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Joan Martinez-Alier

& Leah Temper

ICTA, Universitat Autonoma de Barcelona

Towards an EcologicalEconomy

Barcelona, 3/3/09

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With the economic crisis, ladcroissance est arrive, degrowth

has arrivedFor twenty years, the orthodox slogan wasSustainable Development (Brundtland Report,1987), i.e. economic growth that is

environmentally sustainable.

We know however that economic growth isnot environmentally sustainable.

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Socially sustainable economic

degrowth in the North

Economic accounting does not properlycount environmental damages and theexhaustibility of resources.

The objective should be to live wellwithout the imperative of economicgrowth.

Now is the time in rich countries forsocially sustainable economic de-growth, reinforced by an alliance with the

environmentalism of the poor of theSouth.

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A socio-ecological transition

What is needed is a transition to lowerlevels of use of energy and materials inthe North. The pattern of 300 GJ perperson/year, and 15 tons of materials perperson/year, cannot be copied sustainablyeverywhere.

The economy of the South must grow. Butnot continue to be a cheap producer ofraw materials, and should not accept thewaste from the North (such as the CO2).It should claim the Ecological Debt.

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Nobody had thought about it?

Key words of the past twenty years such as win-winsolutions have a hollow ring in the present economicdownturn in the OECD countries.

The IPCC scenarios never contemplated (self-imposedcensorship?), a decline in the rich countries GDP of 10 per

cent and then a long period of non-growth as mightperhaps be the case.

In Spain, after the collapse of the building boom in 2008,the decrease in material flows, in energy consumption, incarbon dioxide production mirrors the decrease in GDP.Absolute dematerialization is taking place beforerelative dematerialization. This was not in theeconomists and industrial ecologists script.

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The economic crisis means a welcome

change to the totally unsustainable

increase of carbon dioxide emissions

In the five years before 2008 carbon dioxide

emissions grew over 3 per cent per year.They should decrease at least 50 per centas soon as possible.

The Kyoto objective of 1997 generously gaverich countries the property rights on the

carbon sinks and atmosphere in exchangefor a promised reduction of 5 per cent oftheir emissions relative to 1990.

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Soddys doctrine

Frederick Soddy's Wealth, Virtual Wealth andDebtwas published in 1926. He had a Nobel Prizein Chemistry and was a professor at Oxford. Hismain point was simple and applies today.

It is easy for the financial system to increase thedebts (private or public debts), and to mistakethis expansion of credit for the creation of realwealth. However, in the industrial system, growthof production and growth of consumption imply

growth in the extraction and final destruction offossil fuels. Energy is dissipated, cannot berecycled. Real wealth would be instead thecurrent flow of energy from the sun.

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Soddys doctrine The obligation to pay debts at compound interest could be

fulfilled by squeezing the debtors for a while. Other meansof paying the debt are either inflation (debasement of thevalue of money), or economic growth - which is falselymeasured because it is based on undervalued exhaustibleresources and unvalued pollution. Soddy was certainly a

precursor of ecological economics.

Economic accounting was false because it mistook resourcedepletion and entropy increase for wealth creation.

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Three levels of the economy

At the top there is the financial level that grows by loansmade to the private sector or to the state, sometimeswithout any assurance of repayment as in the presentcrisis. Banks give credit much beyond what they have gotas deposits, and this drives economic growth at least for a

while. The financial system borrows against the future, onthe expectation that indefinite economic growth will givethe means to repay the interests and the debts.

Then there is what the economists describe as the (so-called) productive economy. When it grows, it indeed allowsto pay back some or all the debt, when it does not grow

enough, debts are defaulted.

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Three levels of the economy

Then, down below, underneath the economists realeconomy, there is the third level: the ecological economistsreal-realeconomy, the Social Metabolism, the flows ofenergy and materials whose growth depends partly oneconomic factors (types of markets, prices) and in part

from physical limits.

At present, there are not only resource limits but also sinklimits. Climate change takes place because of the excessiveburning of fossil fuels and it is a threat to biodiversity. Butanother immediate threat to biodiversity is the increase ofthe HANPP, the human appropriation of net primaryproduction.

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Keynesian policies To make the recession less painful, the State should

spend more. Thus in the eurozone the Maastrichtlimit of a maximum public deficit of 3% GDP isallowed to increase.

But expenditure in what?

Car industry? More asphalt and cement? Or rathermoney for schools and universities, and for poorpeople? Basic income for all? Subsidies for house

renting? Solar energy?

This should be a time for Participatory Budgets.

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A Green New Deal?

The New Deal refers to Roosevelts policies in the1930s. State expenditure, state regulation Thisis coming back, it is welcome.

