As an economist, I’m going to be raising some tough questions today about issues we’ll have to confront in the coming years, but I’ll be raising more questions than I’ll be answering. As you can tell from the title, “What Can We Hope for the World in 2075,” I want to think 65 years ahead. Taking a conservative life expectancy probability of 80, any American who is now 15 or younger is likely to be alive in the year 2075. Who among you have a child or grandchild or other relative likely to be around then?—You can see how relevant that date is for all of us.
People often make predictions or draw scenarios that go out to the year 2050. I have chosen to look an additional quarter of a century ahead because I see such troubled times in the near term that I want to look toward a time when the human race may have reached a mode of adjusting and making the best of things. In trying to imagine forward to the last quarter of this century, it is tempting to try to delve into everything, but knowing that can’t be done, I’ll start by giving you some details on two issues that are going to affect the future trajectory of human societies. Then I will bring these together with a larger number of other issues that I’ll mention in the form of questions. The two large issues will be population—about which I think there’s actually some good news, which is why I want to talk about it—and the nature of the corporation—about which there are many open questions.
Population projections and issues
The good news concerning population is that the situation isn’t as dire as we thought, especially compared with the way it looked in the 1990s when we were getting very frightening projections from the United Nations. The latest median projection estimates that world population will reach 7 billion in late 2011 and will surpass 9 billion by 2050; this compares to earlier estimates of 12 billion and more. The UN’s current low estimate is even more encouraging; it projects peaking around 2050 at 7.7 billion. I regard this as very good news, especially since the low estimates have tended to be the most accurate over the past few decades. UN projections have proven close to reality as long as growth was high but have been slow to recognize declining birth rates.
The fertility rate that maintains a steady population, called replacement fertility, is 2.1 children per adult female. Amazingly, the UN is now predicting that by the time the birth rate stabilizes, sometime around mid-century, global fertility is going to be 1.85, which means continually declining population. Already at least half of the people in the world live in countries where birth rates are at or below replacement. Most developed countries have been below replacement for two or three decades.
The short-term view is quite different, however, from that of the long term. Worldwide, the largest group of young people ever to have existed is now entering the reproductive years. The population of the 49 least developed countries is still growing at 2.3 per cent per year. This will shift the composition of the world’s population away from those of European ancestry—a reverse of what occurred during the eighteenth and nineteenth centuries, when Europeans and their descendants experienced a relative increase throughout much of the world.
There are a number of reasons for population decline, including urbanization (as people move out of rural settings, they have fewer children); availability of contraceptives; and women’s access to education and income, as well as their ability to own property and to have control over the income they earn. Just to give one statistic: women who complete secondary school have on average 1.5 fewer children than women with less education. I will be talking about the possibility of huge social upheavals over the coming decades, which could affect these trends of urbanization, female empowerment, and contraceptive availability. Reversal of any of these trends could affect projections of continuing decline in fertility.
To look more closely at urbanization: Cities are the growth nodes throughout the world, and that is basically positive. If people are spread out, the use of resources tends to be greater. When the world population was 6 billion in about the year 2000, half was rural, half urban. By now the growth of rural populations has ceased worldwide and is probably beginning an absolute decline. All population additions from here on are expected to be urban. With smaller families now projected, unless patterns of cohabitation change, the number of households will rise faster than the number of people. That’s not a good thing if it’s separate single-family houses; if it’s denser urban population in apartments, that is on the whole more ecologically sustainable. This is the kind of trade-off that makes it complicated to understand the consequences of the choices people are making about how to live.
There are other significant developments concerning population. Age is of course a factor. Earlier theorists focused on the economic strain in countries with a population bulge at the young end, caused by the high youth-dependency ratio, which is the ratio of children to adults who are working and bringing in income. In contrast, the current concern is increasingly the ratio of people over 65 to those of working age. This is felt acutely in China, for example, where pensions as well as medical and other support for the elderly are looming as possibly the leading social crisis. In the more developed regions, 21 percent of the population is already age 60 or over, and that proportion is projected to reach 33 percent by 2050. In 1950 those older than 80 were a negligible portion of the population in all nations; by 2050 that group is expected to make up nearly 10 percent of the population in Europe, 7.5 percent in North America, 4.5 per cent in Asia, and 5.2 per cent in Latin America.
There may be some cultural benefits from a major shift in average age in population; I think we can hope for more wisdom, possibly less violence, maybe better music (speaking as a senior citizen!), and perhaps more thoughtful voting patterns. But there also are economic impacts of an aging population: the cost of care, including medicine, goes up, and while more people in the older age range are or should be receiving pensions, fewer are working and paying taxes. Personal savings rates tend to rise as people move from their twenties to middle age, and then fall as they move into their retirement years. Thus, a shift toward more elderly people means that the national savings rate everywhere is going to decline, leaving less money for investment.
In some of these respects the United States may be considered to have an advantage over Europe, with the number of young workers maintained by this country’s relatively high fertility rate hovering around 2.1 (the replacement rate), with an additional boost to the working-age cohort from immigration
Population ageing seems likely to emphasize the trend toward increasing the expansion of the service sector, which is in any case occurring rapidly in virtually all economies. That might seem like a good thing, given all the reasons to reduce consumption of raw materials; however, services are not as “dematerialised” as is sometimes imagined. Consider the amount of materials that are used and thrown out in a single visit to a doctor’s office or a fast-food restaurant.
There are several direct connections between population and climate change. In 2005 there were 20 “urban agglomerates” that contained more than 10 million people. I have said that from here on, given the human footprint on Earth, population growth in cities is preferable to spreading out more over other areas. But when we think about more people flowing into cities, we have to face the fact that, of the twenty largest cities, fifteen are located either on the ocean or on river deltas, where they’re in danger from a sea-level rise of at least 1 meter.
