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Joshua Farley, Ecological Economist
Hassan Masum, 24 Feb 06

Joshua Farley

Joshua Farley is a professor at the Gund Institute for Ecological Economics - home of the original $33 trillion estimate for ecosystem service value. Joshua co-authored the recent textbook Ecological Economics: Principles and Applications,which reconceptualizes economics with a few key new axioms: ecosystem and resource limits, distribution issues, and broader definitions of human well-being. He's in the vanguard of a growing movement to get economics right - with sustainability and human well-being as core principles.

Hassan Masum: Josh, thanks for agreeing to do this interview. 'Ecological Economics' sounds like an odd combination the first time one hears it. What exactly is Ecological Economics, and why is it important?

Joshua Farley: Ecological economics has been defined as the science and management of sustainability. There are lots of things that distinguish ecological economics from more conventional approaches to economics. First, ecological economists assume the human economic system is a subset of the sustaining and containing global ecosystem. The laws of thermodynamics tell us that matter-energy cannot be created or destroyed. This means that everything the economic system produces must come from the raw materials provided by nature.

The same laws tell us that entropy increases in an isolated system, and an energy differential is required to perform work. From the perspective of economics, entropy can be thought of as disorder, or uselessness. This means that all economic production uses high quality energy, which is used up and returned to the ecosystem as waste. In fact, everything the economic system produces ultimately returns to the ecosystem as waste. Humans, like all biological organisms, depend for their survival on the goods and services provided by healthy ecosystems. When we extract raw materials from nature to make things and we spew waste back, we degrade the life support functions of the planet’s ecosystems.

All economic production bears an opportunity cost measured in the loss or degradation of ecological life support functions and other ecosystem services. Unique among the planet’s species, humans have the capacity to irreversibly degrade these life support functions. Ecological economists assume a moral obligation to future generations and other species. The first task of an ecological economist is therefore to make sure that the physical size of the economic system — the rate at which it takes resources from the ecosystem and spews them back as waste — never exceeds the capacity of the ecosystem to sustain it.

The economy can’t grow for ever. If the economy can’t keep growing indefinitely, then the solution to poverty is not simply more growth. It makes no sense to care about the well-being of future generations not yet born and not care about those around today. The second task of an ecological economist is therefore to pursue a more just distribution of resources. Ecological economists also care about economic efficiency, but sustainable scale and just distribution take precedence.

Second, ecological economists assume we live in a world of extreme complexity and uncertainty that is constantly changing, and the economic system must also change in response. As our society evolved from hunter-gatherers to farmers to industrialists, our economic systems changed as well, and they continue to change. Ecosystems respond to change through unpredictable evolutionary processes. Economic systems develop unpredictable new technologies, then change in fundamental ways in response to those technologies. Human behavior evolves as cultures evolve. Both evolutionary and technological changes are unpredictable.

Ecosystem goods and services used to be extremely abundant relative to human made objects. If we want more fish on our dinner plates, the scarce factor of production is fish, not fishing boats. If we want more timber, the scarce factor is trees, not sawmills. Some of the most important issues we face today are climate change, biodiversity loss, ozone depletion and other environmental problems that are completely ignored by market forces. Our economic system has to evolve to respond to these new scarcities. Nobody could have predicted these problems two hundred years ago when market economies were first evolving, yet addressing them has become the key to our survival.

Third, ecological economics is explicitly transdisciplinary. Economics is the allocation of scarce resources among alternative desirable ends. Defining the desirable ends requires insights from ethics, philosophy, religion and psychology at the very least. Understanding the nature of the scarce resources requires insights from physics, chemistry, biology and ecology. Figuring out how to allocate requires insights from economics, sociology, political science and psychology. Disciplines impose narrow blinders that keep us from seeing the problem as a whole. This doesn’t mean that ecological economists must master a variety of disciplines, but rather that they learn to communicate and synthesize across disciplines.

The dominant economic paradigm strives for ever-increasing economic growth. Not only is this impossible on a finite planet, but growing evidence suggests that beyond a certain point, more material consumption does nothing to make us better off. Ecological economists seek to adapt our economic system to the increasing scarcity of ecosystem goods and services in order to create a more sustainable and desirable future.

HM: That's an impressive list of goals, which will be a challenge to live up to. You outline the necessity for our economic system to evolve in response to new scarcities - how do you see this evolution happening? What's an example where ideas from ecological economics have been successfully adopted?

JF: Living up to these goals may be a challenge, but if we fail to live up to them, we face insurmountable challenges - if the global economic system continues to grow and encroach upon the global ecosystem that sustains it, both will collapse. Fortunately, in many important areas, the economics system is already evolving to meet these challenges, though as of yet not as quickly as it needs to. Take the cap and trade policy on sulfur dioxide in the US as an example. Sulfur dioxide is emitted by coal fired power plants and other industries. In the US, we capped the amount of sulfur dioxide that industries are allowed to produce. Though the cap may be higher than many of us would like, at least in principle it follows the ecological economic rule of limiting the amount of waste emissions to a quantity that can be safely absorbed by our ecosystem.