A Green New Deal implies focus on theenvironment. An energy transition is itcompatible with support for the car industry?

Are we aiming to go back to normal GDPgrowth trough green investments? Is thispossible?

Or to a new ecological economy, sustainabledegrowth? What will a Green New Deal be?

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Keynes and economic growth

Keynes was famously concerned about the shortterm. If there was unused production capacityand unemployment, then the State should spendmore. One could not rely on the market to getout of the crisis of 1929.

Keynesianism became a doctrine of economicgrowth in the 1950s, with Harrod and DomarThey neglected environmental costs, and forgotabout exhaustibility of resources.

Then in 1977, Solow and Stiglitz battled against

Georgescu-Roegen and Daly. They preached whatwe now call weak sustainability, i.e. naturalresources would be substituted by manufacturedcapital, and growth could continue.

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Green Keynesianism or Dcroissance

soutenable(socially sustainable economic de-

growth)?

Indeed, an economic crisis affords an opportunity to put theeconomy of the rich countries on a different trajectory as

regards material and energy flows. Now is the time in rich

countries for a socio-ecological transition to lower levels of

energy and materials use.

Moreover, it seems that happiness is not related to income

growth, above a certain level of income.

The crisis requires a restructuring of social institutions.

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Critique of Economic Accounting

The critique of conventional economic accounting oftenemphasizes the forgotten current values of environmentalservices from ecosystems.

The environmental services from coral reefs, mangroves,

tropical rainforest may be given a notional money value perhectare per year, and then the lost hectares are translatedinto virtual economic losses.

This approach is good in order to impress the public with the

importance of environmental losses (as in the TEEBprocess) but it is certainly insufficient in order to grasp therelations between economy and environment.

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Fossil fuels

Our economy depends not only on currentenvironmental services but also, mainly, on thephotosynthesis of millions of years ago for our mainenergy sources, it depends on ancient biochemicalcycles for other mineral resources that we are

squandering without replacement.

In the case of oil, we are now taking almost 86 mbd in terms of calories, the world average isequivalent to about 20,000 kcal per person/day (tentimes the food energy intake), and in the USA it isequivalent to 100,000 kcal per person/day. Inexosomatic energy terms, oil is then far moreimportant than biomass.

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Has peak-oil been reached?

Possibly peak-oil reached in 2007-08 at 87 mbd.Hence all the cracy investments (with low EROI)in Alberta tar sands, Orinoco Delta heavy oil, oragrofuels.

The new supplies from renewable energy sources(photovoltain, wind mills) are welcome they willgo to substitute for descreasing oil supplies.

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The financial crisis

The present economic crisis it is not caused onlyby a supply of new houses that exceeded thedemand that could be financed sustainably. Itwas also caused by high oil prices.

The bankers apparently thought that economicgrowth would continue and would increase thevalue of the houses that were mortgaged. Theypackaged the mortgages and sold them to

other banks who tried to sell them to innocentinvestors. Now the housing boom has ended. Theprivate building industry has nearly stopped insome countries. The car industry is in difficulties.

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OPEC and peak-oil Partial nationalization of banks in the EU and the USA will

perhaps prevent sudden widespread bank failure, at thecost of rising the public deficit (as is normal in a crisis).

In any case, this does not address one root cause of thecrisis, triggered by high oil prices due not only to the OPEColigopoly but also to the approaching peak-oil.

In fact, economic theory does not say that an exhaustibleresource should be sold at the marginal cost of extraction.Oil at 140 US$ a barrel was cheap from the point of view ofits fair inter-generational allocation and the externalities itproduces. As the crisis deepens, the price of oil goes downbut it will recover in real terms if and when the economygrows again. OPEC will try and reduce oil extraction duringthe crisis.

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The high price of oil was also a cause of

the crisis

The decline in the number of cars beingbought started already in the summer of

2007. In the EU we have high petrol prices

because we tax oil imports so much. InUSA, petrol at 4 $ a gallon looked far too

expensive. The high price of oil is now a memory, but

a potent one. People are not buying SUVs.

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Lower demand for cars

As with tobacco, it might be that a certain percentage ofthe population of rich countries has lost its taste for bigcars even when they could afford them.

Thanks to the big spike in oil prices until July 2008,Americans now prefer smaller cars. Sales of gas-guzzling

SUVs plummeted in late 2008 and early 2009, althoughpetrol prices are much lower now than in mid-2008.

Perhaps one part of the population has become aware ofclimate change plus the threat of peak-oil. This applies tothe USA and the EU whose car market was anyway verynear saturation point. The potential demand for cars in

China, India is of course very large.

