Thursday, June 19, 2008
Ethical and economic presumptions
Economist Duncan K. Foley wrote A Guide to Economic Theory “to give people more confidence in their own moral judgments” about economics.[1] He argues that simply promoting self-interest will not lead to the best world for the greatest number of persons, and that globalized trade will not “solve the problems of poverty and inequality.”[2] Nor will an economic theory based on an uncritical view of self-interest and open markets resolve the environmental crisis.
Economist Paul Krugman agrees, quoting Franklin D. Roosevelt to make the point: “We have always known that heedless self-interest was bad morals. We know now that it is bad economics.”[3] Krugman says, “These words apply perfectly to climate change. It’s in the interest of most people (and especially their descendants) that somebody do something to reduce emissions of carbon dioxide and other greenhouse gases, but each individual would like that somebody to be somebody else. Leave it up to the free market, and in a few generations Florida will be underwater.”[4]
What are we to do? Our analysis supports four ethical and economic presumptions. First, our goal should be an environmentally sustainable economy.[5] We have a duty to protect our habitat, whether we understand this only as a duty to other people, or also as a duty to other species. In addition, I have argued that we have a duty to give our descendents moral consideration, because we feel our ancestors had a duty to consider our wellbeing in making decisions about the environment.[6]
Therefore, we must ensure economic policies that value ecosystem functions and biodiversity, as well as efficiency, by supporting laws that effectively regulate our use of finite nature resources. The harvest of renewable resources (such as fish and forests) should be limited to less than the optimal scale, so these populations may replenish. The extraction of nonrenewable natural resources that are being depleted (such as oil) should be taxed to fund the development of alternative ways to meet the same need with other materials.
Second, we should pay as we go for the costs of environmental externalities. We cannot rely on an “invisible hand” to repair the environmental damage due to economic development. Moreover, if we accept that our moral community includes future generations as well as the living, we have a duty to limit the adverse impact of our economy on the environment.[7]
Therefore, we should include in our economic accounting the investment needed to:
· Develop substitutes for nonrenewable resources being depleted.
· Treat waste that exceeds the environment’s absorption capacity.
· Restore degraded environments.[8]
Environmental costs should be assessed by law to the business that generates them or, if this is not feasible, to the country under whose jurisdiction the business is operating.[9]
Third, environmental policies should affirm the precautionary principle, “which states that when a practice or product raises potentially significant threats of harm to human health or the environment, precautionary action should be taken to restrict or eliminate it.”[10] This ethical principle puts the burden of proof for an action, which may likely harm the environment or human life, on those who propose to take the action, rather than on those who caution against it.
Reasoning on the basis of the precautionary principle involves rejecting the claim that environmental issues should be decided simply by predicting likely consequences. The precautionary principle asserts that we have a duty to do no harm to the environment when consequential predictions are not sufficiently confirmed by scientific evidence to address the risks of taking an action.
Ecosystems are poorly understood and thus unpredictable, so to be on the safe side economic policies should leave a margin for error. For instance, harvesting a renewable resource, such as fish or trees, should be limited to less than the predicted optimal scale, as this estimate is inherently imprecise.
Acting on the precautionary principle also requires protecting ecosystem processes from market pricing. The emergent properties of ecosystems (“fund-services resources”) are of great value for life, and the consequences of damaging these processes are unpredictable. Although market pricing is efficient for manufactured goods, it does not adequately protect ecosystem benefits. (The value of a forest, for example, is not simply the market value of its cut lumber.) Governments must ensure protection for the integrity of ecosystems.[11]
Fourth, economic power should be constrained by the rule of law. Both economic freedom and political freedom require decision-making with checks and balances, so that power is distributed and limited. This basic principle of civics is an ethical imperative as well.
At the global level this will require new international treaties that place the activities of international economic institutions, such as the IMF, the World Bank, and the WTO, under the political control of the United Nations. As this change would also strengthen national governments, it might foster a political process with greater checks and balances, which is the only effective way to promote economic trade and also protect the natural environment.
