Qualitative Growth
John Fullerton rightly calls attention to the Henderson and Capra 2009 paper "Qualitative Growth," and to the decades of work by Herman Daly along these lines. Henderson and Capra call for "models of qualitative growth formulated by multidisciplinary teams." For just such a paper (by a multidisciplinary team of two—Michael Benedikt and Michael Oden of the University of Texas at Austin, one an economist and planner, the other a design theorist and architect), which tries to move this approach forward, see "Better Is Better Than More: Complexity, Economic Progress, and Qualitative Growth" at http://soa.utexas.edu/files/csd/wps201101.pdf .
The paper does not deal with financial markets directly, and this is a shortcoming, given how enormously important they are. The hope is that John Fullerton will be joined by others in the financial community to see whether the paper's insights, such as they are, can help direct investment to true wealth creation in the future.
In remarks on a draft of that paper, Herman Daly wrote (January 2011):
"I benefitted from reading your and Oden's paper. Certainly quality and equity are the big missing elements in economics. I try to deal with equity directly (though not extensively), but have treated quality only indirectly--that is, if we limit quantitative growth then the remaining avenue for progress is qualitative improvement, and somehow we will move along on that path because it is the only alternative. You have dealt directly with 'somehow '--with quality and how to move along that path--- its dimensions, origins, measure, etc, so that is welcome to me and I am your student (even if the combination of words "qualitative growth" leaves me looking for something better). ...All best wishes for your important work."
(Professor Daly: I hope you do not mind this "publication" of your words of encouragement.)
Growth vs. Development & Viable vs. Verifaible Systems
An interesting interview; why? Because it resonated, meaning that the discussion was recognised whilst it had been expected (hoped) to reverberate, i.e. it would have revealed unknowns which would require further exploration. Linking economics with systems theory is not new yet identifying the biosphere as an example of an efficient and resilient system, i.e. a viable system, still seems to be beyond the bounds of political and economic thinking, where building a system right is more important than building the right system. Of course building the wrong system right doesn’t make it any less wrong – the difference between a verifiable and a viable system.
Hence, what seemed to be missing from the interview was a theory, framework, to move the thinking on and encapsulate the thought that a global economic system might utilise the characteristics of a viable biosphere to better understand what a more viable economic system might look like. That is, look like in system terms rather than the traditional economic lexicon; something that has already been explored in some countries, such as China in terms such as urban development where growth was explored in terms of development – rubbish heaps grow whilst brains develop!
There are probably some eighteen characteristics common (necessary)to any viable ecosystem, which includes the transfer of three well known criteria: matter, energy and information. A viable system then requires between twenty and forty variables (not constants) which are inter-related in such a way as to ensure a correct mix of these characteristics to ensure, as the interview itself revealed, the resilience of the system to adapt to changes, both internal and external.
If the interview is correct and ‘power’ resides in a small fraction of 1% then such thinking is extremely important as we will then not be talking about evolution but directing change. Power is a scalar quantity it requires direction (if for example it is to be a force for good) if it is to become a force, power without direction and guided by just good intentions is not sufficient and this requires theory (statements or principles devised to explain a group of facts or phenomena). But such a theory is still missing from the financial, economic and political thinking, thinking which seems to still look for resonance rather than exploring the reverberation.
Without changing our pattern of thought we will not be able to see the problems we created with our current pattern of thought, Albert Einstein
An Inquisitive Practitioner
Economics or Capitalism?
Can capitalism work without a perpetually growing economy? I prefer to ask, can economics work without a perpetually growing economy? The answer to that has to be yes. Economics is about the most efficient and effective allocation of resources and this is absolutely what we need to be thinking about today. Capitalism puts the indiviual first whereas we need to be puting our earth's resources first. I haven't watched the interview with Mr Fullerton yet but i would hope the optimism referred to in the write up revolves around the ability of economics to solve this problem and the relevance of INET to getting us all thinking about this. We need to get our governments and institutions thinking about this. It's the elephant in the room that governments - central and local - absolutely refuse to acknowledge. Their only interest is growth when it should be about creating an economy and a society that can thrive on what it has rather than one that is dependent on more of everything.
Can capitalism work without a perpetually growing economy
The interview with John Fullerton was refreshing, open and not nearly long enough.
Several additional things need to be highlighted in this sort of discussion.
The first is a question: To what extend is the growth ethic actually a reflection of genetic predispositions?
My answer, is "considerably" since H. sapiens share with all other species an innate propensity to expand to fill all accessible habitat and use all available resources.
