limits to growth: a report to the club of rome

From: Roger Bagula (tftn_at_earthlink.net)
Date: 07/16/04 

Date: Fri, 16 Jul 2004 15:15:55 GMT

p. 12, HOW MANY AMERICANS?, Bouvier and Grant;
Sierra Club Books, 1994; ISBN 0-87156-496-3

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  ENVIRONMENTAL AND NATURAL RESOURCE ECONOMICS (third edition)

by Tom Tietenberg; Harper Collins, 1992; ISBN 0-673-46328-1.

    THE BASIC PESSIMIST MODEL

One end of the spectrum is defined by an ambitious study published in
1972 under the title The Limits to Growth. Based on a technique known as
systems dynamics, developed by Professor Jay Forrester at MIT, a
large-scale computer model was constructed to simulate likely future
outcomes of the world economy. The most prominent feature of systems
dynamics is the use of feedback loops to explain behavior. The feedback
loop is a closed path that connects an action to its effect on the
surrounding conditions which, in turn, can influence further action. As
the examples presented subsequently in this chapter demonstrate,
depending on how the relationships are described, a wide variety of
complex behavior can be described by this technique.

    Conclusions of Pessimist Model

Three main conclusions were reached by this study. The first suggests
that within a time span of less than 100 years with no major change in
the physical, economic, or social relationships that have traditionally
governed world development, society will run out of the nonrenewable
resources on which the industrial base depends. When the resources have
been depleted, a precipitous collapse of the economic system will
result, manifested in massive unemployment, decreased food production,
and a decline in population as the death rate soars. There is no smooth
transition, no gradual slowing down of activity; rather, the economic
system consumes successively larger amounts of the depletable resources
until they are gone. The characteristic behavior of the system is
overshoot and collapse (see Figure 1.1).

The second conclusion of the study is that piecemeal approaches to
solving the individual problems will not be successful. To demonstrate
this point, the authors arbitrarily double their estimates of the
resource base and allow the model to trace out an alternative vision
based on this new higher level of resources. In this alternative vision
the collapse still occurs, but this time it is caused by excessive
pollution generated by the increased pace of industrialization permitted
by the greater availability of resources. The authors then suggest that
if the depletable resource and pollution problems were somehow jointly
solved, population would grow unabated and the availability of food
would become the binding constraint. In this model the removal of one
limit merely causes the system to bump subsequently into another one,
usually with more dire consequences.

As its third and final conclusion, the study suggests that overshoot and
collapse can be avoided only by an immediate limit on population and
pollution, as well as a cessation of economic growth. The portrait
painted shows only two possible outcomes: the termination of growth by
self-restraint and conscious policyan approach that avoids the
collapseor the termination of growth by a collision with the natural
limits, resulting in societal collapse. Thus, according to this study,
one way or the other, growth will cease. The only issue is whether the
conditions under which it will cease will be congenial or hostile.

    The Nature of the Model

Why were these conclusions reached? Clearly they depend on the structure
of the model. By identifying the characteristics that yield these
conclusions, we can examine the realism of those characteristics.

The dominant characteristic of the model is exponential growth coupled
with fixed limits. Exponential growth in any variable (for example, 3%
per year) implies that the absolute increases in that variable will be
greater and greater each year. Furthermore, the higher the rate of
growth in resource consumption, the faster a fixed stock of it will be
exhausted. Suppose, for example, current reserves of a resource are 100
times current use and the supply of reserves cannot be expanded. If
consumption were not growing, this stock would last 100 years. However,
if consumption were to grow at 2% per year, the reserves would be
exhausted in 55 years; and at 10%, exhaustion would occur after only 24
years.

Several resources are held in fixed supply by the model. These include
the amount of available land and the stock of depletable resources. In
addition, the supply of food is fixed relative to the supply of land.
The combination of exponential growth in demand, coupled with fixed
sources of supply, necessarily implies that, at some point, resource
supplies must be exhausted. The extent to which those resources are
essential thus creates the conditions for collapse.

This basic structure of the model is in some ways reinforced and in some
ways tempered by the presence of numerous positive and negative feedback
loops. Positive feedback <http://dieoff.org/page26.htm> loops are those
in which secondary effects tend to reinforce the basic trend. An example
of a positive feedback loop is the process of capital accumulation. New
investment generates greater output, which, when sold, generates
profits. These profits can be used to fund additional new investments.
This example suggests a manner in which the growth process is
self-reinforcing.

