Shrinking Economies

The phrase, "shrinking economies" refers to rapid contraction in regions that have undergone contractionary revolutions. The particular emphasis is on the rich capitalist countries, which during their history have contributed heavily to overshoot and which will, in their post-revolutionary periods, bear the greatest responsibility for its reversal.

In this section we imagine how a contractionary group that has seized power in such a country faces the daunting challenge of aggressively moving the economy towards sustainable well-being.

The first thing to note is that the overshoot model cannot guide this transformation on its own. The model was developed to overcome a shortcoming in ENL's tools with respect to overshoot analysis: the aggregation of population and average per-capita consumption into the output rate.

Although the model achieves the required disaggregation, it fails to address well-being — the implications for health and want satisfaction arising from economic activities.

This means that, when we move from a broad discussion of overshoot reversal to the specifics of economic transformation, we must combine the insights of the overshoot model with ENL's other analytical tools to get a complete picture.

Another important point is that, although impact and resource overshoot can be clearly defined for the world economy, the concepts are much fuzzier for a regional economy.

This difficulty is acknowledged in the discussion of environmental budgets. When a natural flow spills over a region's boundaries and impacts the global environment, the flow's budget must be established through a political process such as the Montreal or Kyoto protocol.

Trade complicates the picture because it is not obvious if the producing or the consuming region -- or some combination of the two -- should be charged for the environmental effects of production.

Despite these problems, it is important to retain the two overshoot concepts at the regional level. In part this is because the economic transformation must be prioritized, with strong precedence given to changes that contribute to the reversal of impact overshoot. As well, because the two types of overshoot are different in nature, distinct strategies are required to address them.

Nevertheless, a troublesome fact remains and must be acknowledged: the vague definitions of impact and resource overshoot at the regional level prevent us from accurately tracking our progress towards their reversal.

A possible workaround is to use the ecological footprint for this purpose. The footprint, which has been calculated for every country, combines impact and resource effects into a single measure and gives us a rough indication of our environmental status.

Canada, for example, has a per-capita footprint of 7.6 hectares, whereas the sustainable footprint is 1.8 hectares. Thus, the country is using resources and emitting wastes at over four times the "permissible" rate, and must reduce these by about 70% in order to achieve sustainability.

The key question is now: How might a country like Canada meet this imposing challenge?

From the overshoot model we know that a rich country's environmental effects can be reduced by decreasing its population level and consumption, and by increasing its ecological efficiencies.

However, this formula is too broad to guide the transformation process. The tricky issues are the order in which the three factors should be addressed and the degree to which this should be done.

For example, should Canada embark on a crash program of population reduction and forget about consumption and ecological efficiencies? Or should it leave population alone and moderately reduce consumption while seeking radical efficiency improvements?

Although contraction strategies will vary according to regional circumstances and the views of contractionary leaders, the following is an approach that should be seriously considered.

In order to make sound social decisions, it is imperative that we understand the likely popular mood at the start of rapid contraction. A contractionary revolution has just been won, which means that much of the populace has viscerally acknowledged the ecological crisis and has mandated our group to fundamentally transform economic life.

However, the consumption desires that were inflamed during capitalism's long reign are still smoldering, and humankind's natural expansionary tendencies are an ineradicable presence.

To counter these dangerous currents, virtually all advertising and other forms of consumer manipulation have been banned. Further, an effective educational campaign has linked rapid contraction to the populace's genuine, long-term interests.

Thus, although the populace retains many of its consumption desires, these are being eroded by the absence of consumer stimulation and the deep fear of ecological collapse.

Two additional points must be made before proposing the rich-country contraction strategy.

The first is that the three overshoot factors are not independent. That is, they cannot be picked like items on a menu, on the assumption that there are no interactions among them.

For example, if jet skis will no longer be produced in a contractionary economy, it is pointless to improve the ecological efficiencies specifically associated with this output. The need for efficiency improvements is dependent on the output mix resulting from reduced consumption.

The second point is that the economic transition must be as evolutionary as possible. What this means is that, to the extent permitted by circumstances, economic changes should be driven by personal decisions rather than by directives from a central authority.

