Summary by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida
Environmental Cost Main Page |
Social Accounting Main Page |
Systems Thinking Main Page
The purpose of this paper is to make the case that our current view of global economic growth is wrong headed and leading us towards a very dismal future. Although many do recognize the existence of a variety of social and environmental problems (climate change, wide-spread poverty, extinction of species, polluted air and rivers, toxic food, etc.), the proposed solutions (recycling, hybrid vehicles, etc.) treat the symptoms rather than the underlying problem. What is needed is to recognize and act on the fact that unlimited economic growth cannot be our primary goal. Instead, the goal must be to develop an economic system that enhances human well-being and ensures that all life on Earth flourishes indefinitely.
To begin the change that is needed requires:
1. an understanding of the current economic system and how it came about,
2. a clear vision of a new economic system based on sustainability, and
3. a willingness to take the steps necessary to move to this new system.
The Origin of Belief in Economic Growth
Classical economists focused on the capitalist economic system as an alternative to the mercantilist approach of building national wealth by acquiring precious metals and trade surpluses. The new emphasis was on establishing the social and legal conditions needed for innovation and market exchange. Much later the emphasis shifted to economic growth after a period of considerable population growth and the arrival of fossil fuels. Macroeconomic models were developed to understand the economic cycles of boom and bust. By the 1930s financial instability prompted Keynes to promote government intervention to moderate economic instability.1 After the 1930s there were long periods of economic growth and by the late 20th century the large scale monopolistic global economy had developed. The key to increasing a nation's wealth had become, "transform resources into an ever-growing stream of goods and services for human consumption, without limit."
The Impact of Newtonian Thinking
A mechanistic view of economic reality developed from Western religious and scientific cosmology, along with the views of Isaac Newton. Man was motivated by self-interest to maximize material wealth. Adam Smith's invisible hand would insure the greatest good for the greatest number when everyone pursued their self-interest competitively through exchanges set by a free market.2 The goal became the accumulation of material "stuff" measured in financial terms, and the race was on to grow without limit. This was a devastating transition in human history based on the prevailing view that we were producing an economic wonder world and any subsequent damage to the planet was of little consequence.
A New Cosmology
A new cosmology or world view is that the universe has been an evolving interdependent system for nearly 14 million years sustained by continuously generating newness using a fixed amount of matter and energy. Humans, who are relatively new to the system now present the first threat to this sustainability by consuming the Earth's resources faster than it can regenerate the waste. The most important question of our time is how to develop a system that consumes the Earth's resources at a steady rate that does not threaten the survival of all life forms. The first step toward a viable future is the recognition that all life on Earth is interconnected and that we currently have a life-denying global economic system.
Economic Growth and Nature's Systems
The way nature works is through a series of interconnected feedback loops that prevent any species from growing without limit. On the other hand, man behaves as if the Earth can supply an endless amount of resources for the continuous expansion of the human economy. Man's circumvention of nature's ways of constraining growth compromises Earth's ability to sustain life. This conflict between the way nature works and the way man behaves may be jeopardizing the sustainability of our own species.
Conditions for Growth
There are two underlying conditions that support the continuous growth model that has shaped economic activity for the past two centuries:
1. the discovery and use of fossil fuels, and
2. the development and extensive use of abstract financial concepts to measure and direct economic activity.
Economic success is viewed from the perspective of cost, profit, and GDP. These economic abstractions do not reveal the true social and environmental costs of corporate actions that frequently result in polluted air and rivers, tainted water, toxic food, scarred landscapes, and discarded human lives and communities. The modern global industrial economic system is growing itself to death. The growth in financial capital has lead to a rapid increase in inequality in the distribution of wealth. The distribution of wealth in Western society has resulted in a shift of power from popular democratic majorities to plutocratic minorities.
A Piecemeal Approach
We have essentially given proxies to large corporations and governments to make all of our economic decisions and to fulfill of all of our needs. This system is supported by the influence large businesses and governments have over the public media, and our insatiable appetite for consumer goods. So our response to the environmental crisis has been piecemeal approaches such as recycling waste, hybrid automobiles, solar panels, and vegetable gardens in urban spaces. Unfortunately, these piecemeal approaches address symptoms, not the fundamental problem.