Finally, in talking about population, I’ll mention the issue of migration, in particular environmental refugees responding to climate change. It is likely that there will be sea-level rise, and we’ve already seen some temperature changes; diseases are spreading, and so forth. Climate change is hardest to cope with in the poorest countries, where the impact will be felt most severely, most quickly, and will be a cause of migration. Migrants from the poorest countries tend to go to their neighbors first. Many will flood into poor, nearby countries, causing extreme stress and a spillover ripple effect in other poor countries, which leads sooner or later to increased pressure on the richer countries.
The human race, and the rich countries in particular, will have to make decisions based on moral dilemmas. Do we supply resources to assist the poor countries to gain the resilience that will allow them to adapt as planet change occurs? Will we welcome the migrants to our shores? Or will we build walls and shoot them when they try to climb over? I think we’re going to be facing these choices within the lifetime of most of us.
Corporate impacts—standard responses
The size of the current population is not directly in our control and thus is not a human construct. I now want to move to a topic that is a human construct—the nature of the economy, particularly the nature of corporations, which dominate and determine our economy. The transition to sustainability is not likely to be achieved without substantial change in the nature and structure of the economy. This has to do above all with the nature of corporations, at present the main actors not only in the economies of the world but also in politics and cultures.
The overriding problem is that the legal, cultural, and economic systems and institutions affecting corporations promote profitability as the only goal and do not motivate corporations to include long-term social and environmental health and well-being in their objectives. There are two popular types of prescriptions for bringing corporate behavior in line with sustainability. Neither in my opinion is sufficient. The first comes from theorists of corporate behavior who increasingly note the value of reputation for attracting customers, workers, and investors and also note the risks for corporations that do not act in accord with human well-being. Such corporations will fail to anticipate future government regulations and will miss out on the real cost savings from pollution avoidance and conservation of resources. These are valid reasons for businesses to take socially desirable actions that do not obviously contribute to their bottom line. They contain an implication that, in some less obvious ways, being good will be profitable. This does work in some cases. Wal-Mart is a fascinating example. Being responsible environmentally has been extremely profitable for Wal-Mart. The company has cut its costs substantially. That is significant progress.
The other side of the equation is that virtue doesn’t seem to pay off when the source of harm is the business model and its social impact. Wal-Mart’s business model depends on reducing all costs. Fine for the environment, but as probably the largest private employer in the world there are huge labor costs. The company employs an enormous number of people, and by and large the consensus is that it doesn’t treat its employees well. Wages are low, health benefits tend to be poor, and there are various ways that Wal-Mart keeps employees from attaining long enough tenure or working enough hours to qualify for health benefits. And they are externalizing tremendous social costs onto the communities where they are located. When part of the business model is to squeeze the workers, better behavior won’t be good for the bottom line.
The idea that being good is good for the bottom line also has to do with the product. If what you’re selling is weapons or petroleum or cigarettes or junk food or junk toys, then it’s hard to see how you can become a socially responsible company without losing your identity.
The other popular prescription for how corporations can be persuaded to behave better is the one economists especially like: the problem will be solved if only we can internalize all externalities—that is, make businesses pay for the costs (or get rewarded for the benefits) they create that have been suffered (or enjoyed) by others. The most obvious example is pollution. If a company creates pollution, it should bear the cost of cleaning it up and the cost of the ill health it causes. This approach can solve some problems but leaves aside larger, long-range issues that require extremely intelligent regulatory action. It’s also not popular with corporations because externalizing your costs is a good way to get rich.
It is especially difficult to find ways to internalize what some economists are calling meta-externalities, which are the impact of the economic system as a whole on the larger social and ecological environment. Negative meta-externalities include, for example, the toxins and nonbiodegradable wastes that are building up in huge quantities throughout all the Earth’s ecosystems. No single corporation has the major responsibility for toxic wastes; they come out of the whole system. And how are you going to persuade each company to pay its share?
A less tangible example is the socialization, through advertisement-led media, that promotes an instant-gratification, I-deserve-the-best mentality. This encourages a culture that is good at making people want to consume but not good at supporting characteristics of responsibility and frugality or other values that will be needed in the difficult times of the twenty-first century.
When markets do not include the costs of negative externalities, then firms do not receive price signals telling them that their products are causing harm, either to those whom they affect directly, or to the whole society, or to the ecosystem on which the economy ultimately depends. This is a situation that economists call market failure. Our system is full of market failures, and indeed—as Nicolas Stern famously said in the Stern Review—the CO2 build-up in the environment is the largest market failure the world has ever known. It is a kind of overall market failure that can be termed a meta-externality.
We have much to gain from getting the prices right and from showing where good behavior and profits do converge, but we have to recognize that the two don’t always coincide, particularly in the short to medium run. There continue to be strong incentives in the system for behavior that may harm many in the long term, with a fair chance that the people who have earned the most by having their corporations engage in those activities will in the short term go free with their winnings. Until there has been deeper change we can expect more of the kind of harm that has been inflicted by companies such as Enron, Halliburton, and probably some respected, not-yet-indicted firms such as Goldman Sachs. So what kind of major change is being proposed that could be taken seriously after the next wave of financial or business disasters? I don’t see that kind of change on the horizon at the moment, but there continues to be short-term behavior that is profitable for particular firms or particular actors in those firms and is setting the stage for more disasters.
Corporate impacts—out-of-the-box responses
We need to come up with good ideas for how the corporate form can be changed and how the market that now depends on corporations can be changed. We must have these ideas ready for the next wave of disasters when people may be more open to larger change.
