A Prophet For Our Times: Herman Daly's Challenge To Economic Growth

Perhaps the least challenged tenet in the field of economics is that growth is good.  Indeed, the value of limitless economic growth has almost become a religion.  Nearly all political parties brag about their ability to increase the Gross Domestic Product (GDP), a measure of the monetary value of goods and services a country produces.  The idea rests on a theory of human nature called “Homo Economicus,” Economic Man, a creature constantly seeking more and making rational choices about consumption.

Yet, what if humans aren’t so rational, but driven by unconscious impulses and  marketing manipulation?  What if continued economic growth is a false gospel?  What if it is impossible in a finite world?  What if it isn’t delivering the satisfaction it promises? And what if it’s actually making things worse? 

In a time of melting glaciers and rising seas, severe weather events, wars (including threats to wipe out entire civilizations), mass species extinctions, grave biospheric dangers, ubiquitous pollution and widespread social dissatisfaction, and when, in the Western world at least, large popular majorities believe their countries are headed in the wrong direction, it’s time to ask those questions. 

Ecological economists now challenge the Gospel of Growth. One of the first to do so, and perhaps the most influential, was Herman Daly.  Often ignored, he made the case for a steady state economy and new measures of progress with such clarity and unassailable logic that many others have taken note. 

“If we had adopted his ideas in 1968, when he first started developing these things,” says University of Vermont economist Josh Farley, “we'd live in a much more desirable world right now. So he was at least 50 years ahead of his time.”

Born in 1938, Daly, was an unlikely revolutionary.  He grew up as the son of a hardware store owner and a devoutly religious mother in Houston, Texas. Herman contracted polio as a child and eventually lost an arm to complications of the disease, a condition that helped him understand the issue of physical limits. But his disability was no impediment to his inquisitive mind. He studied at Rice University and Vanderbilt, and taught in poverty-stricken rural Brazil. He married a Brazilian woman, Marcia Damasceno, who would be his lifetime mentor as well.  His experiences there and a childhood love for nature led to concerns about economic justice and the ecological impact of consumer economies. 

PROFESSOR AT LOUSIANA STATE UNIVERSITY

Daly developed many of his ideas while teaching at Louisiana State University. LSU is in Baton Rouge, in a region called “Cancer Alley,” because of the health impacts of the petrochemical industries that line the Mississippi River from there to New Orleans.  Daly realized that profits from petrochemicals went to rich corporations, while their victims were the poor, mostly African American, people who lived near the river.

“Herman did speak about racism specifically and how damaging it was” says Tacoma, Washington economist Dave Batker, a student of Daly’s at LSU, referring to Cancer Alley’s victims.  “He lived that philosophy that academics are not meant just to be academics. They're meant to actually be involved with the communities and change things.  He was a dynamic teacher.  I don't think there's a student that disliked Herman.  You knew you were just getting these amazing ideas from him.  He had a few conservative economists who liked him, who actually were very much appreciative of his view of ethics and the importance of ethics and did recognize resource limits and the conservation movement.”

Daly was also supported by LSU biologists who protected regional wetlands from industrial assault.  But he was an outsider in his own department.  “He was viewed as a heretic,” says Batker. “One professor told me, if you do well under Herman, you're going to fail my class.”

Daly came of age at a time when various thinkers were beginning to sound the alarm about new threats stemming from our modern ways of life. A groundbreaking 1972 computer modeling study, The Limits to Growth, warned that the current use of resources and creation of toxic wastes was not sustainable and might well make human life untenable within a hundred years. Dutch economist Gaya Herrington, who now lives on Mercer Island near Seattle, reviewed the study 50 years later.

“I took just data that was mostly publicly available from the World Bank, for example, or the UN,” Herrington told me.  “And I put them right next to that particular variable in the scenarios of The Limits to Growth. I did find a close alignment with empirical data.  I have a background in econometrics, I worked in finance and as an economic policymaker for years,  I have never seen a model that was this accurate decades into the future. So that means that it's a useful model and we should heed its message.”

A SUBSIDIARY OF THE ENVIRONMENT

While traditional  economics recognized two key factors of production—labor and capital, Daly realized that the model neglected a third factor—nature.  Without its resources, production was not possible.  And without taking that into account, the entire economic edifice was a house of cards, doomed to collapse. 

Defenders of orthodoxy believe that technological progress will allow us to substitute new resources for older ones and forever remain ahead of scarcities. Yet Daly suggested this was wishful thinking in the longer run, as population, production and consumption continued to rise. For example, despite solar and wind energy sources, we are still using more fossil fuels. Better to follow the “precautionary principle,” and be careful.  Rob Dietz, of the Post-Carbon Institute in Corvallis, Oregon, agrees.  “I’ve often thought that progressives are a little bit delusional about economic growth,” Dietz says.  “They think, oh, we'll just sub in some solar panels and some wind turbines for the fossil fuel infrastructure, and then we'll keep growing.” 

