The economy is an ecosystem
It is increasingly argued by people who used to be climate change deniers that preventing global warming will be too expensive to contemplate; even the Stern report, which was put together by a sympathetic economist, estimates that the world economy would have to decrease annual growth by about 5 percent. On the other hand, reports are emerging that argue that green jobs will reinvigorate the economy, creating an entirely new green-collar job sector.
I want to argue something much stronger — that by building green industries, such as wind, solar, geothermal, public transit, zero-emission buildings, and others, we will not only provide millions of jobs, we will be able to rebuild our manufacturing and machinery industries and thereby expand the middle class and the long-term source of our wealth. I will argue such an expansion can be environmentally sustainable.
In order to understand why this is so, we have to understand how the economy works, looked at from a production-centered point of view. Think of the economy as a kind of ecosystem — a system that is full of various niches and levels, as a natural ecosystem is.
The economy as ecosystem
Let’s look at the components of a forest ecosystem: the trees, for the most part, are considered the producers; the animals that eat the leaves off of the trees, such as the deer, are called the primary consumers, or herbivores; and the animals that eat the animals that eat the leaves, such as wolves, are called secondary consumers, or carnivores. Finally, there are the bugs, fungi, and worms that eat the dead producers and consumers, called the detrivores. Each of these groups — trees, herbivores, carnivores, detrivores — is modelled as a different level of the ecosystem (called a trophic level in ecological sciences).
Now let’s look at a modern industrial economy. We can conceive of the economy as consisting of levels as well, although they are set up differently than in nature. When we go into a store, we are participating in the distribution level of the economy, which includes retail. In order to produce the goods, such as clothes, that we buy in the stores, there must exist the consumer goods and services level, for example, the production of those clothes in factories.
The next two levels of the economy are the foundation of most economic wealth and growth. The level which I will call the production machinery level is the one in which the machines that are used in factories are made; sewing machine factories, for instance. As another example, in order to make houses and buildings we need to use a set of production machinery called construction equipment, which must themselves be built. Or to make cars, factories are stuffed full of robots and other specialized equipment; for every kind of product, there is a set of production machineries that are used to make that product, and in turn those production machineries must themselves be produced.
So in order to buy something in a store, first the economy must produce the machinery that is used to make the products that are sold in the stores. But there is one further level that is the most important of all, the level at which we make the machinery that is used to make the production machinery; these machines not only make the production machinery, they make more of themselves. So I will call this level the reproduction machinery level; machinery that reproduces itself collectively, and thus is at the center of a modern economy.
Think of the economy, then, as a set of concentric circles, with the central circle consisting of reproduction machinery, followed by production machinery, then consumer goods and services, and finally distribution. Since the reproduction machinery level is so important, I want to explain how it works in more detail, because this will show why green industries can help rebuild the entire economy and how we can achieve sustainable growth.
How can a machine reproduce itself? It doesn’t do it the biological way; a car doesn’t gestate another car. In a manufacturing economy, there is a set of critical machines, called machine tools, whose job it is to cut, shape, stamp, grind, and otherwise form metal into a part, so that the created part can be fit into a machine — for instance, the axle or door of a car. But machine tools have a peculiar property; they must be used to make pieces of other machine tools, no other machine can do the job; so machine tools make more machine tools.
But machine tools are not the only machine that can make, or more properly, help to make more of themselves. The machine tool serves the function of shaping the part, but it does not create the material out of which the part is made. In modern industrial societies, the single most important material is steel. And there is a set of machinery, called steel-making equipment, which makes not only the steel for machines such as machine tools and construction equipment, but also the steel for more steel-making equipment.
So in order to make machine tools, we need not just machine tools, but steel-making equipment; and in order to make the parts for a steel factory, we need, not just steel-making equipment, but also machine tools. Not only do they need each other, but an innovation in one will help spur innovation in the other.
Thus, there are two virtuous cycles, or positive feedback loops, within the reproduction machinery sector — the machines make more of each other, and they help each other’s industries create innovations. This is the basis of economic growth in industrial societies, and without a strong reproduction machinery sector, a society cannot have long-term, sustained economic growth.
