Full Employment and the Environment
GroundSwell, May-June 2008]
This article is abridged from a chapter in George
Rohrlich (ed.), 1976, Environmental Management. This recap
is offered now in hopes that the times are more receptive, that 32
intervening years have confirmed the analysis, and give it more
In order to protect the environment, we are going to have to face up
to the chronic (and now acute) problem of mass unemployment. To save
jobs and make jobs we now tolerate polluting mills and vehicles; we
chew up more earth each year for energy and materials; we secure and
protect mineral rights abroad at great material, environmental and
human cost; and we put fat in government budgets, for peace as well as
Along with short work we face a swelling array of derivative evils.
Each could be a study in itself, as many are, but they only distract
us from the ultimate challenge that Henry George posed in 1879:
"Though custom has dulled us to it, it is a strange
and unnatural thing that men who wish to labor, in order to satisfy
their wants, cannot find the opportunity."
There can be no real scarcity of work ... until all human wants are
satisfied" Why cannot idle persons find work to meet their own
Chronic inflation bespeaks enough dollars of demand -- in point of
fact, too many. Businessmen and home buyers are aware of a capital
shortage. Raw materials are high, even though they receive massive
subsidies and tax favors. It is only labor that appears to be in long
supply. There is plenty of demand for land and capital, goods and
The force behind these dilemmas is that the coefficients of land,
materials and capital used per worker and consumer have risen sharply
for many years. We are bumping into the implacable logic that if we
require a vast complement of resources per worker we will chew up lots
of resources and push on the limits of Earth and the tolerance of
other nations. If we require high coefficients of capital and land per
worker, then capital and land set the limits to growth of jobs and
With labor surplus, and land and capital short, the needed adjustment
would be evident to any reasonably bright 12-year old: lower the land
and capital used per person.
The "growth" issue is a red herring. There is no need to
divide into factions for and against growth. We can grow by combining
more labor with the same land and capital. It is simply a matter of
modifying processes and products and consumption. Growth of capital is
not needed for progress; turnover is. And since the way to substitute
labor for capital is to turn over capital faster, this also
accelerates embodiment of new knowledge in real capital.
No matter how much capital we have and create, we will still have
people out of work if we match each 5% increment of capital stock
with, say, a 10% increment in the capital coefficient per job. Capital
formation is not enough. It is not even necessary.
The problem is too much displacement of labor. It is "too much"
because it results from biased institutions, a large set of them,
operating over many years, which artificially induce substituting land
and capital for labor. The way to solve the problem is to identify and
remove the biases. This will increase demand for labor without
requiring any more natural resources or capital.
The possibilities for reducing resource coefficients of work and
consumption are far greater than most people have any idea. Just for
example, here are some data on farm land use on the east side of the
San Joaquin Valley, California. Land here is versatile among many
competing uses. These range from dryland grazing up to citrus, fresh
tomatoes, and berries. Berries gross 100 times as much per acre per
year as dryland grazing from weight-gain on the animal units.
Labor's share of gross rises with intensity, defined here simply as
nonland inputs/output. For grazing, this is on the order of 40%.
Grazing is land-intensive. For berries it is more like 93%. Berries
are labor-intensive. Wouldn't you know, Federal income-tax law treats
the growth of herds of breeding cattle, mostly derived from the land
input, as capital gains, subject to lower tax rates and a host of
related favors, while income from berries, mostly from the labor
input, is ordinary income subject to the full fury of the tax rates.
On top of that there are social security (when enforced) and workmens
comp, and this and that penalty for hiring labor, exemplifying the
strong tax biases against labor.
The return to land from truck crops like berries or tomatoes,
averaging out the good years and the bad, is very sensitive to wage
rates and other costs of hiring like payroll taxes. A slight rise of 7
percent nearly wipes out the rent; a drop of 7 percent nearly doubles
it. But the same wage changes would little change the returns to land
from grazing. Thus a slight drop of labor costs applies great pressure
to shift land to berries and tomatoes and other high-yield,
labor-intensive crops, making a very elastic demand for labor.
The scope for this kind of change is manifest in the fact that most
of California's prodigious farm output comes from a fraction of her
good farm land, that which is used intensively. Of several million
acres of irrigable land in California, there were in 1976 only about
21,000 acres in plums, 36,000 in freestones, and 65,000 in navels.
