3. What is Necessary for Society to Continue

ISEW - Index of Sustainable Economic Welfare

The index of sustainable economic welfare (ISEW) is one of the economic indicators of the level of social economic growth jointly developed by Prof. Daly and Dr. John Cobb. The terms “social economic growth” and “indicator” may be difficult to understand, but in our society, they are used to numerically express changes in our economy. To use a simple example, if you add up how much your parents earn each year, and then subtract how much money your family uses each year, you can see whether your family is getting richer or poorer. Generally, economic indicators are calculated on a larger basis, such as nations, to understand the state of the economy.

There were other economic indicators before Prof. Daly and Dr. Cobb developed the ISEW. GDP is the one that has been widely used around the world. What are the benefits of the ISEW compared to others?
ISEW quantifies the state of economy, not only by calculating how much money is earned and spent, but also by including a wide range of factors such as the economy’s negative influence on the environment. We are not always happy if we have a lot of money. Our state of happiness depends on many factors such as health and natural surroundings. Prof. Daly and Dr. Cobb included broader factors in their measure of the level of social economy.

Herman Daly’s Pyramid

Herman Daly’s Pyramid was conceived from the question of whether economic growth truly leads to an improvement in quality of life. It was named so because he expressed his theory in the form of a pyramid.

Herman Daly's Pyramid

The pyramid shows the structure of economy. The bottom layer is “natural capital,” which refers to forests and coral reefs, continuing to provide us with benefits into the future. It also shows that natural capital is the basis of our economic activity because everything people produce is made from material obtained from nature and also waste from human activity is absorbed and neutralized by nature. However, our current economy has exceeded the limits of nature and continues expanding. Prof. Daly is worried about this.

Herman Daly's Pyramid

“Well-being” is placed at the top of the pyramid because the purpose of economic activities is to attain happiness. You may think that this goes without saying, but some economists and general public get it wrong to think that producing more things and providing more services are the goals of economic activity.
Herman Daly’s Pyramid shows his message, suggesting that “proper economic activity is to produce happiness without overly consuming limited natural resources.”

Herman Daly's Pyramid

Herman Daly’s Three Rules

In addition to the Herman Daly’s Pyramid, Herman Daly’s Three Rules are also important. They consist of three principles for a sustainable society.

  • (1) The sustainable use of renewable resources requires that consumption not be greater than the rate at which resources regenerate.
  • (2) The sustainable use of nonrenewable resources requires that the rate of consumption not be greater than the pace at which renewable substitutes can be put into place.
  • (3) The sustainable pace of pollution and waste requires that production not be greater than the pace at which natural systems can absorb, recycle, or neutralize them.

Natural resources include renewable resources (wood, fish, etc.) and nonrenewable resources (coal, oil, etc.). Rule No.1 states that even in the case of renewable resources, the rate of consumption must not exceed the rate of regeneration so as not to avoid the depletion of resources. Rule No.2 states that if we continue using nonrenewable resources, we must replace them with renewable alternatives faster than the pace we consume nonrenewable resources. The amount of nonrenewable resources decrease consistently as we keep using them, so we need to find renewable alternatives before we get into trouble. Rule No.3 states that while nature has the ability to absorb and neutralize wastes from human activities (CO2, waste water, etc.), we must not produce waste faster than the pace nature can absorb them.

Complying with these three rules makes it possible for society to become sustainable. Our current society, however, is incompatible with these rules.

Prof. Daly’s Dream

We live in this ecosystem and depend on other living creatures. As is described above, our economic system keeps consuming irreplaceable resources, and keeps growing while losing its balance with the ecosystem. We need to review our way of life to make our society sustainable. Are you happy if you have more things? What if your desire causes the destruction of nature and creates problems for future generations? Asking ourselves such questions could change our behavior.
It is not easy to change the way we think. Prof. Daly believes that if you accept the reality of the world, although it might take some time, you can get people to change their mind.
Prof. Daly hopes that everyone will work together to develop a sustainable society so that everyone can enjoy a happy life.


Prof. Herman Daly