One idea I’m particularly fond of is to revive a legal structure in which corporate charters can be withheld or revoked from those corporations that are not contributing adequately toward a sustainable, humane economy. This idea of corporate charters could be applied on an industry-by-industry basis. For example, accounting is to my mind especially ripe for this, since the major social capital of accounting firms is the perception that they can be trusted to tell the truth. If a new type of charter would make a particular firm more obviously trustworthy—for example, by including strong barriers against conflicts of interest or capture by interested parties—accounting firms might find it in their interest to adopt that kind of a charter without being forced to. The new wording might even be voluntarily accepted.
There was a flurry of interest in corporate charters in the 1970’s. In fact, charters were revoked for egregiously lawless activity in a couple of cases, but ever expanding corporate power over recent decades has made the rechartering idea seem quixotic. I don’t think it will return until there is a new wave of citizen concern and outrage.
The Community Environmental Legal Defense Fund (CELDF) is an organization that for a while played with the idea of rechartering, then decided that the world wasn’t ready. Now it has taken a different approach, which is the creation of municipal ordinances, not as a way to reform corporations but rather to encourage the countervailing power of communities that are directly affected by corporate activity. With the help of CELDF, about 10 percent of the municipalities of Pennsylvania, where this organization began, as well as towns in a number of other states across the country, have adopted ordinances banning corporate preemption of local control of land, water, and other resources.
In 2005 the Pennsylvania legislature fought back on the side of the corporations, passing the Agriculture, Communities, and Rural Environments law, which gives the State Attorney General discretion to rule in disputes between corporations and communities, including the right to overturn municipal laws. The next move was made by a group of Pennsylvanians who have issued the Chambersburg Declaration, which sets the goal of “revoking the authority of the corporate minority to impose political, legal, and economic systems that endanger our human and natural communities.” They have the ambitious intention of bringing together a constitutional convention to draft a new state constitution, to be ratified by popular referendum.
CELDF is promoting one of the more radical approaches. Turning to a more mainstream voice, fifteen years ago Michael Porter wrote: “The ideal system is one in which the goals of owners and the agents who represent them are aligned with those of corporations and of society as a whole. . . . What is needed, in many respects, is a reexamination of our entire capital market paradigm.” This means thinking about how investments can flow toward the companies that will pay sufficient attention to the “what” and “how” of production—producing in a sustainable manner things that contribute to human well-being.
One idea in this regard comes from Richard Rosen of Tellus Institute, who has proposed the establishment of regulatory boards for each major industry. Emphasizing the need for public participation in the allocation of capital, Rosen cites the regulatory model of public utility commissions (PUCs):
PUCs are best known for rate-setting with respect to energy, telecommunications and water. But even more important is their little-known role in approving all major utility investments, and all utility products for which they set rates. . . . They are given this authority to approve investments because a large part of the cost of all utility services is the cost of paying off capital investments in plant and equipment.
PUCs are often ineffective or subject to capture by the industry they are supposed to regulate; nevertheless, Rosen believes that the model could be improved and applied, to start with, in industries where the social good—and potential or actual social harm—is especially obvious, such as agriculture, chemicals, pharmaceuticals, and financial services. The mandate for his proposed regulatory boards would be to channel investment to where it’s needed and away from where it’s doing harm.
Rechartering and the PUC model are two examples on the regulatory side of change that would be imposed from outside. An alternative is reform from within—if not starting from within corporations, at least coming from within the system that sets the incentives and standards determining their behavior.
A major part of that system is the investors who provide capital to business. Some investors are trying to use the proxy process and company dialogue to impress a longer, more socially sensitive view upon managers. The UN Principles of Responsible Investment encourage investors to pay close attention to the environmental, social, and governance (ESG) impacts of the firms in which they invest. This initiative is beginning to have noticeable effects on where investors, particularly European and Asian, put their money. Large U.S. investors, with the exception of some major pension funds, are far behind, but U.S. investors who are global, and many are, are feeling pressure from their global partners to catch up in applying the UN principles.
A different approach to reform proposes drafting new institutional and legal structures for corporations—drafts that might seem too radical in ordinary times but that could be put forth when new crises focus attention on the gaps between corporate incentives and social needs. A notable example is the “New Principles for Corporate Design” that have emerged from a program called Corporation 20/20, led by Allan White at the Tellus Institute. Here are some of these principles:
- The purpose of the corporation is to harness private interests to serve the public interest.
- Corporations shall accrue fair returns for shareholders, but not at the expense of the legitimate interests of other stakeholders.
- Corporations shall distribute their wealth equitably among those who contribute to wealth creation.
- Corporations shall not infringe on the right of natural persons to govern themselves, nor infringe on other universal human rights.
At a more specific level Ceres, another Boston-based NGO, has laid out 20 expectations for sustainable corporations, including the expectation that companies will approach all product development and product management decisions with full consideration of the social and environmental impact of the product throughout its life cycle. Disney has just become an affiliate with Ceres; it will be interesting to see where this leads. The world in which companies would follow the Tellus or Ceres principles even if it means not producing cigarettes or Barbie dolls would be quite different from the one we live in. Principles such as those I’ve just cited are ready for application when we get to that world, but they probably don’t have the ability, by themselves, to bring it about.
The profit-driven world we live in now can be softened with notions of reputation risk or climate risk or resource-shortage risk, and it can be stiffened by regulations to internalize those externalities that can be brought home to their creators, but all of these forces together may still not be sufficient to focus corporations on the urgency of contributing to true sustainability. That brings us to the question: What alternative is there to the big corporations? I know I’m speaking to a roomful of people who have given thought to this. I know that many of you have been working on one or more particular type of alternative to the large corporation. If corporations can’t be changed as much as needed in order to turn them into forces for sustainability, perhaps the alternative is that the big corporations might be corralled into a smaller part of the economy by successful, smaller, more benign competitors. A number of organizations represented here have been promoting the vision, and the reality, of a multitude of small businesses, each deeply rooted in and answerable to some portion of the human community.
