Taking Ecological Economics Seriously
It’s the Biosphere, Stupid
Keynote presentation to the US Society for Ecological Economics
June 19, 2011, Lansing, Michigan
I was thrilled when Robert Richardson invited me to give this presentation with a charge to challenge the members of this society to take Ecological Economics to the next level. Thus the title, “Taking Ecological Economics Seriously: It’s the Biosphere, Stupid.”
We each come to ecological economics from our own distinctive experience and perspective. We view the world through different lenses, and thereby see different truths. Being interdisciplinary is part of what makes ecological economics interesting and potentially powerful.
As Robert noted, I come from a business school background with a focus on the design of complex cultural and institutional systems. I’m primarily concerned with how the interplay of cultural values and institutional structures shapes individual and collective behavior.
What Robert didn’t mention, is that I worked for 30 years in international development. I lived 21 years of those years in Africa, Latin America, and Asia working to make both public and private institutions effective instruments for ending poverty and avoiding an environmental crash. This gives me a somewhat distinctive perspective on the nature and cause of the human crisis.
My purpose this morning is to share the insights of this perspective and explore the implications for ecological economics. I’m hoping to leave you with a profound new appreciation for the importance of your work and your potential contribution to redirecting the human course.
The need to reframe the current economic policy debate grows more urgent by the day. I believe Ecological Economics is our best hope for producing the tools and advancing the advocacy needed to create an economic system with some prospect of sustaining humans as a viable species.
To realize its potential, however, we need to move ecological economics from being an irritant at the margins of the economics discipline to being the defining frame for public policy choices addressing the relationship between humans and the biosphere.
We need a new economics that, as suggested by Herman Daly some 40 years ago, truly and unequivocally begins with people and nature—a point that conventional economists to this day fail to recognize and most ecological economists fail to fully engage. We need a truly new economics that reaches as far beyond the understanding of conventional economics as quantum physics reaches beyond the understanding of conventional Newtonian physics.
Fatal Fallacies of Suicide Economics
Let’s not mince words. The established mainstream of the economic thought is driving human societies to collective suicide. It deserves a more evocative label than neoclassical, neoliberal, or even market fundamentalism. Let’s call it what it is: A “Suicide Economics” for a “Suicide Economy.”
Suicide economics gets it wrong on nearly every major issue because it is built on a foundation of fallacies. It ignores natural limits, confuses means and ends, uses the wrong measure of value and the wrong unit of analysis, and it relies on a single improperly defined criterion function. And this is only my personal favorites short list. Let’s go through these five fallacies one by one.
The first fallacy, the failure to address natural limits, is a foundational theme of ecological economics. No need to say more about that here.
The second fallacy, the confusion of ends and means, is reflected in the convention of treating people and nature as externalities. The practical implication is that rather than treating the well-being of people and nature as the purpose of economic activity, suicide economics treats people and nature merely as means for making money for people who have money, a grotesque reversal of ends and means. As David Batker pointedly asks in his documentary: What’s the economy for anyway? The answer should be obvious. Serving people and nature is the only legitimate purpose of an economy.
The third fallacy, the wrong measure of value. Suicide economics uses money rather than life as the basic measure of value. So gold, which we could easily live without, is considered more valuable than air, soil, and water, which we cannot live without. This leads to the destruction of air, soil, and water to extract gold from under the ground so we can refine it—all at enormous cost to people, soil, air, and water—and then lock it away back underground in great vaults. And this seems to make perfect sense to suicide economists. There is truth to the cliché that “An economist is a person who knows the price of everything and the value of nothing.”
The fourth fallacy, the wrong unit of analysis, is expressed in the choice to build the analytical structure of suicide economics around the firm rather than the household. This leads to measuring economic performance by financial returns to pools of money aggregated as firms, rather than by contribution to increasing the health and happiness of people, households, and communities. Consequently, maximizing corporate profits becomes more important to policy makers than assuring that people have living wage jobs.
The fifth fallacy is the improperly defined single criteria function. Have any of you had the experience of piloting an airplane? If you haven’t, perhaps you can at least imagine trying to pilot an airplane with your windows blacked out, an airspeed indicator as your only instrument, and a decision rule that says do whatever increases your airspeed. You are absolutely guaranteed to fly the plane right into the ground—which is exactly what we are doing with the economy by using GDP growth as our primary indicator of success.
