The following is the fourteenth installment from Sacred Economics: Money, Gift, and Society in the Age of Transition, available from EVOLVER EDITIONS/North Atlantic Books. You can read the Introduction here, and visit the Sacred Economics homepage here.
Infinite growth of material consumption in a finite world is an impossibility.
–E. F. Schumacher
The last two chapters have outlined an economy that is sustainable: it incorporates the ecological limits of the planet, and it thrives without a structural need for endless growth in consumption. But is sustainability to be our highest aspiration?
I have long been impatient with sustainability, as if that were an end in itself. Isnt it more important to think about what we want to sustain, and therefore what we want to create? Many beautiful, necessary things are not sustainable: pregnancy, for example. I am heartened by the recent shift of thinking away from sustainability and toward transition. What we are transitioning to will be far more sustainable than our current way of life, but that is not the ultimate goal, just as the ultimate goal of life is not merely to stay alive.
A core concept of sacred economics is that it is an extension of ecology rather than an exception to it. So we have to ask, is nature fundamentally stable, sustainable, or harmonious? Does it have the characteristics that we want in a society? Some people dismiss the idea that nature is harmonious or balanced, emphasizing instead its cruel, competitive, and wasteful aspects. This position has deep ideological implications, for it justifies the program of Ascent: to dominate and master nature through science and technology. Usually, people sympathetic to this view also carry a Hobbesian view of primitive society and human nature and see civilization with its various methods of social control to be a great improvement over brutal, primitive times. This is part of the story of Ascent–to rise above our animal nature into an exclusively human realm.
The view of nature as a vast competitive arena, a Darwinian struggle for survival among discrete competing organisms, reverberates throughout economic theory. In biology this paradigm has come under increasing challenge, but its economic translation still reigns supreme among most professional economists and policymakers. Just as Darwinian selfish genes are supposed to maximize their reproductive self-interest, so does Adam Smiths economic man seek to maximize economic self-interest. This is a core assumption of economics instrumental in formulating the laws of supply and demand.
In the last two decades, a momentous paradigm shift has emerged in biology that emphasizes cooperation, symbiosis, and homeostatic maintenance of wholes larger than the individual organism. Furthermore, the very notion of genetic integrity has come under question as new discoveries demonstrate the importance of gene sharing across organism and species boundaries. The downfall of the paradigm of competing separate selves in biology corresponds to similar developments in psychology, sociology, and–yes–economics. Competition and the survival of the fittest can no longer be axiomatic in any field.
That is not to say that competition is unimportant, or that nature is unchanging. Unsustainable processes do happen in nature, and they are not aberrations. They too serve a purpose: to propel systems from one phase to another.
At a recent conference, someone objected to my view of the law of return by observing that natural systems sometimes do produce large amounts of waste products that no other organism can utilize and that poison the environment for all. He was perhaps thinking of the Precambrian oxygen catastrophe, when photosynthesizing organisms emerged and poisoned the atmosphere with their waste product, oxygen. In the classic view, this malfunction of nature would have meant the end of life on earth if it werent for the extremely fortunate emergence of aerobic organisms that could remove oxygen from the atmosphere. This wasnt natures harmony–it was a highly unlikely chance mutation. The conclusion is that we cannot rely on natures harmony, that we are always on the verge of catastrophe and therefore must exercise technological control over nature, over the body, and over human nature. This is the ideology of Ascent, which is congruent to the economic ideology of growth and inimical to the ideal of a steady-state economy. My questioner didnt go this far; his point was basically, Dont appeal to natural law to justify a zero-growth economy.
I would like to embed the catastrophe phenomenon in a larger context. It is true that positive-feedback loops such as the Precambrian oxygen catastrophe exist in nature. They come at special moments, though–moments of transformation. It is, for example, a positive feedback cascade of self-reinforcing, self-augmenting hormones that triggers the childbirth process. Childbirth labor is unsustainable–it would kill the mother if it continued too long–but once its goal is accomplished, the mother returns to homeostasis. Positive feedback phases take an organism or ecosystem from an old steady-state phase to a new one.
