BEYOND GROWTH:

For over two decades, Herman Daly has been one of America's most articulate critics of our economic behaviors, goals, and assumptions, defrocking the god of economic growth and bigger-is-better. In the tradition of E.F. Schumacher, an earlier renegade who launched his Small is Beautiful campaign from the vantage point of his own economics credentials, Daly is himself an eminently qualified economist. He received his doctorate from Vanderbilt University, taught at Louisiana State University, served as economist at the World Bank, and is currently on the faculty at the University of Maryland. This 1996 book, issued by Beacon Press, is another in his series on the subject of the economy and the environment, following Steady-State Economics (1977) and For the Common Good (1989), some journal articles and essays. In all of his writing, Daly has challenged our societal faith in economic growth and our denial of fundamental ecological limits to that growth. This newest book brings an update based on his six years at the World Bank where he observed first- hand the workings of this major institutional player in the world's economic development plans.

Daly describes the World Bank as still mired in the belief in the continued power of economic growth (increasing the flow of energy and materials through the economy) as the solution to poverty, rather the adopting the alternative: a three-prong prescription of population control, income redistribution and ecologically compatible development. Despite a small environmental resistance movement within the Bank, the Bank, according to Daly's Introduction, has proved unable to face the most basic question:

Is it better or worse for the South if the North continues to grow in its own resource use? The standard answer is that it is better because growth in the North increases markets for Southern exports, as well as funds for aid and investment by the North in the South. The alternative view is that growth makes things worse by preempting the remaining resources and ecological space needed to support economic growth in the South up to a sufficient level, and that it also increases global inequality and world tensions. This view urges continued development in the North, but not growth. The two answers to this basic question cannot both be right. (p. 8)

Daly has long used a different vocabulary from that found in standard economics texts. Among his precepts is a distinction between growth and development. Development, for Daly, means qualitative improvements, particularly in resource efficiency, so that economic activities do not exceed the regenerative and absorptive capacities of the ecosystem. Growth means quantitative increase in the amount of energy and materials taken from the earth and processed through the economy, returning to the earth usually in the form of waste. The economy must be viewed not so much from the perspective of money (GNP) as from a biophysical perspective: from source to sink, closely examining the resource-depleting and the waste-generating consequences of our choices. Daly is right in pointing out that we have missed, thus far in our economics, seeing the digestive tract, or biophysical aspects of the economy.

Sustainability is a very popular term these days, but it has had a hard time breaking into economic theory because the economics of the past fifty years has been overwhelmingly devoted to economic growth. Daly's extraordinary insight into the failure of our macroeconomics to come to grips with the central issue of scale -- the size of the economy relative to the ecosystem -- is presented with an insider's ironclad logic addressing his own profession. As Daly points out, the entire foundation of microeconomics is built on the concept of finding the optimal point (the point where marginal costs equal marginal benefits), yet economists merely abandon this concept of optimal scale when it comes to the macroeconomy. More is assumed to be better. Open a text on macroeconomics and we never hear again about optimal scale.

While Daly has given us some priceless insights into the blindspots of the economics profession, his blueprint for the sustainable or steady-state economy falls short of the specificity required for policy relevance -- at least through the eyes of this reviewer, a 15 year veteran of issues in environmental economics. His Chapter 4 on "Operationalizing Sustainable Development by Investing in Natural Capital" leaves us little beyond the prescription suggested by the chapter title. Again, Daly uses his razor-sharp insider's logic to persuasively argue that economists, as students of scarcity, should turn their attention toward preserving and enhancing the most scarce factor of production: natural capital (the ecological economists' term for the earth and its living systems; minerals, forests, watersheds, oceans, climate, soils, forests, etc. ... ). But Daly leaves us with precious little in the way of operational specifics. By remaining with a concept that lumps all natural resources and environmental assets together in one term -- natural capital -- Daly fails to come to grips with the patchwork of political and policy questions that determine the environmental-economic nexus around which natural capital is transformed: messy realities like interest- rate policies by the Federal Reserve, agricultural subsidies and policies, transportation policy, federal lands decisions about grazing, mineral rights, and logging, Endangered Species Act driven issues, EPA programs and geographic-specific initiatives like the Chesapeake Bay or the Everglades, and the panoply of federal-state-local government choices for curbing the urban sprawl.

Daly remains too far away from the nitty-gritty details that take us down to the front lines of "preserving natural capital". While he makes a nodding reference to the merit behind "ecological tax reform" (shifting the tax base away from labor and income toward resource depletion and waste disposal), he offers no proposals for its structure. To be more policy- relevant, he might have suggested a specific proposal for structuring a value-subtracted tax (my term) around the depletion of resources and waste disposal, for example. Instead, Daly makes no mention of laws that need to be passed by Congress or actions that need to be taken by government agencies at the federal, state or local level or of the many contexts in which "natural capital" appears. He does offer some praise for a "tradable permits scheme" in Chapter 2, but makes no mention of their administrative costs or the less-than-fully-successful experience to date with EPA's tradeable allowances program for sulfur dioxide emissions in the Clean Air Act. Like other policy tools, tradable permits bear their own advantages and disadvantages. International trade policy might be area where Daly is most policy- relevant. In his later chapters, he offers a formidable polemic against global economic integration by free trade and capital mobility. Since the advantages of international trade are taken as an article of faith among most economists, this chapter is one of Daly's best contributions to building an economics of sustainability. He speaks to economists by discussing the underlying assumptions of David Ricardo's Law of Comparative Advantage. (For Ricardo's comparative advantage to work, capital must be immobile, an assumption that no longer holds true.) He also speaks to non-economists by talking about other lesser-known side effects of international trade and specialization: higher transport costs, increased dependence on distant supplies and markets, and a reduced connection between production (where externalities may be born) and consumption (where consumers seldom see the effects of their consumer choices).

Most of Daly's technical critiques are aimed best at macroeconomists. Others will benefit from Daly's discussions of the counter-arguments against biophysical limits to growth: a belief in the information economy replacing other sectors, and appeals to the infinite possibilities of technology and resource substitution. Environmental policy wonks looking for new ways to couch solutions linking the environment to the economy will be disappointed. While the issue of scale may be absent in macroeconomics, it is ubiquitous in environmental issues (most recently in EPA's proposed air regulations restricting particulate matter and ozone in the air). While depletion of natural capital is ignored in our national income accounts, it is inescapable in environmental issues (albeit known by different terms: over- logging, over-grazing, over-fishing, desertification, biodiversity losses, topsoil loss and so on). I find that Daly's genius lies in his ability to present environmental issues in terms commensurate with the language and logic of economists, but the reverse is not true: equal genius does not extend to translating the insights of economics into environmental policy prescriptions. I want to ask him: after we burn our economics textbooks, then what?