It’s wishful thinking, as Josh Farley, who wrote a book about ecological economics with Daly, points out.  “We know empirically that this actually tends to lead to more and more resources being used.  Over our lifetimes we will use probably 90% of the fossil fuels that will ever be used in human history,” says Farley.  “And in fact the biggest surge in demand for fossil fuels or for electricity in the US and probably globally is the result of artificial intelligence.”

“And it's also said that if you allow the economy to grow,” adds Daly biographer and Toronto economist Peter Victor,  “then you can afford to clean up the pollution, or you can afford to put in pollution control devices, and so you can still have the growth and reduce the externalities.  But the economy, as it grows, draws in more materials from the surrounding environment, draws in more energy, and produces more waste, even with some recycling of the materials.”

In this vein, Daly suggested that economists’ focus on prices to allocate scarce resources, and even taxes and payments to help equalize distribution of the economy’s fruits, missed a central understanding.  Since all production depended on the resources nature provided, Daly argued, the economy is a wholly-owned subsidiary of the environment. Josh Farley says that “Herman's core idea that's the most important was that the economy is a Subsystem of the planet, And really this is as radical a paradigm shift as Copernicus saying, the earth goes around the Sun.”

SCALE, DISTRIBUTION AND ALLOCATION

Daly held that the scale of the economy—its size relative to our finite planet—could not be ignored.  Indeed, scale had to be considered first: is the economy’s use of resources and production of (often hazardous) waste sustainable over the long run?  New measures, like those developed by the Global Footprint Network, suggest it isn’t.  We are already consuming at a rate it would take nearly two earths to support  in perpetuity, five earths if everyone consumed at American levels. 

It was economic folly, Daly observed, to ignore that reality.  Once scale was determined, the next step was to determine a fair distribution of output, since vast differences in income have often led to misery and violent conflict. Daly suggested that this necessitated maximum, as well as minimum incomes (an idea originally suggested by Saint Augustine), and use of government transfer payments to assure justice, domestically and internationally.  “And mainly,” observed Daly, “I think we've now entered into a sort of phase where growth has become almost an idol. It's the solution to all of our problems. We have poverty. What are we going to do? We're going to grow. We can't share because that's politically and morally difficult.”

A SEADY STATE ECONOMY

Only when an economy could be seen as both sustainable and fair, did the admittedly useful function of market prices to determine production priorities (apples versus oranges, etc.) come into play.  In the end, Daly argued, only the establishment of a Steady State Economy, tied to the capacity of the earth to produce renewable resources and absorb  wastes, could be sustainable beyond the short run. 

“That idea goes back 150 years” Daly observed, “to John Stuart Mill, who wrote very eloquently on the subject of the stationary state. So the idea has been here for a long time.”  But in those days, when the world was relatively empty of people and full of resources, the change wasn’t urgent. “In the past, it really didn't matter,” Daly conceded.  “But in my lifetime, the world population has tripled. And the population of automobiles and houses and other things that make up the physical economy has grown by at least 12 fold, I'd say. So the world is no longer empty.” 

Daly believed that even in a full world, economies could still develop—in terms of meeting real needs, many of which are non-material—without growth in material throughput (production and waste).

THE INDEX OF SUSTAINABLE ECONOMIC WELFARE

But how might we decide if an economy is sustainable, fair and productive of positive wellbeing?  GDP, Daly thought, was a poorly nuanced measure for doing so.  Together with others, he developed the Index of Sustainable Economic Welfare (ISEW) which added and subtracted from GDP.  Good outcomes—greater equality, better health, more leisure time, the value of unpaid housework, etc.—were added to ISEW.  But bad outcomes—the costs of pollution, treatment of poor health, accidents and divorce, use of nonrenewable resources, climate-related disasters, commuting, loss of agricultural land, and the massive destruction caused by wars, for example—were deducted from it. 

Under present GDP measures, the current Iran war is a positive because huge amounts of money will be spent, and people employed, to clean up the mess we make. While far from perfect, the ISEW provided a much better picture of economic progress than did GDP.  Versions of it, such as the Genuine Progress Indicator, are now used in several states and countries as additional measures of wellbeing. 

While in poor countries, economic growth still improves human welfare, economists and political scientists have made the case that GDP growth in rich ones now consists largely of defensive expenditures to alleviate the damage and unhappiness caused by previous growth.  Vast resources, all boosting GDP, are now invested in software “engineers” and marketers who develop algorithms and advertising to persuade people to “need” products they’ve never even thought of, and that end up causing enormous human pain and ecological damage..  