We can look at money in exactly this way. Money, along with technology, is one of the key hormones of the human metaorganism that is propelling us on an unsustainable course toward a new estate. Technology builds on past technology and creates problems that necessitate yet more technology. Capital builds on past capital and is created through interest-bearing debt that requires exponentially more capital to be created in the future. Unsustainable, yes, but only unnatural if we try to sustain it past its time. Positive feedback processes always hit limits. Earths contractions intensify only up to a point–then a baby is born. What we see with alarm as an exponential growth curve is actually part of a phase transition curve.
Transition to Steady-State: Bump or Crash?
Figures 2 through 5 illustrate this point. The solid line represents the growth of money, population, energy consumption, resource use, CO2 emissions, and lots of other things up until the present time. It is an exponential curve. The dotted lines represent four possible futures. Figure 2 represents the techno-topian myth of Ascent, which says that exponential growth can and will continue forever as we conquer the galaxy and the universe. It says that when we grow past the limits of the earth, we will colonize the stars and terraform new planets; that the infinitude of the universe will contain our infinite exponential growth.
Current economic policy still embodies the curve in Figure 2. Although many people today recognize that continued exponential growth threatens the basis of life on earth, this realization hasnt yet infiltrated into mainstream economic discourse, which still focuses on growth.
The fear of the pessimists is that the continuation of the heretofore exponential curve can be no other than Figure 3–a catastrophic crash back to the baseline. This is essentially the prediction of collapsist thinkers in the anticivilization and Peak Oil movements, who compare our present condition to the demographics of animals like locusts, who have a massive population explosion that pushes their numbers far above the lands carrying capacity, followed by a population crash. We too, they say, are living far above the earths carrying capacity, and so a population implosion is inevitable.
Doom-and-gloom, collapsist scenarios such as Armageddon, popularizations of 2012 prophecies, or other cataclysmic end-of-the-world events have a certain emotional appeal, an appeal I must confess to have felt at times myself. Part of me wants out. I am not alone in this. Many of us are tired of the modern world, with its violence, alienation, poverty, and deadness, and we despair of ever changing it. A world-changing event that does it for us is appealing, whether it is some miracle technology come to save us, or Jesus come to save us, or UFOs, or even some geological, social, or economic cataclysm. Many collapsist thinkers are also drawn to what might follow collapse: a lower-tech, communal society connected to nature, spirit, and the old ways. Furthermore, the prospect of economic or environmental collapse gratifies that vindictive part of us that wants to say, I told you so!–the part that wants to see the wicked punished.
Unfortunately, collapse scenarios involve immense suffering: hundreds of millions or billions of casualties. Moreover, they involve the erasure of the entire edifice of civilization, the good along with the bad. That would be OK if indeed technology and culture were a mistake, but I think that like those of all beings, our gifts have a purpose, a purpose we have yet to discover. We are emerging now from childhood, and the crises we have created offer the first opportunity to apply our gifts to their true purpose. In a subtle way, to reject our gifts wholesale is just as much a mind-set of Separation as to exalt them above the rest of nature. Both are a kind of anthropocentric exceptionalism. Can we not reunite with nature as a mature species?
With that in mind, I offer two more curves that equally fit the data points we have up until now. Figure 4 shows a curve that is quite common in nature: a time of rapid growth that eventually slows and approaches a steady state. This curve could map the growth of an adolescent human, the total biomass of vegetation regrowing on barren land, or the population of bacteria newly introduced into a petri dish with a constant food supply. Figure 5 represents another common pattern: a peak above long-term sustainable levels followed by a gradual decline toward a steady-state.