The difference between humans and other species is that: a) modern technologies have relieved human populations of the systemic negative feedbacks (diseases, food shortages, predators, etc.,) that keep other organisms in check; b) technology further enables humans to access ever diminishing stocks of resources and qualities of ores, thus keeping the growth machine going even as it dissipates the planet, and; c) humans have socially constructed — but only since the 1950s! — a growth-based cultural narrative that reinforces our innate tendency to expand.
Of course, making a virtual religion of growth greatly exacerbates the basic problem of material expansion in a finite space. Having breached the limits, what we need today is a narrative to rein in growth (replace natural negative feedback), not reinforce it. Instead, most governments and international agencies see themselves in the business of spreading the gospel of growth all over the planet, which, if the global change science is correct, (I think it is) is suicidal for the prospects of civilization.
The second issue I'd like to see emphasized in this debate, is the important distinction between growth and development so vigorously advanced by Herman Daly and revisited most recently by Peter Victor and Tim Jackson in their respective books on getting on without growth. Daly emphasizes that growth is simply physical accretion, getting bigger; development is qualitative improvement, getting better. The new economy should therefore be one that emphasizes development (improving well-being) over growth (increasing scale).
People fearful of no-growth economics should also be aware that even in a steady state economy, there should be sectoral growth. New technologies spawn sunrise industries that grow, create wealth and employ people even as sunset industries are dying out and being put to rest. Just think of how personal computers have replaced replaced typewriters! The steady state should therefore be seen as a complex, dynamic, qualitatively improving system focused on economic, social and human development. What's to fear unless one is psychologically wedded to the contemporary equivalent of typewriters?
Come to think of it, what's to fear unless one is psychologically wedded to the unbounded growth dynamics of 19th Century capitalist ideology?
Point: humans have the ingenuity, should we choose to exercise it, to create economies and societies that continue to develop and improve life-quality for everyone, all within the means of nature.
Isn't this the proper role of both governments and the private sector?
Let's encourage them both to get on with the job.
Very elementary stuff, but...
To “brigdonnwr”: Your comment is true …but completely misses the point. For you are judging John Fullerton by the standards of an ecological economist, from whose vantage point JF is essentially repeating elementary observations that have been around for over two decades. But 1) he is not an economist -–so what is remarkable is that a financial manager take on a very hairy challenge that, despite its relevance, everybody else chickens away from ...and especially that he then comes to perhaps impeccable (however partial) conclusions, that even many professional economists (including the one you recommend) have totally missed: for JF doesn’t fall for the socially-convenient oxymoron of “green” or “smart” growth of the economy, or for the empty or misleading if reassuring rhetorical packaging such as “sustainable development”, that most continue to parrot. Intellectual and political inertia are perfectly predictable in any paradigm shift (because that's what it will take to limit ecological catastrophe), given the natural tendency to try to make a dysfunctional system work. The shift occurs once an alternative view of the whole is sufficiently clear and coherent to supersede the one that long held society together, but which has been increasingly failing, and which now seems incapable guaranteeing the future. The inexorable increase in food prices that has already started to fuel social disarray and unrest, to take but one topical example, cannot be effectively addressed without movement beyond modern (i.e. oil-dependent) agriculture. Even embryonic formulations of a political philosophy that, like JF's, give us a peek into this alternative view, are therefore more relevant than precise formulations of various aspects of the increasingly dysfunctional paradigm. 2) The elementary nature of his discourse attests rather to the utter immaturity of mainstream thought --that has systematically ignored the inconvenient truths of environmental limits, and whose education must therefore start with very elementary notions--, rather than to his own superficiality. When the issue before us concerns no less that the silently unfolding collapse of civilization, it should be obvious that 1) all other issues are comparatively irrelevant, 2) the few people who have the intellectual courage to address the apparently overwhelming challenge, or the themes that this raises, deserve special attention if a new "preanalytic vision" is to emerge to preside over meaningful social analysis and effective policy: they are the ones clearing the way!
Responses from Fullerton
@Beaugard
Dear Ed Beaugard,
I have never heard anyone suggest that ecology, or biology of which it is a part, is not a real science. And your suggestion that systems science is charlatanry would be dismissed by most serious thinkers, including at MIT where it is taught. The core ideas that form the foundation of my challenge to some of the unquestioned assumptions in neo-liberal economic thinking are grounded in the laws of thermodynamics, which I trust falls into your definition of science. See Herman Daly's post on our blog on the subject if you'd like a short discussion on this, or read Georgescu Roegen's "The Entropy Law and Economics" if you are up to it, link on our website. For an examination of the so called "science" that neo-liberal economics is, I refer you to Robert Nadeau's papers on our website. Political economy is probably a better name for this important field, but physical science it is not. Like you, I would be fascinated to hear what Keynes would say, and suspect he would understand the conflict between exponential material throughput growth and a finte planet. He was a very wise man, and foresaw a time that man would take to pursuits of the mind rather than ever increasing materialism. But since the macro economy was relatively small when he was writing about economics, and therefore the ecological boundary issue was off in the distance, we'll never know. And for the record, I don't own three houses, nor do I have access to a private jet. But you are quite right, my impact on the planet, like most americans, is too high. However, my capital is increasingly aligned with the transition we are seeking to unfold, not a trivial challenge. You can learn about it on our website if you should have an interest. Finally, you might consider the comments of Bill Rees, a real scientist who coined the phrase "ecological footprint", something you will hear more about in the years to come, who commented on the interview as well.
