A steady state economy is one which remains within fixed parameters (while allowing for the natural oscillations that occur in all dynamic systems) as opposed to our current economic system which is based on a compound growth model. However there are two major problems, one socio-economic and the other biophysical in nature, which must be overcome before the foundations of a steady state economy can be laid.
The sub-optimization of the world’s corporate/financial system
Humans form hierarchy’s to facilitate the workings of their societies. On the simplest level this can be a headman instructing the other villagers on building a dam to improve their agricultural production. The work is performed much faster and easier if directed by one competent leader than if each man performs to what he thinks is best. These hierarchies form subsystems within the greater whole system. In the past banks and corporations arose to help facilitate the workings of society. Banks for example were safe stores of wealth and were able to loan money to projects that would otherwise have not gone ahead. But in a world where capital wealth equals political power it was only a matter of time before the sub-optimization (subsystem domination to the detriment of the greater system) of the corporate/financial system took place.
Clear evidence of corporate/ financial sub-optimization can be found in the TARPs bank bailouts of 2008 when the political subsystem, now subservient to the financial subsystem, rejected the moral hazard argument and declared the banking system ‘too big to fail’ and taxpayers (the lowest rung of the social hierarchy) were forced to foot the bill.
When the corporate/financial subsystem has such a tight stranglehold on the rest of society from the political top to the taxpaying bottom and presenting a model of perpetual growth as the only way forwards, then how can a steady state economy possibly be initiated without first a separation of corporate interests and politics? And how could such a separation be brought about?
An Overfull World
Herman Daly, one of the world’s most prominent ecological economists, describes our current situation as a ‘full world’. He argues that in the last 80 years economic policies such as the growth model which seemed a good idea for reducing poverty no longer work because humanity is coming up against the biophysical constraints of our environment, the biosphere. These constraints include both resource depletion and degradation of environmental sinks. According to the Wackernagel Eco-footprint model, which is accepted by a majority of the environmental science community, humanity currently uses the equivalent of one and a half worlds to support the almost 7 billion and growing population. From an ecological perspective, this puts humanity 30% in overshoot of its environment. Humanity is therefore not in a full world but an overfull world.
Considering these biophysical constraints how can a steady state economy be initiated without first dealing with the inevitable decline that must take place bringing the economy back to a level where it can be supported by the environment?
Comments
The Growth Imperative: Two Hurdles, One System
Reading back through older posts for inspiration, this one is worth resurfacing. The two hurdles Neal identifies - corporate sub-optimization and biophysical overshoot - are not separate problems. They are the same system producing two outputs. The sub-optimization argument is structural. A subsystem that grows powerful enough to dominate the wider system stops serving that system and starts extracting from it. The financial sector is the clearest case. It was designed to allocate capital. It now allocates capital to itself. That is not a moral failure. It is a structural one. The reinforcing loop is straightforward: capital concentrates power, power shapes rules, rules favour capital concentration. Daly's full world argument is also structural. The growth model is a reinforcing feedback loop. Growth produces returns, returns demand more growth, more growth requires more resource throughput. The loop is self-reinforcing until it hits a boundary. The biosphere is the boundary. Overshoot is the signal that the loop has exceeded the system's carrying capacity. The two hurdles are the same loop operating at different scales. The financial subsystem grows by extracting from the wider system. The economic system grows by extracting from the biosphere. Both are reinforcing loops that have not yet been balanced by a feedback strong enough to constrain them. The question Neal asks - how to initiate a steady state without first separating corporate interests from politics - is the right question. But the leverage point may be elsewhere. The growth imperative is not just a policy choice. It is a structural requirement of a system built on debt, returns, and compounding. Steady state requires a different architecture, not just different rules. Regards,
Russell Larke
BA (Hons) Business Management | MSc Candidate (Systems Thinking)
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