Phases of rapid growth driven by competition, followed by a phase transition into a steady state, are quite common in nature. Think of an immature ecosystem with weeds and saplings racing for sunlight. This is but a phase of a larger process that culminates in a symbiotic, complex, nonlinear, and stable forest. Immersed in an economy and ideology corresponding to the immature ecosystem, we have seen its headlong competition as natures way. Perhaps humanity too is maturing, self-organizing into mutualistic wholes in which competition and growth are no longer primary.
As a matter of fact, recent demographic statistics seem to show not a population crash, but a rapid deceleration of growth. We could see either a leveling off of population as it approaches an asymptote at about 8 or 9 billion people (Figure 4), or a peak at about that level followed by a decline toward a steady state of a couple billion (Figure 5). Interpreting these curves in economic terms, either the monetization of life will slow down and stop (i.e., economic growth will gradually slow until we reach a steady-state, zero-growth economy), or it will contract a bit first before stabilizing at a lower level (lower per-capita GDP) than today. Figure 4 shows the first scenario, Figure 5 the second. In both cases, population and economy, I foresee the latter.
Demographic statistics support this conjecture. As a country approaches full industrialization, its birthrate slows–in most cases to below the replacement rate. This implies a gentle, natural decline in population, not a catastrophic mass die-off. I think that on a healing planet, both GDP and population will peak within the next three decades, level off, and then contract by a few percent per decade until they reach a sustainable level.1 The trend has started already: according to 2006 U.N. projections, the worlds fertility rate has dropped in the last decade from 2.65 to 2.55 live births per woman. Over the past half-century, fertility rates in the most highly industrialized countries have dropped dramatically, in most cases to well under the replacement level of 2.1. Interestingly, the inverse correlation between a nations human development index (HDI, a measure of well-being that avoids many of the flaws of GDP) and its fertility rate has, in the last few years, reversed at the upper extreme of HDI. In other words, the fertility rate is showing signs of recovery to near replacement levels when economic development nears completion.2
I dont intend these statistics to be anything more than suggestive of a possibility. Im not going to attempt to predict the future, but I think that the ravages of Separation such as the conversion of health capital into money, will result in drastically reduced fertility and increase mortality over the next half-century. The world population circa 2100 may be moderately smaller than it is today. In economy, we will reclaim much of the monetized, privatized realm for the commons and the gift. Much that is commodity today will no longer be commodity as new, cooperative economic forms spring up to meet local needs.
The severity of the bump in Figure 5 depends on how far we overshoot the sustainable baseline. I believe that we missed our chance for an effortless (Figure 4) transition in the 1960s, which really represented the natural zenith of the Age of Separation. And we caught a glimpse of it, too! We caught a glimpse of a more beautiful world, so close. The hippies saw it and lived it for a few shining moments, but the old stories were too strong. Instead of the hippies pulling us all into a new world, we dragged them back into ours.
The longer the Age of Separation persists, the more traumatic the transition will be, and the farther and more abrupt the drop to a sustainable baseline. In the limit case, it approaches the calamity of Figure 3. That is why it is so important to protect whatever we can of the remainder of the commons, to limit growth and preserve real wealth to sustain life after the bump–to hasten the crash and mitigate its severity. Even today, forty squandered years after the Great Awakening of the 1960s, it is still not too late for a soft landing.
Shrinking Money, Growing Wealth
Today, economic recession is the bogeyman of policy makers, who quite understandably associate it with unemployment, poverty, and social unrest. I have explained already how a negative-interest system allows credit to circulate even in a shrinking economy, thereby avoiding polarization of wealth and a deflationary spiral. Even so, many people would be aghast at a call for negative economic growth: wouldnt that, by definition, mean that society were made poorer? Wouldnt that, by definition, mean a decline in the volume of goods and services available for the public benefit?
No, it would not. Negative economic growth doesnt entail a decline in wealth at all, nor a decline in the availability of what we call goods and services. Remember, goods and services at present are defined as things that are exchanged for money. If they are provided through some other, nonmonetary, mechanism, then the statistical economy can shrink even as the real economy–what people make and do for each other–grows richer.