Marjorie Kelly, a long-time writer on responsible business, has a paper on the Tellus Corporation 20/20 website in which she talks about social business, or “for-benefit enterprise”; these terms apply to firms that do require profits in order to survive but that subordinate profit-making to a larger mission. A prime example is Grameen Danone foods, a 50/50 joint venture between Groupe Danone—the multinational yogurt maker—and the Grameen companies, which have made microfinance famous. Analyzing the different approaches to a for-benefit architecture, Kelly cites three types of for-benefit companies:
Stakeholder-Owned Companies, which put ownership in the hands of nonfinancial stakeholders, include employee-owned companies and cooperatives;
Mission-Controlled Companies, which separate ownership and profits from control and organizational direction, could include nonprofit venture-capital firms or “for-profit philanthropy,” as in Google.org or the foundation-owned corporations of northern Europe;
Public-Private Hybrids, where profit-driven and mission-driven design elements are combined to create unique structures.
Without trying to delve into the details of these types, it is interesting to note that a stumbling block for many of the examples, such as cooperatives, has been the difficulty of raising capital. This takes us back to the issue raised earlier by Michael Porter and Richard Rosen: the need to attract capital, not only to where it will give the most and the quickest profit but to where society’s needs are served.
There are numerous attempts to address this need to attract capital. One is by the NGO Green America, led by Alisa Gravitz, which is promoting Clean Energy Victory Bonds. Based on the Victory Bonds of World War II, they would be U.S. Treasury savings bonds, available for as little as $25, that encourage citizens to invest in the domestic clean energy industry. Representative Filner of California is committed to proposing legislation for clean energy victory bonds.
Corporations and the politics of power
To summarize: I have reviewed some options for bringing corporate behavior into line with the needs of humanity in the twenty-first century. These options can be divided into reform coming from within the existing system and more radical change imposed on corporations from outside.
Right now the inside-vs.-outside-the-system distinction is not easy to make because governments, especially in the United States, are so tightly bound inside the existing system of markets, which are dominated by corporations. This excessively close connection means that government is not separate from corporations; therefore, if we look to regulations as the solution, we can’t expect those regulations to come from government, whether it’s an attempt to internalize externalities or to change charters or to effect anything else that requires regulations.
If governments are not to be the catalysts for change because they are captive to the system, where, then, can change come from? A partial answer to this question may be the universal investors—that is, investors who own part of all the big companies in the economy—especially pension funds, which are huge players. Global pension assets now amount to an astonishing 70 percent of global Gross Domestic Product (GDP). Looking inside these numbers it is interesting to note that the fixed income market, of which bonds are a major portion, is even larger than the equity markets. There is highly positive potential here, in that bond holders tend to take a relatively long-term view, as do some pension funds. The longer the time frame in which investors think, the more their motivation is likely to converge with the good of society. Another answer could lie in some kind of citizen mobilization to greatly enhance the countervailing power of local and virtual communities. This is a vision of change that depends on a shift away from businesses that have not aligned their behavior with society’s interests, a shift led by the preferences of individual and institutional consumers. Don’t forget that governments are huge consumers of the products of business, so it’s “government as consumer” as well as “government as regulator” that we have to keep in mind.
The major pension funds might be able to exclude a few corporations, but they basically have a stake in the entire economy. This means they have a stake in the future, for pensions funds, after all, need to be able to continue paying out pensions to people twenty, thirty, forty years from now. If the whole economy is going down, if the meta-externalities are such that the climate for economic activity continually worsens, the pension funds will find it difficult to carry out their function. As a result, large pension funds have been playing an important role in confronting corporations through proxy resolutions, through voting on those resolutions, and through dialogue with companies that, when faced with a proxy resolution, prefer that it doesn’t come to a vote. At that point some of them are willing to talk with the people who have been proposing those resolutions. That’s still working within the system.
The people involved in the Community Environmental Legal Defense Fund believe that far-reaching change in how to interact with business will come about only as part of an even more ambitious idea: to address deficiencies in the charters of the states and ultimately even in the charter of the United States of America—the Constitution. These documents were originally written with a strong bias toward the owners of property. That bias has drifted toward corporations—not even, necessarily, to their owners but rather to those (generally the managers) who are in a position to hand out large amounts of money to influence government. A cleaving of the relationship between corporations and government—a separation of business and state, to follow the original idea of separation of church and state—would, of course, open the door to many other possibilities. Rechartering is just one of the ideas that would then become possible.
In the end, the role of corporations and their contribution, whether positive or negative, to an environmentally sustainable and socially equitable economy is at least as much political as economic. In a true democracy, decisions are supposed to be made on the basis of “one person, one vote.” In the management of corporations, shareholder democracy offers, at best, “one share, one vote.” In markets, the balance of demand and supply amounts to “one dollar, one vote.” It is not yet clear which of these kinds of democracy will prevail in the effort to align corporate goals with the goals of society.
Energy: the pivot for change
Now I’m going to try to apply what I’ve been saying to an assessment of some of the economic problems I think we will face in terms of the future of our children and grandchildren.
I’ve talked about two big issues: first, the need to feed, clothe, and house something like 8 billion people by mid-century, with the hope that the global human population may have stabilized and will be declining by then; second, an economic system in which large corporations are now running the show, a system that is not leading us in the direction of sustainability. I have struggled to present a plausible picture of how the corporate-run economy might change in the right direction. If you’re thinking I haven’t been very successful, I agree. Looking at these giants as they are now, it is hard to imagine appropriate change. The fault, however, may lie with our imagination, not with the world of possibilities.
I’m 66 years old. For those of you who are my age or older, we can look back six decades and see an extraordinary amount of change in technology, in culture, in how people understand the world. When we turn around and project that amount of change forward, the danger is that we will expect change to continue in the same directions, but that may not be the case. Change is going to be forced upon us, and we do not necessarily know what forms it will take.
