Full-world economics and the destructive power of capital: Codfish catch data 1850 to 2000

Graph of North Atlantic cod fishery, fish landing in tonnes, 1850 to 2000
Codfish catch, North Atlantic, tonnes per year

Increasingly, the ideas of economists guide the actions of our elected leaders and shape the societies and communities in which we live.  This means that incorrect or outdated economic theories can result in damaging policy errors.  So we should be concerned to learn that economics has failed to take into account a key transition: from a world relatively empty of humans and their capital equipment to one now relatively full.

A small minority of economists do understand that we have made an important shift.  In the 1990s, Herman Daly and others developed the idea that we have shifted to “full-world economies.”  (See pages 29-40 here.)  The North Atlantic cod fishery illustrates this transition.  This week’s graph shows tonnes of codfish landed per year, from 1850 to 2000.

Fifty years ago, when empty-world economics still held, the fishery was constrained by a lack of human capital: boats, motors, and nets.  At that time, adding more human capital could have caused the catch to increase.  Indeed, that is exactly what happened in the 1960s when new and bigger boats with advanced radar and sonar systems were deployed to the Grand Banks and elsewhere.  The catch tripled.  The spike in fish landings is clearly visible in the graph above.

But in the 1970s and ’80s, a shift occurred: human capital stocks—those fleets of powerful, sonar-equipped trawlers—expanded so much that the limiting factor became natural capital: the supply of fish.  The fishery began to collapse and no amount of added human capital could reverse the decline.  The system had transitioned from one constrained by human capital to one constrained by natural capital—from empty-world to full-world economics.  A similar transition is now evident almost everywhere.

An important change has occurred.  Unfortunately, economics has not internalized or adapted to this change.  Economists, governments, and business-people still act as if the shortage is in human-made capital.  Thus, we continue our drive to amass capital—we expand our factories, technologies, fuel flows, pools of finance capital, and the size of our corporations, in order to further expand the quantity and potency of human-made capital stocks.  Indeed, this is a defining feature of our economies: the endless drive to expand and accumulate supplies of capital.  That is why our system is called “capitalism.”  And a focus on human-made capital was rational when it was in short supply.  But now, in most parts of the world, human capital is too plentiful and powerful and and, thus, destructive.  It is nature and natural capital that is now scarce and limiting.  This requires an economic and civilizational shift: away from a focus on amassing human capital and toward a focus on protecting and maximizing natural capital: forests, soils, water, fish, biodiversity, wild animal populations, a stable climate, and intact ecosystems.  Failure to make that shift will push more and more of the systems upon which humans depend toward a collapse that mirrors that of the cod stock.

Graph source:  United Nations GRID-Arendal, “Collapse of Atlantic cod stocks off the East Coast of Newfoundland in 1992


Taking nearly the whole loaf: US and Canadian wheat and bread prices, 1975 to present

Graph of Canadian retail store bread price and country elevator wheat price, 1975-2016
Canadian retail store bread price and farm-gate wheat price, 1975-2016

Graph of United States retail store bread price and farm-gate wheat price, 1975-2016

United States retail store bread price and farm-gate wheat price, 1975-2016

It’s been said before but it bears repeating: farmers are making too little because others are taking too much.  For instance, food retailers, processors, grain companies, and railways are taking far too large a share of the retail price of bread.  And the share taken by these companies is increasing—choking off the flow of dollars to our family farms.  At the same time, these same corporations are profiteering by driving up the prices of the staple foods we all need to feed ourselves and our families.

This week’s two graph show data for the US and Canada.  Both graphs show the price of a bushel of wheat (the relatively flat line across the bottom of each graph) and the retail value of the approximately 60 loaves of bread that can be produced from a bushel of wheat (the upward-trending line in each graph).  The wheat prices are farm-gate or country elevator values.  The units are Canadian or US dollars, as appropriate, not adjusted for inflation.

The units are not important, however.  What is important is the widening gap between what consumers pay for bread and the amount of money that makes it back to the farm.  This growing gap represents the ever-larger share taken by food retailers, flour millers and other processors, railways, and elevator companies and grain traders.

Very little of the money spent in grocery stores makes it back to American or Canadian farms.  Compounding this problem is the fact that most of the money that does make it back to these farms is quickly captured by powerful farm-input companies. (See details here.)  Corporations upstream and downstream from farmers use their market power to capture huge profits for themselves while reducing net farm income to zero in many years.  To keep farms solvent, governments and citizens must step in with taxpayer-funded farm support payments.  In Canada, these payments have totaled $100 billion dollars over the past three decades, and more than $400 billion in the US.  From some perspectives, the primary beneficiaries of these payments are the executives and shareholders of the dominant agribusiness/food corporations.