I will not mince words: in this book I am calling for economic degrowth, a shrinking of the economy, a recession that will last decades or centuries. Obviously, the word recession has negative connotations today, though it really just means a time of receding. I am most emphatically not saying that we must make some sacrifices to our quality of life for the good of the planet. Rather, we need but reduce the role of money. If our future includes a diversification in the modes of human sharing, then economic growth no longer has the same meaning it has today. We dont need to become more altruistic and self-sacrificing, forgoing our own benefit for the good of others. How tightly we hold to the equation of money and self-interest! But it shall be so no longer. Let me illustrate by way of some examples how we can all become richer through the shrinkage of the money realm.
Today already there is a vast software industry that operates using very little money. I wrote this book on OpenOffice, a software package available for a voluntary donation that was written mostly by a community of unpaid programmers. One might say that those programmers are paid not in money, but in the esteem of their fellows, a kind of social currency. I prefer to see their productivity as a gift economy, which naturally generates respect and gratitude among community members. Either way, this mode of production does not show up in GDP statistics. We could easily have a shrinking economy that offers more and more, better and better, products like these. And the more there are, the less we need money; the less we need money, the more leisure time we have; the more leisure time we have, the more we can afford to make our own offerings to the gift economy.
For many categories of goods, marginal costs of production are now practically zero. This is true of nearly all digital products, such as software, music, movies, and so forth. Considerable costs may be involved in the production of the first unit, but after that, the cost per unit is essentially zero. The industry has tried therefore to create an artificial scarcity through copyright protection, digital rights management schemes, and so forth. It is quite irrational that the only way we have of rewarding the creators of digital content is to give it to fewer people than could benefit from it. Every person could have access to every movie, song, and software program in existence, and it would cost the producers no more than it does today. Nonscarce goods should not be subject to payment in scarce currency. Indeed, many producers of nonscarce goods have given up trying to maintain their artificial scarcity and try to make money instead by asking for voluntary payments, selling advertising, or charging for technical support, training, or in the case of music, live concerts. Time, attention, space in a concert venue, and so on are all scarce resources, and they fit much more easily into the money realm. Nonetheless, the net result is economic degrowth: as one writer puts it,
Their basic idea, which is great as far as it goes, is to use free content to piggyback monetized auxiliary services: Linux distros [distributions] offering tech support and customization, music companies selling certified authentic copies available at a convenient location, Phish selling concert tickets, etc. One thing they fail to adequately address, though, is that the total amount of cash available from such auxiliary services is less than what proprietary content brought in. Encarta sales didnt bring in money equivalent to the exchange value it destroyed for Britannica et al. And Wikipedia destroyed billions in net monetized value for both hard-copy encyclopedias and Encarta.3
If this trend continues (and it appears to be spreading as more and more traditional media move online), we will indeed see a perfect example of greater wealth accompanied by a smaller (money) economy.
Digital goods are an extreme example of a more general phenomenon. Many other products are trending toward near-zero marginal costs. The actual marginal production cost of most pharmaceutical medicines is but pennies per pill. Even bulk industrial commodities such as screws cost much less than in the past, not only in terms of money and human labor but even, sometimes, in terms of energy input. This is because of the accumulation of decades or centuries of innovation. It is another aspect of our divine bequest–in this case of culture rather than nature–from which all human beings equally deserve to benefit.