Positive feedback loops may also be involved in global warming.
Scientists believe, for example, that the relationship between emissions
of methane and global warming may be described as a positive feedback
loop. Since methane is a greenhouse gas, increases in methane emissions
contribute to global warming. As the planetary temperature rises,
however, it could release extremely large quantities of additional
methane, and so on.

Human responses can intensify environmental problems. When shortages of
a commodity are imminent, for example, consumers typically begin to
hoard the commodity. Hoarding intensifies the shortage. Similarly,
people faced with shortages of food commonly eat the seed that is the
key to more plentiful food in the future. Situations giving rise to this
kind of downward spiral are particularly troublesome.

A negative feedback loop is self-limiting rather than self-reinforcing,
as illustrated by the role of death rates in limiting population growth
in the model. As growth occurs, it causes larger increases in industrial
output, which, in turn, cause more pollution. The increase in pollution
triggers a rise in death rates, retarding population growth. From this
example it can be seen that negative feedback loops can provide a
tempering influence on the growth process, though not necessarily a
desirable one.

Perhaps the best-known planetary-scale example of a negative feedback is
provided in a theory advanced by James Lovelock, an English scientist.
Called the Gaia hypothesis after the Greek concept for Mother Earth,
this view of the world suggests that the earth is a living organism with
a complex feedback system that seeks an optimal physical and chemical
environment.

Deviations from this optimal environment trigger natural, nonhuman
response mechanisms which restore the balance. In essence, according to
the Gaia hypothesis the planetary environment is a self-regulating process.

The model of the world envisioned by the Gaia hypothesis is incompatible
with that envisioned by the Limits to Growth team. Because of the
dominance of positive feedback loops, coupled with fixed limits on
essential resources, the structure of the Limits to Growth model
preordains its conclusion that human activity is on a collision course
with nature. While the values assumed for various parameters (the size
of the stock of depletable resources, for example) affect the timing of
the various effects, they do not substantially affect the nature of the
outcome.

The dynamics implied by the notion of a feedback loop is helpful in a
more general sense than the specific relationships embodied in this
model. As we proceed with our investigation, the degree to which our
economic and political institutions serve to intensify or to limit
emerging environmental problems will be a key concern.

    THE BASIC OPTIMIST MODEL

Is the portrait of the fate of the world economy painted by the Limits
to Growth model an accurate one? Because Herman Kahn and his associates
did not think so, they presented an alternative vision in a book titled
The Next 200 Years: A Scenario for America and the World. 8 This vision
is an optimistic one based in large part on the continuing evolution of
a form of technological progress that serves to push back the natural
limits until they are no longer limiting.

    Conclusions of Optimist Model

The basic conclusion reached by this study is stated in the opening
pages of the book [Herman Kahn, William Brown, and Leon Martel, The Next
200 Years: A Scenario for America and the World (New York: William
Morrow, 1976)]:

. . .200 years ago almost everywhere human beings were comparatively
few, poor and at the mercy of the forces of nature, and 200 years from
now, we expect, almost everywhere they will be numerous, rich and in
control of the forces of nature [p. 1].

The future path of population growth is expected by Kahn and his
associates to approximate an S-shaped logistic curve. This image
suggests that an omniscient observer during 1976 looking backward
through time and then forward into the future would see rather different
things. The retrospective glance would reveal a period of exponential
population growth, while the glance into the future would reveal
continued growth, but with steadily declining growth rates, until, at
the end of the next 200-year period, growth would automatically come to
a halt. By that time, however, the population would have increased four
times its current level and the average person in the world economy
would be earning $20,000 a year (in constant dollars)a far cry from the
1976 average of $1300 (see Figure 1.2).

To Kahn and his associates, interference with this natural evolution of
society would not only be unwarranted, it would be unethical. As they
see it, tampering with the growth process would consign the residents of
the poorest developing countriesand, indeed, the poorest residents of
the developed countriesto a life of poverty, a life without hope. In
contrast, they see continued growth as providing continued betterment
for both groups; although, due to an expected decline in the gap between
the rich nations and the poor, those in the poorest nations would
benefit most from continued growth.