“The primacy of the political over the economic, combined with weakening global economic institutions [such as the World Bank, the IMF, and the WTO], would make possible economic decentralization. It would be possible for nations and even regions within nations to develop relatively self-sufficient economies. They would then trade with one another only as this did not weaken their capacity to meet their own basic needs. They would cooperate in establishing larger markets for goods that cannot be efficiently produced for smaller ones.”[12]
In this new political and economic order, environmental problems would be the responsibility of those making decisions on the same scale as the problem. Garbage collection takes place in municipalities, and thus should be managed by local authorities. “By contrast, global warming is fundamentally a global problem, because emissions anywhere affect the climate everywhere. Here we really do need global policy.”[13]
Growing wealth disparity should be checked at all levels of the economy, and this means replacing the rhetoric of “free trade” with procedures that ensure fair trade.[14] Both employees and the environment should be protected by laws that are effective and fair. Workers ought to be guaranteed a living wage and safe working conditions, and producing and trading goods should be subject to regulations that ensure environmental sustainability.[15] This means international as well as national constraints on the economy.
Our primary focus, however, should be local. Seeing the world as a global economy through the lens of neoclassical economics has hidden for too long an alternative view of the world as a biosphere of diverse political and economic communities. Embracing this new view now matters.
“For example, most of the rapid deforestation of the planet is for the sake of export, either of lumber or of beef that can be raised on formerly forested land. If the focus of attention is on the local economy, the value of the standing forest counts for more. In this and other ways, in regions which were not heavily oriented to export, the people would often be concerned that their region continue to provide a habitable home to their children, and they would be more likely to adopt sustainable relations to the environment.”[16]
[i] Peter Steinfels, “Economics: The Invisible Hand of the Market,” The New York Times, (Nov. 25, 2006), A11.
[2] Ibid.
[3] Paul Krugman, “Gore’s Derangement Syndrome,” The New York Times (Oct. 15, 2007), online at http://www.nytimes.com/2007/10/15/opinion/15krugman.html.
[4] “The solution to such conflicts between self-interest and the common good is to provide individuals with an incentive to do the right thing.” Ibid.
[5] Chapter 10 discusses the concept of sustainability.
[6] This follows, if we extend the reasoning of the Golden Rule to future generations. See chapter 4.
[7] John C. Bogle, founder of the Vanguard Mutual Fund, condemns the “shocking misuse of our world’s natural resources, as if they were ours to waste rather than ours to preserve as a social trust for future generations.” John C. Bogle, The Battle for the Soul of Capitalism, xvi.
[8] The loss of natural capital may be captured by severance and waste disposal fees on producers, and these funds should be dedicated to seeking substitute resources and more efficient ways of absorbing and recycling waste. Natural capital is: “Stocks or funds provided by nature (biotic or abiotic) that yield a valuable flow into the future of either natural resources or natural services.” Herman E. Daly and Joshua Farley, Ecological Economics, 437.
[9] Herman E. Daly and Joshua Farley, Ecological Economics, 333.
[10] The International Forum on Globalization (IFG), online at http://www.ifg.org/about.htm.
[11] “Recognizing the social and ecological value of [such] a resource leads to its equitable and sustainable use. In contrast, assessing [such] a resource only in terms of market price creates patterns of nonsustainable and inequitable use.” Vandana Shiva, Water Wars: Privatization, Pollution, and Profit (Cambridge, MA: South End Press, 2002), 6.
[12] “Since much of the unsustainability of the present economy stems from the appropriation of the resources of the poor countries by the richer ones, the ending of the present global economic system would counter this.” John B. Cobb, Jr., “Toward a Just and Sustainable Economic Order,” in Andrew Light and Holmes Rolston III, eds., Environmental Ethics, 367.
[13] Herman E. Daly and Joshua Farley, Ecological Economics, 363. The idea of dealing with problems at the lowest level of decision-making that can solve them is called “the principle of subsidiarity.” The European Union has adopted this principle for implementing policy decisions. See Peter Singer, One World, 199-200.
[14] For a brief account of the Fair Trade movement, see Robert Traer and Harlan Stelmach, Doing Ethics in a Diverse World, 254-256. See http://www.globalexchange.org/ and Sharon Cullars, “Fair Trade: Spreading the Wealth,” OneWorld.net (May 27, 2008), online at http://us.oneworld.net/article/view/160684/1/.
[15] Treaties, such as NAFTA, should be evaluated using these criteria. Trade is on balance beneficial, if it is fair and subject to political constraints that protect the natural environment.
