Economics In The Solar Age

Hazel Henderson is doing her best to design new cultural genes
and splice them directly into our economic system

One of the articles in Sustainability (IC#25)
Originally published in Late Spring 1990 on page 13
Copyright (c)1990, 1997 by Context Institute

Hazel Henderson has been staging a one-person campaign for good economic sense for more than two decades. Now a frequent consultant to governments and speaker at international conferences, she started out as a housewife in New York City, where she led a successful campaign to enact groundbreaking air pollution laws during the 1960s.

Early in her activist career, she realized that many social and environmental problems had their roots in a science of economics that was fundamentally flawed. So she set out to learn economics on her own – and now publishes in the Harvard Business Review, among other publications.

Her wonderful book The Politics of the Solar Age has just been updated and reissued by Knowledge Systems, Inc. Write them for more information: 7777 W. Morris St., Indianapolis, IN 46231. (Here’s a graphic comparison of the traditional economic view with her system view.)


Alan: In the new introduction to your book, reissued in 1988, you wrote that “the politics of the solar age” were still on hold. Are they still?

Hazel: I am rather encouraged on this point now. The whole debate about what development means has finally begun – and when that debate gets rolling, everybody will discover that it really concerns the politics of renewable resources. In a sense, that will be the dawn of the solar age.

Alan: Things have changed very radically in just a short time.

Hazel: Yes, and the two factors that changed the debate were the tremendous amount of country restructuring that went on in 1989, and the mass media’s discovery of the environment. Of course, none of the stories that Time and Newsweek and The New York Times have been running are really “news” at all – many are almost twenty years old. For those of us in the field, everything is unfolding quite predictably. So where I am placing most of my emphasis now is on how this debate is emerging in the so-called Third World – the countries of the southern hemisphere.

As we move into the United Nations’ fourth development decade, most of the nations of the South have begun to catch on to the fact that the Euro-centric industrial model of development that they’ve been peddled is not only nonrepeatable, but the whole process has actually gone into reverse. The South Commission – a group of leaders of Third World countries, some of whom I’ve been working with – is just coming out with a final report which essentially reaches this conclusion.

Alan: But this comes as no surprise to you, does it?

Hazel: No! As you know, I have been going around these past twenty years giving thousands of speeches about how ridiculous it is to measure a country’s progress using GNP [Gross National Product]. I always like to compare it to flying a Boeing 747 with nothing on the instrument panel except an oil pressure gauge.

This whole idea is suddenly being understood. So I’m promoting indicators of true development, working on my own as well as with several countries, various agencies of government, the Green Party in Germany, in conversation with Soviet economists at the USSR Academy of Sciences, and so on. The adoption of this new “national report card” – measuring factors like literacy, health, environmental quality, bio-diversity, income distribution – will enable us to make comparisons between nations based on genuine progress and genuinely sustainable development.

Alan: And are these new indicators being well received in the South?

Hazel: Very much so. Last summer President Perez of Venezuela pulled together a group of people, of whom I was one, and we brought out a report on what these new indicators of development ought to look like. Experts from five continents weighed in on this exercise, and we brought out a report in Spanish and English called “Toward a New Way to Measure Development.” President Perez subsequently took copies of that book to Belgrade to a meeting of non-aligned nations, and after much debate and discussion, fifteen countries joined in what is being described as an alternative economic summit for the southern hemisphere.

Let me read you the list of countries: Algeria, Argentina, Brazil, Egypt, India, Indonesia, Jamaica, Malaysia, Mexico, Nigeria, Peru, Senegal, Venezuela, Yugoslavia, and Zimbabwe. We’re talking about a very powerful group, and these countries are going to meet in Kuala Lumpur this June as the South Economic Summit – also called the “G-15” [after the North’s G-7, or “Group of Seven” – the U.S., Britain, France, Germany, Italy, Canada, and Japan]. The G-15 represents 30% of the world’s population, whereas the G-7 represents only 12.7% – but there has been absolutely no press interest in this. I used to be appalled by this kind of thing, but now I just consider it an opportunity for a news scoop.

Alan: Yes – it’s just appallingly typical. How else are you promoting the acceptance and use of your indicators?

Hazel: Back in the 1980s I might have gone around talking to foundations, but in the ’90s it’s a different ball game. I’m forming a service which will publish these indicators – they’ll just be another kind of Dow Jones, syndicated eventually and produced in a three-minute visual TV format, then put up on the satellites so anybody can pull them down. Initially, they will be available in print in World Paper, which reaches one million readers globally.