This posture is necessary to maximize individual freedom, to minimize the administrative load on the nascent contractionary state, and to retain popular support while the economy shrinks.

The initial step in developing a contraction strategy is to distinguish between short-run and long-run factors. Short-run changes are predominantly behavioral rather than physical in nature, whereas the reverse is true for long-run changes.

A rich society could in principle reduce its consumption by a simple decision to do so. On the other hand, reducing the population level entails the physical realities of births and deaths, and increasing ecological efficiencies requires physical modifications to various production methods.

Because impact overshoot must be reversed within years or decades, it is essential that reduced consumption is given the highest priority among the three factors.

There are two other reasons for emphasizing consumption.

The first is that this factor will profoundly modify the others. Anthropologists have repeatedly noted that a society's population tends to increase when food is plentiful, and to decrease when food is scarce.

In general, optimism about a society's material future typically causes population to increase, whereas pessimism leads it to decrease. If a rich country's consumption drops significantly during rapid contraction, the populace will presumably react as for food scarcity and pessimism, resulting in a lower population level.

In addition, immigration will likely fall as the country rejects over-consumption, thereby becoming less attractive as a destination.

The second reason to emphasize the consumption rate is that much of a rich country's consumption is superfluous to well-being, and can therefore be curtailed without impairing its health or thwarting its true wants.

If a populace has become sufficiently aware of humankind's ecological predicament to support a contractionary revolution, it surely understands this reality and will be prepared to abandon many of capitalism's consumption excesses.

To summarize, a rich country can most readily achieve rapid contraction by sharply curtailing its consumption. This will likely reduce its population and identify the key areas where ecological efficiencies should be improved.

Although consumption must to some degree be restricted by a central authority, the other overshoot factors will in large part be modified by individual decisions, making the process as organic and evolutionary as possible.

The next task is to use ENL logic to determine how health can be maximized while consumption is being reduced. In addressing this topic we must remember that humankind's initial challenge is to reverse impact overshoot rather than resource overshoot.

ENL identifies a number of economic situations where well-being is either unchanged or improved through reduced consumption. The most significant of these is unsanctioned wants.

A want is a consumption desire that does not increase health when it is satisfied. If the associated output has not violated its ecological limit, society can decide to approve its production. This is a sanctioned want.

If the output's ecological limit has been violated, or if society objects for another reason, its production will be rejected. This is an unsanctioned want.

Because capitalism does not make this distinction, a contractionary economy will initially produce numerous outputs — big cars, mansions, electronic gadgets, exotic vacations, military equipment, etc. — whose production it would not have sanctioned at current quantities, if at all.

In rich societies such outputs account for much of the economy's total production and generate the bulk of its environmental damage. It thus makes both economic and ecological sense to apply the distinction between sanctioned and unsanctioned wants as the first step in rapid contraction.

As an example, take an electronic gadget manufactured under onerous factory conditions in China and consumed in a rich country. Production of this item results in greenhouse gases and a toxic stream of metals and chemicals. This output does not increase health when consumed, and is therefore categorized as a want.

These conditions are reflected in the following figure.

Curtailment of an unsanctioned want
Image Unavailable
An ENL-based society cannot sanction a want beyond its ecological limit. Reducing the output quantity from Q to Q1 will result in two benefits: negated environmental impact and negated loss (shaded area) from reduced input cost.

The chosen geographical scope scope here is global, which means that the input cost incurred in China is included in our analysis. This cost is positive for all output quantities because of the grim factory conditions (labor cost) and the deleterious effects of toxins and climate change on the global population (natural cost).

No effectual value curve appears because the gadget has no appreciable health effects when it is consumed.

When contractionists take control of a capitalist economy, graphs like this should be drawn for every major output that satisfies a want.

In a case like this, it would be immediately obvious that the current output quantity (Q) far exceeds the ecological limit. Based on its treatment of such limits, an ENL-based economy cannot sanction this want at the indicated quantity.

If it is decided to produce this output at all, the maximum permissible quantity would be Q1 — the ecological limit. On the assumption that this is the chosen option, two benefits would result.