[16] John B. Cobb, Jr., “Toward a Just and Sustainable Economic Order,” in Andrew Light and Holmes Rolston III, eds., Environmental Ethics, 367.
Economist Paul Krugman agrees, quoting Franklin D. Roosevelt to make the point: “We have always known that heedless self-interest was bad morals. We know now that it is bad economics.”[3] Krugman says, “These words apply perfectly to climate change. It’s in the interest of most people (and especially their descendants) that somebody do something to reduce emissions of carbon dioxide and other greenhouse gases, but each individual would like that somebody to be somebody else. Leave it up to the free market, and in a few generations Florida will be underwater.”[4]
What are we to do? Our analysis supports four ethical and economic presumptions. First, our goal should be an environmentally sustainable economy.[5] We have a duty to protect our habitat, whether we understand this only as a duty to other people, or also as a duty to other species. In addition, I have argued that we have a duty to give our descendents moral consideration, because we feel our ancestors had a duty to consider our wellbeing in making decisions about the environment.[6]
Therefore, we must ensure economic policies that value ecosystem functions and biodiversity, as well as efficiency, by supporting laws that effectively regulate our use of finite nature resources. The harvest of renewable resources (such as fish and forests) should be limited to less than the optimal scale, so these populations may replenish. The extraction of nonrenewable natural resources that are being depleted (such as oil) should be taxed to fund the development of alternative ways to meet the same need with other materials.
Second, we should pay as we go for the costs of environmental externalities. We cannot rely on an “invisible hand” to repair the environmental damage due to economic development. Moreover, if we accept that our moral community includes future generations as well as the living, we have a duty to limit the adverse impact of our economy on the environment.[7]
Therefore, we should include in our economic accounting the investment needed to:
· Develop substitutes for nonrenewable resources being depleted.
· Treat waste that exceeds the environment’s absorption capacity.
· Restore degraded environments.[8]
Environmental costs should be assessed by law to the business that generates them or, if this is not feasible, to the country under whose jurisdiction the business is operating.[9]
Third, environmental policies should affirm the precautionary principle, “which states that when a practice or product raises potentially significant threats of harm to human health or the environment, precautionary action should be taken to restrict or eliminate it.”[10] This ethical principle puts the burden of proof for an action, which may likely harm the environment or human life, on those who propose to take the action, rather than on those who caution against it.
Reasoning on the basis of the precautionary principle involves rejecting the claim that environmental issues should be decided simply by predicting likely consequences. The precautionary principle asserts that we have a duty to do no harm to the environment when consequential predictions are not sufficiently confirmed by scientific evidence to address the risks of taking an action.
Ecosystems are poorly understood and thus unpredictable, so to be on the safe side economic policies should leave a margin for error. For instance, harvesting a renewable resource, such as fish or trees, should be limited to less than the predicted optimal scale, as this estimate is inherently imprecise.
Acting on the precautionary principle also requires protecting ecosystem processes from market pricing. The emergent properties of ecosystems (“fund-services resources”) are of great value for life, and the consequences of damaging these processes are unpredictable. Although market pricing is efficient for manufactured goods, it does not adequately protect ecosystem benefits. (The value of a forest, for example, is not simply the market value of its cut lumber.) Governments must ensure protection for the integrity of ecosystems.[11]
Fourth, economic power should be constrained by the rule of law. Both economic freedom and political freedom require decision-making with checks and balances, so that power is distributed and limited. This basic principle of civics is an ethical imperative as well.
At the global level this will require new international treaties that place the activities of international economic institutions, such as the IMF, the World Bank, and the WTO, under the political control of the United Nations. As this change would also strengthen national governments, it might foster a political process with greater checks and balances, which is the only effective way to promote economic trade and also protect the natural environment.