Broadcast media people will have to understand that this report card is going to take three minutes. You cannot squash it in between the mouthwash and hemorrhoid commercials. It isn’t one of these things you can dash off like GNP. So these indicators will be graphic and compelling – a homeless indicator would have pictures of homeless people behind it, for example. What I’m hoping is that as this new “national report card” concept gets out there, the GNP and the other macro-economic indicators will be shifted to the business shows where they really belong. This indicator, on the other hand, is going to engage the political interest of the general population.

And it may actually galvanize a new politics here in the U.S. If every night on the news you were to hear, perhaps, “Well, our literacy rates just dropped down below Turkey, and our life expectancy just dropped below Costa Rica,” it would be bound to have an effect. And when you look at a country in the South in terms of these indicators, you find something interesting – a lot of those countries are going to look a lot wealthier. Costa Ricans, for example, are very proud of their justice system, their recreational opportunities per capita, and their biodiversity of species, which is enormously larger than ours.

Alan: Right – 5% of the world’s species are concentrated there on one ten-thousandth of the planet’s surface.

Hazel: So this gives countries that haven’t yet completely destroyed their natural resource base, or the cohesion of their communities, a lot of extra value that’s not counted in GNP. You won’t have this invidious comparison that we’re “rich” and they’re “poor.”

Alan: Especially when our measurement of richness currently includes the dollars spent on our environmental collapse.

Hazel: Exactly. I hope this kind of clarity will come forth within the debate in both the developing world and the over-developed countries, so that we may finally begin to understand the difference between money and wealth. Obviously, to my way of thinking, the wealth of nations is educated, problem-solving citizens and healthy ecosystems. Money will be clarified, sooner or later, as simply a medium of exchange rather than a commodity. That’s going to be number one priority in terms of my own work in the 1990s, because as you know I’m also an activist.

Alan: And a very effective one, too. What’s your view of international trade, and the current U.S. obsession with establishing a “level playing field” in places like Japan?

Hazel: In general, the effort to “level the playing field” turns into an attempt to homogen-ize everybody’s cultural identity – as well as ev-erybody’s forests and ecosystems – in order to reach some kind of hypothetical global efficiency according to an economist’s model. But I don’t believe we’re going to stop global trading and go back to autarchy. So the real leveling of the global playing field, for me, is the continuing work to put an ethical floor under it.

For example, I just came from a meeting in Alaska commemorating the first anniversary of the Valdez oil spill. All of the movers and shakers in Alaska were wondering, can economics and ecology ever co-exist? I did a keynote talk saying that they can – if you stretch out the time horizons, move towards full cost pricing, increase democratic participation, and strengthen all of the other feedback loops. It is achievable, and it would bring those two apparently different sets of goals much closer into alignment.

Alan: Perhaps one catch-phrase for all this would be “redesigning the invisible hand.”

Hazel: In a way, it really is. We are talking about decision theories, control theories, and it just happens that the economic language is not very good for that. The language of game theory or systems theory is much more fruitful. The redesign problem is very much concerned with equity – social justice – because you cannot have a system where a few people are accumulating an enormous amount of material wealth and power and still have an ecologically sane and peaceful society. There will be conflicts, and there will be ecological damage.

But I also feel a little ambivalent about calling it “redesigning the invisible hand,” because almost any time I tell an audience that it’s time to give a decent burial to Karl Marx and Adam Smith, everybody cheers.

Alan: Can you elaborate a bit on “full cost pricing”? What would that mean economically if it was put into practice?

Hazel: A system moves towards full cost pricing as more and more of the real costs of production are forced onto the balance sheet of the producer. That happens by public outcry, legislation, crusading mass media, and whatever other feedback mechanisms exist. Full cost pricing is only an ideal to be moved towards, because as the system gets more complex and the pathways get longer and more convoluted, it’s less likely that you can really capture all of the long-term displacement costs in producing products.

The example I like to use is the CFC-propelled aerosol cans. If you were able to capture all of the costs of dealing with what’s happening to the ozone layer, the additional cases of skin cancer, how many hundreds of years it’s going take to regenerate, etc. – you might have to grab some of those numbers out of the air – then a single aerosol can might be full cost priced at about $12,000.

Of course, it would be off the market pretty quickly. It’s moot now anyway, but there are many, many cases like that. You never really know the full costs of anything, and that’s why you have to go to votes and other ways of expressing these same values that cannot be translated into costs.

Alan: I’m also intrigued by the indicator called “community-based accounting.” Could you explain that in more detail?