@Russell R NYC
I have to disagree that I'm really just talking about inflation. I would suggest that markets are very good tools at solving efficiency problems as you have said, this is the beauty of capitalism that we must celebrate and retain. But, markets do not address scale problems. You can have 2 mice in a small room with a block of cheese, or 2000 mice in the same room with the same block of cheese. In both cases there is an efficient allocation of the scarce cheese, but you don't want to be one of the 2000 mice. I hope this helps.
@dochall
I will review your site with interest, thanks for sharing that. Your spaceship analogy was first used by Kenneth Boulding in the 1960s i believe, so you are in good company! For an excellent paper on the critical distinction between qualitative and quantitative growth you are raising, (and which Bill Rees also addresses in his comment) I would refer you to the resources section at www.capitalinstitute.org and a paper by Fritjof Capra and Hazel Henderson called "Qualitative Growth".
@brignonnwr
I am disappointed that my understanding of ecology is so naive in your opinion. I mentioned several of my teachers in the interview, but would like to add to that list here now that you've provided the opportunity (in no particular order): Buckminser Fuller, E.F. Schumacher, Nicolas Georgescu-Roegen, Kenneth Boulding, Herman Daly, Robert Costanza, Richard Norgaard, Julie Schor, Bill Rees, Peter Victor, Peter Brown, Graciela Chichilinsky, Frank Ackerman, Hazel Henderson, Tim Jackson, Gus Speth, Fritjof Capra, Jane Jacobs, Paul Hawken, Stewart Kaufmann, Donella Meadows, Dennis Meadows, James Lovelock, Jenine Benyus, Benoit Mandelbrot, John R. Saul, Paul Raskin, with my apologies to the many not jumping into my mind. You are right, many of these people have been promoting these ideas for decades, I certainly am not claiming credit. And yet, we have not yet found a way to have these ideas, facts really, break into mainstream economic and financial thinking, or policy debates. That is what I am trying to help do. I'd welcome your suggestions for improving my game.
@wrees
As always, you get right to the crux of the issue. In the maturing economies of the west, we need to shift toward quality, and away from ever more quantity. Just like a human being's growth and development over their lifetime, or any living being for that matter. We need a financial system that fuels this transition, inclusive of the critical feedback mechanisms you call for. While I agree with the decision to not let the financial system simply collapse, we have in the process negated the natural feedback loop that would have perhaps transformed the system to one that is more sustainable (although at unacceptable short term pain). So we have a systems architecture challenge that demands the application of our knowledge of natural systems as Andy Haldane and others understand. But I believe there is also a prerequisite shift in consciousness necessary to drive the transition. Of course the imperative of a shift to qualitative growth is not necessarily the case in many emerging economies, so the challenge is complex.
@andrew Polton
Amen. But do not underestimate the implications of transitioning an economic system built on a foundation of debt, now made much worse by the Wall Street induced economic collapse, to a slower growth or steady state economy. It will require rethinking structurally how we service the debt in the form of a tax system that encourages what we want while taxing what we can't handle ever more of. Complicated even without the politics.
@Christopher Breen
Well said! We do need new theory, and I know i'm not smart enough to devise it. I founded Capital Institute to be a space to help identify the right questions and collaborate on the answers with practitioners finding their way without theory and with trans-disciplinary thinkers who will be essential to uncover the emerging theory we need. One clear example relates to the flow of real investment, the direct bridge to the economic system of the future. We have no theoretical framework suitable to this challenge. IRR and payback calculations ignore multiple factors that are hard to quantify and value but are essential to our well being such as the preservation of biodiversity and the preservation of human culture. Modern Portfolio Theory for investors (or speculators as is often the reality) doesn't even begin to consider impacts on the real economy, much less the biosphere. And it doesn't even work for what it was designed to do. So we have much work ahead...
Video on perpetually growing economy
A very poor video compared with other offerings. I recommend this one http://www.ies-uk.org.uk/resources/eventresources/burntwood2010/burntwoo...