“The primacy of the political over the economic, combined with weakening global economic institutions [such as the World Bank, the IMF, and the WTO], would make possible economic decentralization. It would be possible for nations and even regions within nations to develop relatively self-sufficient economies. They would then trade with one another only as this did not weaken their capacity to meet their own basic needs. They would cooperate in establishing larger markets for goods that cannot be efficiently produced for smaller ones.”[12]
In this new political and economic order, environmental problems would be the responsibility of those making decisions on the same scale as the problem. Garbage collection takes place in municipalities, and thus should be managed by local authorities. “By contrast, global warming is fundamentally a global problem, because emissions anywhere affect the climate everywhere. Here we really do need global policy.”[13]
Growing wealth disparity should be checked at all levels of the economy, and this means replacing the rhetoric of “free trade” with procedures that ensure fair trade.[14] Both employees and the environment should be protected by laws that are effective and fair. Workers ought to be guaranteed a living wage and safe working conditions, and producing and trading goods should be subject to regulations that ensure environmental sustainability.[15] This means international as well as national constraints on the economy.
Our primary focus, however, should be local. Seeing the world as a global economy through the lens of neoclassical economics has hidden for too long an alternative view of the world as a biosphere of diverse political and economic communities. Embracing this new view now matters.
“For example, most of the rapid deforestation of the planet is for the sake of export, either of lumber or of beef that can be raised on formerly forested land. If the focus of attention is on the local economy, the value of the standing forest counts for more. In this and other ways, in regions which were not heavily oriented to export, the people would often be concerned that their region continue to provide a habitable home to their children, and they would be more likely to adopt sustainable relations to the environment.”[16]
[i] Peter Steinfels, “Economics: The Invisible Hand of the Market,” The New York Times, (Nov. 25, 2006), A11.
[2] Ibid.
[3] Paul Krugman, “Gore’s Derangement Syndrome,” The New York Times (Oct. 15, 2007), online at http://www.nytimes.com/2007/10/15/opinion/15krugman.html.
[4] “The solution to such conflicts between self-interest and the common good is to provide individuals with an incentive to do the right thing.” Ibid.
[5] Chapter 10 discusses the concept of sustainability.
[6] This follows, if we extend the reasoning of the Golden Rule to future generations. See chapter 4.
[7] John C. Bogle, founder of the Vanguard Mutual Fund, condemns the “shocking misuse of our world’s natural resources, as if they were ours to waste rather than ours to preserve as a social trust for future generations.” John C. Bogle, The Battle for the Soul of Capitalism, xvi.
[8] The loss of natural capital may be captured by severance and waste disposal fees on producers, and these funds should be dedicated to seeking substitute resources and more efficient ways of absorbing and recycling waste. Natural capital is: “Stocks or funds provided by nature (biotic or abiotic) that yield a valuable flow into the future of either natural resources or natural services.” Herman E. Daly and Joshua Farley, Ecological Economics, 437.
[9] Herman E. Daly and Joshua Farley, Ecological Economics, 333.
[10] The International Forum on Globalization (IFG), online at http://www.ifg.org/about.htm.
[11] “Recognizing the social and ecological value of [such] a resource leads to its equitable and sustainable use. In contrast, assessing [such] a resource only in terms of market price creates patterns of nonsustainable and inequitable use.” Vandana Shiva, Water Wars: Privatization, Pollution, and Profit (Cambridge, MA: South End Press, 2002), 6.
[12] “Since much of the unsustainability of the present economy stems from the appropriation of the resources of the poor countries by the richer ones, the ending of the present global economic system would counter this.” John B. Cobb, Jr., “Toward a Just and Sustainable Economic Order,” in Andrew Light and Holmes Rolston III, eds., Environmental Ethics, 367.
[13] Herman E. Daly and Joshua Farley, Ecological Economics, 363. The idea of dealing with problems at the lowest level of decision-making that can solve them is called “the principle of subsidiarity.” The European Union has adopted this principle for implementing policy decisions. See Peter Singer, One World, 199-200.
[14] For a brief account of the Fair Trade movement, see Robert Traer and Harlan Stelmach, Doing Ethics in a Diverse World, 254-256. See http://www.globalexchange.org/ and Sharon Cullars, “Fair Trade: Spreading the Wealth,” OneWorld.net (May 27, 2008), online at http://us.oneworld.net/article/view/160684/1/.
[15] Treaties, such as NAFTA, should be evaluated using these criteria. Trade is on balance beneficial, if it is fair and subject to political constraints that protect the natural environment.
[16] John B. Cobb, Jr., “Toward a Just and Sustainable Economic Order,” in Andrew Light and Holmes Rolston III, eds., Environmental Ethics, 367.
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