Economies are fabricated ecosystems

Recent events have brought the common issues of environmental preservation and economics to the fore: the release of Naomi Klein’s new book, This Changes Everything (which I have not read); The People’s Climate March, Flood Wall Street and the U.N. climate summit. To take advantage of the spotlight and keep it focused on these issues, this is an introduction the link between the economy and the environment and why a complete reworking of the economy is necessary for a sustainable future.

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The dictionary defines an economy as ‘the wealth and resources of a country or region, especially in terms of the production and consumption of goods and services’. Wealth and resources covers everything which can be priced. This includes everything that can be purchased with money: houses, buildings, land, personal property, etc. and every service a person can be paid to perform. So the economy is the manufactured environment we live in. Seeing as human activity builds towns, cities, suburbs, roads, farms, fields and provides services and experiences like legal advice or wilderness adventures, there are no places within human boundaries which can be outside of its economy.

Then there’s money; it’s a medium of exchange - meaning what? People work for money so it is, effectively, a means to store labor so it can be later traded for other people’s labor (in services or products). So a shortcut to measure economic productivity is to look at the movement of money. [For this discussion, money equals labor which equals all capital goods and services.]

Economics is a social science. Social sciences study ‘society and the relationships among individuals within a society’. There are primarily two classes of economic relationships (a relationship which involves an exchange of labor) - producer and consumer. Of the two, consumer transactions tend to be transient so the more significant economic relationship is that of producer, or the relationships among individuals we work with.


Part 1: Economics as social science

So how do economic relationships drive and sustain the flow of capital for a functional economy? The short answer: Money in economies is like water in land based ecosystems (Figure 1). In other words, the money economy of people is like the water economy of ecosystems.

There are several currencies in the economy of ecosystems including carbon, nitrogen, energy and water. Of these, water is most comprehensively similar to money in that it is fungible (dew water, rain water and snow melt are treated the same by plants just like fruit flies don’t distinguish between water from an apple or a grape) and the water cycle is a part of everyone’s normal experience.

Water enters the biota of an ecosystem when rainfall is taken up by soil microbes (which fix nutrients) and plants. The plants absorb water and other nutrients from the soil to make more plants (by growth and reproduction) (Figure 1A). The water in plants is taken up by herbivores when they eat and used to grow more herbivores (growth and reproduction). The water in herbivores is taken in by carnivores when they prey on herbivores and used to grow more carnivores and this cycle repeats up the food chain to the apex predators.

Likewise, in economies, supervisors ‘prey’ on workers by claiming the products they make (Figure 1B). And just as the primary producers of a food chain supports the entire food chain, workers are the primary generator of capital for businesses.

But in an ecosystem, water is not lost solely through predation. It is also lost to the atmosphere through respiration; the biochemical reactions necessary for life. The water vapor in the atmosphere from organic respiration and geophysical evaporation then coalesces into clouds which rain water down to waiting vegetation, repeating the cycle of water through the food chain (Figure 1A). Each rainfall is an opportunity for the food chain to capture and retain water to support their growth so ecosystems have evolved to retain and promote the local cycling of water. The pattern of regular circulation of water through the ecosystem determines its ultimate productivity; low-rainfall deserts are not very productive, mid-rainfall forests are moderately productive and high-rainfall biomes are very productive capable of generating enormous biomass.

In contrast to natural ecosystems where rain precedes production, in businesses, wages succeed production. Unlike predators which do not devour the total productive output of prey, in a business relationship, the total output of workers is claimed by the higher ups. This output is converted into money in the marketplace and a fraction of it is returned to workers as income. Workers ‘respire’ or consume their income by spending it in the marketplace or save it for later consumption. And similar to the condensation of water into clouds, monies spent at the marketplace is concentrated by corporations and banking institutions to be distributed as wages, taxes or other forms of dividends. (In keeping with the common economic assertion that market forces are beyond the ken and control of the business community, this metaphor equates the marketplace with the atmosphere which is subject to a combination of predictable and unpredictable geological and physical forces.) And just like water circulation in ecosystems, consumer spending generates the capital movement essential for a robust and functioning economy.

Ecosystems in different biomes are variable resistant to environmental perturbation. Of these, semi-arid ecosystems are particularly fragile. But overpopulation and trade pressure have forced many communities to over utilize these desertification susceptible biomes. Deforestation (harvesting of wood for fuel or clear-cutting for other purposes), over-grazing (more animals than a range can support due to high demand for meat) and conventional farming effectively strip away native vegetation, the foundation of the food chain. The loss of water vapor contributed by an intact food chain in a semi-arid environment reduces overall local rainfall. In the absence of vegetation, soil is readily lost to wind erosion. Without viable soil, the land can neither be farmed nor can native plants regenerate their prior presence. The result is that moderately productive ecosystems are degraded to marginally productive ones with no economic value. The Dust Bowl period of the 1930s in the U.S. was an early indicator of this phenomenon.

