Are economists still unsustainable?

by Patrick Bond

In economic theory, unquestionably the most famous line ever uttered is the
following: 'I think the economic logic behind dumping a load of toxic waste
in the lowest-wage country is impeccable and we should face up to that'.

The in-house memo that carried this wisdom was signed more than a decade ago
by the World Bank's chief economist, Lawrence Summers, who later became US
treasury secretary and is now president of Harvard University. Was it meant
to be 'ironic', as Summers claimed? When The Economist magazine published
the leaked memo in early February 1992 (and actually endorsed the impeccable
logic), Bank president Lewis Preston was visiting Johannesburg and humbly
conceded, 'Sometimes very smart people say very stupid things.'

But it wasn't stupid, it was a menu not only for the introduction of
market-based values in the Rio UN Conference on Environment and Development
a few months later. It also served as the clarion call for a subsequent
decade of displacement of pollution to the Third World, and of the
commodification of nature and indeed all elements of life, including water
and even air.

It is time for economists to confess and repent. Our profession led the way
to environmental unsustainability during the go-go 1990s because of the
confidence we had that market forces are the primary determinant of human
behaviour and that they maximise social well-being, so long as market
imperfections are not overwhelming.

Thank goodness that more attention to those imperfections was the hallmark
of a subsequent World Bank chief economist, Joseph Stiglitz. His
contributions to 'information-theoretic economics' won him the Nobel Prize
last year. Recognising the need for paradigmatic reform, Stiglitz coined the
term, 'Post-Washington Consensus', and repeatedly took his International
Monetary Fund colleagues across 18th Street to task. Because of that, he was
let go from the Bank in September 1999 and then joined Columbia University.
In the run-up to the WSSD, on August 16, Stiglitz called for the IMF to be
closed down because its economists are incapable of change.

What kinds of reforms have been proposed for the dismal science, to make it
more sustainable? Some, in the tradition of John Maynard Keynes, are
designed to roll back free-market economics because of a recognition that
states must correct imperfections such as insufficient consumer buying
power, and excessively monopolistic behaviour by large corporations.

But perhaps the most powerful environmental accounting in the field of
economics comes from Herman Daly, who also worked in the World Bank before
resigning in frustration. Daly, who moved to the University of Maryland in
1996, argued that we must 'internalise the externalities' associated with
pollution or ecological damage.

Under prevailing conditions, the ready solution is not to build these costs
into the market, but instead simply to displace them to somewhere political
power is negligible and the immediate environmental implications are less
visible, in the name of overall economic growth.

After all, Summers' memo continued, inhabitants of low-income countries
typically die before the age at which they would begin suffering prostate
cancer associated with toxic dumping. And in any event, using productivity
as a measure, low-income Africans are not worth very much anyhow. Nor are
African's aesthetic concerns with air pollution likely to be as substantive
as they are for wealthy northerners.

One of the most devastating critiques of such neoliberal understandings of
environmental economics is University of Oregon professor John Bellamy
Foster's essay on 'The Ecological Tyranny of the Bottom Line'. Foster cites
three fatal contradictions:

. the radical break with all previous human history necessitated by the
reduction of the human relation to nature to a set of market-based
utilities, rooted in the egoistic preferences of individuals;

. the radical displacement of the very idea of value or worth, resulting
from the domination of market values over everything else. It is this
widespread humanistic sense of systems of intrinsic value that are not
reducible to mere market values and cannot be included within a cost-benefit
analysis that so often frustrates the attempts of economists to carry out
contingent value analyses among the general public; and

. [market-based environmental] solutions, while sometimes attenuating the
problems in the short term, only accentuate the contradictions overall,
undermining both the conditions of life and the conditions of production The
reason for this is the sheer dynamism of the capitalist commodity economy,
which by its very nature accepts no barriers outside of itself, and seeks
constantly to increase its sphere of influence without regard to the effects
of this on our biosphere.

An inkling of such problems was recognised in the famous definition of
'sustainable development' offered by Gro Harlem Brundtland's World
Commission on Environment and Development in 1987: 'development that meets
the needs of the present without compromising the ability of future
generations to meet their own needs'.

However, Daly offered a tougher definition in order to highlight the
difference between 'growth' and 'development' in a context in which the
earth's capacity to act as a 'sink' reflects the physical ecosystem's limit
to the absolute size of the global economy. Daly sought sustainability in
'development without growth beyond environmental carrying capacity, where
development means qualitative improvement and growth means quantitative
increase'.

However, using this definition around the World Bank, Daly found, 'just
confirmed the orthodox economists' worst fears about the subversive nature
of the idea, and reinforced their resolve to keep it vague'.

Daly proposed at least four operative policy recommendations for both the
Bank and governments:

. stop counting natural capital as income;
. tax labour and income less, and tax resource throughput more;
. maximise the productivity of natural capital in the short run, and invest
in increasing its supply in the long run; and
. move away from the ideology of global economic integration by free trade,
free capital mobility, and export-led growth--and toward a more nationalist
orientation that seeks to develop domestic production for internal markets
as the first option, having recourse to international trade only when
clearly much more efficient.

These make a great deal of sense today. If the Washington Consensus was the
ideology of the late 20th century, can ecological economics and a genuine
recognition of market failure for most of the earth's human inhabitants
inform heads of state negotiating a grand deal in Johannesburg? If so, they
will have to change direction rather dramatically.

(Patrick Bond teaches at Wits University Graduate School of Public and
Development Management in South Africa. His new book, Unsustainable South
Africa, is published by University of Natal Press, Merlin in Britain and
Africa World Press in the US.)

Patrick Bond
phone (27)83-633-5548
fax (27)11-484-2729