Interview: Herman Daly

In the 1970s, in the wake of the environmental movement, Herman Daly developed ecological economics, an alternative to the standard economic theory in which he was trained. Surprisingly for an iconoclast, Daly served as a Senior Economist at the World Bank from 1988 to 1994.

Daly’s theories are passionately discussed by an ardent group of followers. He has received numerous awards, including the Heineken Prize for Environmental Achievement, the Leontief Prize from the Global Development and Environment Institute, the Right Livelihood Award, the NCSE Lifetime Achievement Award and the Blue Planet Prize. He is the author of several books, including the seminal Steady-State Economics (1977), and is a cofounder of the journal Ecological Economics.

Daly is a Professor Emeritus at the University of Maryland. EarthTalk’s Ethan Goffman interviewed him via Skype on September 3, 2015…

daly 400x267 Interview: Herman DalyEarthTalk: You’re considered the father of ecological economics, but a lot of the public doesn’t know what that means. So can you explain the key differences between conventional economics and ecological economics?

Daly: Yes. Conventional economics is studying mainly the efficiency of allocation of resources. Ecological economics has three areas of study. One is the scale of the economy relative to the ecosystem. So the economy is viewed as a subsystem of a larger ecosystem. And how big is the economy in its physical dimensions relative to that total finite ecosystem. So we ask questions like how big is it relative to the total system, how big can it be before it destroys the total system, and how big should it be so as to get the best combination of welfare from both the economy and the remaining ecosystem. So that’s the key difference. The economy is seen as a subsystem. So as I’ve said sometimes the economy is a wholly owned subsystem of the ecosystem and it has to be considered in that light. So that’s the main difference.

E: Whereas in conventional economics you’ve got land, labor, and capital, and no environment.

Daly: Well yes, if you pick up a standard economics textbook and you look at the first pages you’ll see the famous circular flow diagram, from firms to households, households to firms, money goes round and round, factors go from households to firms, products from firms to households. It’s a circular flow, an isolated system. Nothing comes in from the outside, nothing exits to the outside. So from this point of view there is no environment. And so it’s pretty hard to study ecological or environmental economics if your basic vision does not contain the environment. So I’m afraid that standard economics has been stuck with that circular flow vision. Of course it’s useful if you’re studying exchange and the size of GDP and things like that. But it’s of no use at all to study the relationship of the economy to the ecosystem.

E: Okay, great. So what would a more viable economic system for the 21st century, I know you sometimes call it a “steady state economy,” what would that look like?

Daly: Yes, the idea of a steady state economy, the basic definition is that you have a constant population, a constant stock of people, a constant stock of capital or physical wealth. So the physical dimensions of the system are not growing. But people die and have to be replaced. Capital and goods wear out and have to be replaced. So there’s a continual maintenance, or metabolic throughput we call it, of matter and energy from the ecosystem through the economy and back to the ecosystem as waste. And that flow, that maintenance flow, has to be within the environmental capacities of the larger ecosystem. Your depletion rates have to be sort of equal to the replacement rates of the natural system and your rates of pollution have to be within the absorptive capacity of the ecosystem. So it’s a question of maintenance of a system within the capacity of the ecosystem. And to maintain that in a steady state, that is one that is not growing.

E: Right, so it certainly can’t grow physically. What about actual ideas though, because we have well developed theories about how to increase growth using conventional economics, the market system, but how would we actually move toward a steady state system which doesn’t grow in the conventional sense but still maintains a quality of life?

Daly: I think one thing to remember is how can we envision a successful economy that is not growing? We have trouble with that. It is worthwhile to back up and ask, how can we envision a successful Earth without growth? Well that’s pretty easy because we have it. The Earth is not growing, matter circulates and energy flows through. So those are the basic principles. If we can imagine the economic subsystem growing up to the very limit of the total ecosphere, then it would have to be a steady state. But that would be way too big, it would take over control of everything. So to limit the physical size of the economic system, there are various policies that we could look at. One has already been used, and that is the cap, auction, trade system. You cap and trade basic resources. You limit the input flow which automatically limits the output at the other end. You auction off the right to deplete up to that amount. You use the auction receipts in order to lower other taxes, particularly regressive taxes. So that’s one thing. Another is a more generalized ecological tax reform. Simply follow the bumper sticker rule of “tax bads not goods.” We want, depletion and pollution are bads so let’s tax them. Value added, that is value added by labor and capital which results in labor and capital income, those are good, we want more value added, so let’s get away from taxing that. So those are two basic principles that we can move toward. Another one, of course, another part of the definition of a steady state economy, is a constant population. So anything which we can do to moderate population growth, we can bring that down, is also recommended policy within the idea of a steady state economy.

E: Right, and you can do that with non-coercive policies, such as contraception and education of women. So anyway, here’s another critique of ecological economics that comes from conventional economists and that is that you can decouple growth from environmental impact through technology. So if you move to renewable energy, if you substitute goods, like for instance you could substitute recycled goods or substitute more common goods or less harmful goods, you can switch the economy around so that you do less harm and yet keep growing. So, this the technological optimist position. So how would you respond to that?

Daly: Yes, I would say that I’m all in favor of technological improvement. I think there’s two sorts of technological improvement. I would call one the technology of bigger jaws and a bigger digestive track. You just gobble up more resources and run it through the system faster and faster. That kind of technology I think we don’t need any more of. Then there’s another technology, we might call it the technology of better digestion, of squeezing more welfare and service out of the given flow of resource use. Now that kind of technology, sometimes referred to as “soft technology,” I’d be all in favor of that. And I think the best way to get that kind of technology is to rule out the alternative, is to put the limits on the resource flow. That way you have to improve efficiency in the use of resources. And, if the technological optimists are right then it should be easy to do and they should agree with that policy. If they don’t agree with it, then I think that’s evidence that maybe they don’t really believe what they’re saying about how easy it is to improve things with technology. So I would say let’s push that as far as it’ll go. I think it is possible to do something in the way of decoupling, and we ought to take advantage of it. I am not quite as optimistic as a lot of people are that it’s quite so easy.

E: Right now we are overshooting, so we have to cut down on pollution and resource use.

Daly: Yes, in Europe and here there’s a whole movement that calls itself the degrowth movement. And their critique of steady state is, well, you know we’re already in overshoot levels. We have to go to a smaller level before we try to maintain that in a steady state. Well, I agree with that, I’ve always accepted that, but before you can go into reverse you have to stop. And the first thing you ought to know how to live without growing or degrowing, because neither growth nor decline is sustainable in the long run. So we have to seek this notion of a steady state economy. Our big difficulty with it, I think, is in the question, if we still have poverty, what’s our solution to poverty? Growth. It’s always been a bigger pie theory. We’re not going to share, that’s too hard. So we’re just going to create a bigger and bigger pie and everyone’s slice will get bigger and no one will have less. Well, I think we’ve run into a limit on that because economic growth, growth of the total pie, is now beginning to cost us more than it benefits us. The ecological and social costs of growth are now greater than the extra production benefits. So we’re going to be forced to share whether we like it or not, and it would be really nice to do it anyway.

E: So make the pie more evenly, make it a better, healthier pie, rather than endlessly grow the pie.

Daly: There you go.

E: All right, well thanks very much.

Daly: Thank you very much.