Saturday, March 19, 2005

The Anielski and Braaten Cafe

Here is a chat Mark and I had several months ago.

Mark Anielski Interview with Aaron Braaten

September 20, 2004

My first question:

Q.What is the difference between an economist and an ecological economist?.

Ecological economists see the economy as a wholly owned subsidiary of the ecosystem. The economy, which is the combined activities of household(s), businesses, and governments in the community, is embedded and dependent upon the ecosphere. Ecological economists recognize that both words “ecology” and “economics” have the same Greek root work oikos meaning household and that both denote stewardship or careful management of the well-being of the household and nature and that their well-being is inextricably linked. Economics combines oikos with nomia (or management) while ecology combines oikos with logia (or logic or knowledge).

Q: So I take it that the two disciplines don’t mesh that well.

Classical economists do not see nature as scarce nor do they always see its biophysical carrying capacity as a limiting factor to the continued expansion of Gross Domestic Product. In principle, most economists see no limit to the growth of the production of goods and services (measured by GDP growth) with technology and substitution of human/produced capital for natural capital with technology as having a continuous promise of redemption.

Ecological economists see natural, human and social capital as assets that can depreciate and these need to be treated as such in the system of national accounts and have proposed alternative measures to the GDP.

Q: What types of Measures?

The Genuine Progress Index (GPI) or the Index for Sustainable Economic Welfare (ISEW) both come to mind. These subtract human, social and natural capital depreciation as genuine costs of progress. Economists tend to believe in the benevolence of the market to reveal all values, expressed in monetary terms and that in essence, all humans act in a similar fashion as utility maximizing creatures.

Q: Adbusters magazine recently proposed a scenario where the world as we know it was done away with, and they asked us to re-define the world we want to live in. Adbusters highlights your work with Redefining Progress on their Genuine Progress Indicator. Were you surprised at being identified as a Revolutionary?

The tribute paid to my name in Adbusters as a rising star amongst “revolutionary” economists came as no particular surprise, even though I had to be informed by my banking friend Bob Williams, former Chairman of Van City (Canada’s largest credit union). I wouldn’t have used the word “revolutionary” to describe my work. I’d prefer “renaissance” or “enlightened” economics.

Adbusters was one of the first popular periodical to highlight the Genuine Progress Indicator (GPI), developed in 1995 by the San Francisco-based economic think-tank Redefining Progress. The GPI was one of the most exciting pieces of economic research I had ever witnessed; an attempt to adjust the GDP (akin to tracking only the revenue line on the national income statement) for the value of unaccounted assets (like unpaid work time and parenting) and deduct the costs of natural, human and social depreciation.

Q. So the GPI says that there are costs to growth? What costs?

Deductions include a cost placed on rising income inequality and regrettable expenditures on divorce lawyers, environmental pollution cleanups, and buying locks and alarm systems to protect our personal property. It only made sense that these expenditures might be defined as “regrettable” costs of progress.

Q: Does Alberta have a GPI?

The US GPI work led to my vision of creating a more expansive GPI accounting for the province of Alberta. I completed the Alberta GPI Sustainable Well-being Accounting in 2001 with 4 other economic researchers with the Alberta-based environmental policy think-tank, the Pembina Institute for Appropriate Development. This represented the next important chapter in advancing my vision of a new balance sheet for the nation and provinces that would integrate human, social, natural, produced and financial capital asset accounting.

That model has morphed into Genuine Wealth Accounting; an integrated five-capital, values-based well-being measurement and reporting system for governments or businesses to use in managing for genuine sustainability and living economies.

Q: What’s at the root of Genuine Wealth?

Well, the purpose of an economy is to enhance the collective well-being of households and it is founded on principles of frugality and sufficiency in right balance with nature.

Q: What’s your educational Background?

My academic path was akin to a Renaissance man, with studies in pre-med sciences, economics, accounting, forestry, Germanic languages and music. I received bachelor degrees in economics, then forestry and finally a M.Sc. in Forest Economics, all from the University of Alberta.

Q: What’s your professional background?

As a professional resource economist employed with the Government of Alberta as a policy analysis, I was first introduced to the field of ecological economics when I presented at paper (amongst over 200 presented) on natural capital accounting of Alberta’s forests to the second international meeting of the International Society for Ecological Economics in Stockholm, Sweden in August of 1992.

Q: Conferences are good places to meet people.

I met Herman Daly, Bob Costanza, Paul Ehrlich and others who were the founders of the ecological economics discipline. Several months before the Stockholm meeting I met Robert Repetto an economist at the World Resources Institute in Washington, D.C. whose seminal natural resource accounting work Wasting Assets gave me the courage to begin my own work on natural capital accounting for Alberta and Canada.