But what about energy? Most manufacturing is dependent not on oil, but on electricity. And electrical generation is dependent on a specific group of machines called electricity-generating turbines. These turbines are dependent on — here they come again — machine tools to make their very precise parts, and on steel-making equipment to make very high-quality steel. In turn, production of the turbines is dependent on a previous set of turbines that generate the electricity used to make the turbines. So turbines make more turbines — with the help of machine tools and steel-making equipment. In turn, innovation in turbines leads to cheaper electricity which leads to cheaper cost of machine tools and steel-making equipment.
Finally, I want to introduce a fourth sector: the area of computers, or more generally, information-processing. The core technology used to make information processing equipment of various sorts, from cell phones to laptops, is a group called semiconductor-making equipment. Innovation in this equipment leads to faster processors (and Moore’s law), which are used to make machine tools more precise, steel-making more efficient, and electricity-generating equipment more reliable.
So within the reproduction machinery level, we have four sectors, or niches, that form their own sub-ecosystem of enormous productive power (if anyone wants me to, I’ll explain Aristotle’s relevance to all of this).
Rebuilding the economy, holistically
Now let’s address the problem of a healthy economy. The reproduction machinery sector cannot thrive if the production machinery sector, which it is used to produce, is not also thriving, or else the market for reproduction machinery will dry up. And the production machinery sectors cannot thrive unless the consumer goods factories are humming and creating orders for new production machinery. And the distribution level, such as retail and finance, cannot do well unless there are goods to fill the stores.
Just as in an ecosystem, all levels and niches within the economy must be operating at a minimal level, or else the entire system can collapse. In a forest, if the wolves are eliminated, the deer population will explode, leading to the overconsumption of leaves and harming the primary producers of the forest. Without the herbivores, the carnivores will die out, and the forest will become overgrown and vulnerable to new invasive herbivores. And of course, with deforestation comes complete destruction of the forest ecosystem. Just so, an economy needs all of its levels and main niches to be present.
When we build new windmills, solar panels, trains, and retrofitting material, we provide a market to the production machinery makers who fill the factories making the windmills, solar panels, and so on. And when we build a large production machinery sector, we provide the market for the machine-tool, steel-making-machinery, turbine-making, and semiconductor-making equipment makers. By greening our economy, we can rebuild the manufacturing economy ecosystem.
Depending on how this economic ecosystem is constructed, we can have either sustainable growth or growth that destroys the ecosystems on which all production is dependent. The main problem is to encourage growth that consists of better quality, not growth that encourages more quantity.
In particular, note that a modern industrial system does not have a level that recycles everything, the detrivore level in an ecosystem. So, when we look at the various material-making niches in an economy, the big question must be, are these materials being recycled, or are they coming from new raw materials? Do we have a situation as in the steel industry, in which about 69 percent of all steel is recycled, or is it more like the plastics industry, with about 5 percent? Are we measuring growth by the increase in steel quality, or the increase in steel quantity?
If an economy is creating its growth mostly from the information processing sectors, then a minimal amount of materials and energy is being used. If an economy is creating growth mostly by creating bigger houses that are further away from cities, then that economy is not sustainable. If an economy is growing because the various kinds of consumer equipment are becoming more sophisticated and better made, as opposed to growth that is occurring because there is more and more equipment, then that economy is more sustainable.
Finally, if the economy is growing because the windmills and solar panels and geothermal plants are becoming more productive, instead of growing because we are sucking more oil and coal out of the ground, then the economy will be more sustainable. Economies that are sustainable are actually richer in the long-run than economies that are unsustainable.
We may currently be witnessing the long-term decline of the United States economy, as seen in the falling dollar, huge trade deficits, shrinking middle class, and sinking financial system. These are all due, ultimately, to a declining manufacturing base. The greening of the economy is not a luxury that we cannot afford; it is a necessity without which the American economy will decline. And since it is necessary for the U.S., it is also necessary for all of the other regions of the world, as I will attempt to explain in my next post.