Published 2010-04-10 by Derek Paul in Global issues | Sustainability

Observations of a Physicist on the Capitalist Economy

This paper was a pre-conference contribution for the "Slower by Design not Disaster: Managing Without Growth" roundtable, which took place on 7 May 2010 at York University.
The world cannot achieve any of its vital survival goals under the current system of a weakly controlled market system and a corporate oligarchy, since these require everything to be opposite (or orthogonal) to the road to sustainability.

Derek Paul
10 April 2010

Could anything be more insane than for the human race to die out because we "couldn't afford" to save ourselves?
John Hotson (economist)

Preliminary remark

It is the global footprint that must stop growing and then decline.

1. The market system and current rules by which capitalism moves forward in time

The current economic system leads naturally to

the growth of larger or stronger corporations at the expense of the smaller or financially weaker;
a growing gap between the richest and poorest segments of human population;
overexploitation of natural resources, including far greater greenhouse gas emissions than the Earth can tolerate having regard to preservation of the biosphere;
the pollution and/or depletion of land — forest and agricultural — and of water — fresh and ocean.

Corporate growth leads naturally to monopoly or oligarchy, which is not in the public interest. The rules preventing this have, during my lifetime, largely been set aside through corporate lobbying. Studies of efficiencies (productivity) of corporations once showed that the most efficient of them had no more than 300-500 employees, which is countered negatively by corporate growth or takeovers. The benefits of takeovers must therefore accrue to a very small number of powerful individuals who become extremely rich through such processes, at the expense of almost all others. Fiscal bubbles, particularly the one that took place in the fall of 2008, provide opportunities to rectify the obvious faults of the system, but instead, the Governments of Canada and the United States used their powers of money creation to accentuate the consolidation of corporate power into even fewer hands than prior to the 2008 bubble [1]. This would tend to indicate that powerful governments are deeply in the hands of corporate power, which leads to questions of what can be done about this. One general line of attack will be to demonstrate to government and to corporations that the present path leads to disaster, and another to make use of laws as they currently are.

A limit to growth that is essential having regard to the remarks on corporate power, above, is limiting the inappropriate use of such power. Groups of citizens or governments might be able to make use of the otherwise unfortunate fact that corporations have the status of persons under the law, a status many people would like to see abrogated. It is to be noted that corporations can exhibit pathological behaviour, as can happen with people. Mechanisms analogous to treatment of psychopathic people could be developed under the law as it stands, or under new laws created for the purpose, for the treatment of psychopathic behaviour of corporations. In extreme cases, it must be possible to revoke corporate charters, a suggestion to the no-growth roundtable.

2. Productivity and marginal returns

An important exercise in economics, for the sake of sustainability and survival, will be to require more rigorous definitions of productivity, since the denominator containing the inputs is often only partially completed, and the numerator, containing the outputs, invariably omits negative factors, namely undesirable byproducts of the productive process, some of which would be very costly to compensate. In light of these considerations, almost any claim of industry to have increased productivity can be questioned. It is even likely that productivity decreases have been put forward as increases these many years, but settling such matters will depend on applying a rigorous, agreed process in the evaluation of productivity. More important in the context of the survival of civilization, which is at root the reason for questioning economic growth as being good per se, is the connection between productivity, as it should be calculated, and marginal returns, as they should be calculated. This topic deserves careful study, as it ties in with Joseph Tainter’s claim (in The Collapse of Complex Societies CUP 1988) that civilizations fall when they experience diminishing marginal returns; that is, all collapsing societies have had this feature in common — a most important discovery, if it is in fact correct.

3. Usury

Adrian Kuzminski’s study of Edward Kellogg’s mid-nineteenth century monetary theory (preprint, private communication) suggests that the need for economic growth is an affect of usury. In his writings, which were in noninflationary times, Kellogg estimated that an interest rate of 1.1 percent would fit economic needs, and could be regarded as non-usurious. Would a ban on usury result in disappearance of the need for industrial growth?

4. The market system and population growth

Population growth ensures cheap labour, whereas a shortage of people of working age tends to ensure full employment [2]. It is therefore in the interest of citizens at large to keep the birth rate low, and ensure that immigration is held at a modest level, consistent with full employment and a more-or-less steady total population. The changing age distribution within low-birth-rate countries will assist in keeping the demand for labour high, though people will also tend to work until later in life, beyond 65 years of age. Full-employment policies will therefore also be important. In the many overpopulated, developed countries, the combination of birth rate over death rate and immigration/ over emigration needs to be adjusted to result in a declining population, unless the resource consumption of the population decreases considerably — see initial remark on global footprint. Canada’s eight percent unemployment is an indicator of the need to reduce immigration and simultaneously attend to other factors that will increase and maintain employment. It is to be noted that foreign takeovers of Canadian corporations tend to reduce Canadian employment, and are especially damaging to our human capital at top managerial levels.