    The Nature of the Model

The Kahn model is more qualitative than the Limits to Growth model and
therefore its structure is less specific. It is not a computer program
that simulates the future. Rather, Kahn and his associates devised
scenarios they believed to be plausible and then verified that the
various components of these scenarios were consistent with each other.
The book is filled with reasons why the chosen scenario is reasonable.
These lists of reasons frequently include new technologies that, when
certain limits are reached, will be introduced. These technologies
effectively either remove the limit or buy time until a subsequent
technology can remove the limit.

The principles underlying Kahn's work can best be illustrated through
the use of two examples: food and energy. One of the sources of collapse
in the Limits of Growth model was the inability of food supply to keep
up with consumption. Kahn, by contrast, sees food production rising so
rapidly as to create an eventual abundance of food. This vision, in
turn, depends on some specific sources of optimism: (1) physical
resources will not effectively limit production during the next 200
years, and (2) substantial increases can be expected in conventional
foods produced by conventional means, conventional foods produced by
unconventional means, and unconventional foods produced by
unconventional means.

All of these sources of optimism are related to technological progress.
The availability of physical resources can be expanded through the use
of better (solar-powered, for example) irrigation systems. Conventional
food production can be increased by the spread of better farming
techniques and by the development of new hybrid seeds. If soils become
depleted or scarce, then food can be raised with hydroponics, a process
using no soil. 9 Finally, Kahn points to the development of a
single-cell protein as a viable means of converting municipal waste into
a food supplement.

A similar approach is taken when describing the world energy future. The
authors of The Next 200 Years construct a list of technologies that can
provide the transition to solar energy, making the case that solar
energy can ultimately sustain a high level of economic activity. The
list includes technologies that use coal, either directly or indirectly
(such as gas produced from coal); those which exploit the vast world
reserves of shale oil; nuclear power (fission, in the near term,
replaced subsequently by fusion); and new solar technologies including
windmills, photovoltaics, and ocean thermal power.

When all of these lists are combined, the prevailing message is that
currently recognized technologies can overcome the limitations
envisioned by the Limits to Growth view. The Next 200 Years staff, then,
believes that the creators of Limits to Growth erred in being myopic;
they were too tied to conventional technologies. When the need arises,
they argue, these new technologies will be developed. The cliche,
"Necessity is the mother of invention," captures the flavor of the
belief of Kahn and his associates that these technologies will be
developed as they are needed. [p.p. 4-11]

[I believe this is the standard university text for this discipline. JH]

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  BEYOND THE LIMITS <http://www.unh.edu/ipssr/BTL.html>, Meadows, et al.

Chelsea Green Publishing Company, 1992. ISBN 0-930031-62-8.
Phone: 800-639-4099 or 603-448-0317; FAX: 603-448-2576.

"In Scenario 1 the world society proceeds along its historical path as
long as possible without major policy change. Technology advances in
agriculture, industry, and social services according to established
patterns. There is no extraordinary effort to abate pollution or
conserve resources. The simulated world tries to bring all people
through the demographic transition and into an industrial and then
post-industrial economy. This world acquires widespread health care and
birth control as the service sector grows; it applies more agricultural
inputs and gets higher yields as the agricultural sector grows; it emits
more pollutants and demands more nonrenewable resources as the
industrial sector grows.

"The global population in Scenario 1 rises from 1.6 billion in the
simulated year 1900 to over 5 billion in the simulated year 1990 and
over 6 billion in the year 2000. Total industrial output expands by a
factor of 20 between 1900 and 1990. Between 1900 and 1990 only 20% of
the earth's total stock of nonrenewable resources is used; 80% of these
resources remain in 1990. Pollution in that simulated year has just
begun to rise noticeably. Average consumer goods per capita in 1990 is
at a value of 1968-$260 per person per yeara useful number to remember
for comparison in future runs. Life expectancy is increasing, services
and goods per capita are increasing, food production is increasing. But
major changes are just ahead.

"In this scenario the growth of the economy stops and reverses because
of a combination of limits. Just after the simulated year 2000 pollution
rises high enough to begin to affect seriously the fertility of the
land. (This could happen in the 'real world' through contamination by
heavy metals or persistent chemicals, through climate change, or through
increased levels of ultraviolet radiation from a diminished ozone
layer.) Land fertility has declined a total of only 5% between 1970 and
2000, but it is degrading at 4.5% per year in 2010 and 12% per year in
2040. At the same time land erosion increases. Total food production
begins to fall after 2015. That causes the economy to shift more
investment into the agriculture sector to maintain output. But
agriculture has to compete for investment with a resource sector that is
also beginning to sense some limits.