Human beings have made individual choices that, in the aggregate, have changed the trajectory of population growth from what seemed inevitable even 20 years ago. The number of people in the world at any one time is, however, a given. The limits of nature’s tolerance and the availability of natural resources are also givens. When we come up against these immutable numbers and limits, then other things that had seemed irreversible may be forced to change. Many people pin their hopes on technology as the variable we can most usefully and perhaps most easily affect. I would look hard, also, at the structure of the economy, especially as it is determined by the present nature of corporations. As human constructs these are high on the list of things that may need to change if humanity is to cope with the challenges ahead.
As I try to pull the strands together to consider what lies ahead, there are a number of additional problems that I think we need to take into account.
I will start by quoting from a paper about the relation between energy and health written by two doctors, Cindy Parker and Brian Schwartz (see postcarbon.org):
For more than a century, we have used cheap and plentiful energy to insulate ourselves from the negative consequences of our environmental destruction. If we depleted fish stocks in one area, we trawled deeper and farther, using cheap energy to harvest other species. If we degraded ecosystem services such as capturing, purifying, and storing freshwater, we used cheap energy to drill deeper into aquifers or built desalination plants, a direct way of converting energy into potable water. If drought adversely affected food production in one locale, we used cheap energy to transport food great distances from elsewhere.
We can—and probably will—go on using cheap energy long enough to push the atmospheric concentrations of CO2 well above the present level and far above the level considered safe. If we do so, at some point the disastrous consequences will become so clear that something will be done—whether by human agency or natural forces—to make fossil-fuel energy much more expensive. And the cost of energy is a central issue. If we were really smart and right now we made the highest priority for fossil-fuel use the construction of sustainable alternative energy sources and systems, the cost of those alternatives might decline fast enough to limit the era of high-energy costs to a brief period—perhaps only a decade—and lessen the disasters that will follow environmental failure.
Consider little Portugal and big China, which are both showing some of what is possible. The government of Portugal led a program of investment in which the percentage of renewables in Portugal’s energy grid rose from 17 percent to 45 percent in just the five years from 2005 to 2010. China is also moving fast to create a huge solar industry, though it is still heavily dependent on coal. Looking at these examples, and at the historical and present examples of human denial of reality, it seems probable that rather than compressing the energy transition away from a carbon dependence into a short period, we will face a long, harsh period of high energy costs. My most optimistic guess is that the painful transition to a post-carbon economy will dominate at least the 20 years from 2015 to 2035; less optimistically, it could continue till 2050. My hope is that we won’t go all the way to a “fortress world,” but it is hard to imagine that we will not be facing a period of great disruption.
Work, income and consumption
We have all heard about the positive elements of the energy transition: new jobs, new opportunities for investment—in rapid expansion of sustainable energy technologies, urban redesign, transportation—and redirection of investment to energy and materials-saving products and production techniques. There is great potential for new jobs in environmental clean-up and restoration of soils and forests as well as jobs that contribute to a better economy, but here’s what worries me: it is not only energy costs that will rise; so will the cost of many raw materials as essential resources like water and wood become scarce. The cost of producing and processing materials like metals will also rise with energy prices.
Where this increase will be felt most is in people’s incomes. Average wages have been rising more or less steadily in the 250 years since the beginning of the industrial revolution. This is largely related to the rise in labor productivity, although we have periods like the past couple of decades when labor productivity was rising but wages were not because the benefits of rising productivity were basically captured by stockholders, CEOs and high-level managers. My point is that the rise in labor productivity was largely a result of every worker having more capital, more materials, more energy to work with. If we’re going to talk about an economy that is more labor intensive but less energy and materials intensive, it’s hard to see how this won’t roll back the wage effect so that income will go down in relation to the price of the products people are producing.
There’s talk about the necessity of raising the price of energy and materials, which will shift production choices to more labor-intensive processes. This, taken together with the global age changes in the labor force, looks good in terms of employment opportunities for those of working age, but it looks bad in terms of wages. Labor-intensive energy-and-materials-conserving production means a shift in relative prices: wages down against tangible goods.
Julie Schor—economist, author, and Professor of Sociology at Boston College—believes that labor productivity, relying on inputs of intelligence more than energy and materials, can grow fast enough to offset the impact of this shift. She believes that labor productivity can rise by means of increased inputs of information and intelligence; along with technologies that are not overly materials intensive, although computer technologies are still quite intensive in energy and materials. I hope she’s right. The big question is whether people will have to work longer hours to maintain their standard of living. Julie envisions people working shorter hours in jobs that require less materials and less energy so that there is less impact on the world and people are living good lives. What I find more convincing is that, faced with a host of major changes, people may choose a voluntary trade-off of income for time—reducing time spent in market-oriented activities and increasing time spent in leisure, community activities, relationships, and so on.
Much of this speculative projection comes down to what is meant by a good life. It is becoming increasingly evident that the kind of good life possible in the future is one with much less material consumption. More and more people are predicting that GDP is not going to be able to keep on growing, and new measures of an economy’s success are being suggested that will enable us to say, Yes, the economy is becoming more successful—even while GDP is going down.
The same amount of money might flow through the economy (i.e., no reduction in GDP), but with respect to many consumer goods there would be less purchasing power. The cost of services would rise less than the cost of material goods since a larger portion of their cost would go to paying wages. Education might become a relative bargain; doctors’ visits, concerts, and massages as well as land restoration and housing insulation would be relatively easier to pay for than food—especially meat—or snowmobiles or refrigerators.
When the world gets around to working seriously to prevent climate change, this will also cause dramatic shifts in where the economy puts its resources of money and human effort as well as materials and energy. I’m hoping these shifts will entail some potential for changing the allocation of what society produces—“who gets what.” It could be an opportunity to move toward a less unequal distribution. If this opportunity is lost, the life-style changes that are necessitated because there is less available to consume will largely be in terms of reduced well-being among the poorest members of society.
