Herman E. Daly: A Steady-State Economy

Universities, civil services and the military seem to manage with a factor of ten to twenty. In the US corporate sector it is over 500. As a first step could we not try to lower the overall range to a factor of, say, one hundred? Remember, we are no longer trying to provide massive incentives to stimulate (uneconomic) growth! Also, since we are not trying to stimulate aggregate growth, we no longer need to spend billions on advertising. Instead of treating advertising as a tax-deductible cost of
production we should tax it heavily as a public nuisance. If economists really believe that the consumer is sovereign then she should be obeyed rather than manipulated, cajoled, badgered, and lied to.

Free trade would not be feasible for a SSE, since its producers would necessarily count many costs to the environment and the future that foreign firms located in growth economies are allowed to ignore. The foreign firms would win in competition, not because they were more efficient, but simply because they did not pay the cost of sustainability.

Regulated international trade under rules that compensated for these differences (compensating tariffs) could exist, as could “free trade” among nations that were equally committed to sustainability in their domestic cost accounting. One might expect the IMF, the World Bank, and the WTO to be working toward such regulations. Instead they vigorously push both free trade and free capital mobility (i.e., deregulation of international commerce). Protecting an efficient national policy of cost
internalization is very different from protecting an inefficient firm.

The case for guaranteed mutual benefit in international trade, and hence the reason for leaving it “free”, is based on Ricardo’s comparative advantage argument. A country is supposed to produce the goods that it produces more cheaply relative to other goods, than is the case in other countries. By specializing according to their comparative advantage both trading partners gain, regardless of absolute costs (one country could produce all goods more cheaply, but it would still benefit by specializing in what it produced relatively more cheaply and trading for other goods).