Hazel: Community-based accounting was developed by a very clever gentleman in the Philippines, Sixto Rojas. Rojas is helping whole communities to, in a way, incorporate. This is the same thing my friend A.T. Ariyaratne has been doing with Sarvodaya Shramadana, the Sri Lankan people’s movement [see page 32]. If you incorporate a whole village, you capture all of the loops – you don’t have one sector looking to be super-productive at the expense of the “supporting” sector. Nobody gets left out, whereas right now we’ve got this artificial boundary which makes one aspect of what the community (or in the case of these indicators, the nation-state) is doing look over-productive. We hide the cost of what it’s doing in another sector, which we designate “social” or “unproductive” or “household.” Basically, we’re fooling ourselves.

Alan: Is the raw information for these kinds of indicators easily available, or do we have to devise new ways of getting it?

Hazel: That’s the encouraging part – much of the data already exists and is available. The issue is much more to bring it into the accounting. For example, most countries already run energy/GDP ratios [how much energy is consumed per unit of Gross Domestic Product, or a measure of efficiency]. Most countries already have military/civilian budget ratios, or can calculate them in a couple of minutes. And most countries have a poverty-gap indicator of one kind or another.

Alan: As usual, all we need to do is galvanize the political will.

Hazel: It’s the politics. All of the good technical work that people are doing to develop these indicators is fine, but they’ll not be utilized until heads of state and other higher-ups in countries demand it. There’s also the problem that this data is downgraded by aid agencies themselves as “soft,” or as “satellite” data to GNP.

Alan: Let’s presume it’s the year 2000 and these indicators have been put in place. What does the future look like?

Hazel: Obviously there will be a leveling off of population, and I think that will happen as we begin to share the Earth’s resources a little more fairly. Then every country can have the luxury of going through a demographic transition, so that people won’t be having large families just to have somebody to care for them in their old age or to replace the children that die unnecessarily.

Once we get that under control, the main impetus for this crazy growth that we’ve had in the industrial era will gradually disappear – because as you move to full-cost pricing, the impetus is much more toward durability and quality of life. I really expect the pace of life to slow down.

A lot of people say, “How on earth can you imagine that economic growth won’t always be the goal of nations and companies and everybody else?” I think the pathway by which that will drift downwards is that the return on investment is going to average out lower and lower.

Now, we’re seeing this happening – in the 1980s venture capitalists wanted a 40% return and they were all risk-averse! Then the bubble burst, and by now these guys are quite content with an 18-20% return. And by the end of the decade, that’s going to look pretty sensational. So if it’s drifting down for everybody, and you can’t get these windfall returns based on short-term accounting, everybody will say “Oh well, the game has changed.” And we’ll get back to a more sensible regime.

People will have much more leisure time, and that may be due to a fairer distribution of work and guaranteeing minimum incomes in money terms. We won’t be shipping so much “stuff” around the world, because every country is going to know how to produce stuff – but there will be a tremendous amount of trade in software and the really unique gifts that cultures have.

Alan: You’re talking about software in the broadest possible sense.

Hazel: Yes. The Dutch, for instance, export expertise for diking out the sea, at which they are the best in the world. Or look at the Equadorians – they have a native tribe there called the Aymara, and their language is grammatically perfect for use in certain computer applications. The only problem is, the Aymara didn’t know enough to patent it and sell it. But those are the kinds of gifts that all cultures have, and I’m sure we’ll be exchanging and trading much more of that. Perhaps indigenous peoples who maintain the diverse species and habitats of the world should announce that they have patented them, just as multi-national corporations do with what they produce.

Alan: What role do you see for yourself as these changes continue to unfold?

Hazel: The whole of my life has been about getting further and further upstream, so that I’m ahead of the power curve, as it were. And the highest upstream that I can figure out how to get is in designing new cultural DNA and splicing it into cultural codes, as well as identifying malfunctioning “DNA strands,” such as GNP, which generate pathological patterns in the body politic. This activity has the biggest multiplier in terms of shifting the system towards sustainability.

Alan: You’re a mutagen, in fact.

Hazel: I’m trying very hard to act that way. It sounds like a lot of chutzpah, but I’m just trying to weigh in on the side of evolution.

New Indicators
Of Country Development

(Beyond Money-Denominated, Per Capita Averaged Growth of GNP)

Elements of a reformulated GNP to correct errors and provide more information:

  • Purchasing power parity: corrects for currency fluctuation
  • Income distribution: is the poverty gap widening or narrowing?
  • Community-based accounting: to complement current enterprise-based accounting
  • Informal and household sector production: measures productive hours worked (paid and unpaid)
  • Deduction of social and environmental costs: a “net” accounting which helps avoid double-counting
  • Account for depletion of nonrenewable resources
  • Energy input/GDP ratio: measure of energy efficiency and recycling
  • Military/civilian budget ratio: effectiveness of government/diplomatic skills
  • Capital asset accounts: for built infrastructure and public resources

Complementary indicators of progress toward societal goals: