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Eco Economics Takes on Neoliberalism

Ever since Milton Friedman, American economist (1912-2006), who considered himself the heir to Adam Smith, used the term neoliberalism in an essay “Neoliberalism and its Prospects” in 1951, the world has tilted in that direction, starting with Chile as the “Chicago Boys” lab experiment under the watchful eye of the infamous dictator General Augusto José Ramón Pinochet Ugarte, president from 1974-90. The world has never been the same.

Today, neoliberalism reigns supreme across the oceans, whereby control of economic principles shifts from the public sector to the private sector with limited governmental interference, the less the better, open markets, free trade for all and deregulation piled upon deregulation as well as austerity for the masses (look at Greece and Spain for major pushback movements, happening today).

With neoliberalism, the market pretty much determines everything. When looked at from another angle, the world becomes a gigantic commoditized sphere spinning around the solar system, as markets set prices for everything, except for the biosphere, a very big “except for,” indeed.

Does it make sense to set prices for everything, except for the biosphere? Since everything, from wheat to space travel, is market-driven, why not the atmosphere, why not oceans, why not soil? Why leave the biosphere out of the realm of the market?

After all, since survival of the fittest is as old as nature, and since neoliberalism, in practice, dictates ‘survival of the fittest economics’ it mirrors nature’s behavior, although, as it happens in real life, neoliberalism is bottom-feeder economics whereby the rich accumulate more and more and more at the expense of lower and lower and lower wages, less benefits, and crushed self-esteem. What could be worse?

There is a better way, a sharper focus found within eco economics, which ties the whole picture together, the externalities outside of markets as well as everything inside markets, thus, integrating important externalities into the market system, e.g., biophysical limits.

As it goes, rather than contest capitalistic tendencies, which never budge, then join the party by recasting neoliberalism as eco economics wherein “natural capital” is an adjunct to labor and human-made capital.

After all, Earth is a finite planet consisting of natural capital, but breaching natural limits brings big trouble, as angst surfaces, morphing into eye-gouging battles and/or large-scale warfare.

The Ecological Footprint

“Ecological footprint can be represented as the aggregate area of land and water in various ecological categories that is claimed by participants in that economy to produce all the resources they consume, and to absorb all their wastes they generate on a continuous basis, using current technology,” Mathis Wackernagel and William E. Rees, Perceptual and Structural Barriers to Investing in Natural Capital: Economics from an Ecological Footprint Perspective, Ecological Economics 20, May 28, 1996.

“Ecological economists acknowledge that industrialized societies depend for survival not only on labor and human-made capital, but also on natural capital,” Ibid.

For example, a forest or a fishery is capable of producing a perpetual harvest, year after year. The forest or fish stock is the natural capital; the sustainable harvest is the natural income.

However, natural capital is not simply an inventory of resources. It is all of the components of the ecosphere, including the structural relationships that make life possible. Natural capital is defined by Sir John Richard Hicks, British economist, 1904-1989, Hicksian natural capital, bringing forth Hicksian natural income, which is the level of consumption that can be sustained from one period to another period without reducing natural wealth, which is key to successful eco economics.

“Our problem is that the capital we have endeavored to maintain intact is humanly created capital only. The category ‘natural capital’ is left out. Indeed it is left out by definition as long as one defines capital as (humanly) produced means of production,”
Herman E. Daly, et al, For the Common Good: Redirecting the Economy Toward Community, the Environment, and a Sustainable Future, Beacon Press Books, 1994.

By studying the makeup of natural capital, estimates of its ecological footprint and its appropriate carrying capacity indicate whether consumption levels can be sustained via the store of available ecological productivity.

For example, the average person in an industrialized country requires the equivalent of 2-5 hectares (5-12 acres) of productive land to sustain material consumption, derived by resource flows contained in goods and services. However, there are only 1.5 hectares per capita of ecologically productive land on the planet (World Resources Institute).

Ipso facto, there is a sustainability gap, which helps to explain why natural capital depletion is ongoing rather than a sustainable flow of natural capital. In fact, rough calculations “suggest the ecological footprint of all industrial nations, representing less than 20% of the world population, is larger than the available ecologically productive land on Earth (Wackernagel and Rees).

In other words, 20% of the world’s population consumes 100% of the ecological productive capital of the planet, beyond which natural capital goes into deficit, helping to clarify why 2.7 billion people live on $2 per day (source: World Bank), equivalent to one trip to Starbuck’s per day, almost.

“It is simply not possible… for everybody in the world to consume at current industrial levels without risking irreversible resource depletion and ecosphere collapse,” (Wackernagel).