"In 1990 the nonrenewable resources remaining in the ground would have
lasted 110 years at the 1990 consumption rates. No serious resource
limits were in evidence. But by 2020 the remaining resources constituted
only a 30-year supply. Why did this shortage arise so fast? Because
exponential growth increases consumption and lowers resources. Between
1990 and 2020 population increases by 50% and industrial output grows by
85%. The nonrenewable resource use rate doubles. During the first two
decades of the simulated twenty-first century, the rising population and
industrial plant in Scenario 1 use as many nonrenewable resources as the
global economy used in the entire century before. So many resources are
used that much more capital and energy are required to find, extract,
and refine what remains.

"As both food and nonrenewable resources become harder to obtain in this
simulated world, capital is diverted to producing more of them. That
leaves less output to be invested in basic capital growth.

"Finally investment cannot keep up with depreciation (this is physical
investment and depreciation, not monetary). The economy cannot stop
putting its capital into the agriculture and resource sectors; if it did
the scarcity of food, materials, and fuels would restrict production
still more. So the industrial capital plant begins to decline, taking
with it the service and agricultural sectors, which have become
dependent upon industrial inputs. For a short time the situation is
especially serious, because the population keeps rising, due to the lags
inherent in the age structure and in the process of social adjustment.
Finally population too begins to decrease, as the death rate is driven
upward by lack of food and health services." [p.p.132-134]

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  TAKING NATURE INTO ACCOUNT: A Report to the Club of Rome
  <http://www.clubofrome.org/>

Wouter Van Dieren, Editor;
Springer-Verlag <http://www.springer-ny.com/>,1995; ISBN 0-387-94533-4;
Phone: 1-800-SPRINGER

    INTRODUCTION

In 1972, a report was published by a mysterious club nobody had ever
heard of, which shocked the worlda report about the forthcoming
collapse of life on earth, not written by some sectarian doomsday
prophet but by scientists of high repute, working with that new device
of modernity, the computer.

"Limits to Growth," the report was called, and besides a shock it also
caused outrage worldwide. Several years after the first phase of
environmental awareness and shortly before the first oil crisis (1973),
"Limits" brought the message that the world was heading for disaster
because of unfettered population growth and industrial expansion,
exhaustion of stocks of natural resources, environmental destruction,
and food shortages.

"Limits" was based on a so-called simulation model, a mathematical
representation of the main variables and their dynamic interactions
known as the WORLD III model. Some of the key features of these dynamics
are feedback loops, which show that an intervention in one part of a
system has unexpected effects on other variables of that system.

The forms of exhaustion predicted in the various scenarios simulated in
the model start to emerge in the early twenty-first century, as the
world population grows to a peak of 10 billion, per capita food
production drops to a mere 15-25 percent of 1970 levels, pollution has
risen tenfold, and the most important resources, such as oil and gas,
have become depleted. Because of the so-called exponential character of
growth and depletion, half-hearted or one-sided measures are of little
avail. A drastic program of technological improvement such as energy
conservation, for example, achieving 50 percent savings in 20 years
against a background of, say, 2 percent growth in consumption, postpones
the date of depletion by a mere 3 years.

"Limits" became the subject of heated controversy, and the Club of Rome
soon gained the reputation of being a neo-Malthusian movement of
doomsayers. The report became world famous, an indication that its
message was not only controversial but also supremely recognizable.

Although thousands of scientists have devoted their efforts to the
question of how reliable WORLD III was and whether it is even at all
possible to forecast the future in this manner, "Limits" has, in our
view, come through all the criticism untarnished. In the first place,
because the primary aim was not to make a prediction but "to improve the
insight," in the words of Jay Forrester, one of the contributing
authors; and secondly, because nobody has yet really succeeded in
finding fault with the main calculations and the underlying hypotheses.

Since 1972, countless studies and books have been published that confirm
the message of "Limits"; but even more extensive than this scientific
work has been the worldwide denial of the limits to growth, and the
impassioned attempts to remain one step ahead of the imminent shortages
through policies of continued economic expansion. Meanwhile, additional
new insights have arisen, which not only confirm the impending disasters
but also indicate that the limits to growth may well have been exceeded
and that the world has been in a state of decline for some years
already. The most important study in this context is For the Common Good
(1989), in which Daly and Cobb develop an information theory to replace
or supplement the incomplete data function of what is known as the Gross
National Product. By processing U.S. statistical data on some twelve
so-called welfare indicators, they drew the conclusion that for the last
twenty years the link between production growth and the creation of
welfare has become progressively weaker; prior to that date, production
growth had achieved exactly what Adam Smith foresaw in 1752: the
addition of value so as to indeed create the "Wealth of Nations." In the
1970s this link began to be lost, however, and this process is
proceeding at such an accelerating pace that we are now confronted with
the curious phenomenon of production growth leading to a decline in
welfare; stated differently, the limits to growth have been reached
without us even noticing it, because we have been interpreting the
figures wrongly.'