Successfully piloting an airplane under conditions of limited visibility requires a whole dashboard of instruments: altimeter, rate of climb and descent, air speed, a directional indicator, engine rpm, fuel gauge, oil pressure, engine temperature, etc. Making policy adjustments to guide a complex national economy is no less complicated and requires a dashboard of indicators.
Promoting these fallacies as truths, suicide economists have demonstrated their ability to misdirect society to create an economic system that converts the real living-wealth of the many to the phantom financial-wealth of the few and convince the public that it is a gain for everyone. The results conclusively demonstrate that it is a very bad idea and people are waking up to the reality that suicide economists have a limited grasp of reality, are knowingly fronting for the ruling oligarchy, or some combination of the two.
We all know that the standard measure of GDP counts a lot of bad things as goods. Joshua Farley takes it a step further by pointing out that GDP is best treated not as a measure of benefit, but rather of the aggregate economic cost of producing any given level of human well-being. That is the real bottom line.
We are measuring economic performance based not on benefits, but on costs, and no one even seems to notice. That explains why, as Herman Daly once famously observed, we are managing the world as if we were holding a going out of business sale.
Let’s go a bit deeper on the issue of the firm vs. the household as the unit of analysis. Suicide economics focuses on financial returns to the firm rather than the well-being of the household, which accounts for a lot of faulty conclusions.
Organization and Management of the Household
We need to start with basics. As you know, the term economics is derived from the Greek “oikos nomos” which means household management. Ecology is derived from “oikos logos,” which means household organization. Therefore, ecological economics translates into the organization and management of the household. The household writ large is the biosphere—Earth’s extraordinary dynamic, self-organizing evolving band of life, the sum total of all of Earth’s ecosystems.
If we are to be true to our name, it is our responsibility and calling to develop ecological economics as the primary discipline concerned with the organization and management of the human relationship to the biosphere. It will be a discipline that bears little resemblance to economics as we currently know it.
A first step is to recognize that we humans are not entities separate from the biosphere. We are integral to it. We have a living relationship to the biosphere that cannot be reduced to mere financial transactions or calculations, as economists are wont to do.
A Strange Ruler
Money is the favored metric of conventional economics. It has the advantage of an elegant simplicity; the downside is it leads to bad decisions. Money is very useful as a medium of exchange between businesses and their customers, but any household that bases relationships among its members solely on profitable financial exchange rather than mutual caring is in deep trouble.
Life, not money, must be the primary metric of ecological economics, which is much harder to quantify, but is more likely to produce the decisions we need to secure the human future.
If you think about it, money is a very strange choice of metric. Indeed, money—useful as it is— is one of the strangest of human inventions. In our modern world, most money is nothing more than a number on a computer hard drive. It has no meaning or reality outside the human mind. Nothing in nature can directly detect or experience it. Indeed, there is no equivalent to money in nature. Even we humans depend on computers as our intermediary to observe and manipulate it.
It seems a bit odd that we take these invisible numbers as our measure of wealth, organize our lives and societies around them, and yield control of our lives to those who have the biggest numbers encoded on a computer hard drive we cannot see. It is stranger still that we allow a small oligarchy to rule the human household by granting them the power to create these numbers from nothing and to allocate them as they chose for their exclusive private benefit with no public accounting or recourse.
I also find it both strange and alarming that our language gives us no tools to easily distinguish between real wealth like land, labor, technology, even peace, and a healthy happy child—and money, a simple accounting chit that can be exchanged for many things of real value, but has no real value in itself. A clear distinction between money and real wealth is essential to any valid resource allocation decision.
When economists, or anyone else for that matter, use the terms wealth, capital, resources, and assets, we have no way to know whether they are referring to something of real value, or merely to money. This leads to serious confusion and very bad decisions.
I’ll return a bit later to the subject of money as a system of power and the implications for how we design the money, banking, and finance system. But first, I want to bring the biosphere to the forefront of our conversation.
You likely noted that the phrase “It’s the Biosphere, Stupid” is a reference to the story that President Clinton, during the campaign for his second term, kept a reminder taped to his mirror, “It’s the Economy, Stupid.”