A Positive Future Economy
The following steps are recommended as a way to change to an economic system based on the way nature works, as opposed to a system based on the way man currently thinks and behaves.
1. Take back the proxies given to corporations and governments. Consume less and become more self sufficient and less dependent on outside institutions.
2. Develop and promote "import substitution" programs that will create more local opportunities and jobs.
3. Only use outside corporations and governments for economic activities that cannot be provided locally.
4. Work to end the idea that the Earth's natural resources, human labor, and life itself are commodities to trade.
5. Recognize that cost is not a financial quantity based on scale and speed, but instead a function of how human relationships are designed within economic processes.
6. Recognize that treating the symptoms of the problem is not a long term solution. The fundamental problem is how to produce long-term sustainability in a context of no growth.
7. Recognize that universities and academic researchers are stuck in the status quo. Solutions to our environmental and social problems must be found elsewhere.
The current policy of promoting unlimited economic growth in production and consumption is destroying the Earth's ability to support life. Continuing on this path may lead to consequences that "exceed our most fearful imaginings".
_______________________________________
1 Keynes, J. M. 1936. General Theory of Employment, Interest and Money. Palgrave Macmillan.
2 Smith, A. 2008. An Inquiry into the Nature and Causes of the Wealth of Nations. Forgotten Books. (First published in 1776).
Related summaries:
Busco, C., G. Fiori, M. L. Frigo and A. Riccaboni. 2017. Sustainable development goals: Integrating sustainability initiatives with long-term value creation. Strategic Finance (September): 28-37. (Summary).
English, D. M. and D. K. Schooley. 2014. The evolution of sustainability reporting. The CPA Journal (March): 26-35. (Summary).
Esquire. 2015. America: These are your choices. Esquire (December/January): 149-153, 160-161, 164, 168. (Summary - This is a summary of ten questions related to the most critical choices for America based on information from the Brookings Institution).
Estes, R. 1992. Social accounting past and future: Should the profession lead, follow - or just get out of the way? Advances In Management Accounting (1): 97-108. (Summary).
Gleeson-White, J. 2015. Six Capitals, or Can Accountants Save the Planet?: Rethinking Capitalism for the Twenty-First Century. W. W. Norton & Company. (Note).
Handy, C. 2002. What's a business for? Harvard Business Review (December): 49-55. (Summary).
Ignatius, A. 2021. "It will need to be the most amazing thing humankind has ever done": A conversation with Microsoft cofounder and philanthropist Bill Gates. Harvard Business Review (March/April): 124-129. (Summary).
Johnson, H. T. 2006. Lean accounting: To become lean, shed accounting. Cost Management (January/February): 6-17. (Summary).
Johnson, H. T. 2006. Sustainability and "Lean Operations". Cost Management (March/April): 40-45. (Summary).
Johnson, H. T. and A. Broms. 2000. Profit Beyond Measure: Extraordinary Results through Attention to Work and People. New York: The Free Press. (Summary).
Jones, A. III. and G. A. Jonas. 2011. Corporate social responsibility reporting: The growing need for input from the accounting profession. The CPA Journal (February): 65-71. (Summary).
Kaplan, R. S. and K. Ramanna. 2021. Accounting for climate change: The first rigorous approach to ESG reporting. Harvard Business Review (November/December): 120-131. (Summary).
Martin, J. R. Not dated. Russell Ackoff quotes and f-laws. Management And Accounting Web. RussellAckoff.htm
Martin, J. R. Not dated. Russell Ackoff: What is a system? Videos. (Note).
Porter, M. E. and M. R. Kramer. 2006. Strategy and society: The link between competitive advantage and corporate social responsibility. Harvard Business Review (December): 78-92. (Summary).
Porter, M. E. and M. R. Kramer. 2011. Creating shared value: How to reinvent capitalism and unleash a wave of innovation and growth. Harvard Business Review (January/February): 62-77. (Summary).
Schooley, D. K. and D. M. English. 2015. SASB: A pathway to sustainability reporting in the United States. The CPA Journal (April): 22-27. (Summary).
Thurow, L. C. 1996. The Future of Capitalism: How Today's Economic Forces Shape Tomorrow's World. William Morrow and Company. (Summary).