Our aim is to undertake a further analysis of the concept of growth
within this framework; and above all, of the opposition to information
that is critical of this growth. "Limits" evoked extreme opposition, but
nonetheless there is fascination worldwide with the Club of Rome and its
first and greatest message. The latest insights tell us that their
message is not only being confirmed daily, but that it has in fact been
surpassed by reality. The limits to growth no longer merely lie ahead,
in the future; they are with us today, and have been for the last twenty
years.

The international community does not know how to handle this reality,
however. Discussions in international forums where the necessity of
growth or its significance are challenged inevitably lead to emotional
scenes, and all the agendas of all the world's political and economic
bodies call for growth in the restricted sense of the word, because of
an unabashed conviction that this is always good for the world. But this
is simply not the case: a steady growth of output does not necessarily
lead to more jobs or a better environment, it does not combat famine or
promote social security, neither does it improve education or public
health. On the contrary, most of these aspects of welfare seem to suffer
under unrestricted economic expansion, which has become a law unto itself.

The main thrust of opposition to "Limits" lies in the belief that
economic growth is a kind of law of nature, which humanity must obey.
Since Adam Smith invented the Invisible Hand, this power has been a
guiding principle for all those who believe that free trade, or the
market, will ultimately lead to a natural order of things, a moment when
everything will fall neatly into place: free trade will provide income
and employment, welfare for all, equality, peace, and a future. In this
way of thinking, the problems outlined by "Limits," are a result of
obstacles to free tradeand if things are not well with the world, that
is a logical consequence of these obstacles; for example, too much
government intervention, too high social benefits, too much
environmental and labor legislation, an overly expensive quaternary
sector, and so on. Allow the free market to do its curative work, in
other words, and the Divine ordination of the invisible hand will
balance out the world economy.

It is no coincidence that this kind of metaphysical notion was a
nursemaid to the industrial revolution, nor that it is part and parcel
of modern economics. Adam Smith certainly intended the Invisible Hand to
serve as a metaphysical, divine principle, which effortlessly took over
the role of Divine Providence, on which western humanity had focused its
aspirations until the Enlightenment. The Enlightenment blocked this
Providence, because it called for science, technology, and
mechanization, and thus distracted attention from God's will. By
introducing the invisible hand, Smith took up the deistic thread once
more; now the economy too, or precisely the economy, was to be driven by
supernatural laws, and in the industrial age, too, the role of God would
remain of decisive importance.

It is our conviction that this metaphysic is still as topical as ever.
The opposition to "Limits" is so strenuous that clearly forces other
than science are at work. One would expect humanity to take up the
challenges of "Limits" and set up an international organization to halt
the decline. The opposite has been the case. A veritable crusade of
economic expansionism has been unleashed, as if to prove that "Limits"
was pessimistic and in error, and everywhere the conquests of this
crusade are praised as providing the desired proof, such as the economic
miracles embodied in the Asian growth figures. And for the sake of
convenience we then ignore the enormous price of these miracles, the
ecological destruction, the plundering of the surrounding oceans, the
consumption of the region's natural capital, the -underpaid workers, the
absence of social security. And while these miracles are seen as proof
of the power of the invisible hand, nobody is prepared to answer the
question of why the same metaphysic has caused war and famine in Africa.
Does the invisible hand pick its favorites? Or are the Africans paying
the penalty of disobeying the laws of natural economic ordination? Or is
it the case that hereand in the former Soviet Unionthe law of Keynes
holds: that suffering is a precondition, albeit temporary, for later
success?