Q: Wasting Assets. Sounds like the Alberta Tar Sands to me.

As a trained accountant, professional, forester and an economist, it always made sense that we should account for natural capital in a manner similar to how we accounted for manufactured capital, by assessing the physical conditions of our forests, fisheries and agricultural land and accounting for its full depreciation (or appreciation) value in our system of national accounts. Why economists had failed to account for natural, human or social capital in our national accounts and GDP after 50 years of national income accounting never made sense to me. It was time for a renaissance in economics and accounting!

Q: Alberta is on the verge of repaying its debt, due in part to liquidating its main form of natural capital – Oil. Studies by the OECD and the TD Bank have targeted this area as the fastest wealth accumulation zone in North America, yet there never seems to be enough money to pay for hospitals, schools and infrastructure. Care to comment?

The retirement of Alberta’s total financial debt is an important milestone internationally. Few jurisdictions, even Norway, cannot claim to be debt free domestically. Albertans have been able to achieve debt freedom thanks to the liquidation of its non-renewable natural capital assets – oil and natural gas – buoyed by historically high global oil prices. Alberta’s economic future is indeed rosy.

We are arguably the wealthiest – in terms of natural capital. Our oil sand reserves are an estimated 300 billion barrels and represent the world’s largest proven reserves.

Q: 300 Billion is a lot.

It is. Alberta even eclipses Saudi Arabia’s reported reserves of 240 billion barrels, although I don’t trust the Saudi inventory figures. Some analysts project that Oil production will peak in 2005, so we can expect even higher oil and gas prices as nations will scramble for increasing scarce conventional oil supplies.

Q: The implications of which are obviously good, right?

This will make Alberta one of the richest regions in the world. More importantly, the value of Alberta’s oil and gas will increase as the US will look for greater energy security outside of the troubled Middle East. Some analysts anticipate annual oil and gas royalty revenues in Alberta could reach $20 billion in the next few years as oil sands production increases and oil sands royalty revenues increase.

Q: So what about schools and hospitals?

In such a robust revenue climate, the traditional lament that money is scarce will be a moot point. Such robust government revenues will put tremendous pressure on politicians to spend more on schools, hospitals and infrastructure. Other Canadians will look enviously at Alberta’s riches and likely pressure for more equitable wealth distribution. Albertans will be called upon to be prudent and frugal with their spending, keeping the focus on accountability for the highest value of services from each dollar of expenditure.

Q: Back to the frugality issue again. Does frugality imply saving some of that money?

Yes. Alberta should resume saving billions in the Heritage Savings and Trust Fund to build an endowment similar to Norway’s US $100 Petrofund so that earnings from the fund can be available to building a genuinely sustainable and living economy for this and future generations.

Q: Rebuild the Heritage Fund – that sounds like Peter Lougheed talking. Why the Heritage fund?

I’m a firm believer in establishing a healthy savings account of some kind when one is so richly endowed with valuable non-renewable natural capital. The Norwegians have their Petrofund and the Alaskans their Permanent Fund. Alberta’s Heritage Fund should be used in the same prudent way the Norwegians have managed theirs by trying to invest the majority of petroleum royalties in the savings account to draw from when the oil and gas run out or market demand dries up. In principle, one could argue that governments needn’t put any money in savings like you and I might do for retirement. That’s because governments (both federal and provincial), in principle, have the power to create money in sufficient supply to meet the needs of its citizens. Unfortunately no government today exercises this option over money creation, except the Government of Canada through the Bank of Canada albeit with most of its power ceded to the private banks. But I digress.

Q: The government of Alberta has the power to create its own money? How would that work? Wasn’t there a thing called “funny money” back in the Social Credit days?

In theory every community and State has the power to create its own money. For example, Salt Spring Island in B.C. has its own Salt Spring Dollars which is created by its own IMF (Island Monetary Fund) backed 25% by gold bullion reserves. These dollars can be used to purchase local goods and services, if honoured by community businesses, and are redeemable on par (for $1 Canadian) at any bank on Salt Spring. There are many similar examples of local currencies (over 400 internationally and counting). It is surprising that few communities, including provinces, have ever exercised this power over money creation. I believe this is partly due to our reliance on the Bank of Canada to play that role in creating a national currency. Alberta, during the early Socred years of the 1930s and when the province was effectively bankrupt, toyed with the idea of creating its own money or “social credit” but quickly abandoned the idea due, I believe, to enormous pressures by the Money Powers in Toronto (namely the private banks). Few people realize that the vast majority of our money (over 93%) is currently being created by private banks through fractional reserve banking, not the Bank of Canada who can create money without any cost or debt charges to Canadians. What I’m saying is that virtually all money is created in the form of a debt which we know has regrettable consequences for students with loans, farmers with farm debt burdens and households with mortgages (or in French “a pledge unto death”!). In theory all money could be created without debt and interest charges. In reality we have a global system of usury.

