If I have seen further it is by standing on the shoulders of giants.

Wednesday, September 14, 2011

Herman Daly | The End of Growth

"We Need A Crisis, And A Change of Values"

Herman Daly has advocated a steady-state-economy since the 1970s. Martin Eierman talked with him about the costs of growth, transformative politics and the dangers of academic determinism.

The European: You have worked for the World Bank for six years – an institution that has been described as spreading “the theology of the free market to the heathens”. Are you a non-believer?
Daly: I guess you can call me an apostate. When I went to work for the World Bank’s Environment Department, I looked at it this way: It is of no use preaching to the choir. You have to talk to the people you disagree with and be persuasive. At times we thought we were being persuasive. But eventually I came to believe that it was really a lost cause and mainly window dressing. By and large, people at the World Bank were no cynics but true believers in growth, and environmental protection was seen as an impediment to growth. They had all learned from the same teachers in the same elite universities and now preached the same doctrine. They had every reason to believe they were right – expect for two things: Common sense and real-world feedback. Some criticized the World Bank for failing to serve its goal to enable growth. Some thought that growth needed to be more widely shared. But the emphasis on growth was sincere and fundamental, so it was not questioned. I don’t expect anything good from the World Bank.

The European: Why should we question growth?
Daly: We are in a situation where growth has begun to cost more than it is worth. It has become uneconomical, at least in rich countries. In an empty world, growth is good. But that is not the world we inhabit. We live in a world that is full of us and our stuff, a world that is finite in terms of the economic activity it can sustain. We need to build the physical constraints of a finite biophysical environment into our economic theory.

The European: Let us start with economic theory on the level of the individual. Has the ideology of the homo oeconomicus outlived the model upon which it was originally based? People concede that Smith or Hayek were partially mistaken, yet their credo is very much alive.

Daly: I would add one more aspect: Their ontological picture of man is flawed. Instead of conceiving of human beings as atomistic independent individuals that are connected through the nexus of the market and keen to maximize their own benefit and pleasure, we should really think of man as being constituted by the relationships with others. We are not only externally related to others, we are internally related to them as well. When you ask me: ‘Who are you?’ I would define myself as a husband, son, father, citizen, friend, or member. And in a more physical sense, I would be an air-breather and a water-drinker and a food-eater. The quality of these relationships by which we are constituted determines our welfare far more than the amount of commodities we consume. Economists nod at that criticism of their model and then just go back to doing what they have always been doing.

The European: Are you not constructing a straw man? There have been many attempts at updating the classical homo oeconomicus model over the years, economics has broadened its gaze and turned more towards sociology or politics.
Daly: Sure, there is behavioral economics and environmental economics and experimental economics. I just don’t think that they are having an effect. The evidence I would give is from introductory textbooks. Don’t show me the latest article in a specialized journal. Show me the fundamental textbook you teach in the first course, where students are supposed to learn the very basics of economics. Is it in there? There might be a paragraph on the environment somewhere as an addendum to chapter 36. But environmental problems, they say, can be easily solved by getting prices “right”.

The European: Is economics suffering from a case of path dependence, where the structures and norms that were once set up dominate the discourse long after they should have been questioned?
Daly: I would go even further than that. What is a polite word for “brain dead”? Actually there are very smart people among economists, but they are all operating within the basic paradigm. It used to be that academic disciplines interacted at the university, and that philosophy was the critic of the disciplines. Now it is considered bad form to engage in interdisciplinary criticism, we have too much respect for each other. None of the other disciplines have the courage to challenge the fundamental presupposition of economics: that growth is the solution to all our problems.

The European: Is the financial crisis an opportunity to change that discourse?
Daly: The fundamental presuppositions are not really changing. We are accumulating more and more debt to finance economic growth, and we need more future growth to repay the debt. When growth does not happen, things fall apart. Look at the financial sector: When it is hard to grow in physical terms, it becomes more appealing to grow in symbolic terms. Forty percent of US economic profits are now in the financial sector. That is a huge drain on the rest of the economy.

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