transdiciplinary science of ecological economics. “The Ecological Economics of Sustainability: Investing in Natural Capital” starts off with the premise that the economic system is a sub-system of the planet’s productive processes. While Daly’s “full-world economics” breaks the symmetry of the general economic equilibrium system, Costanza’s “ecological economics” suggests new symmetries in economic analysis in context of the general equilibrium system of the planet itself. The case is somewhat weakened, however, by stereotyping the (unsustainable) assumptions of neoclassical economics. Environmental economics, an off-shoot of the neo-classical school, assumes many of the restrictions to economic growth, among which are the limits of assimilative capacity, the need to conserve environmental goods and services well into future generations, and the importance of using social or shadow prices in public and private investment decisions (Solow, 1992). The challenge to develop plausible sustainable development models has undoubtedly narrowed the gap between the two analytical frameworks, the underlying value system may, nonetheless, result in quite different policy prescriptions. Confirmed, perhaps, by the author’s choice of fiscal and policy instruments, hardly an acceptable outcome of neo-classical analysis! “From Growth to Sustainable Development”, authored by Lester Brown, Sandra Postel and Christopher Flavin, summarises the ills that beset the world. Large numbers are evoked to lay down the dimension of the problem: “. . . the global economy produces in 17 days what it took an entire year to generate in 1900”. The conclusion drawn is that further economic growth will not resolve these ills, only a redistribution of wealth from North to South, a point made, albeit in another
context
in
John
Stuart
Mill’s
essay
Of
the
Stationary State: ‘L. what is economically needed is better distribution, of which one indispensable means is a stricter restraint on population . . It is scarcely necessary to remark that a stationary state of capital and population implies no stationary state in human improvement. There would be as much scope as ever for all kinds of mental culture. and moral and social progress: as much room for the Art of Living, and much more likelihood of its being improved, when the mind ceases to be engrossed by the art of getting on.”
Economics 10 (I 994) 83-88
The final essay by Goodland and Daly entitled “Ten Reasons Why Northern Income Growth is Not the Solution to Southern Poverty” reinforces the books thesis that economic growth (defined as material energy throughput) must stabilize in the North in order for the South to escape the poverty trap by allowing room (i.e., ecological carrying capacity) for further economic growth. It is argued that the traditional trickledown effect does not work in a finite planet and Northern growth can only be maintained by appropriating the South’s dwindling ecological capital. While the ten reasons given are familiar enough to the readers of this Journal these arguments fall short of a realistic assessment of the nature of the North-South inequalities. Firstly there is no historical precedence of transfer of wealth from those that hath to those that hath not. Secondly, the causes of the poverty trap are not only economic (i.e., low productivity) but cultural (e.g., high birth rates). The essential problematique is perhaps best summed up in Manhatma Gandhi’s quotation found in the beginning of the book: “It took Britain half the resources of the planet to achieve its prosperity: how many planets will a country like India require . . . ?” Anthony M. Friend 103 Gilmour St. Ottawa Ontario K2P ON5 Canada
References
Mill, J.S., 1985. Principles of Political Economy, Books IV and V. Penguin Classics, p. 116. Solow. R.. 1992. An almost practical step towards sustainability. (An invited lecture on the occasion of the fortieth anniversaty of Resources for the Future). Resources for the Future, Washington, DC. SSDI 0921-8009(93)E0096-Y