How we can sustain both the environment and the people.
This article is from Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org
This article is from the January/February 2014 issue of Dollars & Sense magazine.
at a 30% discount.
Imagine a world in which all people enjoyed a decent modern lifestyle without unduly degrading the natural resources on which future generations will depend. In such a world, people would live healthy, safe, well-educated lives, with ample opportunity to do productive and rewarding work, in a democratic, egalitarian society. Scandinavian nations already come much closer than the United States to providing such a lifestyle, with far lower per capita natural resource consumption.
How can everyone—including residents of impoverished developing countries—enjoy such a lifestyle without wrecking the earth’s land, water, and air? In fact, we already have—or can easily develop—the necessary technology. It requires far less input of natural resources but often more input of labor; in short, it creates more and better jobs.
Such technology does not mean regressing to some primitive state. It just means shifting the proportions of labor and natural resources, and—by raising demand for labor—necessarily compensating labor better. (See sidebars on measures of productivity, and on labor-saving versus natural resource-saving technology.) To clarify the idea that real sustainability creates jobs, here are examples from farms, cities, and businesses.
Back in 1985, economists Yujiro Hayami and Vernon Ruttan estimated the agricultural land and labor productivity of 44 nations. Their findings are stunning. (While the numbers date to 1980, they remain the best international comparisons.) In the developed world, farms in densely populated countries produced far more per acre, and far less per worker. Farms in Taiwan averaged about 16 times the output per acre of U.S. farms, using about 23 times as much labor. Closer to home, farms in the Netherlands produced about twelve times as much per acre as U.S. farms, using about two and a half times as much labor. There’s nothing “primitive,” however, about Taiwanese or Dutch agriculture. The Taiwanese use tractors the size of lawn mowers, multiple and mixed crops, and heavy fertilizer—though far less per unit of output than the United States.
Productivity is a ratio of output to input.
Labor productivity is output per hours worked. Land productivity is output per acre. Capital productivity is output per dollar of assets; those assets typically include both natural resources like farmland, oil wells, or broadcast spectrum, and “physical capital” like machines and buildings. National productivity is output per person, measured as per capita GDP. The various measures of productivity may increase due to a combination of better technology, more cooperation, better education, better infrastructure, and better governance.
Three basic factors can affect the absolute and relative productivity of labor, natural resources, and capital. First, there’s a nation’s endowment of natural resources and population. For example, farms in densely populated Asian countries like Japan average far higher output per acre of land and far lower output per farmworker compared to relatively sparsely populated countries like the United States. Water-conserving technologies like drip irrigation enable farms in dry countries like Israel to get high output per unit of water; that is, high water productivity.
Second, there’s the size of organizations. Big businesses inevitably demonstrate higher labor productivity than small businesses in the same economy. Most people assume this high labor productivity is a good thing, a sign of modernity, a driver of growth. What most fail to recognize is that big businesses achieve high labor productivity by using more and better natural resources and capital per worker. That necessarily means big businesses provide fewer jobs per unit of resources or dollar of sales or capital than do small businesses. Moreover, big businesses often show relatively low natural resource and capital productivity, despite the fact that they own superior natural resources. For example, according to Census data, in 2008, the 99.7% of U.S. firms with fewer than 500 workers accounted for 49.4% of U.S. employees. By contrast, the 0.017% of firms with over 10,000 workers accounted for 27.3% of U.S. employees. In 2007, comparing firms with under half a million in sales to those with over $100 million, the small firms averaged 15 employees per $100 million sales while the big ones averaged only three. The productivity differences between big and small business in fact reflects underlying inequality in the economy; the more big businesses control a nation’s resources, the less employment they create per dollar of assets and the worse the conditions in the rest of the economy.
(My dissertation, “Consequences and Causes of Unequal Distribution of Wealth” (1984), attempts to explain why big and small businesses differ in this systematic way, and why inequality lowers productivity and growth. In a nutshell, big businesses or rich people face a management bottleneck—a “principal-agent problem” in economic jargon. It’s hard for them to keep tabs on subordinates, so they hire fewer but better trained people, mechanize more, and often neglect some of their resources. They compensate for these real or implicit costs from their flow of profits. In 2009, Oliver Williamson received the Swedish Bank Nobel prize for his models of this sort of corporate behavior.)
Politics is the third factor. The political influence of big businesses leads nations to favor them at the expense of the rest of the economy. In developed countries, tax and subsidy benefits encourage excessive mechanization. Freedom from anti-trust allows monopolists to hold back production in order to raise prices to consumers, and to squeeze their workers and suppliers. Such policies bias the economy toward excessive labor productivity—and insufficient decent jobs. Rulers of developing countries may carry this bias to the point of stifling growth and impoverishing the vast majority of citizens.
