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  • The Trouble of Discounting Tomorrow   2 years 4 weeks ago

    Discounting has always been a controversial subject among economists and philosophers yet discounting practice remained part and parcel of any public policy. Both the time preference and the opportunity cost of capital arguments, used for discounting, are in conflict when we take the holistic approach to the environment. When the pure time preference argument is looked at from the holistic viewpoint the question is whose time preference we are talking about – a society living in a developed world or a society living in less developed world or a society yet to come. When the opportunity cost concept is seen from holistic approach we find that there are different opportunity costs for the same project, having same global environmental impacts, done in developed world or in some underdeveloped world and hence there is no agreement on the same discount rate [1].

    It is clear from the above that both the time preference and the opportunity cost concepts cannot stand in the way of systems thinking. Both these concepts are also used as tools to support the institution of interest, and the practice of discounting is just one of its manifestations. The practice of treating interest as an item of cost and ascribing it to the productivity of capital is based on the particular institutional setup of the capitalist society. In fact it is the institution of interest that makes it possible for capitalist economists to ascribe a positive return to capital that is its value productivity, and not the other way round. I would like to argue against use of interest using the hierarchical systems approach and emphasize that to attain sustainability the present economic system has to be challenged.

    According to systems theory, the systems are not static, but evolve (more specifically economic, ecological and social systems) as a combination of dynamically occurring renewals in their components ‎[2]. The renewal cycle has been observed in many natural and man-made systems. The renewal cycle assumes that a system goes through a series of stages, starting from growth, followed by conservation, then release or collapse and finally renewal. The phase of release does not necessarily mean loss or extinction of all components or species that make the system, but it implies that the systemic function that they perform is modified, at least temporarily. The released components may recombine to perform again as a similar system but the system itself will be different ‎[3]. Examples of release phase can be observed in man-made and natural systems, e.g., bankruptcy of a company, or forest fires. In bankruptcy of a company when employees are laid off, and assets are sold. It is the release phase and is the end of the company. It comes when the business as a socioeconomic system is no longer sustainable, and can no longer extend the conservation stage. The components (human and material resources) may recombine in the form of another company (renewal), but that will be a different system. Similarly forest fires release organic material and nutrients thus ending a system. Forests may grow afterwards in the same place, but these will be different forests: they may have a different spatial and species organization.

    Any effort to sustain a system beyond its natural conservation phase, to avoid the release phase, has harmful effects on its next higher hierarchical system of which it is a subsystem. For example, efforts to sustain failing industries and even sectors would prevent capital from being reallocated to other or more dynamic ones in their growth stages. Inefficient enterprises if kept afloat by huge subsidies keeping human and material resources unavailable for recombination decreases the overall adaptive capacity of the socioeconomic system by making it vulnerable to disturbances that lead to its collapse. The Soviet Union is a societal example of accumulated rigidities that became vulnerable to societal discontentment and revolt against it, which ultimately resulted in a sudden collapse. Similarly in studying managed ecosystems it has been observed that any attempt to manage a target variable for sustained production of food and fiber has resulted in less resilient and more vulnerable ecosystems ‎[4]. The collapse in these cases is usually observed at the next higher hierarchical level, i.e., over landscapes.

    The economic system itself is a managed sub-ecosystem of the sustaining and continuing global ecosystem ‎[2]. Human society is currently engaged in a global effort to sustain the growth phase of this subsystem. The integral feature of the economic system obsessed with growth and expansion is technological progress in an attempt to increase productivity.