I would argue that we have a moral conviction to return money to be the servant of economics, not its master. The great theologian St. Thomas Acquinas reminds us that money has been invented by human beings “for the convenience of exchange by serving as a measure of things saleable.” Aquinas reminds us that money is meant to be an instrument to help in providing that sufficiency of goods required by households for the virtuous life of their members. In this context, the State has duty to see that money is a stable measure of value and that it retains the power over money creation instead of ceding this power to the private banking money power.

I have long advocated, consistent with former Belgium central banker Bernard Leitaer, that each state or community should create its own currency in quantities sufficient to sever the purposes of facilitating the production and distribution of goods and services in sufficient amounts and quality for a virtuous and sustainable living economy, just as the Angelic Doctor suggests. I envision a Genuine Wealth banking and money system in which money is created, not in parallel with debt (as currently happens) but in parallel with ensuring the sustainability of a communities human, social, natural and built (infrastructure) capital assets for a good life.

Q: That word – Sustainability – I’ve heard it used by everyone from Ralph Klein to George Bush to the Pope. It sounds like that word used by Business students called “synergy”. Everyone seems to use it, but it’s tough to nail down the definition. What does it mean to you personally, and what do you think it means socially?

At a personal level sustainability means living frugally -- with a conscious sense of sufficiency and “enough” – and yet achieving the highest quality of life through eating well (organic), loving abundantly, using time effectively, and living within the means of nature. Living sustainably means ensuring that our “genuine wealth” (wealth correctly defined in the Old English as “the conditions of well-being”) is being well managed in accordance with what we value most in life.

At a societal level sustainability means the integration of our environment, economy, social systems, and individual health and fulfillment in every aspect of our decision making over the long term. Sustainability is more than a vision, it is a way of living completely within nature’s limits, with a prosperous economy, in healthy communities, marked by a high quality of life for all citizens.

Q: Societies typically only become concerned about the environment after having achieved a certain level of prosperity. If Alberta is set to become one of the wealthiest zones on the planet, will that necessarily correlate with being leaders in achieving a sustainable future? Will we wake up one day and say “Hey look! We’re sustainable”?

Preston Manning recently mused that it might be time for a new political party in Alberta to replace the tired Progressive Conservatives. He suggested that because of a lagged wave of environmentalism in Alberta, a “green” political party might be the ticket to ride.

Q: The Alberta Greens? That’s interesting.

Alberta is full of paradoxes. Consider that the Green Party of Canada had one of the highest percentages of the popular vote in Alberta during the 2004 federal election.

If Manning is correct and Albertans are indeed leaning towards a shade of green, then I believe Alberta could lead the nation in genuine sustainable development. However, I wouldn’t count on the Conservatives whose environmental performance record and commitment to real sustainability has been poor. Take for example, Environment Minister Lorne Taylor’s battle against Kyoto. In my mind Kyoto represents a huge business opportunity to both benefit from the bonzana of soaring oil prices and bountiful oilsands while investing some of these revenues in the most advanced carbon management systems in the world as well as investing in a world-class renewable energy infrastructure for the benefit of our grandchildren. That would be a sustainable strategy for Alberta.

I believe the political fortunes of this province belong to a new and young generation of leaders who understand sustainability at the heart which is about frugal and prudent stewardship of our genuine wealth: our human, social and natural capital assets. The wise leaders know that sustainability is not a destination but a journey. It’s like gardening; requiring careful and regular tending, fertilizing, and weeding to achieve a bountiful harvest that can be perpetuated over generations. Just perhaps a new party will rise up to seize this opportunity and vision of genuine sustainability, just as Peter Lougheed rose from the ashes of the tired Socred Party with a vision for a flourishing Alberta.

Q: Do you ever wonder if the potential for a Greener Provincial government could get mired in the short-term musings of separatism and revenue hoarding? Implementing Kyoto could come across as another NEP in Alberta and could be exploited as such by western separatists.

A wise and green provincial government would distance itself from the childish separatism cry of our past Conservative governments. A wise government would see opportunity in Alberta leading the nation both in terms of strategic oil/gas reserves while investing the world’s benchmark of a sustainable, living economy. If I was Premier, this is the vision I would carry in my heart: a vision of a sustainable, living economy that ensures genuine wealth now and over the next century. Alberta neoconservatives’ threat of separatism and non-compliance on Kyoto serve as an example of political immaturity and are useful instruments in the political polemic of the Klein government while contributing to the distracting federal-provincial dialectic.