That’s my image of the period of transition between now and 2040 or 2050. As energy becomes more and more expensive we’re all going to have to accept kinds of change we had previously regarded as unacceptable. Most people who talk about the transition talk about reducing work hours. That’s a desirable outcome. When you put it together with demographic change—i.e., a smaller proportion of the entire population is of working age—and you add a possible decline in productivity, once again this means consuming a lot less. In order to be able to recognize the positive potentials in such changes we will need to shift the way we think about our lives and what is valuable to us.
The balancing act
Now let’s look forward to the time when the energy transition is complete and we have cheap energy that is produced through renewable methods. I hope that by then the sciences will have been strengthened, not weakened, by the catastrophes they predicted and tried to prevent, reemerging as a source of trusted information and understanding. It’s one of the tragedies of the present situation that science has been getting such a hard knock and so much disinformation is becoming increasingly acceptable. I mentioned earlier the danger of sea-level rise for 15 out of our 20 largest cities. I would hope that by 2050 both the sciences and the acceptance of science will have improved enough so that people will at least have access to good projections of how much more sea-level rise to expect, how fast, and what to do about it. A modest projection sees about a one-foot rise by mid-century, with more to follow, because this is a process that seems likely to unfold over centuries. Shore properties, including many airports and other portions of cities as well as the most vulnerable islands and significant areas of some nations, will either have been lost to the ocean or will be precariously protected by ever higher dikes, dams, and levees.
It is urgent that we face these issues in the United States. Taking all materials and energy together, we are the highest-consuming nation in the world by a large factor. If the developing countries are to be given the space they need to catch up in a world where resources are constrained, some people will have to consume less in order for others to consume more.
For the coming decades, until the transition away from fossil fuels is complete, we have the opportunity to create institutions to handle the recycling of monies from carbon emitters to the owners of the atmospheric commons, especially to those who are most harmed by these emissions. Once the transition has been made, that potential source of wealth transfer will dry up. By then, however, the tropics, which have always been among the poorest areas, are suddenly going to be the Saudi Arabia of the solar future because they receive a huge amount of sunlight. One can hope this will reverse some other difficulties as well; for example, I have not really looked into desalinization. I know it’s highly energy intensive, but I can imagine so much cheap solar energy becoming available that it will be feasible to desalinize ocean water and begin to reverse the terrible water shortages we’ll face in the next few decades. These are two optimistic projections for the post-transition period leading up to 2075.
One thing that everyone hopes for—I share this wish with the leaders of ExxonMobil, but we see different ways of bringing it about—is affordable sources of inanimate energy to allow people in developing countries to participate in global communications and education systems. They also need transportation systems, infrastructure as well as energy, that will enable farmers and other producers to get their goods to markets. And they need huge investments in urban housing in order to convert the exploding slums into places with healthy dwellings.
Meanwhile, during the turbulent times between now and 2050, losses from climate disasters will continue to grow, including costs of sea-level rise, increased weather instability and extremes, and all the consequences of crop failures and rising food and energy costs, ill health, conflict, and migration. We also have to expect a continued high rate of species extinction. Probably the best we can expect (a very sad best) is that the diversity of flora and fauna will be reduced by no more than a quarter or a third. The twentieth century saw unwelcome invasions of many transplanted species, including new parasites and diseases. The reason I want to look as far ahead as 2075 is that by then it may be possible to believe that the human race is catching up with, and learning to protect itself from, unwelcome new arrivals while adjusting to the losses. Ecological change will not have ceased, but it will no longer be as shocking and perhaps not as rapid.
Here is the balancing act that I see ahead of us: The period of the energy transition will be a time in which we are getting used to the costs of climate change that we have not averted. Rising prices of energy and materials, but not of human labor, are likely to mean a continuing trend toward more service-sector work. To me as an economist, all this spells lower wages, which means less purchasing power for workers. Some people believe that smarter technologies will keep the relation between production and wages at least stable, but we know there are environmental reasons why the high-consumption lifestyle of the United States is unsustainable anyway. For this country all indications seem to me to point in the same direction: to a future with less stuff per household. If this is inevitable, we might as well make the best of it: reducing our consumption—by choice or necessity—reducing work hours, reducing take-home pay, increasing leisure and well-being.
These likely choices will confront us head-on at the national level. If we consider the whole world, the challenges of the transition are even greater. The destructive impacts of climate change will hit hardest in tropical areas, small island nations, and other places where poverty has made adaptation most difficult. The developing world faces a continuing struggle to lift billions of people to a level at which children receive the nutrition and care they need to develop mentally as well as physically and adults have reasonable choices for how to spend their lives. These realities will strongly affect human values and will inject into cultures of the year 2075 a number of critical lessons:
- to stop poisoning the oceans with run-offs from agriculture and other land use;
- to use fresh water sparingly and wisely so that stores of fresh water can begin to recharge and will not be polluted by human agency;
- to cherish and protect land and water ecosystems, looking forward to a gradual reversal of the process by which more and more of the surface of our planet has been taken over, and made over, for human use;
- to value food and the growing of it so that, while food production will be more labor-intensive than the factory farms of the United States today (where less than 1 percent of the labor force is enough to feed our entire population), farm workers will be better paid than they are today;
- to value the integrity of language, culture, and arts, resisting their pollution by advertisers whose goal of selling more goods or services is not well aligned with the healthy development of human beings as individuals or as members of society;
- to revise expectations, behaviors, policies, and theories in order to assist declining populations to adapt to a changing age profile;
- to emphasize the value of leisure by making it easy for those who want to have a shorter work week, recognizing that this is a trade-off. High status will not automatically go to those who opt for less leisure and more stuff.