It is of crucial importance to state that the invisible hand does not
exist, that there are no laws of economic ordination, that although the
notion of economic growth can be defined, its political usage is above
all rhetorical, that economics is not really a science but a set of
theories, and that every attitude towards the limits to growth is a
question of culture, of choices, free will, andpossiblyrationality.
There is no inevitable fate compelling humanity towards unlimited free
trade, over-exploitation of nature and labor, exhaustion of resources,
and finally towards a war of all against all (Hobbes) to gain control of
the last remaining resources and food. Economic thought differs from
culture to culture, and within each culture even from school to school,
from university to university. There are myriad options to choose from,
and none of them need satisfy a single requirement of a metaphysical
nature. What is of key importance is that we rid our economies of
hypocrisy, and this forms the subject of the present Report.

The main hypocrisy lies in the system of National Accounts that has been
employed in the Western economy for nearly half a century now, with
partial implementation in most other countries. The technical background
of the National Accounts is described elsewhere in this Report; in this
introduction, our aim is simply to set out why we consider this topic to
be so vitally important in the debate on growth and the limits to which
it is subject.

Until 1945, the notion of economic growth was used differently from
today. As elaborated in Chapter 3, it was not until about 1932 that
several economists came up with the idea of measuring a country's
economic performance and not until 1950 that the ensuing system was
introduced in most industrialized countries. It was thus inevitable that
the costs of production growth would be encountered, costs that for
decades the theory had termed negative external effects. In former times
these effects had been happily accepted, but when production as a whole
is encapsulated in a profit-and-loss account, the costs, or negative
expenditure, automatically appear on the balance ***. And that is
where we stand today.

Surprisingly enough, users of National Accounts have long remained deaf
to recommendations to subtract these costs from the profits, despite an
information load that has become so heavy in recent years that for some
economies the point now appears to have been reached whereby the costs
are perhaps even greater than the profits without this being reflected
in the National Accounts. This is of vital importance for the debate on
the limits to growth, because these economies continue to literally
count themselves rich, while poverty is on the rise, or in other words
because the subtracted value is higher than the added value. Phrased
differently: the economy is being kept afloat on paradoxical
information, not even on incompleteness, and the abuse of the National
Accounts is at the core of the matter.

The notion of the National Account is not employed in everyday political
parlance; instead, the public at large hears the terms Gross National
Product (GNP) and its derivative, Gross Domestic Product (GDP). This GNP
has gained metaphysical significance: it stands for the mark given to
the country by the Invisible Hand and thus even acts as a symbol of the
degree to which that nation has been elected in the Divine ordination
that steers the Invisible Hand. In this vision of things, one has
subjected oneself to the natural laws of the economy, and the nation is
seen to have passed the examination if the number attached to the GNP is
positive: one, two, or three percent growth per annum, whatever that may
mean. Orio Giarini has made a comparison between the effect of GNP in
heaven, in hell, and on earth. He describes the complication of
Industrial Revolution accounting by the paradox of hell and heaven, when
applied to the notion of scarcity. Heaven, being probably blessed by an
infinite stock of goods and services of all sorts (material and
spiritual), knows nothing of scarcity. Economics and the economy
therefore do not exist. There are no prices and there is no money, since
everything is readily available without any restriction or work. Heaven,
then, must be something very different from earth, but it is also a
place of zero GNP. Hell, as the opposite of heaven, is a place which
consumes a lot of energy in maintaining its celebrated image and
presumed activities. It therefore probably needs to develop a huge value
added which nobody has ever tried to measure: GNP must be very high
indeed! On our earth, the maximum possible achievement in the fight
against scarcity is to create an abundance in as many sectors as
possible. But human and economic development also entails identifying
and coping with new scarcities. Scarcity is ultimately the hallmark of
the system of disequilibrium within which human endeavour is destined to
operate: it is the sine qua non of man's quest for fulfilment, so
Giarini says.

One of the major paradoxes in value accounting and in defining the
development of wealth is that an increase in real wealth corresponds in
some cases merely to an increase in the cost of pollution control (e.g.
investment for waste-disposal and environmental purposes, which is
clearly a deducted value type of cost), while on the other hand, many
real increases in value are underrated. For instance, GNP growth figures
published each year by governments indicate that the economy has grown
by so many percent. However, a large part of this growth is in fact
absorbed by factors which do not necessarily add to our wealth, while
other factors that represent net increases in our well-being are not, or
are only inadequately, taken into account.

Going back to the paradox of hell and heaven, one of the reasons for our
reluctance to reconquer paradise is that in some weird way we seem to be
more at ease with hell.