I suggest that all of us who seek to create an economics with the power to heal the world take a hint from the Clinton example and post on our bathroom mirror a reminder that we will see first thing every morning: “It’s the Biosphere, Stupid.” The biosphere needs to be the foundation of everything we do as ecological economists.
The biosphere is not simply a resource to be priced, as if with enough money we could afford to do without it. It is the foundation of life and as such it is sacred and beyond price. Maintaining its healthy function is a sacred and non-negotiable responsibility, not only to future generations, but as well to creation itself. A life-serving living-world economics requires a fundamentally different frame than that of suicidal dead-world economics.
We modern humans are just beginning to confront the reality of our nature as living beings—the reality that living beings, because of the way life manages energy, exist only in active relationships to other living beings. Life can only exist in community.
In a fit of adolescent hubris, we humans sought to liberate ourselves from the responsibilities of life in community. In so doing, we confused individual autonomy with personal liberty and created economies that reduce caring human relationships to soulless financial exchange. We have structured our physical space around buildings and auto-dependent transportation systems that wall us off from one another and nature.
Living in isolation from nature we seek to dominate, overwhelm, control, and expropriate nature’s life serving generative processes to grow a number on a computer hard drive. The resulting destruction of the biosphere, the source of life and all real wealth, is an act of collective insanity.
From Separation and Domination to Integral Partnership
To work in partnership with Earth’s biosphere we must first understand its structure and dynamics as an exquisitely complex planetary-scale fractal structure 3.5 billion years in the making. It self-organizes everywhere in a dynamic, constantly evolving, locally and globally adaptive process to optimize the sustainable use of nutrients, energy, and water in support of life. All resources are continuously locally repurposed and recycled with zero waste. Redundancy and diversity optimize local adaptation, resilience and creative potential. It is an incredible system, in which suicide economists take virtually no interest beyond figuring out new ways to extract its wealth for immediate financial gain.
Suicide economics has supported the creation of a global economic system that isolates people and communities from the sources of their food, energy, water, materials, and manufactured goods—and leaves them dependent on corporate controlled global supply chains that are wasteful, unstable, unaccountable, and environmentally and social destructive. This isolation is psychologically, socially, and environmentally devastating.
The underlying system structure and dynamics of the suicide economy are in most every respect opposed to those of the biosphere. Working in opposition to the biosphere, the global suicide economy is maintained only by unsustainable dependence on a non-renewable fossil fuels subsidy. That economy is already failing and its ultimate collapse is only a matter of time. As ecological economists, we are all aware that so long as the current economic system remains in place, there will be no economic recovery for the mass of humanity. The economic stresses experienced by 99% of the world’s people will only increase. We pay a terrible price for our arrogance.
The human future depends on navigating a transition to the culture and institutions of a New Economy system that works in cooperative integral partnership with the biosphere and self-organizes toward:
- Ecological Balance between aggregate human consumption and the regenerative capacity of Earth’s biosphere.
- Equitable Distribution of real wealth to meet the needs of all.
- Living Democracy to secure economic and political accountability to people and community through active citizen participation.
This New Economy must be a system that aligns and integrates with the structure and dynamics of the biosphere.
It requires segmenting the borderless global economy into a planetary system of interlinked self-reliant bio-regional living economies that function as locally self-reliant subsystems of their local ecosystems, each rooted in a community of place and organized to optimize the use of local resources to optimize the lives of all who live within the community’s borders.
In the manner of the biosphere, these regional economies will meet most needs with local production using local resources in the manner of local ecosystems. They will benefit from trading their surplus with their neighbors in return for that which they cannot reasonably produce for themselves.
A New Economics
I can imagine that at this point some of you are thinking, “But most of these issues lie outside the established domain of ecological economics. What does it have to do with us?”
That is exactly the point. Ecological economics has made an important start on defining a new economics. But it has squandered far too much of its intellectual energy on a futile effort to gain the respect of diehard suicide economists. So rather than boldly framing the new economics we need, it has embraced many of the frameworks and conventions that an authentic ecological economics must displace.
Ecological economics must become a true living-systems economics that deals with the organization and management of the human relationship with the biosphere—the household writ large. It properly takes the health and happiness of people and nature as its defining purpose and standard of value. It begins with the household as its defining unit of analysis. It defines appropriate institutional structures. And it replaces GDP with a dashboard of living system indicators.