Those are just a few of the urgent needs that will require investments beyond what can be generated from within the developing countries. The current system of global capital is one in which the wealthy owners of capital deploy it where they can expect the highest returns and then use those returns for more wealth creation and consumption—usually not in the poorer countries where they invested. This system can help in the spread of new energy technologies, but the standard investment approach is much too slow to achieve the other development imperatives. Vigorous climate mitigation programs could improve the lot of the poorest regions of the world if they include effective sharing of new technologies. Significant reduction in the cost of turning sunlight into usable energy would be especially beneficial for tropical areas, with their plentiful supplies of sunlight.
An optimistic view of 2075
By 2075 the energy transition should have occurred quite successfully so that energy for most uses is no longer expensive and virtually all of the people of the world have access to energy from inanimate sources in quantities that are not much less—and may even be more—than the amounts of energy used today by people in the wealthy countries. With population stabilizing and with cheap, sustainable energy coming on line we might imagine, for example, water desalinization as just one example of a quite different economic system in which materials are still costly, but energy is cheap.
With wide recognition of the dangers of resource overuse, cheap energy will not tempt people and societies back to the profligate resource use of the twentieth century. Much of the low-hanging fruit in energy and materials conservation will already have been plucked by 2050. While human ingenuity will continue to find ways to “do more with less,” everyone will need to accept lifestyles that require reduced use of materials, probably at least for a while of energy, and also of human labor (given population aging). Aspirations to live in the style of well-off Americans at the beginning of the twenty-first century are off the table for virtually everyone—including Americans.
Looking back from 2075, the previous 50 years will be seen as times of tremendous institutional experimentation and reform. Some institutions for global governance will have been created. If corporations have not managed to redesign themselves to be oriented toward the promotion of human well-being, then the corporate form will have been replaced with other modes of production: co-operatives, local trusts, various not-for-profit organizations, and perhaps other forms not yet discovered.
By 2075 humanity should be recovering from economic, social, and psychological traumas, including a vivid awareness on the part of all people of the destruction that flowed from behavior based on materialistic, commercial goals and values as well as on the ecological ignorance of the twentieth century. It will also be a time for adapting to changed and changing age demographics along with roller-coaster fluctuations in prices that began in the early part of this century.
The throw-away society that developed in the twentieth century has externalized huge costs onto the environment and the people of the future. Those living in 2075 will still be picking up these costs; they will perhaps, less figuratively, still be picking up our trash. They will not be using plastics because they end up in the oceans, where they are ground into non-biodegradable fragments; they will be using wood sparingly in order to allow forests to regenerate and using less chemical fertilizer but more intelligence. All of these choices will come with a sizeable shift in prices, with many materials continuing to be relatively expensive. The era of expensive energy may be past by 2075, but the lessons of frugality and of how to live a better life with less work, less income, and less stuff will, I hope, remain.
The third quarter of this century can be a time for healing, for repairing as much as we can the damage that has been inflicted on the natural world, for seriously addressing inequality and global as well as local poverty, and for building clean governments that have not been captured by corporate interests but are devoted to the good of the people.
Question & Answer Period
Q: I find what you said about the Pennsylvania municipalities very interesting because we need to focus more on what’s happening locally if we want to see systemic and larger change. But I also would like to offer a caution about your reference to Wal-Mart being green. We should understand that it’s an oxymoron to describe the Wal-Marts of the world as green. A corporation that demands car dependence can be as green as it wants in the products it buys or the buildings it builds; that does not make it green as a corporation. Beyond that, we need to ask how green these new facilities are in terms of what they are replacing. In our green measurements we do not value the previous infrastructure and buildings. The whole standard of green needs to be questioned, and I think that should go into discussions of a green economy.
A: When one speaks of Wal-Marts being green, it’s a matter of comparison with how they used to be. They have become much better. At the same time, however, they do continue to get bigger, and that means they’re building more and replacing more. Of course, the loss of agricultural land is also a serious problem. Good comments, and thank you.
Q: You didn’t address the subject of education in your presentation. I have a little video up on YouTube with five-year-old Hispanic kids waving at the camera, and they are saying, “No adults left behind.” Why do children always have better answers to life than most adults? As Alexandre Dumas, the author of The Three Musketeers said: “Why is it that children are so smart and adults are so stupid?” It must be education that does it.
Napoleon was the father of institutionalized education. He used a military model for training, so if standing at drills at attention seems like a familiar method of education, that’s because it is. The Prussians copied his model, and we copied it from the Prussians 150 years ago. In For Your Own Good Alice Miller showed how the insanity of Nazi Germany happened—because of the German educational system.
A: Education is absolutely key, and we do have a great deal to learn from the young. We also have to be careful not to unteach them.
Q: You said things will get worse before they get better. I come from a coal-mining area in Tennessee. We know that the coal will be gone in ten years, so we’re already preparing for the worst. We’re not waiting forty years. We are thinking right now about our children’s future and how to prepare them for it.
My question is about investing in pension funds. In our area the land has been owned by absentee landowners, starting with an English company that owned it for a hundred years, and then a New Jersey company owned it for twenty, and then another one owned it for ten. I caught word about investing in pension funds, but the land has changed hands so many times in the past ten years that we can’t even keep up with who owns it. How does that affect pension funds and how can we understand in our community what’s going on?
A: There are many different pension funds. Some of them are more progressive in their outlook than others. All the big ones are invested in the whole economy, and they invest in bad things as well as good. The better pension funds are trying to make the corporations that are doing harm do less harm, and even start to do good. The topic of pension funds is a complex one. They are often positive forces, but we also need to be careful to keep track of what these funds are doing. I don’t know the specifics of your situation well enough to give a more concrete answer, but you remind me of the importance of land ownership, and that brings us to the question of the commons and the interesting idea that land should be thought of as a commons.. That’s an idea that deserves serious discussion.