The right to pollute was then distributed to the existing polluters, who were allowed to trade the permits. Markets in permits help minimize the financial costs of meeting pollution targets. The policy follows the ecological economic approach of scale first, distribution second and efficiency third. The policy was actually designed by conventional economists, which is why it perversely rewarded those industries that polluted the most. Ecological economists would favor a more just distribution - for example, auctioning off the right to pollute to industries, then using the revenue to replace regressive taxes. For cap and trade policies to be truly just, they must also prevent the concentration of pollutants in Žhot spotsŽ. The basic approach is a good one, however, and can be applied to resource extraction as well as to pollution.

Perhaps the biggest challenge we face is how to deal with complex systems. We don't really know what impacts our activities have on ecosystems, and when decisions are urgent and stakes are high, we rarely have the time or resources to make sure of our facts before we act. Because uncertainty affects future generations, we always confront the ethical issues of our obligations to future generations, so facts aren't enough anyway. We have to make the best choices we can under these circumstances, and avoid irreversible outcomes that will limit our future options.

As an example, we did a workshop/field-course a couple years ago looking at the conversion of mangrove ecosystems to shrimp aquaculture. We did a case study of a site on Palawan Island in the Philippines where mangroves were being illegally cleared as we worked, so decisions were urgent. Few studies had been done in the region, so facts were highly uncertain. The local villagers depended on the mangrove ecosystem to sustain their fisheries, protect their communities against storms, absorb silt and wastes washing the land that would otherwise damage the offshore coral reefs and so on, so stakes were high.

Ecological economists and scientists from various disciplines worked closely with several NGOs, the local government and local community members to learn as much as we could about the local system in the time available. We supplemented this information with scientific studies done in other locations. Guided by our NGO partners (Earth Economics in particular) we presented our findings on the potential ecological, economic and social impacts to the local government and the press.

The local Mayor, Edward Hagedorn, decided that the mangrove deforestation must be stopped before it caused irreversible damage. He not only got permission from the federal government to halt the deforestation, but helped organize the local community to actually tear down the existing dikes. Once people are presented with a bigger picture, integrating both ecological and economic issues, solutions are often obvious.

Unfortunately, universities too often teach people to focus on only one side of a problem, leading to distorted analyses. One way we're trying to advance ecological economics is by changing the way students learn and think. Many ecological economists therefore design transdisciplinary, transinstitutional courses that focus on real life problems, with real life constraints. We have a long ways to go before we accomplish our goals, but when the world finally recognizes that our economic system depends on a healthy ecosystem, we'll be ready with the necessary policies.

HM: Let's explore the question of education. As a university professor and author of the textbook 'Ecological Economics', you have experience on the ground in 'changing the way students learn and think'. How do students react to the broader ecological approach to economics? And what methods have you found to be effective outside academia, e.g. in talking to policy-makers and the public?

JF: In my experience, students react very favourably to ecological economics, especially those students who have some background in the natural sciences or in environmental studies. Occasionally I do find some resistance to the ideas from students who have background in neoclassical economics, but in compensation, when these students do come around, they really seem to get it.

I find more resistance to the methods I use to teach ecological economics. When I learned neoclassical economics, it was taught as revealed wisdom, with no historical context, and with no discussion of the obvious shortcomings of the discipline. I hated that approach - it doesn't teach students to think for themselves. I always tell students that I don't know all the answers, and no economist does. Other professors teach neoclassical economics, and both approaches can't be entirely correct.

I like to teach the theory and have students work with a community partner on some real life problem to which they can apply that theory. If the theory helps them understand the problem they are working on and provide solid solutions, they learn the material better, and have some empirical support for the theory. If instead what they learn from a real life problem contradicts the theory, then they learn the theories are inadequate and must be improved - and it's their job to improve them. That's the scientific method.

The problem is that it's a lot more challenging to apply theories then it is just to memorize and regurgitate. Lots of students are used to being spoon fed, and hate problems with a more applied approach that exposes them to messy, complex real life situations. By the mid-point in a typical semester, most students are intensely frustrated as they try to get their minds around the problem and think about how they can make a meaningful contribution to solving it. They complain if I can't tell them the answers, but I point out that none of them will ever have a job where the boss knows all the answers. Fortunately, by the end of the semester most of the students have made some real progress, and appreciate the approach I use.

I still don't have as much experience as I would like talking to policy makers and the general public, but in the experience I do have, I find the best approach is just to speak in clear, straightforward language anyone can understand. If I canŽt explain something clearly, it's probably because I don't understand it well enough myself. I certainly won't be able to convince policy makers to pay attention to what I have to say if they can't understand it.