It's somewhat galling to see a convert to ecological thinking describe the idea of limits to growth in such a naive and incredulous fashion. There are many thinkers and activists who have been passionately promoting the same ideas for decades.
Why is INET taking Mark Fullerton seriously?
I am a big supporter of INET, and I wish it all success in trying to
reform mainstream economics.
But I'm very sorry to see the point of view represented by John Fullerton taken seriously by INET. You mention that he's a former JP Morgan banker as if that's something positive, or gives his opinions
some added credibility, when in my view, the fact that he was a JP
Morgan banker discredits him and anything he might have to say almost completely. One of the things I mean by this, is that I could take the ideas of Mr. Fullerton more seriously if he himself gave up his wealth, his 3 houses(I presume), cars, private jet, etc., and lived off the grid within the "limits of the biosphere" whatever that vacuous, completely meaningless phrase means. Mr. Fullerton's taking seriously pseudo-sciences like ecology, "climatology", and organic agriculture is a strong indicator of intellectual shortcomings.
I hope INET will find someone to present the opposite view, which I believe to be correct, that there are no "limits to growth", that so-called "systems science" is intellectual charlatanry and that there should be "Ferraris for everyone", to quote the title of a book written by Daniel Ben-Ami. And that this person, whoever they are will be given the same exposure as Mr. Fullerton.
Sincerely,
Ed Beaugard
P.S. I believe that Keynes would have been appalled at the views of
Mr. Fullerton and the Green doctrine that he echoes.
Human judgment and mathematical models
The question: «What is the right balance between using human judgment and relying on mathematical models in regulating finance and the economy?» is not correct and shows a deep misunderstanding of not only the essence of the mathematical model, but the essence of a scientific theory at all, its connection with reality and in particular the limits of applicability of the theory or model. Between the mathematical model and human judgment is no fundamental difference. Mathematical model is nothing but a generalized and formalized human judgment. "Generalized" means that it refers not to a particular case, but to a certain type or class of cases. Using mathematical models can lead to errors such as those, that were the cause of the 2008 financial crisis, not because the mathematical models is worse than the human judgment, but because in this case, these models are applied outside of their applicability field, i.e., for cases in which circumstances do not conform, do not coincide with the type of cases for which these models were created.
Why Watson IBM computer won the champions? Because the rules of the game Jeopardy (like chess) and other circumstances of these games are unchanged and, consequently, the algorithm by which works Watson, composed especially for these rules and circumstances, there will always be applied correctly and give the correct result. But the rules of the economic game and its circumstances (as well as in the case of other problems of real life) are continuously changing. Therefore, the using of mathematical models in non trivial cases really can lead to errors.
But can we conclude from this that we should abandon the mathematical models and rely only on human judgment? After all, human judgment can also lead to errors and in any case, relating not to an individual, but many, we always have a lot of different and even opposing each other human judgments. How do we know on which of them to rely? This is especially important when it comes to macroeconomics rather than on private investment.
The solution to this problem can be only one thing: to learn to determine the limits of applicability of scientific theory, mathematical model or algorithm. This solution provides a unified method justification of scientific theories, developed by me, whose application in the economy has been the subject of my application for a grant of INET. Paradoxically, the proposal to answer the question: «What is the right balance between using human judgment and relying on mathematical models in regulating finance and the economy?», I got together with the refusal to me in getting the grant.
Reformed capitalism can prosper without growth
Capitalism can work without a perpetually growing economy. However, economists have not considered how this might be achieved. One reason is that economists do not even consider the solution. When the solution is identified they are likely to state that it is not in the remit of their profession.
The solution is to widely spread the ownership of income producing assets to provide a universal minimum income to replace welfare, pensions, taxes, big government and the need for a perpetual growing economy. Full employment policies can then be replaced with policies of fulfillment in employment and/or leisure as suggested on page 21 of my 1975 book Democratising the wealth of nations posted at http://ssrn.com/abstract_id=1146062.
Democratising income producing assets can be achieved with a surprising small and simple tax incentive. This is described in my book and also in my refereed journal article ‘Stakeholder Governance: A cybernetic and property rights analyses, republished in 2000 by Ashgate in The History of Management Though.
Missing from the conversation between Rob Johnson and John Fullerton is the problem of income distribution in the twenty countries that are already suffering from declining populations with people living longer. The United Nations is projecting a decline in the global population later this century generating ghost suburbs in countries like Japan. The need to democratise capitalism is now an imperative to provide prosperity without growth. How this also protects the environment is described in my paper, ‘Achieving environmentally sustainable prosperity without growth’ is posted at http://ssrn.com/abstract=1769349.
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