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In the next 40 years, the worlds fleet of cars is expected

to increase from around 700m today to nearly 3 billion

(The Economist, 14 Nov. 2008).

While the United States have nearly one car for everyperson of driving age, China has less than three cars forevery 100 people and India fewer still. Once people have aroof over their heads, meat on the table and a good job,

the next thing they want is a set of wheels pontificatesThe Economist.

How will the real economy impact on the real-realeconomy? How will the cars be fuelled?

Electricity? Hydrogen? What will the energy costbe?

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Lower EROI

There is a historic trend towards increasing energy costs ofobtaining energy (a lower EROI). Coming down from thepeak of the Hubbert curve will be politically andenvironmentally difficult. Not easy to get new oil, after peakoil. Conflicts arise in the Niger Delta and in the Amazonia of

Peru and Ecuador. Appeal to energy sources like agrofuelsand nuclear energy will compound the difficulties.

Natural gas, wind, photovoltaic energy are increasing. Theywill partly compensate for the dwindling supplies of oil overthe next few decades.

Coal supplies are increasing (they already grew seven times

in the 20th century) but coal is noxious locally and alsoglobally because of carbon dioxide emissions.

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An authomatic de-stabiliser

A well-known economic authomatic stabiliser isthe mechanism by which, when there is nogrowth and unemployment increases, the Statespends more on unemployment benefits and thismoney goes to consumption.

There is an authomatic de-stabiliser in the factthat when oil prices go down, less investment ismade in new wells.So, if there is an economic recovery, we shallagain have high oil prices (because of lack ofinvestment, peak oil approaching, and OPEColigopoly) that might choke the recovery.

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The assets that take the form of claims todebts that will remain unpaid, have been given

the funny name of Toxic Assets. In the balance

sheet of banks, the value of such assets will

have to be written off.

On the liability side of the balance sheet,

accounting conventions do not deduct

damages to the environment.

An enormous "carbon debt" is owed to future

generations, and to poor people of the world

who produced little greenhouse gases.

Toxic Assets and Liabilities

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Toxic Assets and Liabilities

Large environmental liabilities are also due byprivate firms. Chevron-Texaco is being asked topay back 16 billion dollars in a court case inEcuador. The Rio Tinto company left behind large

liabilities since 1888 in Andalusia, in Bougainville,in Namibia, in West Papua together with FreeportMcMoran... debts to poor or indigenous peoples.

Shell in the Niger Delta.

These poisonous debts are in the history booksbut not in the accounting books.

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ECUADOR: OIL IN THE AMAZON

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Near

Lago Agrio, Aug. 07

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The environmentalism of the poor

In National Income Accounting one could introducevaluations of ecosystem and biodiversity losses either insatellite accounts (physical and monetary) or in adjustedGDP accounts (Green Accounts). The economic valuationof losses might be compared to the economic gains of

projects that destroy biodiversity.

However, which groups of people suffer most by suchlosses? The direct beneficiaries of forest biodiversity andecosystem services are the poor. Their poverty makesthese losses more acute as a proportion of their livelihood

incomes than is the case for the population at large. Hencethe notion of "the GDP of the Poor (Sukhdev andGundimedia).

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The environmentalism of the poor

When water in the local river or aquifer ispolluted because of mining, the poor cannotafford to buy water in plastic bottles.

When poor people see their chances of livelihoodthreatened by mining projects, dams, treeplantations, or large industrial areas, theycomplain not because they are professional

environmentalists but because they need theservices of the environment for their immediatesurvival.

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Refinery in Lanjigarh, Orissa, meant to refine the bauxite from

nearby Niyamgiri. The refinery was built before environmental

clearance was granted for the mining project.

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The Niyamgiri hill is sacredto the Dongria Kondh.We could ask them: Howmuch for your God? How

much for the servicesprovided by your God?

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Sal (Shorea robusta) Forest. Niyamgiri Hill, Jan 07

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Kalinganagar, 1st anniversary (2 Jan. 07)

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Kalinganagar, martyrs memorial

The question is who has the power to simplify

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The question is, who has the power to simplify

complexity and impose a particular language of

valuation?

The question is not whether economic value can only bedetermined in existing markets. We know that economists

have developed methods for the monetary valuation ofenvironmental goods and services or of negativeexternalities outside the market.

Rather, the question is: must all evaluations in a givenconflict (e.g. on extraction of copper and gold in Peru, a

hydel dam in the North-East of India, the determination ofthe suitable level of carbon dioxide emissions by theEuropean Union), be reduced to a single dimension?

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Pluralism of Values

Decisions may indeed be improved by giving money valuesto negative externalities and to environmental resourcesand services which are undervalued or not valued at all inconventional economic accounting.