Instead of tweaking suicide economics at the margin with natural resource pricing studies, it must offer a true alternative and establish a strong public communications outreach presence devoted to redefining the public debate on economic policy choices.
It is a hugely ambitious intellectual and activist undertaking, but someone has to do it and no group is better positioned to pull it off than you are.
The New Economy Working Group, which I co-chair with John Cavanagh of the Institute for Policy Studies in DC has been working to frame a policy agenda for advancing the transition from the institutions and dynamics of the suicide economy to the institutions and dynamics of a New Economy that self-organizes toward ecological balance, equitable distribution, and living democracy.
We have framed a seven part agenda, each part focused on a critical system pressure point. It provides a useful framework for thinking through the practical implications of taking ecological economics to the next level. Each of the seven action clusters is defined by a critical systemic source of suicide economy failure, paired with a needed system redesign intervention. The goal of this agenda is to move the locus of economic power from global financial markets to local communities and shift the values focus from making money for the rich to creating community wealth for everyone. This is a crucial step toward bringing the structure and dynamics of our human economies into alignment with those of the biosphere.
I want to briefly review each action cluster so you get a sense of the scope of the issues and needs to be addressed.
- Problem 1: Financial Indicators. The use of financial indicators like gross domestic product (GDP) and the Dow Jones industrial average to assess the performance of the economy gives priority to making money for rich people over improving the lives of all.
Solution: A Dashboard of Living Indicators. Optimize sustainable human well-being by evaluating economic performance against an array of indicators of human- and natural-systems health. The Bhutan experiment with a happiness index is an excellent start.
- Problem 2: A Wall Street Money and Banking System. Wall Street control of the creation and allocation of money gives control of our lives and national priorities to institutions devoted solely to maximizing private financial return through financial games that contribute nothing to the creation of anything of real value.
Solution: A Main Street Money and Banking System:Decentralize and democratize the money system so that the power to create and allocate money resides in a system of community banks, mutual savings and loans, and credit unions accountable to local people and devoted to serving local financial needs. I’ll elaborate on this in a moment.
- Problem 3: Wealth Concentration. Wall Street interests use their political power to cut taxes for the rich and advance trade, fiscal, workplace, and social policies that suppress wages, erode worker protections and cut services and safety nets for those most in need—creating an ever more extreme concentration of wealth and social dysfunction.
Solution: Equitable Distribution. Implement fiscal, workplace, and social policies that distribute income and ownership equitably. Equitable societies are healthier, happier, more democratic, and avoid both extravagance and desperation.
- Problem 4: Soulless Corporations with Absentee Owners. An ideology of market fundamentalism has embedded a belief in the public culture that the sole purpose and responsibility of a business enterprise is to maximize financial returns to its owners. This belief legitimates the control of productive resources by soulless corporations possessed of artificial rights bestowed by unelected judges that seek immediate profit for absentee owners and sociopathic managers and deny responsibility for negative social and environmental consequences.
Solution: Living Enterprises with Responsible Living Owners. Advance public policies that favor living enterprises with living, locally rooted responsible owners who seek a living return that includes a healthy community and a healthy natural environment. Cooperative, worker- and community-owned enterprises are positive examples. Tax away the profits of short-term capital gains to discourage the speculative public trading of corporate shares by absentee owners.
- Problem 5: Market Monopolies and Big Money Politics. Global corporations operate beyond public accountability to monopolize economic and political power under unified management with no external accountability. They use this power to manipulate markets, extract public subsidies, and externalize social and environmental costs—all in violation of foundational principles of socially-efficient fair-market competition and one-person one-vote democracy.
Solution: Properly Regulated Markets and Real Democracy. Breakup concentrations of corporate power, bar corporations from competing with living human beings for political power, and implement rules and incentives that support cost internalization, and fair competition. Corporations are creations of government and government has a responsibility to assure that they are democratically accountable and play by proper market rules.
- Problem 6: Fragmented, Colonized Local Economies. Fragmented local economies dependent on global corporations for jobs and basic goods and services leave people and nature captive to the financial interests of distant institutions that are interested only in extracting community wealth, not creating it.
Solution: Self-Reliant Bio-Regional Economies. Pursue local economic development programs that build diversified, self-reliant, energy efficient, democratically self-organizing regional economies comprised of locally-owned living enterprises accountable to local owners and devoted to serving local needs.