Q: I teach economics in the Henry George School. I think Henry George was the first thinker during the nineteenth century to talk about common ownership, not necessarily of land but of land value. That’s the big conundrum. It’s not who owns the land that’s crucial but who owns the land value. Land value is created by the community, but it’s not generally owned by the community, so Henry George suggested 140 years ago that we should remedy that by heavily taxing land value, which is accomplished mainly through the rents of land and natural resources and taxing the productive forces of the economy, mainly labor. George is the first economist to put socialism and capitalism on the same team. The opponent is the land owner or in another sense the feudalist. I think we should be very careful when talking about the social and environmental issues we face today that we put them on the correct economic basis. It’s not capitalism per se we want to fight; we want to fight the masquerading capitalists who are the land owners and the feudalists.
A: You’ve put this in economic terms. I would put it back in political terms because it has to do with power: who has the power to decide what is done with the land, with the corporation, with the money that’s generated by the land, with the money that’s generated by the corporation? There are subtle issues about what exactly you are going to tax—land value versus land per se. This would require a much longer conversation, but you’re raising good points?
Q: I’m associated with the organization Grayisgreen.org, and I’m curious as to how the two parts of your presentation relate to each other. Your discussion of demographics points to what we experience as we go through the life cycle; what you said about the economy prompts me to reflect on how much changes over the life cycle. Now that we’re facing the challenge of navigating through a very difficult transition and we look at the demographics we have now, it seems we have some opportunities to frame a message of urgency, with nuances for different parts of our population—for example, the relationship to a pension fund changes from when I’m 30 or 40 and when I’m 50 or 60 or 70. We’re in the situation now where we have a young tech-savvy generation, but we have an older generation that’s not as tech-savvy, and maybe the medium and the message are different for them. Would you comment on how we seize the moment strategically based on some of the demographic changes that are underway.
A: Gus Speth and I are both on the board of Gray is Green—it’s a marvelous organization that is working to help the elderly population become more involved in and educated about the issues we care about. It was started by a dear friend of mine who lives in a retirement community. There are large numbers of older people who have a role to play; in this country, many of them are in retirement communities of one kind or another. I think your point is that the young, the middle-aged, the about-to-retire, the old—they’re all different groups, and as we try to figure out intelligently where we’re going and what a good life is, the answers are different for each group, so we need to plan different strategies for them.
Q: We’re talking about transition into a basically new world in many ways, and it can take many different paths. I think it’s going to be crucial to have the support of the people most directly affected by it. For example, environmentalists have a tendency to talk about the urgency of moving away from coal. True, but if we do that, it means eliminating the jobs of tens of thousands of people in coal mines and coal towns. We’re talking not only about companies that supply the coal but also a whole array of businesses, such as restaurants, in the towns that have the coal. What do you see in the way of giving those people practical means of moving into the new economy? Besides retraining, are there tax incentives? If the transition isn’t handled properly, I see the possibility of re-experiencing the fascism or the communism of the 1930s or other extreme social movements.
A: You’re certainly right about the dangers. You mention the need for the support of the people most directly affected. So often in recent years it’s been the people most directly affected who have had the least say in what’s going to happen. I’m an economist, and economists are supposed to believe that people act according to their self-interest, but when I look around, I see people constantly voting and acting against what I would assume to be their self-interest. This is a troubling aspect of our economic, social, political situation right now. So it’s essential that the people who are the most directly affected have access to information that will help them understand what’s going on.
We have to look to the people involved not to be passive actors. And we—the people in this room, the people who have education and some money—have a responsibility in relation to people who don’t have much and who stand to lose what they have. Our first responsibility, I think, should be to help them understand their situation and then help them feel empowered to take action. Then we can learn from them what the best potential outcomes are. There’s an excellent, highly readable book—The Power of Positive Deviance—that gives an unusually good description of how outsiders can be helpful in this way.
Q: I see many opportunities in the transition we’re talking about over the next 40, 50 years, and we are going to need leaders to foster this transition. I’ve been looking at education and training opportunities, but it’s hard to find an economics program or business school that is teaching what I want to learn. What opportunities exist for training the leaders we’re going to need?
A: The scene in economics is pretty sad. It’s hard to find a program that’s going to give you a good education. I don’t have time to enumerate them here, but afterwards we could talk about what’s possible. Actually, outside of economics departments is probably the best place to look for where to understand the economy—for example, political theory programs and international programs
It’s important to keep in mind that, whatever your training, nobody can understand the whole picture. Networking is wonderful, but nobody can keep up with all the networks. Don’t try to know everything. If you know something about politics and something about anthropology and something about childhood education, then get to know people in a few other disciplines and hope that they will know people in still other disciplines so that a cross-disciplinary fertilization can be happening through the people who have the knowledge and who share it. The image I have is of people linking arms.
You mentioned the need for leaders. You’re one of the younger people here. It’s people of your age who need to be preparing to be those leaders, and there is certainly no course of education, no single curriculum, that can do that. People have to look around, follow the questions, and find where they can get at least some of the answers. Everybody who’s in a decision-making position is making decisions on the basis of inadequate information. That’s just a fact we have to accept. But we also should at least be well prepared to listen to people who do have specific information on specific subjects.
Q: Your talk reminded me in a good way of the 1970s when there was a spontaneous grass-roots movement and a lot of talk about voluntary simplicity and simple living. I think those were good values to articulate out loud because they encouraged us to move in a certain direction. I haven’t heard those phrases much of late. I like the idea of sustainability indexes and alternative GNP numbers because they’re useful, but have we lost something by not articulating those values more loudly?
A: I think they’re coming back, and I believe that the American psyche includes values of conservation and thrift and simple living that have been quite deeply buried for a number of years. But they are there in the national psyche, ready and able to re-emerge as circumstances require.