I think a lot of economists use jargon and language that no one but other economists can really understand. The reason I got a PhD in neoclassical economics was so that I could understand that language, and when I did, I learned that much of what was being said made no sense at all. It's actually a lot easier to explain ecological economics to the general public than it is to explain neoclassical economics precisely because it's solidly grounded in the laws of physics and ecology, is explicit about its ethical assumptions, and shares those ethical assumptions with the majority of society.

HM: Thanks for the insight! Bringing our economic theories into harmony with broadly-accepted ethical assumptions is a challenge for all of us.

This suggests a final question: what would you like to see replace GDP in policy-making and public discourse? As a de facto proxy for progress, it is deeply flawed, since it doesn't account for externalities, many components of human welfare, and so forth. But wouldn't "green GDP" get into tremendously complex and uncertain calculations in, for example, accounting for ecosystem services?

Maybe GDP isn't even the right mental model to use. If not, then what alternate or complementary system(s) would you like to see implemented, that would measure sustainable progress yet be simple enough to be commonly referred to in the media and everyday discussions?

JF: GDP is actually even more absurd than most people think, as it uses economic values in ways they were not meant to be used. The price of something is its value at the margin, the value of one more unit. This is why diamonds are extremely valuable while water is cheap. It doesn’t really make sense to multiply the price (marginal value) of something by total quantity to get total value.

For any resource that is essential and has few substitutes, such as food and energy, when the amount available falls by 10%, the price rises by more than 10% - the less we have, the more GDP grows, and vice versa! This is why Exxon made more profits this year than any corporation in history, not because they produced more oil, but because they produced less. When economists forget this, they draw absurd conclusions. Take for example the recent Nobel prize winner in economics, Thomas Schelling, who says that global warming won’t harm the US much since it will mainly affect agriculture, and agriculture only accounts for 3% of our GDP! When you measure everything in dollars, one dollar is as good as another — better computers are a substitute for food.

Fortunately the various Green GDP measures don’t make such a stupid mistake. Rather than trying to add in the total value of ecosystem goods and services, they subtract the value of what we degrade or use up. This is appropriate, since what we use in one year is more or less a marginal value. The Index of Sustainable Economic Welfare and the Genuine Progress Indicator include other factors on top of this, such as income distribution, non-marketed labor, and leisure time, but the base of all of these is still GNP, so more is always better.

What we really want is a measure of Quality of Life, not consumption. Almost by definition, quantifying quality of life represents a real challenge. We have proposed a measure of quality of life that includes subjective estimates of well-being (basically just surveys asking people how satisfied they are with their lives) as well as objective measures of opportunities available for satisfying the entire range of human needs. Drawing on the work of Manfred Max-Neef, we have proposed a list of human needs that are stable across time and cultures, including subsistence, reproduction, security, affection, understanding, participation, leisure, spirituality, creativity/emotional expression, identity and freedom.

To satisfy these needs, we need much more than just economic output — we also need the goods and services provided by healthy ecosystems, healthy social relationships and healthy minds and bodies, which we refer to as natural, social and human capitals. We also believe our real human needs are satiable. The reason people believe our demand for consumer goods is insatiable is because we use consumer goods to try and satisfy needs they are not capable of satisfying.

While it is a serious challenge to come up with some quantifiable index of human need satisfaction and subjective well-being, an imprecise measure of the right goals is much better than a highly precise measure of the wrong ones. Just thinking about how to measure the right things will get us thinking carefully about how to provide them. For simplicity, we could refer to the measure as gross national happiness, which they use in Bhutan, or something similar.

As long as we continue to accept ever increasing material consumption as the central goal of society and pursue it blindly, oblivious to ecological, social and human costs, we are unlikely to improve our quality of life. Even in countries like India, where increasing levels of material consumption remains extremely important, states like Kerala show that society can do a much better job of meeting human needs with the resources already available.

The problem is that people obsessed with consumption look at all talk of sustainability as a sacrifice. In reality, those of us in the richest countries are sacrificing our quality of life on the altar of ever-increasing consumption, and through the ecological costs this consumption imposes, we are sacrificing the well-being of the rest of the world as well. What we need to do is develop a positive, shared vision of what life would look like in a more sustainable and just world. Sustainability and just distribution does not require sacrifice — in reality it is the only path available to a better quality of life for us all.

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Comments

Great interview. Would be nice to hear more about "natural capital" and "steady state economics" as I believe these will be key phrases in our transition.

More on World 5.0.
Jim


Posted by: Jim Prues on 24 Feb 06

Thanks very much for this very accessible and clear piece.
I'm sure many still consider this mild approach to be ultra left-wing hyper-radical eco-marxism. After all, as the professor says, capitalism is based on the absurd idea that a dollar is a dollar (the "value" of a rainforest can be expressed in terms of its equivalence the the value of a pair of Nike's; the value of a man's life-world can be expressed in terms of a salary). And ecological economics does not accept this absurdity -- this absurdity which drives our world.
I wish Mr Joshua Farley, an ultra-marxist in America, good luck.