- Problem 7: Global Rules By and For Corporations. Global rules formulated and enforced by corporate dominated institutions like the WTO facilitate and enforce the concentration of corporate power and shield it from democratic accountability.
Solution: Global Rules By and For People. Restructure global rules and institutions to limit the concentration of corporate power, support balanced trade and national ownership, and secure the economic sovereignty of people by assuring that any corporation that operates across national borders is democratically accountable to the communities in which it does business.
You will notice the recommended interventions focus on realigning the cultural values and institutional structures that shape the economic system’s function.
Beyond dangerously simplistic ideological calls for free trade and deregulation to give free reign to anti-market, anti-democratic global corporate oligopolies, suicide economists pay little attention to issues of system organization that should be a centerpiece of any discipline that presumes to serve as a guide to the organization and management of the human household writ large.
Unfortunately, ecological economics, in its current state, appears to be similarly impaired and similarly neglects essential institutional issues. We must remedy this impairment if we are to live up to the promise of our name.
Money as a False Constraint
I now want to turn to the money system. Suicide economists are notorious for their lack of understanding of life. The more surprising thing is that they also lack a basic understanding of their favored metric—money. This is revealed most clearly their failure, which I noted earlier, to distinguish between money and real wealth.
In a modern society in which access to most every essential of a secure and happy life depends on money, the accounting chits we call money take on great significance. Where they flow there are jobs; where they don’t flow there is unemployment. Where they flow there is food, shelter, health care, and education. Where they don’t flow there is starvation, homelessness, disease, and illiteracy.
Has it ever struck you how absurd it is that as a society we cannot afford to put our millions of unemployed people to work meeting critical unmet needs or house the homeless in houses that sit empty only for lack of money?
We now know that when Wall Street collapsed in 2008, the Federal Reserve responded by creating $13 trillion out of nothing with a few computer key strokes and fed it into Wall Street by issuing short term credit, purchasing securities, and providing guarantees for securities. Wall Street recovered in a flash with record profits, bonuses, numbers of billionaires, a re-inflated stock market bubble, and record idle corporate cash reserves.
When it comes to employing teachers, nurses, police, and firefighters, however, we don’t have the money. To paraphrase Kenneth Boulding, anyone who thinks this makes sense is either a madman or a suicide economist.
There are many real resource constraints to dealing with human needs and the money supply must be kept in balance with resource availability, but for a society, money, which can be created with a simple accounting entry, should never be the defining constraint.
Master or Servant?
It is instructive to recall that prior to European colonization, the indigenous peoples of Africa organized to meet their needs with little need for money. Consequently, the colonizers found it difficult to extract their labor. The solution was to impose a tax payable in money that could be obtained only by providing labor on the estates of the colonizers. Control of money, gives Wall Street the power to reduce most of society to the status of colonial serfs.
The proper function of money is to facilitate the sustainable and equitable utilization of resources to fulfill the needs of people, communities, and nature. This calls for a community-based and democratically accountable system of money, banking, and finance that functions to create and allocate money as a well-regulated public utility responsive to community needs and supportive of a natural human alignment and partnership with the biosphere.
We had that sort of a system of community banks, mutual savings and loans, and credit unions not long ago. Indeed, during the years of my growing up, it financed the United States’ victory in World War II, produced an unprecedented period of economic stability and prosperity, made America the world’s industrial powerhouse, and created the American middle class. That system served us extremely well until Wall Street launched its “financial modernization” experiment to restore the system conditions that plunged the world into the Great Depression.
Wall Street interests mobilized in the 1970s with the support of armies of suicide economists to advance a host of policy initiatives that shifted control of the institutions of money, banking, and finance from Main Street to Wall Street and redirected its purpose from funding real productive investment in response to community needs and opportunities to funding phantom wealth financial speculation purely for the benefit of a financial oligarchy.
This resulted in the erosion of the middle class, an extreme concentration of wealth, a costly financial collapse, high rates of unemployment, bankruptcy, and housing foreclosure, accelerating environmental systems failure, and the hollowing out of U.S. industrial, technological, and research capacity. Wall Street profited at every step and declared its social engineering experiment a great success—to the applause of their suicide economist cronies.
