Herman E. Daly: A Steady-State Economy

For poor countries GDP growth still increases welfare, at least if reasonably distributed. The question is, What is the best thing for rich countries to do to help the poor countries? The World Bank’s answer is that the rich should continue to grow as rapidly as possible to provide markets for the poor and to accumulate capital to invest in poor countries. The steady state answer is that the rich should reduce their throughput growth to free up resources and ecological space for use by the poor, while focusing their domestic efforts on development, technical and social improvements, that can be freely shared with poor countries.

The classical steady state takes the biophysical dimensions—population and capital stock (all durable producer and consumer goods)—as given and adapts technology and tastes to these objective conditions.

The neoclassical “steady state” (proportional growth of capital stock and population) takes tastes and technology as given and adapts by growth in biophysical dimensions, since it considers wants as unlimited, and technology as powerful enough to make the world effectively infinite. At a more profound level the classical view is that man is a creature who must ultimately adapt to the limits of the Creation of which he is a part (finitude, entropy, ecological interdependence). The neoclassical view is that man, the creator, will surpass all limits and remake Creation to suit his subjective individualistic preferences, which are considered the root of all value. In the end economics is religion.

Accepting the necessity of a SSE, along with John Stuart Mill and the other classical economists, let us imagine what it might look like. First a caution—a steady-state economy is not a failed growth economy. An airplane is designed for forward motion. If it tries to hover it crashes. It is not fruitful to conceive of a helicopter as an airplane that fails to move forward. It is a different thing designed to hover. Likewise a steady-state economy is not designed to grow.