Of course, since the United States has abundant high-quality agricultural land, U.S. farmers use land extravagantly. They’re further encouraged by subsidies. For example, consider the tomato harvester. In the 1950s, California growers worried about the scheduled 1964 end of the Bracero program, a so-called “guest” worker program to supply cheap farm labor from Mexico. In response, federally funded researchers at the University of California-Davis developed both the machine and the special tough-skinned processing tomatoes that go with it. (Processing tomatoes go into cans and ketchup.) The giant harvester itself rolls along wide-spaced rows, digging up whole plants and shaking the tomatoes onto a conveyor belt, where a small crew tosses out those that are green or smushed. The system saves labor by using much more land, water, fertilizer, pesticides, and fuel. Today, machines harvest all processing tomatoes, which make up over 95% of California’s tomato crop. (Just imagine if some of that research funding had gone into making farmworkers’ jobs safer and more pleasant: better protective clothing, safer methods of applying pesticides, or wearable air-conditioners like those developed for the U.S. Army!)
But even in the United States, alternatives are possible. An Iowa State University study compared the Midwestern standard alternation of corn and soy, with a corn-soy-oat cycle and a corn-soy-oat-alfalfa cycle with livestock. Without lowering profits, the longer cycles increased yields while dramatically reducing the need for fertilizer, herbicides, and pesticides. However, the experimental strategies did require more labor. In Ohio, corn and soy farmer David Brandt uses even more unorthodox methods. Instead of plowing, he plants with a seed drill. He keeps down weeds with a diverse mixture of cover crops, which he then mows to mulch the soil for the winter. The approach takes more labor, especially intelligent supervision, as it requires Brandt to carefully monitor conditions on every part of his fields. His fields, however, yield harvests as good as or better than conventional fields, require far less fertilizer and herbicide, absorb rain better, resist droughts, and—best of all—build up carbon-rich humus.
What about farms in impoverished developing countries? According to economists Hayami and Ruttan, such farms produce low output both per worker and per acre. Nonetheless, farms in densely-populated Bangladesh still produced three times as much per acre as farms in the United States! And Hayami and Ruttan just estimated averages; in general, small farms produce more per acre than large farms, even though they usually occupy inferior land. According to a new UN report, small peasant farmers could easily feed the entire populations of developing countries with existing labor-intensive, environmentally friendly agricultural technologies—were it not for corruption, extreme inequality, and misguided attempts to impose inappropriate “modern” crops and techniques.
Compare sprawl cities like Las Vegas (4,300 people/sq. mi.) to relatively compact cities like New York (27,500 people/sq. mi.). New York uses proportionally less land and capital to perform the essential urban function of connecting people via walking, bicycling, elevators, and mass transit. Some of the richest parts of New York, like my Upper West Side neighborhood, rise to densities of over 200,000 people per square mile, with a mixture of high-rises and five-story, three-to-ten-unit townhouses. (I can zip, through a hole in the ground, the two miles to work, walk four blocks to concerts or shopping, and step into Central Park next door—who needs a car!) Yes, members of the One Percent like high density!
Moreover, the better a city connects people, the more jobs it creates by facilitating what Adam Smith called “the division of labor”—that is, job specialization. Such specialization, Smith pointed out, allows enormous gains in productivity, and encourages development of new products and new technology; in his famous example of a pin factory, where a worker operating alone could make maybe one pin a day, a factory of ten workers can make “upwards of forty-eight thousand pins in a day.” Smith observed that innovation and economic growth start in cities; pioneering urban critic Jane Jacobs developed this theme at length in The Economy of Cities (1969) and Cities and the Wealth of Nations (1984). She especially noted how in cities people of vastly different skill sets bump into each other—sparking the “aha!” that your technology can solve my problem.
Besides bringing people together, cities, of course, save materials and energy. A study in Atlanta found that average households in multifamily units used only 60% as much energy as in single family detached houses. Average residents of New York City produce less than a third as much greenhouse gases as average Americans. And while New York apartments seem cramped by United States standards, a 500 square foot New York one-bedroom would seem palatial to a Japanese family! (How do the Japanese manage? Simple. Every morning they roll up their futons and stuff them in a closet!) Even though steel and concrete for urban high-rises require more energy than wood frame construction, a team of architects recently unveiled a new technology of using laminated wood to build a 42-story building!
Yet these days, while new development sprawls into farmland and woodland, large areas of older central cities decay and empty out. Urban sustainability means reversing this process. It means renovating urban infrastructure, revitalizing urban services, repairing or upgrading old buildings, filling in vacant lots. What do these activities have in common? Jobs. Lots of jobs. Especially: skilled, interesting jobs. For twenty-five years, my husband and I owned, lived in, and gradually upgraded two adjacent five-story Manhattan apartment buildings (purchased in a former slum area for $140,000, $10,000 down!). This is hands-on, custom work—too risky and requiring far too much supervision for absentee McMansion developers. The nooks and crannies of New York offer prime habitat for us small business renovators. Nonetheless, viewed from Google Earth, the city looks moth-eaten. The city classifies 6% of its land as vacant, not including those with abandoned buildings. A 2007 report by Comptroller Scott Stringer found 2,228 vacant lots in Manhattan alone, enough to create 24,000 housing units.