Posted by: Lorenzo on 24 Feb 06

Yeah, thank you very much for this interview.

I think there are many people realizing that not quantity but quality makes life more worth living. In my country more and more people start buying organic food - one could even speak of a boom in the organic sector here in Germany. I've also read in a recent newspaper article that the fuel consumption has decreased by several percent in 2005 even though the GDP went up 1,0%. But there are still many people around working quarter or more a year for their car (costing at least 4500€/year ~= 5400$) instead of recognizing that their life quality could be much better abandoning such luxury.

Greetings, Daniel


Posted by: Daniel Lang on 25 Feb 06

Common sense in economics! Extraordinary!

I predict that decades hence, Joshua and the ecological economists will be accepted as normal sound thinking. the neo-classical economists will be seen as valid only in limited situations. Their exaggerated claims will be seen to have led us to wildly foolish policies.

About Marxism and ecological economics. In the past Marxism has downplayed, ignored or opposed consideration of the environnment. Lately, however, some Marxist thinkers are sounding remarkably like Greens. For example:
Marx’s Vision of Sustainable Human Development (link) by Paul Burkett
Organizing Ecological Revolution (link) by John Bellamy Foster

The limitation of ecological economics is that it takes the present political-economic arrangments for granted. It seeks to effect change by persuasion and analysis. This makes sense, since ecological enconomics developed during the last few decades, a period of stability and conservativism.

However, dramatic changes are more possible than we currently imagine. If attacks on an Saudi oil refineries are successful, or if war with Iran breaks out, the price of oil will shoot up.

What should we do if that happens? What if we should find ourselves with very limited supplies of oil, as Cuba did when the USSR dissolved and stopped sending them cheap petroleum?

As far as I know, few people are thinking about scenarios of rapid change. One of the few studies to have looked at this problem is The Hirsch Report (link), commissioned by the Department of Energy.

And then, there is the mega-problem of climate change. I've got to think that when realization of the enormity of climate change sinks in, we will start moving in a very different direction than we are now.

Ecological economics might be able to help.


Posted by: Bart on 27 Feb 06

This is useful material for a course I am teaching. Last week I discussed Kenneth Boulding as one of the first ecological economists. He compared our old world view of a "cowboy economy" with the coming "spaceship earth" in which resources were finite and in need of recycle. Nice to hear his view is progressing.


Posted by: Alan J. Chalk on 4 Mar 06

I ran across this in the NYTimes "Technology" column and the very next item was, ironically, about iPods. Why ironically?

Because iPods are a direct challenge to the idea that more economic activity necessarily implies more waste and that, therefore, we can't grow forever. 30 years ago, the quantity of music on my MP3 player would have required several shelves containing something on the order of a hundred pounds of plastic LP records and cardboard sleeves (and factories, distribution warehouses, fleets of trucks, retail stores). Fifteen years ago, it would have been the same except the quantities of plastic and cardboard had been reduced by several times. But now, much more dramatically, the same stuff fits in the palm of my hand and never needed to have a physical instantiation at all -- no plastic or cardboard, no factories, no warehouses, no trucks, no retail stores. The same is true of amateur photography, of hollywood movies, of personal correspondence, and of the printed word (no magazine was mailed to my home containing this article--I will have no paper throw away or recycle as a consequence of reading it).

Economic growth can proceed even as the production of waste is reduced (in fact, transitions from waste-producing to non-waste producing technologies are often a spur to growth, as in digital photography). Economic growth mean more value, not necessarily more physical stuff (and more waste).

Of course, not every product can be transformed into digital data and streamed over a wire. But if we compare Americans of 2006 with those of 1976, we'll see that most of the increased wealth has been 'immaterial'. Do we eat more food per-capita than then? No. Is the food better and more interesting? Yes. But better and more interesting and more valuable represents economic growth just a much as quantity does. If we look at our cars and homes, we'll see machines that require fewer raw materials to build and less energy to run but perform much better and more reliably. So even in the physical realm, we see growth with less waste.

But the significant increases in wealth between life now and, say, 30 years ago are, in fact, in immaterial form--the internet connection I'm using now, the music, movies (and my son's computer games), the thousands of family digital photographs (that required no silver, plastic, chemical, or paper, no labs or transport).

It is true that we cannot indefinitely increase our waste and environmental impact, but that does not mean we cannot indefinitely increase the value of our goods and services. And, in fact, the pattern has been that increasingly valuable goods have lower environmental impact, and increasingly valuable services are transitioning to 'immaterial form' where environmental impact is almost zero.



Posted by: Slocum on 4 Mar 06



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