The Ten “policy candles” and Deconstructing Daly: A Critical Response

Herman Daly’s work, specifically the article “From a Failed Growth Economy to a Steady State Economy” is both a brief critique of the issues that generate faith in “unlimited growth” but also a counter proposal for an economy that does not require growth. In this work Herman Daly has given us a road map, or at least a guide on how to change the way market economies  and multi-level politics operate. He calls them policy candles. Ten in total, each distinct ideas on how to change the system. When examining the ten ideas we can compare them to initiatives that re already taking place. Where there is ambiguity we can deconstruct them, in an effort to understand them better. From this exercise we can then consider if Daly’s vision is a possibility.

1. Cap – Auction – Trade Systems for Basic Resources

Norway is an example of how a country can take control of resource like crude oil. The large sovereign wealth funds accrued from taxation and royalties provide the Norwegian people with amenities and huge advancements in social and human capital. This also benefits Norway by preventing “dutch disease”. A condition which according to Daly’s 6th idea, would be subject to international tariffs.

2. Ecological Tax Reform

This would move the burden of taxation to the extracted resource. With the exception of stumpage fees and other royalties only the economic activity that surrounds a resource and its refinement is taxed. Daly argues that this is the wrong approach. In a steady-state-economy producing the most output with the least inputs is the ultimate goal. By taxing inputs, the resource would become the point of efficiency, as opposed to the process. However, taxing the source of the value a resource may possess is a complex task. The relativistic approach to the utility of nature and natural resources is rife with conflict. Assigning values to natural resources in an arbitrary manner could not be done by a single “resource tax”. What is the value of one sablefish compared to one kilogram of iron ore? It also has interesting repercussions in how a company would try to find economic efficiency. If a firm sees the only way of reducing costs is to use less of a resource, they will seek to do so, provided the value added by the new process does not incur them greater costs than the current means of production.

3. Limit the Range of Inequality in Income Distribution

The metric commonly associated with income distribution is called the Gini coefficient. As Daly reported most industrialized countries already have equitable distributions of wealth. The Gini coefficient reflects this statement. Daly goes on to discuss how people who have reached their maximum could “work for nothing at that margin…or devote extra time to hobbies or public service”. This aligns well with behavioral economics. Behavioral economics has shown that when presented with a physical task, increased financial incentives encourage faster more productive labour. However when we are given tasks that require higher cognitive abilities or creativity, adding financial incentive severely reduces our performance. Our society could become more productive as those who have reached their maximum incomes redirect their energies towards other goals.

4. Free Up the Length of the Working Day, Week, and Year

This idea is closely tied to candles two and three. If firms simultaneously have their taxes reduced in relation to their “value added” processes while limiting the incomes individuals can receive then there is greater opportunity for increased labour force participation rates. France is most noted for it’s reduced work week and very generous vacation time. While many have criticized this calling it inefficient, or worse, socialist, before the 2009-2008 recession France boasted the highest levels of Productivity in the European Union.

5. Re-regulate International Commerce

Balance of Trade between the global north and south has been placed badly out of alignment. Daly very briefly reminds us that free trade is not equality in trade. Free trade is possible perhaps even preferable for countries that are on equal footing to one another. The industrialized developed nations of the global north can be free to trade among one another as they are relatively equal. When a large imbalance exists between two countries in terms of political and economic powers that is where Daly’s proposal would have the largest effects. This also relates to point three, by limiting the flow of international capital, the global south would be protected from foreign investments affecting their income equality.

6. Downgrade the IMF-WB-WTO

Daly makes a strong case against the current structure of these institutions he even says “The closest thing we have to a global government has shown no interest in regulating transnational capital for the common good”. This is even more disturbing when considering that this “government” is appointed and is not elected by any demographic.

7. Move Away From Fractional Reserve Banking Towards a System of 100% Reserve Requirements

It is at this point where Daly’s logic seems to falter. Daly states “…regulated as commercial banks subject to 100% reserve requirements. Banks would earn their profit by financial inter mediation only, lending savers’ money for them…”. Reserve requirements is the amount of cash deposits that a bank is required to have on hand for withdrawal. If the requirement is 100% then the bank cannot loan out any money, because as soon as it had done so it would no longer be at 100% reserves. The alternate way of interpreting this is that the money need to have been previously been saved by an individual before it may be lent out again. With this arrangement there is then nothing stopping banks from loaning out large amounts of money keeping only what the average account requires for regular access. This banking system is very close to what is currently used across the globe.

8. Stop Treating Scarce as if it Were Non-Scarce

While scarcity is addressed in Point, 1 Daly discusses the free flow of knowledge. I believe this is somewhat misleading. What I believe Daly to be actually saying is that the barriers to knowledge should be lowered. Teachers will still need draw a salary, paper and pencils will still need to be bought, schools will still need to be built. This would not affect most of the industrialized nations as they already provide free or subsidized tuition to their population These cost can be, and are absorbed by the government, who in turn tax the people. It is the assertion the intellectual property laws need to be revised. This is a powerful statement. Knowledge by it’s nature should belong to the commons, but to encourage firms to produce new knowledge or products we allow them to monopolize the “invention”. The monopoly is to allow a firm to be the exclusive holder of the idea, and the only one legally allowed to make a profit off of its sale. Many drugs have been made exempt from copyright laws and royalties because of their need in underdeveloped regions, often to the objection of the patent holding pharmaceuticals.

9. Stabilize Population

This will have the largest effects on the global south. For the global north population growth has slowed to a crawl in most countries, while many countries of the global south still see massive population increases. In the 2009 report on Human development by the United Nations clearly pointed out, the single greatest contribution to Greenhouse gas reductions would be to encourage social and reproductive rights for women in the global south. Currently there are many aid programs that try to encourage women to take voluntary birth control measures. There are large obstacles to implementing these measures, mostly they are socio-cultural, as religion often plays an interfering role within these endeavors.

10. Reform National Accounts

Similar to the second point, this requires highly subjective and relative thinking. Assigning costs to the flood mitigation of swampland versus the tax revenue a new mall will generate are very politically charged issues. They require complex models to describe and assign the value of each. And ultimately, based off the current arguments each side views certain basic precepts of the other as invalid. Secondly, Daly suggests we begin to measure happiness. What other outlets do we have for happiness and the metric we would add to it. How do we measure something so subjective. The Kingdom of Bhutan currently measures Gross National Happiness. France has begun to record measures of happiness in its own population and groups like the pembina institute are calculating other socio economic metrics like GPI, or the Genuine Progress Indicator.

Daly writes from a standpoint of generic observation, often calling upon the America perspective. This is unsurprising as he is an American ecological economist. When we examine his suggestions we can find examples of his ideas across the globe and across disciplines. Others of his ideas need to be greatly expanded or are obscured by relativistic arguments and need clarity and focus to be better understood. Altogether though there is credibility to many of his proposals. Many of them have been implemented in one way or another. While each point is its own reform, they interlink with each other forming a cohesive strategy. It is difficult to say if the strategy will be effective on a global scale, or if it will even be embraced internationally. Daly is correct in saying that it will only be possible if it happens gradually.