Globalism and self-interests, as embodied, and emboldened, within the tenets of neoliberalism, are dominant factors in the depletion of natural capital, underscoring a particularly pernicious form of market failure as Adam Smith’s “invisible hand” effectively maximizes material well-being in an unlimited natural environment, whereas in a finite system like the ecosphere, the competition inherent with the invisible hand serves as a force of destruction.

Aggravating matters, “globalization” implicitly assumes an infinite world, which it is not. Furthermore, and unfortunately, humankind does not succor natural capital.

Eco economics seeks (1) sustainable scale, (2) fair distribution of resources, and (3) efficient allocation (Robert Costanza, Gund Professor of Ecological Economics, Univ. of Vermont, at Yale School of Management, Interview, May 2010).

Neoliberalism does not measure up to Costanza’s standards, rather, it instigates a ‘scorched earth’ modus operandi driven by unrelenting forces of profit for the sake of profits, forgetting sustainable scale, forgetting fair distribution of resources, forgetting efficient allocation.

As a result of the laser-like focus on profits, a win or lose proposition arises, emphasizing neoliberalism’s failure to recognize the scale of a finite planet. Biophysical limits should restrain certain activities, like, for example, industrial drift net fishing techniques (banned but still practiced with certain alternations), whereby nets extend as far as 30 miles, entrapping and killing every living creature of nature’s capital in sight.

Additionally, neoliberalism does not take into account fair distribution of income. But, research has proven that the more unequal income becomes, the less productive the economy. In that regard, mainstream economics is focused on “having more” with the idea that there is more to spread around. However, that “trickle down” theory is a myth. The one percent proves it by capturing and hoarding enormous disproportionate amounts of capital (it’s why there’re called “the one percent”), creating competing groups within society, placing society at odds with itself.

Social externality: e.g. buying a bigger house to compete with other bigger houses creates a ripple effect of others competing and buying bigger homes (keeping up with the Joneses), thus, over-extending themselves, as a result, working harder to support an upscale lifestyle well beyond natural limits. As it happens, often times quality of life actually suffers rather than improves.

To counter the insatiable consumerism compulsion of “buying for glory,” a social externality that drains nature’s capital, Robert Frank, an economist at Cornell, suggests a progressive consumption tax. Luxury costs more whereas investing in socially productive items means no tax at all.

As for example, under sustainability theory, Wal-Mart’s sustainability would consist of 100% renewable energy, zero waste, and selling products that sustain both people and environment. Imagine the quantities of frivolous merchandise that would be eliminated with likely scaled-down stores.

In nature things do not grow forever, if otherwise, sunflowers would grow into the clouds and we’d have 900-pound hamsters, which conversely grow into a “steady state,” staying small. If economies follow the course of nature, growth stages would compensate by moving into a steady state, like all natural systems. This means the end of cutthroat competition to grow, grow, grow; alternatively, going into cooperation and collaboration for a steady state of development, a sustainable ecosphere.

One solution to neoliberalism’s cutthroat principles is common asset trusts as imagined by Elinor Ostrom, 2009 Nobel Memorial Prize, American political economist (1933-2012), Governing the Commons, Cambridge University Press, 1990, demonstrating how common property could be successfully managed by user associations, making the atmosphere an asset with property rights on behalf of the global community. Anyone who damages the global property is charged for damage, which provides legal justification for carbon tax, which tax is used to pay a dividend to all of the owners (also advocated by Dr. James Hansen, a leading expert on climate change), also helping solve the distribution issue. Additionally, set up ocean trusts, watershed trusts, etc.

An interesting comparison/contrasting case study of allocation of resources is the ‘08 financial meltdown when trillions were spent to save finance, i.e., Wall Street, commercial banks and large insurers. So, why not spend trillions on sustainable future with an ecological consumption tax to supplement the income tax to help finance ecological sustainability? If spending trillions of taxpayer’s money saves Wall Street, then, what of the ecosphere, which is the basic infrastructure, the one and only basic infrastructure, behind everything neoliberalism strives to accomplish?

At the end of the day, it is believed that in a world where degradation of nature is no longer free, no free get out of jail cards allowed, sustainable goods will cost less, and gain market share and become profitable. Nobody should profit from degradation of nature’s capital. Nevertheless, that’s what’s happening right now.

Robert Hunziker lives in Los Angeles and can be reached at roberthunziker@icloud.com

More articles by:

Robert Hunziker lives in Los Angeles and can be reached at rlhunziker@gmail.com.

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