Katia Vladimirova, perhaps the world’s leading expert on sustainable fashion (who told me she was a compulsive shopper before seeing a documentary film about the collapse of a textile factory in Bangladesh that killed a thousand women), points out that enormous numbers of perfectly useable clothes are now discarded and end up in landfills every year. Online sales and prices as low as two dollars per garment lead to massive over-production and consumption. 

“Low quality. yeah,” Katia admits, “but, you know, who cares? You're just going to wear it once or twice. Many of our garments today are discarded, not because they're worn out, but because we don't want them anymore and they're still in perfectly wearable conditions, some still with tags.”  

UNECONOMIC GROWTH

Over two decades, Daly and others discovered that as GDP continued to rise, ISEW began to fall as costs exceeded benefits. He observed:  “The difficulty is that beyond some point what we call economic growth, increase in GNP, will not make us richer. It will in fact make us poorer because it will increase costs faster than it increases benefit.”  Daly called the widening divergence between positive GDP growth and a negative ISEW uneconomic growth.  In short, we are now wasting resources and threatening the biosphere for little or no positive reasons.

In time, Daly’s challenge to orthodox economics even attracted the attention of the World Bank, which hired him in 1988.  “I went to the World Bank,” he said, “because I thought the World Bank was really going to take seriously environmental issues, and condition its growth policies on environmental capacities and recognize costs and build them in.” 

Nonetheless, Daly felt generally ineffectual at the bank and left in 1994.  “At that point,” Peter Victor points out, “Herman, although he was a well-established academic with an international reputation couldn't get a tenured position in economics in an American university.  He ended up teaching public policy at the University of Maryland.”  Herman Daly died in 2022. 

CONTINUED INFLUENCE

Daly has had an important influence. He is credited with helping launch the field of ecological economics and his ideas, while not  yet mainstream, are increasingly taken seriously by activists, academics, religious leaders and even governments around the world. Kate Raworth, the now famous British economist noted for the concept of “donut economics,” remembers first encountering Daly’s ideas after many years of orthodox training.  "Yes, yes, yes, yes, this makes sense!” she exclaimed in an interview with me. “Why have I never heard of it? Why wasn't this the first lecture I was given? There's a boom in your head when you encounter an idea that makes sense. And it can totally change your life and the direction of your life. And it totally changed mine!”

Lizah Makombore, a young economist from Zimbabwe, told me that Daly’s ideas “spoke to some of the tensions I had seen in the Western education that I had received, which didn’t really address distribution. “ 

In the country with the highest GDP per capita, Luxembourg, government economists like Francesco Sarracino are questioning GDP as a measure of wellbeing and seeking to develop new alternatives.  When I delivered a keynote address to a conference there in 2022, the other keynoter was Luxembourg’s Minister of Economics.  If anything, his criticisms of GDP were even stronger than mine. Parts of the EU are following Luxembourg’s lead. 

Canada, too, has developed an annual index of wellbeing.  “Happiness economists” such as Canada’s John Helliwell are showing how wellbeing assessments in the world’s countries are often quite different from GDP rankings. 

In Europe, especially, young economists like Hungary’s Alexandra Koves, are proposing a concept they call “de-growth.”  “What we're saying,” Koves explains, “is that we need to stop thinking only in terms of growth, and feel safe enough to actually imagine a different world, a world where it's not just about growth.”

The transition, Brazilian economist Roldan Muradian told me at an ecological economics conference in Oslo, Norway, will probably require a major change in values.  “Daly was quite concerned about the spiritual aspects of the relationship with nature,” Muradian says.  “Personally, I think that in the long run, we need a moral transformation, a transformation of the moral philosophy that is underlying public decisions. And it has happened several times in human history.” The end of slavery is one of many examples he pointed to, while adding, “I think that the next revolution is exactly to acknowledge that the other species have rights to live.”

Gaya Herrington believes such a transformation in our thinking is indeed possible. “We are selfish when our basic needs are unmet,” she admits. “But once they are, like food, shelter, those kind of things, we actually get much more altruistic and curious and playful than this Homo Economicus could ever be. And that's great news if you want to stay within planetary boundaries, because our needs can be satisfied.”

Koves, now a professor at Budapest’s Corvinus University, was administering European Union funds for Hungary when she first encountered Daly’s writing. “I gave up my previous life," she told me, “and I decided that's all I want to do. I want to spend my life kind of advancing this field because this is what I believe is the only way forward.” 

“I really do think that Herman laid the foundation for an absolutely essential change in our economy,” says Josh Farley, and Kate Raworth adds. “We are still on the way. We're still not there. But this is the way we must go.”

Quite a legacy for a humble Texan.

John de Graaf is a filmmaker and author in Seattle.  With Dave Batker, he wrote the book, What’s the Economy for Anyway?  He is currently directing a film biography of Daly featuring many of the people in this article.  He is launching a Kickstarter campaign for finishing funds on April 21.  For more information contact John de Graaf (jodg@comcast.