The evolution toward sacred economy is of a whole with a more general civilizational transformation. Parallel changes are happening in medicine, education, agriculture, government, science, and every other institution of our culture. Changes in each realm reinforce changes in the rest. So it is with the economic effects of the shift toward natural medicine. A mere century or two ago, only a very few people paid for medical care, which was provided through an informal network of folk healers, herbal doctors, and, for most common maladies, grandmothers and neighbors. Herbal knowledge was widely dispersed and usually applied without payment. Even if it were fully professionalized, the profit potential of herbal medicine (and most other forms of natural medicine) is far lower than that of high-tech medicine. Compared to the complex, high-tech processes that go into pharmaceutical medicine, herbal medicine is cheap to produce. Many of the best medicinal plants are near-ubiquitous weeds. A shift toward herbal medicine, homeopathic medicine, and the myriad mind-body modalities blossoming today promises economic degrowth, yet it entails no reduction in our quality of life.4
Another area for economic degrowth is architecture and urban design. In addition to disconnecting us from community, nature, and place, the expansive, alienating suburbs of the last two generations demand enormous consumption of resources. Now, though, planners and builders are rediscovering the virtues of high-density urban design, smaller dwellings, mass-transit-friendly layouts, and multiuse developments that dont require so much driving. All of these changes cause economic shrinkage: fewer goods such as roads, gasoline, lumber, and so on are needed. With more vibrant public spaces, people also have less need to live in huge private spaces. People living in community depend less on externally produced entertainment and have more occasion to share and assist each other. All of that means a decrease in money-mediated activity.
Disintermediation and the P2P Revolution
Another source of economic shrinkage is the disintermediation that the internet has made possible. Disintermediation refers to the elimination of intermediaries: agents, brokers, middlemen, and so forth. Consider the example of Craigslist, which according to one estimate has destroyed $10 billion of annual revenue from classified ads, replacing it with only $100 million of its own revenues.5 Google has also made advertising more efficient (cheaper), not only seizing ad revenue from existing media but also reducing total industry-wide advertising expenditures. (Total adspend across all media fell by 9 percent in 2009.) Of course, as advertising has become cheaper, it has also become more ubiquitous; even so, the total size of the ad industry has peaked. Yes, we are passing through the time of peak advertising as the commons of the public attention has been saturated. I hope you arent too sad about the end of growth in advertising, which has been a major contributor to GDP growth. Meanwhile, many of the traditional functions of advertising and marketing which were once paid services are now being met for free through social networking. Similarly, the blogosphere has taken over many of the functions of traditional news distribution, but again at much less cost. The same is true of travel agency, stock brokerage, and many other industries where brokers and agents are no longer necessary. All of these factors contribute to economic deflation.
Disintermediation and open source software are both part of a more general phenomenon: the peer-to-peer (P2P) revolution. The older hierarchical and centralized structures of distribution, circulation, and production required a lot of money and human effort to administer. Moreover, their very nature isolated people from each other within narrow specialties, making gift exchange impossible.
Disintermediation is even affecting the credit system and subverting banks traditional role as financial intermediaries connecting investors and borrowers. Corporations bypass banks by obtaining financing directly from money markets, while new P2P lending websites such as LendingClub and Prosper.com now allow individuals to borrow directly from each other. Commercial credit-clearing rings, mutual factoring systems, and commercial barter networks, which I will discuss later, are other ways that information technology is reducing the role of centralized intermediary institutions. All of these developments will reduce GDP by lowering spending on financial services.
Because these ever-cheaper information economy services are a factor of production in nearly every other sector, degrowth here is contagious. This is true even in industries that we think of as growth industries. In 2000, for example, $371 billion was spent on PC hardware, including printers, servicing, and data storage. By 2009, this had shrunk to $326 billion. Obviously, this drop is not because we are buying fewer computers; it is because costs have fallen dramatically.
The commonest profit model on the internet is to run ads, essentially limiting the size of the entire digital economy to what level of advertising the physical economy can support. But the internet cannibalizes even itself: websites that offer free product reviews and price comparison searches render the very advertising that supports them obsolete.