First, the environmental impact of the output's life cycle would be greatly reduced. This is the negated impact shown on the graph.

Second, the detrimental health effects associated with this output would also be sharply curtailed. This is the graph's negated loss.

Reducing output quantities could cause unemployment and poverty for some Chinese workers. However, these unfortunate results imply that the Chinese economy is dependent on ecologically destructive consumption abroad and health-destroying production at home, and must therefore be radically restructured. They do not imply that the rich countries should avoid or delay their rapid contraction.

If consumers complain that this gadget is essential to their lives and that its output quantity must remain where it is, there are remedies. They could persuade those involved with the output's life cycle to increase the ecological efficiencies that are keeping its ecological limit so low. This will shift the limit to the right and allow this want to be sanctioned at a higher quantity.

They could also persuade the Chinese leadership to improve working conditions and lower the natural cost associated with the gadget's production. If consumers protest that they cannot influence the distant Chinese on this issue, then the gadget's production should be shifted to a domestic location so that the manufacturers can be readily confronted.

It should be clear, even from this brief discussion, that a principled attack on unsanctioned wants has the potential to reshape the world economy, undoing much of the harm that has been wreaked by decades of neoliberal globalization.

The second output category that can contribute to rapid contraction is irrational outputs, which are those that create losses at all output quantities. The examples used in ENL's treatment of this subject are cigarettes because their effectual value is extremely low, and field tomatoes because their input cost is (under certain conditions) extremely high.

From a purely economic perspective, these outputs should be disallowed as soon as contractionists seize economic control.

It must be remembered, however, that many people have become addicted to harmful outputs because of the stress and deprivation they experienced under capitalist conditions. Sensitive social judgment must therefore be applied when considering the curtailment of such outputs.

There are no comparable issues for outputs with an extremely high input cost, so these can be removed from the economy's output mix as quickly as possible.

The third category of interest includes the many outputs that satisfy needs, but where the current output quantity is higher than the target quantity. Whether the target is the ecological limit or the optimum quantity, the reduced level of production will result in negated impact.

If losses are currently being incurred by the output's production and consumption, reducing the quantity will also result in negated losses. An additional point must be made about this category, relating to the fact that we can experience negated gains as well as negated impact and losses. See the following figure.

Minimizing negated gains
Image Unavailable
Reducing output quantities will in many cases negate not only impacts, but also gains (shaded areas above). In cases where the negated gains are substantial, as at left, contractionists should instead consider increasing the output's associated ecological efficiencies. "EV" and "IC" indicate effectual value and input cost respectively.

In both these cases the target output quantity (Qt) is the ecological limit, and the current quantity is reduced accordingly. Let's assume that the negated impact is the same for each. The big difference is that the negated gains are substantial in the example at left, but relatively small in the example at right.

This is something that must be considered when choices are made about production curtailments. Rather than reducing the output quantity in the situation at left, it might be better to make an intense effort to increase its associated ecological efficiencies. If this shifts the ecological limit sufficiently to the right it will be unnecessary to reduce the output quantity and thus to incur the negated gains.

Note that this is another instance where the focus on a reduced consumption provides us with useful guidance regarding ecological efficiencies. Efficiencies can be ignored for outputs, such as jet skis, that will no longer be produced in a contractionary economy. A society will likely choose to increase efficiencies for an output that satisfied an intense want, permitting it to be sanctioned at a higher output quantity.

These examples underscore the point that the overshoot factors are interdependent, and that for a rich country the emphasis should be placed on radically curtailing its current consumption.

If the above contraction strategy is successfully implemented, the economy will have made its full contribution to reversing global impact overshoot. The next step in rapid contraction will be to address resource overshoot — a global output rate that cannot be maintained once nonrenewable resources are depleted.

This is a long-term and highly organic project based on weaning our economy off nonrenewables, particularly fossil fuels. One possible approach to achieving this end is the oil depletion protocol, criticized here because it would be too slow over the short run and would leave too little of these precious assets for our descendants.

However, the short run is now behind us, and a strategy that gradually reduces resource utilization will likely be useful.

<prev linear thread next>

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-NonCommercial-NoDerivs 3.0 License