5. Other limits to growth — footprint

Canada’s ecological footprint is increasing too fast, and most developed countries have overstepped their sustainable ecological footprint. The Netherlands is the most prominent in this [3]. It is foolish to measure Canada’s footprint or population in a simplistic way, since Canada has already built over much of its rather sparse agricultural land of high quality, and much Shield and northern land that is Canadian will never be highly productive agriculturally, and the increasing population all accrues in the largest centres. Added to this, agribusiness has depleted the quality of the soil wherever it sows and reaps annually.

Two useful, qualitative indicators of human overpopulation are: the numerical declines of species; and the extinction rate for species or the large and increasing numbers of threatened species. Another indicator of overpopulation is the amount of high-rise building plus roads and open parking lots, very evident in developed countries. One can afforest a city and some, such as Toronto, are already forested over much of their built-up area. However, roads and high-rise buildings and bare parking lots remove land from the ecosphere altogether. Mathis Wackernagel’s latest internet circular shows a huge excess of footprint over what nature can provide for the entire North, that is, North America, Europe and Asia; a barely sustainable footprint for Africa, and relatively low, sustainable footprints for South America and Australasia. This means that the footprints of nearly all developed nations should now be put into decline, in the interests of sustainability, and that great efforts should be made to reduce carbon burning, which will immensely reduce the global footprint — which some European nations are striving to do, since the European footprint is recognized by Europeans as being huge.

6. Further comments on immigration

It was stated at the Roundtable on Food and Population at Ryerson University, 21 November 2009, that when an immigrant is accepted into Canada from a poor country, that person’s carbon footprint rises from about 1 tonne per annum of CO₂ to as high as 16 tonnes per annum (perhaps more typically to 10 tonnes per annum). Thus, an immigration rate of only 200,000 people per annum raises the global carbon emissions by up to three million tonnes of CO₂ annually, a cumulative effect. Because of Canada’s largely cold winter climate, its carbon footprint is never likely to be as low as that of a tropical or subtropical country. It is in the world’s interest that tropical and subtropical countries remain habitable, though the trend is in the opposite direction, because of climate change.

Conclusions

The world cannot achieve any of its vital survival goals under the current system of a weakly controlled market system and a corporate oligarchy, since these require everything to be opposite (or orthogonal) to the road to sustainability [4]. Those who are interested to see a no-growth economy established should consider where and how to begin necessary changes. To start the discussion, here are a few suggestions from what must be a very long list.

Establish full-cost accounting and re-examine how productivity is calculated, since it is vital that real decreases in productivity not be established in the business columns, in the public’s mind or that of government, as increases. It will be important to tie in the new definition of productivity with marginal returns, in Tainter’s context.
The way in which modern societies might deal with pathological behaviour of corporations, especially large corporations deserves thorough study, the initiation of which should be an outcome of the roundtable. Approach to an academic lawyer, steeped in corporate law, is suggested.
Since it might overcome the need for growth, the permanent establishment of fiscal policy without usury should be studied. Particular attention should be paid to how one would manage pensions in a system without usury. Adrian Kuzminski has a book in preparation on a fiscal system without usury.
Controls on advertising are essential and urgently needed, to prevent building expectations that are unrealistic in the medium-term, and to prevent or discourage wastage. A nonlinear advertising tax could be useful [5].
It is necessary for Provinces and States make specific demands upon industry, for example road transport industries, to manufacture what is needed for a sustainable civilization, rather than what advertising has led people to want.
It is essential to begin a major trend in manufacturing toward recycling as opposed to condoning unnecessary mining and forestry. This would likely lead toward full employment.
Include education on sustainability in all school curricula.
Footprint-reduction measures. For example, set up or encourage a world system of afforestation programs, to include especially the Canadian and Russian north at the edge of the boreal forest, Afghanistan, and areas of Europe and elsewhere that were denuded of forests centuries ago, such as the Adriatic coast of Croatia. Also, study marginal areas that are already arid, but could sustain some forest, and then follow up by supporting the afforestation programs. Such work will also tend to be labour-intensive.
Use nominal-interest funding for all such vital projects, coupled to anti-inflation measures.
Study what factors could assist tropical and subtropical countries to remain habitable in the long term, as a substitute for increasing immigration to developed countries, and act upon the results of such studies.
Make maternal health information and contraceptive products available freely wherever in the world there is widespread poverty, or support the UN program to achieve this

Notes

1. If all bailout money had been given to individuals in Canada and the United States, together with a limited stay on bankruptcies, the effects might have been extremely beneficial to the people of Canada and the United States, and some small businesses that have gone bankrupt would have been saved.

2. After the Black Death in medieval Europe, serfdom largely disappeared and freemen found their labour to be nicely in demand.

3. W.E. Rees, in Encyclopedia of Biodiversity (Academic Press, San Diego, 2000) vol. 2, pp.229-44.

4. Ronald Wright called the present system a “suicide machine,” (A Short History of Progress, House of Anansi Press, 2005)

5. A tax on advertising could work so as to penalize heavily any corporation that expends more than a fraction (to be decided) of its gross revenue on advertising. A nonlinear scale for such a tax would be required. The proceeds of the tax could be used to render national television advertising-free, and to support other media.

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