Giarini believes it important to define a level for the wealth of
nations in terms of stock, its increase, depletion, use, conservation
and its diversification. Measurements of value added are important for
the organization of an industrially productive system, which is an
important subsystem of the economy as a whole. But is only partially
relevant to the business of measuring, targeting, and organizing the
wealth of nations.

If the growth of GNP is three percent, but the uncalculated costs of
output are some four percent of GNP, then at least we know that the
quality of life in that country is declining. To argue that these costs
be discounted is to argue for introduction of a system we term SNI,
Sustainable National Income, a national income in which interest and
yields are indeed added up, but in which depletion of resources and
nature are subtracted from the income, as it were. Even then, the
problem remains that even a corrected GNP still says nothing about the
real value and dignity of a society. However (so say the politicians)
without a growing GNP the country will become a second-rate nation, and
so we must subject ourselves to interventions that are progressively
demolishing the whole postwar social fabric. We are being colonized by
the economy, as it were, and that was certainly not the original aim.

In his dialogue on wealth and welfare, Giarini points at the many
paradoxical reasonings in the theory of wealth accumulation. Classical
economists, and in particular Ricardo, were well aware that the methods
for the accounting of economic wealth that they were devising were not
really comprehensive of the real level of wealth of an individual or a
country. A clear distinction was made between the notion of riches on
the one hand and of wealth on the other. There was even an implicit
acceptance that there could be situations where an increase in wealth
would not correspond to an increase in riches.

However, these considerations remained secondary because the main
problem during the Industrial Revolution was to identify the most
dynamic system for increasing the wealth of nations, i.e. the
industrialization process, and to concentrate on its development.
Inconvenient discrepancies between wealth and riches were considered of
minor importance. The writings of classical economists and of some of
their later commentators were very much influenced by the fact that the
first formulation of economic theory was a description of the
industrialization process: the priority, which was quite adequate for
this purpose, was to measure a flow of goods and the value added,
whether supply-, or demand-based.

In the Service Economy, where the industrialization process per se is no
longer identified as the prime mover in increasing the wealth of
nations, the problem is quite different and the contradiction between
wealth and riches becomes much more important.

The divergence of the notion of riches from the notion of wealth
corresponds to what can be called the development of deducted values in
the modern economy. Increase in these deducted values stems from the
increasingly higher allocation of economic resources to activities which
do not add to the real level of wealth (or of riches), but which are in
fact absorbed by rising costs of the functioning of the economic system.

Let us take an example. In many households, the level of wealth is
sharply increased by the introduction of washing machines, other
electrical appliances, and new tools that make housework easier. But
with the increased level of wealth comes an increase in the amount of
waste produced in the home, which, during the 1960s, led the research
divisions of companies producing household appliances to develop new
machines for getting rid of kitchen waste. In a traditional sense, a
waste shredder (or a waste compactor) machine adds to wealth, whereas in
reality, it is merely coming with the increased nuisance at one place in
the system (the private house) and creating a system breakdown elsewhere
(at the sewage or waste-treatment plant). In addition, we have not
become richer by having a machine to destroy garbage, as compared to
when we had no garbage to get rid of. But, according to the economics of
the Industrial Revolution, our wealth has increased.

Examples of this trend which began in the 1960s abound. Air and water
pollution are obvious cases of diminishing real wealth (or of
diminishing riches). If money is invested to de-pollute water or to
develop alternative solutions such as bottled water, special reservoirs
for drinking water, or swimming pools next to a polluted seashore, we
are once again confronted by Catch-22 situations where investments are
necessary to compensate for riches lost through, for example, pollution:
these investments are not net added value to our wealth!

The growing discrepancies between levels of wealth and riches (or the
contradiction between economically accounted wealth and real wealth)
clearly indicate the need to refer increasingly to stock, i.e.
variations in real wealth, as a substitute for the measurement of
production flows (the bathtub example). Furthermore, there is also a
problem of matching real added values to deducted values. A new
conceptual approach to systems for measuring the real results will have
to replace the simple analysis of the costs of an isolated activity.

The notion of deducted value implies the need to take into consideration
the notion of negative value. In terms of economic analysis, this is
already a step in the right direction, given that in many cases the
negative side of economic activities has simply remained unaccounted
for. Diminishing increase in an economic situation has in fact to be
distinguished from a net negative process. Measuring wealth through
flows that do not fill a bathtub, or even worse, that are shut off,
excludes the notion of negative flows. Only by looking at the stock can
positive and negative variations be measured and a decision taken as to
whether the flows produce values added or values deducted.