Japanese manufacturers famously introduced two innovative systems: “just in time” production, and “total quality management.” Both systems respond to Japan’s dense population and scarce natural resources—including physical space—by using more labor. “Just in time” means producing components for an assembly line in small batches as needed. It saves on working space, inventory space, materials and transportation time and cost. However, it sacrifices the economies of scale in volume per batch or customized production lines. Most of all, “just in time” requires highly skilled and flexible personnel, with excellent communication skills. “Total quality management” means inspectors test every component every step of the way, minimizing rejects at the end of the production line. Again, more labor means less waste of space and materials.
Like Japanese manufacturers or Taiwanese farmers, small to medium businesses in the United States and elsewhere suffer from a shortage of natural resources and capital relative to labor, including the owners’ labor. They make do by operating in cramped spaces with used equipment. They concentrate in fields like recycling and renovation, or services like health care, laundry, or repair of autos and computers. They are the true “job creators”; they generate many times big businesses’ jobs per dollar of assets or sales (see “Productivity” sidebar). For major innovations, we depend on entrepreneurs who start small—like Hamdi Ulukaya, who founded Chobani yogurt in an abandoned Kraft plant in upstate New York, scrounging second-hand equipment off the Internet. Yet, as documented by journalist and New America Foundation senior fellow Barry Lynn, successful innovators are disappearing, due both to growing patent monopolization and the unavailability of finance. Back in the days of It’s a Wonderful Life (1946), and in fact until Congress repealed restrictions on interstate banking in 1994, small businesses could rely on small banks. Bank officers served the community (at least the white community), making loans based on personal histories and an intimate knowledge of the local economy. No more. Today’s giant banks lend—if they lend at all—according to formulas dictated by headquarters, formulas that do not favor a Turkish immigrant with a new recipe for yogurt, let alone Madge’s storefront bakery. Retail banking jobs have become mindless paper-pushing.
Putting It Together
Labor-Saving and Natural Resource-Saving Technology
We’re all familiar with labor-saving technology, from the earliest ox-drawn plows to the blender on my kitchen counter. We’re less inclined to notice natural-resource saving technology, yet it’s all around us: tall buildings save land, steam injection saves old oil wells, and of course electronic miniaturization makes possible computers, cell phones, and the Internet that connects them all.
As noted in the sidebar on productivity, large corporations employ excessively labor-saving technology, and support tax and regulatory policies that further bias the economy in that direction. Sustainability requires policies that push in the opposite direction, towards more natural resource-saving. Such policies usually create more jobs. For example, consider conservation and recycling. According to investigative reporter David Cay Johnston, antiquated gas lines all over the country leak gas and periodically cause explosions. How do gas companies check for leaks? They fly planes above the lines, looking for discolored grass! If gas companies checked and repaired gas lines in a safe and timely fashion, we would save much gas and a few lives, plus create a lot of jobs. According to my sister, an electrical systems engineering consultant, if the power companies all installed the latest technology, the United States could save as much as a third of power generation. More jobs! And think about the recycling we do in our homes, separating the garbage. It’s a nuisance, isn’t it? But again, we’ve saved resources by doing more work!
In farming, in cities, and in businesses, there’s a common theme: we already have the technology to produce and live and work in ways that vastly reduce stress on natural resources and simultaneously create more jobs. The obstacles are political, in both developed and developing countries. In the United States, we’re up against a system that engenders waste of agricultural land, suburban sprawl, hollowed-out cities, and failing small businesses. First and foremost, the fossil-fuel industry enjoys tax and other subsidies, including the implicit subsidy of free carbon-dioxide dumping. These subsidies artificially lower the cost of transportation and other energy-intensive activities, such as the manufacture of steel, cement, and nitrogen fertilizer. Federal and state governments also subsidize uneconomical water development in dry regions, notably California. Cities themselves feed sprawl by extending roads and utilities below cost to well-connected developers in the boonies. Older cities withdraw services from poorer neighborhoods while granting tax favors to richer ones. Meanwhile, after President Reagan’s election in 1980, the U.S. federal government stopped enforcing anti-trust laws, setting off a merger frenzy among U.S. and multinational corporations. As Barry Lynn writes in Cornered: The New Monopoly Capitalism and the Economics of Destruction (2010), “Even as we were reassured on a daily, sometimes hourly, basis that America was the greatest ‘free market’ economy in the world, a tiny elite engineered the most phenomenal roll-up of political economic power in our history.” During the financial crisis of 2008, U.S. Treasury Secretary Henry Paulson, previously CEO of Goldman Sachs, oversaw the subsidized shotgun marriages among the too-big-to-fail banks, making the survivors (including Goldman) even too bigger to fail—or to lend to small business.
Suppose that, by waving a magic wand, we could simply undo this rigged system. Yes, there would be disruptions and hardships. Many coal miners would need new jobs, perhaps restoring devastated landscapes. But with skyrocketing fossil-fuel prices, farmers would turn to those energy and land-saving, labor-using advanced technologies. Many of us would desert the suburbs for the cities, setting off a wave of urban renovation. In place of resource-wasting and labor-squeezing giant corporations, a fleet of smaller firms would compete for employees, driving up wages. With tax loopholes plugged, government agencies could provide excellent infrastructure, high- quality health and education services, and generous safety nets. That’s what sustainability squared means. We can have it all; we can save the environment using existing technology to create decent jobs and better lives for everyone.