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Economic vision: What is a Steady State Economy?

Economic vision: What is a Steady State Economy?

Wendi Pickerel

“The freethinking of one age is the common sense of the next.” – Matthew Arnold (1827-1888)

Equilibrium

Equilibrium

Currently, our global economy is shaped by neoclassical economic theories. Economic growth is the principal macroeconomic policy goal of neoclassical economics.

The World Bank defines economic growth as:

“(The) quantitative change or expansion in a country’s economy. Economic growth is conventionally measured as the percentage increase in gross domestic product (GDP) or gross national product (GNP) during one year. Economic growth comes in two forms: an economy can either grow “extensively” by using more resources (such as physical, human, or natural capital) or “intensively” by using the same amount of resources more efficiently (productively). When economic growth is achieved by using more labor, it does not result in per capita income growth…. But when economic growth is achieved through more productive use of all resources, including labor, it results in higher per capita income and improvement in people’s average standard of living. Intensive economic growth requires economic development.”[1]

More simply defined, economic growth is an increase in the production and consumption of goods and services.[2]

Where economic growth is the predominant macroeconomic policy goal identified in neoclassical economics, ecological economics has a different policy goal. Ecological economics is a transdisciplinary field of study. It addresses the relationships between ecosystems and economic systems. In their 1989 Introduction to Ecological Economics, Costanza, Daly and Bartholomew explain that:

“…ecological economics goes beyond our normal conceptions of scientific disciplines and tries to integrate and synthesize many different disciplinary perspectives. One way it does this is by focusing more directly on the problems, rather than the particular intellectual tools and models used to solve them, and by ignoring arbitrary intellectual turf boundaries. No discipline has intellectual precedence in an endeavor as important as achieving sustainability. While the intellectual tools we use in this quest are important, they are secondary to the goal of solving the critical problems of managing our use of the planet.”[3]

In addressing its concern for, “managing the use of our planet,” ecological economics has three primary goals: sustainability, equity, and efficiency. Therefore ecological economics considers economic growth and economic recession as unsustainable.

Lester Brown of The Worldwatch Institute presents at The Smithsonian’s 2012 series, Perspectives on the Limits to Growth

Instead, ecological economics proposes an alternative macroeconomic policy goal: a steady state economy. In a steady state economy there is a state (as in a political unit) where a constant population of people (or “labor”), constant stocks of capital, and a constant rate of energy and materials used to produce goods and services (or “throughput”), is maintained. The Green Party of The United States, who advocate for a steady state economy, explains it as follows:

“Economic growth, as gauged by increasing Gross Domestic Product (GDP), is a dangerous and anachronistic American goal. The most viable and sustainable alternative is a steady-state economy. A steady-state economy has a stable or mildly fluctuating product of population and per capita consumption, and is generally indicated by stable or mildly fluctuating GDP. The steady-state economy has become a more appropriate goal than economic growth in the United States and other large, wealthy economies. A steady-state economy precludes ever-expanding production and consumption of goods and services. However, a steady-state economy does not preclude economic development – a qualitative process not gauged by GDP growth and other measures that overlook ecological effects.”[4]

The Center for the Advancement of Steady State Economy (CASSE) simplifies the definition by stating that, “A steady state economy…aims for stable or mildly fluctuating levels in population and consumption of energy and materials. Birth rates equal death rates, and production rates equal depreciation rates.” Achieving a steady state economy would require adherence to four main rules:

  1. Maintain the health of ecosystems and the life-support services they provide.
  2. Extract renewable resources like fish and timber at a rate no faster than they can be regenerated.
  3. Consume non-renewable resources like fossil fuels and minerals at a rate no faster than they can be replaced by the discovery of renewable substitutes.
  4. Deposit wastes in the environment at a rate no faster than they can safely be assimilated.[5]

Like The Green Party of The United States, CASSE is dedicated to advocating for the implementation of a steady state economy and therefore is an excellent source to begin a deeper study of the philosophy, historic roots, advantages, and how it can be implemented.

CASSE explains for 13 economic areas how a steady state economy would express itself. For example, in their Jobs and Business sector, CASSE explain, “An end of growth at the national scale means greater economic control at the local scale.” Jobs would be more secure and local businesses would be primary contributors to healthy communities.

Re-localization of services and production would give local communities renewed opportunity to reclaim some of the production and distribution processes that had been managed elsewhere in the global economy. Citizens will become involved in local investing, local entrepreneurship, and local businesses, leading to an economy that CASSE says will be more neighborly, more resilient, and more secure. With a backbone of sustainable local businesses, the economy would be less susceptible to outside disturbances, such as falling stock prices, dwindling oil supplies, or aging power grids. By developing and supporting local cooperative business ventures, citizens will keep wealth circulating in their communities, which CASSE says, “…will be marked by an enhanced sense of place and vitality”. The outcome would be a solid supply of local jobs and an enhanced sense of connectivity resulting from participation in the local economy.

Furthermore, CASSE asserts a steady state economy would have a stabilized population and so not need constant job creation. Because a steady state economy prioritizes efficient and sustainable use of materials and energy, the economy will not seek to replace labor with automated processes unless it is sustainable. People will be able to select from a variety of jobs, and the jobs will not disappear because of too much competition or off-shoring practices.

Read a TED Conversations Debate on The Steady State Economy  

What do you think? Some simple questions to help you begin to consider alternative economic policy goals with less emphasis on growth than our current system:

  1. Is economic growth essential to a state’s prosperity? Is it essential to your prosperity?
  2. How would a state of equilibrium in the rate of production, consumption, and distribution look and feel compared to our current neoclassical state of economic growth? To fire-up your imagination, consider reading CASSE’s exploration of this question.
  3. Is it naïve to believe our economy could function in a state of equilibrium particularly with regards to complex personal and cultural decisions such as population growth?
  4. What topics should, or shouldn’t, fall within the scope of a state’s economic policy?

 


[1] http://www.worldbank.org/depweb/english/beyond/global/glossary.html

[2] http://www.eoearth.org/view/article/156248/

[3] Costanza, Robert. “What is ecological economics?.” Ecological economics 1.1 (1989): 1-7.

[4] http://www.gp.org/platform/2004/economics.html

[5]http://en.wikipedia.org/wiki/Steady_state_economy#Policies_for_the_transition