There have been forces acting on the American economy in the past three decades to similar effect (Figure 2). With declining union membership, workers have little bargaining power over wages. In addition, policies which prioritize profit over people engender corporations to maximize ‘return’ from workers in productivity to maximize business income which is then apportion to CEO/executive pay and shareholder dividends at the expense of worker wages. Workers have adapted as best they could by committing to two income families, refinancing their homes, delayed saving for or eliminating higher education and/or retirement and multiple jobs when possible. Despite these efforts, worker incomes have declined to the point where their lack of consumption has reduced monies entering the marketplace, thereby reducing total capital flow. On the short term, businesses lose sales opportunities and market shares; the long term cost to workers is food and housing security, poor health (due to unaffordable healthcare, poor diet and stress), lack of opportunity to advance their careers (high education costs), and lack of retirement security (no savings).

In the same period, the consumption by top earners has not significantly changed so increasing the income of this class does not increase the rate or volume of capital flow in the marketplace. Instead, the monies they have siphoned off is sequestered offshore or reinvested in corporations, effectively creating a financial whirlpool - rich in hustle and bustle but poor in productivity (consistent with recent reports of economic growth absent increase in most household incomes -see here and here).

To date, these trends have not abated; if anything, they have intensified and shifted to target the wages of higher wage tier employees. In the private sector, profit taking has normalized conspiracies amongst prominent technology firms to depress wages (see here and here) and caused insurers to undermine the practice of medicine by requiring pre-approval for medical procedures and tests, often in opposition to physicians’ professional judgment. Privatization of public sector functions (military support operations, prisons, charter schools and attempts to privatize Social Security, for example) offer more opportunities to retrofit non-profit organizations into for-profit capitalist business concerns. As per capitalism, the goal is to identify a large pool of spending, public or private; use all available financial and political machinations to bring it under private contract by corporate capitalists. So long as this business model generates a good return on investment, capitalism demands followers.


Part 2: Economy beyond social science

Beyond the social science of economics, materials economies presume the unlimited availability of raw materials… and thereby build in the seeds of unsustainability. Modern economies are driven by the non-stop consumption of disposable goods; a model which circulates human labor but does not cycle materials. Economics is a social science because it assumes the environment can and will provide all the materials cycling services necessary to sustain an economy (Figure 3A). On this premise, economies are designed to generate a positive return at each processing step needed to transform raw materials extracted from the environment to finished product. The do this by profiting off the labor added at each step. Environmental damage is not factored in as a cost of doing business because  environmental damage has no financial cost. So it is a good business practice to extract maximum investment return from the environment without regard to consequences.

This is where materials economics comes into conflict with ecology and geology. It is clear from part 1 that ecosystems cycle. And though not as obvious, there are also cycles in planetary geology (examples include formation/erosion of mountains and fossilization - think fossil fuels). These natural cycles are how raw materials are replenished. But just as over-grazing can irreversibly damage fragile ecosystems, materials economies over ‘harvest’ the bounty of the environment. And as harmful as rapid resource depletion can be, given sufficient time, ecosystems (and sometimes geography) can recover. But in addition to over-drawing resources, materials economies discharge vast amounts of toxins which devastate ecosystems beyond recovery. Just consider, aquifers all over the world are being depleted faster than they can recharge to irrigate crops in conventional agriculture. Then the burning of fossil fuels depletes the global supply of fossil fuels and pollutes the atmosphere with excess carbon dioxide. Carbon dioxide is particularly damaging because it traps heat and both heat and high carbon dioxide levels inhibit plant growth which is an important component of the geological hydrocarbon cycle, consuming crop and seed, resource and generator. This is happening now (Figure 3B) and the consequences of not changing this trajectory is the loss of an environment capable of sustaining a functional economy (Figure 3C). But a devastated environment is not inevitable; it may still be possible to alter the course of the economy and develop a sustainable future (Figure 3D).

Part 3: Sustainability

Economies, like ecosystems, exist to promote the growth and well-being of its members. This is why workers engage in economic relationships. But today’s economies selective benefit top earners at the expense of other workers and deplete environmental resources at higher than replacement rates (Figure 3B). If this trend continues, either workers will revolt and take what they need by force - even one-percenters understand this - or the economy eventually ceases to operate due to environmental failure (take your pick: climate change, industrial pollution, dropping water tables, habitat loss…). At that point, science deniers be damned, natural selection will cull populations without regard to humanity (Figure 3C). And though the natural environment is, in physical terms, substantively larger than the economy, the solution must be economic because that is the source of the problem.

Prominent economists have suggested policies or reforms to address the issues of income inequality, low/under employment and unstable financial institutions. Thomas Piketty, for one, has suggested income redistribution through selective taxation and others have called for the return of Glass-Steagall and/or promote union membership and/or enforce anti-trust laws… These proposals would all have a positive effect on the economy in so far as promoting the well-being of workers and consumers but they offer what is essentially a patch over the inherent flaws of capitalism, not a long term solution. For that matter, no economic system is free of income inequality. Just consider how economies work (Figure 1B). The business pyramid is a reflection of the variation inherent in any population. Individuals have different skills, interests, motivations, opportunities; on these alone, there is stratification. Capitalism enforces stratification and differentially distributes wages based on it thereby instituting income inequality. Communism seemingly discounts inherent variation yet still operates manufacturing concerns with more workers than managers. For social stability, we need an economy which encompasses the social science aspect of economics; for sustainability, we need an economy that interacts with the environment commensally and not antagonistically as current economies do.