Finally, there is the issue of efficiency.  Farmers are relentlessly urged to become more efficient.  Indeed, they are forced to increase efficiency simply to remain solvent in the face of declining farm-gate prices and rising input costs.  Farmers are so efficient today that they can produce grains and other products for 1970s’ prices.  But what of efficiency elsewhere in the system?  What does it indicate about the efficiency of huge corporate flour millers and food retailers if they must constantly take more and more money for themselves?  Are they becoming less efficient as they get larger?  Or are they simply using their increasing size and power to capture more profit for themselves?  And if citizens are going to be made to pay more for food anyway, then why badger farmers to become ever more efficient?

Farmers are the primary victims of the abuses of power within the food system.  But everyone is hurt as we are made to pay increased taxes to fund farm-support programs and to pay increased retail prices to support the outsized profit needs of the dominant food-system transnationals and their shareholders.

Graph sources:
Canadian bread: Statistics Canada, Consumer Prices and Price Indexes (Catalog number 62-010); CANSIM Table 326-0012.
US bread: Bureau of Labour Statistics, “Bread prices 1980-2015“.
Canadian wheat: Government of Saskatchewan, Saskatchewan Agriculture and Agri-food, “StatFacts-Canadian Wheat Board Payments for No. 1 CWRS”; CANSIM Table  002-0043.
US Wheat: United States Department of Agriculture, “Wheat Yearbook”   

China will save us?  50+ years of data on Chinese energy consumption

Graph of Chinese energy consumption by source or fuel, 1965 to 2016
Chinese energy consumption, by source or fuel, 1965 to 2016

There’s a lot being written about China’s rapid push to install solar panels and wind turbines (e.g., see here).  And as the US withdraws from the Paris Agreement, pundits have suggested that this opens the door for Chinese leadership on renewable energy and climate change mitigation (see here).  And China certainly has taken over global production of solar photovoltaic (PV) panels.  But is this talk of China’s low-carbon, renewable-energy future premature and overoptimistic?  Are we just pretending, because so little positive is happening where we live, that something good is happening somewhere?  Chinese energy consumption data provides a corrective to the flood of uncritical news stories that imply that China will save us.

This week’s graph shows how various energy sources are being combined to power China’s rapidly growing and industrializing economy.  The units are “billions of barrels of oil equivalent”: all energy sources have been recorded based on their energy content relative to the energy contained in a barrel of oil.  Similar data for Canada can be found here.  US data is coming soon.

Is the Chinese energy system being rapidly decarbonized?  Is China powered by wind turbines?  Or by coal?  The data can support some optimism for the future, but at present, most of the news is bad.  China remains the world’s largest consumer of fossil fuels and largest emitter of greenhouse gases (GHGs).  Let’s look at the good-news-bad-news story that is China’s energy system.

First, the good news: As is visible in the graph, China’s fossil fuel consumption has been flat-lined since 2013, and coal consumption is falling.  Further, CO2 emissions have been declining since 2014.  China has ceased, or at least paused, its rapid increase in its consumption of fossil fuels.

China is also leading the world in the installation of renewable energy systems, especially wind and solar generation systems (see here).  Chinese wind power production and consumption is growing exponentially—doubling approximately every two years.  Solar power production and consumption is growing even more rapidly and has increased 25-fold in just the past 5 years.  China has also invested massively in hydro dams, which can produce electricity with far fewer GHG emissions than coal-fired power plants.

But it would be naive or premature to simple project Chinese solar and wind power growth rates into the future and conclude that the nation will soon slash its emissions.  China’s coal-fired powerplants are relatively new and unlikely to be decommissioned prematurely.  No matter how cheap solar panels become, installing new solar arrays will never be cheaper than simply continuing to produce electricity with already-built coal plants.

Moreover, the graph makes clear that the current contribution of solar and wind to China’s energy system is small—about 2 percent of total consumption.  And while this portion will undoubtedly grow, there will be huge challenges for China as renewables make up a larger and larger percentage of its electricity generation capacity.  With a less-than-state-of-the-art power grid, China will face difficulties dealing with the fluctuations and uncertainty created by intermittent power sources such as wind and solar power.

Is China the leader we’re looking for?  If so, it is a very odd choice.  China has doubled its fossil fuel use and emissions since 2003.  It is the world’s largest fossil fuel consumer and GHG emitter, and these two facts will almost certainly remain true for decades to come.  The idea that China will pick up the slack as American and European commitments to decarbonization falter is dangerous wishful thinking.  Moreover, it should not be the case that we should expect China to lead.  It was us—the UK, US, EU, Canada and similar early-adopters of fossil fuels, cars, and consumerism—that overfilled the atmosphere with GHGs over the past century.  China has come late to the fossil fuel party.  Asking it to lead the way out the door—asking it to take the lead in decarbonization—is as inappropriate as it is naive.

Here’s one last reason why it’s wrong to look for China to lead the way to a zero-carbon future: Per person, China’s emissions are about half of those in Canada and the US (source here).  Is it right for those of us neck deep in high-emission consumerist car-culture to look to relatively poor people with relatively low emissions and urge them to “go first” down the road of carbon reduction?