Liberation from Wall Street
I have just completed a report for the New Economy Working Group titled How to Liberate America from Wall Street Rule. It outlines an agenda for rolling back Wall Street’s disastrous experiment and rebuilding a community-based publicly accountable money and banking system responsive to the needs and opportunities of the 21st century. It presents four major recommendations in addition to those I’ve just outlined.
- Item 1: Break up the mega-banks and implement tax and regulatory policies that favor community financial institutions organized as cooperatives or as for-profits owned by nonprofit foundations devoted to community wealth building. These institutions will keep money circulating in the community rather than sucking it up into the Wall Street casino.
- Item 2: Establish state owned partnership banks that serve as depositories for state financial assets. These banks keep state funds circulating in the state by working with and through community financial institutions to co-finance local enterprises engaged in construction, agriculture, industry, and commerce. The North Dakota State Bank established in 1919 is a model and is a major reason why North Dakota was relatively unscathed by the Wall Street collapse. State Bank legislation has already been introduced in twelve states.
- Item 3: Restructure the Federal Reserve to function as a federal agency subject to strict standards of transparency, public scrutiny, audit by the General Accounting Office, and Congressional oversight. Its sole responsibility would be to manage the money supply. Responsibility for the regulation of banks and so called “shadow banking” institutions would be assigned to a new regulatory agency established specifically for that purpose.
- Item 4: Direct all new money created by the Federal Reserve to a Federal Recovery and Reconstruction Bank, which would use these funds to finance critically needed green public infrastructure projects as designated by Congress. Newly created Fed money would thus flow directly into the real economy to address real needs rather than serving as a subsidy to Wall Street Banks.
We will release this report on July 19, as a free PDF download. We have a number of partner organizations that will be distributing copies and encouraging people to organize discussion groups around it. I will put a link to it on my website: livingeconomiesforum.org.
A New Paradigm Economics
So what does all this suggest for the future of ecological economics as an intellectual discipline? These issues of values, institutions, and power that shape our human relationship to the ecosphere must all be at the fore of a fully formed ecological economics.
At the beginning of my presentation I made the statement that “We need a truly new economics that reaches as far beyond the understanding of conventional economics as quantum physics reaches beyond the understanding of conventional Newtonian physics.”
I did not make that statement lightly. The underlying paradigm of science is shifting in the most dramatic ways. Whereas Newtonian physics was based on a premise that only the material is real, the new quantum physics suggests that matter is an illusion and only relationships are real. It is an incredible advance in expanding human understanding of the nature of reality.
From attempting to define and explain the cosmos as a giant machine, we are beginning to recognize that it is better understood as some combination of a great thought and grand living organism. This has vast implications for the life and social sciences, as well as the physical sciences.
The old biology sought to understand life by grinding up cells to identify their chemical composition. The new biology studies live cells and organisms to understand life on its own terms—to understand life’s extraordinary capacity for self-organization, learning, and resilience. It is an exciting quest with extraordinary implications for a true ecological economics..
To address the human place in the biosphere, ecological economists must align with and build on the most advanced work of the new paradigm life and social sciences. We must draw from their insights to create the tools and frameworks needed to create a new civilization dedicated to working in partnership with the biosphere's generative systems to secure the health and vitality of all of life for all generations to come.
From the futile effort to salvage the discipline of suicide economics from within, we must direct our energy instead to saving the world by creating and popularizing a wholly new economics. The world hungers for new ideas and leadership. The discredited ideas of suicide economists continue to prevail only because there is no organized public voice offering a credible alternative. We can be that voice.
We who work to bring forth a New Economy that works in cooperative alliance with Earth’s biosphere, engage in an epic undertaking. Now is the hour. We have the power. We are the one’s we’ve been waiting for. Thank you.
David Korten (livingeconomiesforum.org) is the author of Agenda for a New Economy, The Great Turning: From Empire to Earth Community, and the international best seller When Corporations Rule the World. He is board chair of YES! Magazine, co-chair of the New Economy Working Group, a founding board member of the Business Alliance for Local Living Economies. and a member of the Club of Rome. He holds MBA and PhD degrees from the Stanford University Graduate School of Business and served on the faculty of the Harvard Business School.
Ecological economics can engage with groups engaged in defining and advancing the New Economy through participation in the New Economy Network.