I believe Albertans hunger for wise and prudent leadership. Indeed, being debt-free and endowed with black gold compels us to show leadership and responsibility to our children and to the rest of Canada. Alberta can and should become the international benchmark for a sustainable economy.

Q: Would Kyoto be a way of increasing our lagging amounts of private research and development?

The economic Armageddon rhetoric about the impacts of Alberta complying with Kyoto protocol objectives is, in my opinion, pure polemic. Alberta’s compliance with the Kyoto protocol target of 20% reduction in greenhouse gas emissions over 1990 levels (about 20 megatonnes of carbon per year) represents one of the most important investment opportunities in our life time. Alberta could easily achieve the true and full costs of achieving a carbon reduction strategy without even a tremor in Alberta’s GDP while reaping lasting research and development investment benefits.

Q: I’m going to need some figures.

I have estimated, based on the full cost accounting work of removing 20 megatonnes of carbon and storing it underground would cost Alberta about $741 million per year. These cost estimates are based on the work by carbon management expert Dr. David Keith (U of C engineering professor formally of Carnegie Melon). Dr. Keith has estimated an average engineering cost US $100/t of CO2 or Cdn. $27.30/t of C) for a cradle-to-cradle , or, from source of emission to underground storage, carbon management solution.

Q: 741 million dollars is a lot of money, like six times the total student debt load in Alberta.

$741 million is peanuts: a mere 0.43% of Alberta’s 2003 GDP. Moreover, the petroleum industry receives upwards of $283 million in royalty tax credits and the sector as a whole is already highly subsized sector. Consider also that Alberta’s gambling revenues in 2003 were $1,168 million. My point is that the financial pain is rather insignificant and if equitably shared by both Albertans and industry, achieving Kyoto’s ambitious target would not be as onerous as some may suggest. Indeed, I believe Kyoto represents an investment opportunity and potentially an export industry as our expertise in sequestering or storing carbon would become an important skill and asset globally.

Q: You were recently working with Raffi on a project. What’s that all about?

Raffi and I have become good friends over the last year. Raffi, arguably one of the most successful and well-known child entertainers, is currently on a concept he calls Child Honouring. It is an attempt to raise the consciousness of adults to the importance of the well-being of the young child as the primary foundation of a good and sustainable society. Raffi believes that children, particularly those aged 1-6 are mostly invisible in the minds and policies of governments. They simply don’t count in most of our measures of progress yet unless a child has a loving and solid foundation in life, he or she can become tomorrow’s societal cost. His song, inspired by Nelson Mandela, says it all “Turn, turn, turn, turn this world around, for the children, turn this world around.”

I recently spent time with Raffi on Mayne Island in B.C. where we completed a visioning exercise to imagine a change in how we would report progress differently on Monday morning, with children in mind. Instead of waking to the grim news of another death in Iraq and another point spread in the stock markets, we would hear how Canada’s quality of life index had changed and why the Gross National Happiness had moved up or down in the last month. Raffi and I have also joined forces to examine how we would measure what I call “genuine wealth” and progress from the perspective of a child. So we asked a group of children at our most recent Ecological Economics conference in Jasper in October to help us identify what makes them happy and what makes them sad. Children have a remarkable way of cutting through the rhetoric of our age and raising our consciences with those probing “why?” questions.

Q: You’re involved in something called social entrepreneurship. Care to elaborate?

I teach a course in Corporate Social Responsibility and Social Entrepreneurship in the School of Business for MBA/4th year business students. There are many definitions of a “social” entrepreneur. In my mind a social entrepreneur is a person who, with sound business acumen and skills, operates his or her enterprise in a way that puts people (and the environment) before profits, yet is committed to operating an efficient and effective enterprise.

Q: Are there any courses that stand out in your mind or professors at the U of A who would be good mentors for would-be understudies who wish to become ecological economists, enlightened neoclassicals and the like?

Unfortunately there are no ecological economics professors at the U of A, with the exception of myself although I am only an Adjunct Professor in the School of Business and do not formally teach ecological economics. This is true of most universities in Canada with the exception of Dr. Bill Rees at UBC, Dr. Frank Müller at Concordia University in Montreal, and Dr. Peter Brown at McGill. Only Dr. Müller is in an economics department.

From my experience at the U of A, the most enlightened group of economists who understand the origins of the Greek work oikonomia (household stewardship) and ecology (oikos-logia) can be found in both the Departments of Rural Economy and Human Ecology both in the Faculty of Agriculture, Forestry and Home Economics. There are no ecological economists in either of these departments nor in the Department of Economics. However, I would recommend resource economists Dr. Vic Adamowicz and Dr. Peter Boxall in Rural Economy and Dr. Janet Fast in Human Ecology as excellent mentors to students interested in studying real economics.