But there are other considerations. First, don't forget ouruncertain knowledge about the working of ecosystems, andabout the impact of technologies. Second, include non-monetary values in decision making processes.

Don't practice the fetishism of fictitious commodities.

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Pluralism of values

In decision-making processes, economics becomesa tool of power.

This is the case when applying economic cost-

benefit analysis to individual investment projects.

It is also the case at the level of the macro-economy where increases in GDP trump other

dimensions.

We should favour instead the acceptance of aplurality of incommensurable values.

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AN ALLIANCE BETWEEN

NORTH AND SOUTH

While rich countries should move towardssocially sustainable degrowth

Countries or regions of the South thatexport cheap raw materials should movetowards endogenous development.

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What will happen to commodity prices?

The increase in commodity prices (helped also bymisguided agrofuel subsidies and by the OPECcartel) continued for some months after thedecline in the stock exchange started in January2008. However, in late 2008 commodity prices

went down.

The exporting countries might irrationallyincrease the supply in an attempt to maintainrevenues. Instead, this would be the moment for

Latin America, Africa and other net energy-and-materials exporters, to think of endogenousdevelopment, moving towards an ecologicaleconomy.

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Brazils strategy after 2008?

More roads, pipelines, harbours and hidrovias,more imports and exports of oil, gas, coal,copper, iron ore, soybeans and ethanol, this wasPresident Lulas credo for Latin America.

In late 2008, and in total opposition to the viewsof Via Campesina and the MST in Brazil, Lula wasstill preaching a general opening of worldmarkets to agricultural exports. He went to Indiain October to try and increase the rate of

farmers suicides by pushing for the liberalizationof agricultural imports and exports in the Doharound.

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Brazils strategy after 2008?

True, the export boom gave Lula moneyfor social purposes and increased hispopularity. Petrobras became no less

dangerous to the environment and toindigenous peoples of Latin America thanRepsol or Oxy. Lulas obsession withprimary exports made him do nothing

about deforestation of Amazonia anddrove environment minister Marina Silvato resign in 2008.

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Sustainable degrowth (in the North) and

environmental justice everywhere

With the economic crisis, la dcroissance estarrive in Europe, the United States, Japan atleast for 2009.

At first sight, Southern countries havesomething to lose and little to gain fromDegrowth in the North: fewer opportunitiesfor commodity and manufactured exports,less availability of credits and donations.

But, the movements for EnvironmentalJustice of the South are the main allies ofthe Sustainable Degrowth movement of theNorth.

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Sustainable degrowth (in the North) and

environmental justice everywhere

These movements in the South complain againstdisproportionate pollution (at local and globallevels, including claims for repayment of thecarbon debt), they complaint against wasteexports from North to South, they complaintagainst biopiracy, and also againstRaubwirtschaft, i.e. ecologically unequalexchange, and the destruction of nature and

human livelihoods at the commodity frontiers.They also complain against the socio-environmental liabilities of TransnationalCompanies.

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Against ecologically unequal exchange

Imports of energy and materials must berelatively cheap for the social metabolism of richcountries to work properly. As Hornborg put itin 1998, market prices are the means by

which world system centres extract exergy(i.e. available energy) from theperipheries, aided some times by militarypower.

A refusal from the South to provide cheapcommodities to the industrial economy, imposingeco-taxes, would help the North (including someparts of China) in its necessary path towards aneconomy that uses less materials and energy.

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Against ecologically unequal exchange

Export taxes (retenciones ambientales) shouldbe imposed because of the local externalities andalso asnatural capital depletion taxes.

The price of oil peaked in 2007-08. Things were so good for

the oil exporting countries that when Ecuador rejoinedOPEC in 2007, president Correa cleverly proposed to put aneco-tax on exports that would be recycled for social andenvironmental purposes, financing the necessary energy-transition. This eco-tax would show the concern of OPECcountries for the greenhouse effect.

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Conclusion: After the crisis

The international movements for environmentaljustice must have a clear objective: an economythat sustainably fulfils the food, health, educationand housing needs for everybody and provides as

muchjoie de vivre as possible to a worldpopulation that should decline a bit.

Now is the time in rich countries for sociallysustainable economic de-growth, reinforced

by an alliance with the environmentalism of thepoor of the South.

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Conclusion: After the crisis

Conventional economic accounting is false,it forgets the physical and biologicalaspects of the economy, forgets the value

of unpaid domestic and voluntary work,does not measure the populationswelfare and happiness.

What is needed is an Aristotelian buen

vivir(as the World Social Forumproclaims) guided by oikonomia ratherthan chrematistics.