What is happening is that the business model that has worked for all human history (find something people do for themselves or each other in a gift economy, take it away from them, and then sell it back) is being reversed. The internet is allowing people once again to do things for themselves and each other without paying for it. Eric Reasons comments,
Maybe the reason were having such a hard time finding out ways to monetize various internet services like Twitter, Facebook, and YouTube, is that they cant be monetized or at least not at replacement rates to the industries and services that theyre supplanting. This is exactly what the print media is finding out the hard way as it tries to shift to an online model.6
The internet is a participatory gift economy, a P2P network in which there is no consistent distinction between a producer and a consumer. When we share news, product recommendations, songs, and so forth with our online networks, we do not charge anyone for our information services. It is a gift economy. The content of most websites is free as well. Reasons concludes,
Were told to believe in our future in a knowledge-based economy, but nobody has really figured out how to make real money of it. Of those who are making money off of it (Craigslist, Google), they are making pennies per dollar in the old markets that theyve upset or practically eliminated with their innovation. This isnt because we havent found the right monetization scheme yet. It is because innovation is leading to efficiency and not growth, and that is exerting deflationary pressure on bloated industries. Moreover, it is largely being done by us, the end user, in our free time, because we want to create and share, not just consume.
While a redirection toward a participatory gift economy is new, the threat of overcapacity and underemployment has bedeviled capitalism for centuries, indicating that we dont need to work as hard as we do to support human life. Indeed, the imminent advent of an age of leisure has been before us ever since the first industrial machines came into use, machines that could do the work of a thousand men. Yet the implied promise, that soon we would all have to work only one-thousandth as hard, shows no signs of manifesting. And here I am promising it again. Will this vision likewise prove to be a mirage? No. The key difference is that we wont rely on technological improvements in efficiency alone to enable greater leisure. The key is degrowth, not efficiency. It seems very counterintuitive: that degrowth–economic recession–will be what ushers in true affluence for the many.
In a growth economy, the labor that could be freed up through technological progress is devoted instead to producing more and more stuff. If in 1870 it took ten labor-hours to produce the necessities of life for a household, and today it takes one labor-hour to produce the same quantity of things, then our system conspires to make us consume as much as ten households did in 1870. We hear talk about the American consumer, the engine of global economic growth. Implicit is a vision of wealth identified with endlessly accelerating consumption. A new computer every month, a new car every year, a bigger house every five years–new, more, bigger, better. It seems insane, but it is economically necessary in our present system because deflation dynamics lurk close at hand, awaiting the day when consumption lags behind productivity growth.
I do not foresee an abrupt transition to the economy I describe. Let us indulge our gentle disposition and allow that the habits of slavery are of long standing and may need some time to unwind. I foresee a degrowth rate of around 2 percent, so that our use of raw materials, our pollution of the air and water, and our time spent working for money not love falls by about half with each generation, until eventually the pace of degrowth slows as the economy approaches an equilibrium relationship with the planet a couple hundred years from now.
The system I have described offers an alternative to this future of bigger, better, and more followed by catastrophic collapse. Negative interest allows productive investment to continue, and money to circulate, even when the marginal return on capital is zero or less, while a commons-backed currency frees work to go toward nonconsumptive purposes. Next I will describe a third thread in the tapestry: the social dividend, which frees the purchasing power of workers from the need for full employment in the money economy.
1. GDP is likely to contract more quickly and less smoothly than population, perhaps by 1 to 2 percent per year, or about one-half per generation. This is on a global scale. In some countries growth will persist longer than in others.
2. Yong, Fertility Rates Climb Back Up.
3. Caron, Abundance Creates Utility but Destroys Exchange Value.
4. To be sure, there are things at which technological medicine excels. It is inferior to herbal medicine at treating most of the chronic conditions that afflict people today, but it is unsurpassed in most emergency situations. I am not advocating its termination, only its recession back into its proper realm. The same goes for many of the other bloated institutions that dominate our society.
5. Jarvis, When Innovation Yields Efficiency.
6. Reasons, Innovative Deflation."
Image by Sonya >> ??Y, courtesy of Creative Commons License.