Besides the formal conversion of the GNP into an SNI, the meta-message
of this report concerns the necessity of defining economics in a final
tuning way, by pointing at not only the paradoxes but also at its
diversity. Economics is not a law of nature, and when it comes to
output, income growth and distribution, resource use and welfare
development, any system can be chosen and molded because what are
involved are primarily questions of culture, choices that are made and
implemented by human beings, with the economy merely a tool to help us,
nothing more. Economics should then beand can be an instrument to
define the truth.

    WHAT HAPPENS IF WE FAIL IN THIS QUEST?

In the first place, we would reiterate our original message; in the
words of Jay Forrester: "Over the last hundred years, life on earth was
dominated by growth. Growth of population, of production, of income and
capital formation, of exhaustion and pollution. This growth is going to
stop and must stop, and the only question is by what means? Voluntarily,
by government and free will, or through natural processes, which means
collapse and disaster?"

Ultimately, this is the vision of the future, and many elements of it
have already become reality in the world around us: collapse of
life-support systems, of communities, regions and nations, lack of food,
scarcity of water, climate change and, ultimately, war. Of the
approximately 100 wars now being fought in the world, more than 70
percent originate in part in exhausted resources and collapsing
life-support systems. This is the ultimate consequence, clearly
confirmed by such authors as Meadows, Kennedy, Kaplan, and c others (see
References).

The second consequence consists in the mild precursor of this collapse,
the process of individual enrichment of the few at the cost of growing
public poverty, the decline in wealth and welfare to be observed
everywhere today, now methodologically confirmed by the aforementioned
studies of Daly and Cobb.

It is important to hold modern Western political practice up to this
light, a practice consisting of ever more austerity programs to secure
the integrity of purchasing power or of individual consumption, to which
political affairs are being sacrificed.

Because the dominant focus of technology is to substitute labor (a
process known as productivity growth), an imbalance in income growth
sets in between those sectors where productivity risesin other words,
industryand those where it cannot; in health care, education, justice,
and public administration, for example. Wage demands in these sectors
cannot be absorbed by rising output, although due attempts are made by
amalgamating schools, closing senior citizens' homes and hospitals,
abolishing police corps, and overloading the courts. The ultimate
outcome is that the modern welfare society is disappearing, to the
benefit of growing private consumption and the enrichment of a small
elite. The neoliberal model thus becomes the future: miserable public
services, bad public transport, decrepid and unsafe inner cities,
overcrowded and ever more unhygienic hospitals, impoverished senior
citizens; unmotivated, poor education; neglected culture, minimization
of scientific research, and environmental neglect. Every government
today holds up this agenda, and it is no wonder that they are all
concerned above all with cranking up production growth, in the hope that
this will generate funds with which to compensate for the new poverty.
That may have worked with growth in the past, but it does so no longer,
because an ever greater proportion of each new round of production
growth consists of negative economy: compensation and repairs,
processing of waste and controlling of complexity, in other words
expenditure that is taken to be income. The contemporary example par
excellence is in those countries which today suffer from war,
guerrillas, and dictatorship, and where the arms industry is earning
masses of money and, when one day there is peace, so will the demolition
companies, the clear-up gangs, the contractors, the international
consultancy agencies, the whole redevelopment business. When,
twenty-five or fifty years from now, the country has been redeveloped to
its condition prior to 1990, no net achievement will have been made, but
the growth figures will be high.

This is the fate of every economy that has exceeded the limits to
growth, and this means that in those countries, monetary policies are
leading to accelerated demolition of both the welfare state and the
cornerstones on which production growth rests.

Both forms of collapse are the result of the hypocrisy and the
metaphysic bound up in the economic information. This report is about
the unmasking of that hypocrisy and is thus a plea for a form of
rationalization that in the world of economic metaphysics has until now
proved extremely difficult. Economics can be a beautiful instrument when
applied in its original meaning: to put the house (oikos) of mankind in
order. [p.p. 1-11]

------------------------------------------------------------------------

http://dieoff.org/page25.htm 

-- 
Respectfully, Roger L. Bagula
tftn@earthlink.net, 11759Waterhill Road, Lakeside,Ca 92040-2905,tel: 619-5610814 :
URL :  http://home.earthlink.net/~tftn
URL :  http://victorian.fortunecity.com/carmelita/435/