    The combined effect of technological and economic growth is that it has created an environment in which life has become physically and mentally unhealthy. Polluted air, irritating noise, traffic congestion, chemical contaminants, radiation hazards, and many other sources of physical and psychological stress have become part of almost everyone’s life. Obsessed with expansion, increasing profits, and raising productivity, the industrialized world has developed societies of competitive consumers who have been induced to buy, use, and throw away ever increasing quantities of products of marginal utility. For example, in this consumption cycle, the total material flow still remaining in products or use 6 months after their sale in North America is just one percent. In other words, 99 percent of the stuff that is harvested, mined, processed, transported and that runs through this system is trashed within 6 months ‎[5]. Excessive consumption and strong emphasis on high technology not only create massive quantities of waste but also require huge amounts of energy. Most of the world energy comes from nonrenewable fossil fuels that are declining with the passage of time resulting in an increase in energy prices. In their attempt to maintain, and even increase, their current levels of production, the world’s industrialized countries have ferociously exploited the available resources of fossil fuels. Some industrialized countries have even used their military might either directly to procure world natural resources or by installing or supporting undemocratic regimes in some countries to dictate policies that suits their own economic and strategic objectives. The repercussions of these actions have created restlessness in the local populations and deep resentment against those industrialized countries involved in exploiting their resources directly or indirectly.

    Economic growth conceived in terms of higher production not only ignores the ecological and social costs of development such as pollution and depletion of non renewable resources but also results in stresses and strains on individuals and families. The capitalist concept of development also ignores the fair distribution of wealth. How can the development of human society be conceived of in terms of amassing of wealth only, irrespective of whether this wealth is available to the bulk of its members or not. The enormous expansion of economic output throughout the industrial era has provided material benefits and more comfortable lives for a minority. Yet billions of others have been excluded and exploited in the process. This distributive injustice condemns most of the world population to live in debt. The effect of debt is like a blood transfusion from sick to healthy. Each person born in Latin America owes already $1,600 in foreign debt; each child born in Sub-Saharan Africa carries the burden of a $336 debt interest, for something that their ancestors have long ago paid-off. In 1980 the debt of Southern countries amounted to $567 billion; since then, they have paid $3,450 billion in interests and write-offs, six times the original amount. Despite this, this debt had quadrupled by the year 2000 reaching $2,070 billion ‎[6]. The huge debt in under-developed and disadvantaged countries has made a poverty-trap. For example of $2.9 billion provided by the World Bank’s soft-loan arm, the International Development Association (IDA), to the world’s poorest countries, fully two-thirds ($1.9 billion) was spent on repaying past World Bank loans. A good bit of the remaining third went to the IMF ‎[7]. There is more than abundant evidence that the repayment of loans of these poor countries is achieved at the cost of consumption of natural capital and the degradation of the environment.

    Thus the present setup of the economic system is maintained only at the cost of higher hierarchical levels. Simply sustaining the present economic system will certainly threaten the global ecosystems. Collapse of these higher hierarchical levels is something that the human species, and indeed, many, many other species, cannot afford. In order to save the super hierarchical system (humanity as a whole and biosphere as a whole) the capitalist economic system compounded and nurtured by a usury based system of interest which creates greed and gross injustice must undergo the release phase to allow renewal through the emergence of a fair and just economic system so that humanity and global ecosystem may persist.

    [1] Malik A (2011) Justice to nature and to the disadvantaged. World Futures 67:106–114
    [2] Voinov A, Farley J (2007) Reconciling sustainability, systems theory and discounting. Ecological Economics 63:104-113
    [3] Holling C (2001) Understanding the complexity of economic, ecological, and social systems. Ecosystems 4:390-405
    [4] Holling C (1996) What barriers? What bridges? In: Gunderson L, Holling C, Light S (eds) Barriers and bridges to the renewal of ecosystems and institutions, Columbia Univ. Press, New York
    [5] Leonard A (2010) Story of stuff. available at:www.storyofstuff.com
    [6] http://www.henciclopedia.org.uy/autores/Laguiadelmundo/Usury.htm
    [7]Njohu N (2003) Debt – killing slowly and surely. Preparatorymeeting for the launching of the workshop on International Regulations within the context of a Solidarity Socio-Economy in an era of
    Neo-liberal Globalization. Work Group on a Solidarity Socio-Economy – Alliance 21, Tokyo, October
    9–11. Available at: http://infotek.fph.ch/d/f/899/899_ENG.rtf?public=ENG&t=.rtf.