The solution is not likely to be found in a single monolithic economic system; no major modern economy holds pure to a particular economic ideology. The place to look is the source metaphor of economies, ecosystems, specifically, the food web of ecosystems. Figure 1A depicts the food chain as a linear flow of calories along a defined series of trophic levels. This is not completely accurate; in reality, food webs are complex networks of interwoven inter- and intra-species interactions developed over millions or billions of years of evolution. These networks feedback onto themselves and often have redundant functionalities which keep the ecosystem in balance (Figure 4A). They include predator-prey (capitalism-like), symbiotic (socialism-like), parasitic, altruistic and mutualistic interactions among many others. Translated into economies, it would mean many small independent business concerns with various organizational structures resembling interactions between organisms (Figure 4B). A combination of competition and regulation would presumably prevent businesses from getting too large. (There are two reasons a business can be ‘too large’: in the sense that economies of scale are bad for the environment. Mountaintop removal or deepwater oil drilling need enormous capital input to initiate. Small business do not have such resources. The other being deepening inequality; larger businesses have more workers to produce capital which concentrates towards the peak of the pyramid.) And being small confers great flexibility on businesses to collaborate and form mutually beneficial relationships. The goal is a ‘living’ economy capable of evolving regulatory and other mechanisms to meet changing economic conditions.

Cultures have yet to design such an economy, so it would be worthwhile to consider how to evolve a sustainable economy. So a challenge to evolutionary biologists and economists: what constraints would permit the evolution of a sustainable economy geared towards the well-being of its members? (One of mine would be to ban profiting from weapons of war; they are necessary for defensive purposes but selling at cost eliminates incentives for producers to lobby for war. On the opposite end of the spectrum, profiting from medical services/products is acceptable.)

It may yet be possible to avert the worse outcomes of our current trajectory but much work lies ahead if we want to achieve a sustainable future for humanity (Figure 4D).

Part 4: Closing comments

This essay is a bare bones introduction to parallels I see between natural ecosystems and economies. It is not a treatise on how to unwind the economy out of its current spiral. Numerous critiques can justifiably be made against using the ecohydrology cycle as a metaphor for the economy. For one, I have completely neglected the role of monetary policy in influencing the flow of capital. Fact is, I am not an economist; I do not have an understanding of monetary policy. But I do think this metaphor resonates with some basic economic truths that beautifully counters the meme ‘the one percent are the job creators’. (Compare figures 1B and 2 to see that consumption by workers increases job demand.)

And two final points. Economics is based on goods gaining value through addition of labor. When fast food chains threaten replace workers with iPads or Bill Gates posits a workerless software and robot driven future, what value is added to the products they hawk? Those without money can barter amongst themselves but what would a robot take in trade?

Lastly, the economic cycle depicted in Figure 1B has much broader implications than is described here. They can be used to model open economies where capital enters and exits the cycle through corporate institutions or closed economies where no external capital movement is possible. As open economies, the pyramid can be used to break down the spending priorities of individuals or households or time-to-task allocation of businesses of any size (micro-economics). It can be scaled up to local town, city or state economies; then there are national economies (macro-economics). And globally, the world economy is a closed economy where the world’s poorest form the base of the pyramid. (In case the discussion above was not clear, a quick reminder to business and political leader, stable structures require strong foundations so support the base for long term return.)

A final note for researchers: a good thought exercise would involve constructing larger economic pyramids as the sum of smaller pyramids… makes me wonder if computational ecohydrology models can predict economic trends. Can computational ecohydrology models be adapted for economic modeling?


Lots to think about...


Update: About the role of the war making/defense industry in an evolved economy... I'm beginning to think it should not be necessary to outright ban certain economic sectors or behaviors. The whole point of establishing a living economy is to evolve internal control mechanisms... perhaps to where there is no market for such products.

Update 2: More related thoughts - I will keep adding until I can them organized a coherent narrative structure and integrated into a new essay...

-More evidence of increasing imbalance in current economic system... here and here. Then there's the stress human population has on the ecosystem which threatens environmental collapse... here.

-I was wondering what factors determine optimal size, be it plant, animal, business or government. Don't get me wrong, I like living in a rich country with all its advantages and I am too selfish to give them away for the sake of equity... But if governments are examined as economic units which are responsible to both their workers, consumers and owners... is there a size at which all these goals are ideally balance?

-I just found an (informal?) organization of activists working on these issues... see here.


Update 3: Even when I update, I forget some of the points I want to cover :(...

 A small change with huge effects on the economy would be reform of intellectual property. Just consider how the value of drug companies would change if the length of patents were shortened or lengthened; what about the value of Disney if copyright rules were different? This may be a good target for legislative reform.