Most California farm land is used at lower intensities, using little
labor to yield barley, alfalfa, forage pasture, hay, sorghum,
safflower, rice or cotton.
The high-grossing crops such as tomatoes, citrus, peaches and berries
are also modest users of water. Pasture, alfalfa, and rice are the
heavy drinkers. They yield only one-tenth as much value per acre as
the high yielders, and therefore much less than one-tenth as much
value per unit of scarce water.
The high-grossing crops use more labor per acre not just in the
fields, but in the packing houses, the railroads, the stores and the
kitchens. A $1500 berry crop will use more labor at every step to the
consumer than a $15 weight gain on a calf, do it sooner, and much more
Turning to industrial corporations, the regressive use of labor on
property is clear from data in Fortune magazine's yearly report on the
largest 500. Profits per employee rise sharply with size of firm;
assets per employee rise even faster. It's the smaller firms that make
more jobs per unit of land and capital.
Government is the largest firm of all and the least labor-intensive.
It pays the market or above for labor, while it borrows below the
market. As to land, it still holds much more than anyone, tax free and
unmortgaged, with little internal pressure or shadow price to reflect
the foregone gains. Military bases make good examples. The annual
value of this kind of lavish land input does not appear in the budget.
The National Forests use much more capital (as timber) per man
employed than do private ones, especially small private ones, a fact
of which Forest Service doctrine makes a virtue. Richard Muth has
concluded that the outstanding distinguishing trait of public housing
is its higher capital intensity. Civil engineers, generally working
for governments, have become notorious for producing white elephants
by treating capital -- not labor -- as a free good, and for
overstating future benefits next to present costs by using low
interest rates. One can justify any project using a low enough
interest rate, and ignoring land costs, and many agencies have,
because at zero interest the present value of future rents in
perpetuity equals infinity.
Private utilities are capital-using, of course. But governments
supply the most capital-using utilities, like water and sewer which
are increasingly costly because of urban sprawl. Governments are
always called upon to put up social front money, to push back and
invade frontiers, territorial and otherwise, where the payoff is too
slow for private capital.
Some public buildings like the New York State Capitol are marbled and
monumental, with excessive grounds. Ironically, much government
spending is done in the name of making jobs. On balance, it destroys
jobs by inactivating capital.
How about productivity and efficiency?
Many economists mislead themselves and others by using productivity
to mean output per worker, even though their own elementary theory
textbooks teach better; or used to, before the dark days of modern
obscurantism set in. Defining efficiency this way is perverse, with a
built-in bias against employment.
More recent studies of energy-efficiency are better, but still fail
to put it all together, so they can be isolated from and ignored by
mainstream economists the ones who advise presidents, snow
journalists, edit major journals, and garner endowed chairs and Nobel
Laureates from Swedish bankers.
Over-substituting capital and land for labor raises efficiency only
by wasting capital and land (and underemployed labor, too), and only
seems efficient in unrealistic models where land and capital are
underpriced and unemployment is ignored. High labor-efficiency then
means low land-efficiency and low capital-efficiency, either directly
or at one remove in the form of low energy-efficiency, low
water-efficiency, low feed-grain efficiency, etc.
Misled by the standard of labor productivity we have exulted in high
output per man employed as a symbol and measure of national and
company success, and accepted an extreme substitution of capital and
resources for labor. The well-known displacement of farm labor is not
an exception, but more like the rule. Even the better studies omit the
public sector, the infrastructure into which we pour so much public
treasure at low interest rates. They omit housing, which soaks up so
much capital and land per job created. They omit recreation which
requires so much more land and equipment per consumer hour, and per
measure of personal joy, than the quiet pleasures of yesteryear. And
they omit the swing of consumers toward goods and services like
electric power and natural gas, whose production is capital-intensive,
and whose prices fall relative to labor-intensive products when the
capital and resource inputs are subsidized. Producers as well as
consumers use much more of these as inputs. A primary metal like
aluminum will consume 135 kwh per unit of value-added, compared to
10-20 in a normal manufacturing operation. It is energy inefficient
and thrives only on underpriced energy, thanks to which it is cheap
relative to competing materials. For years we have been substituting
capital and energy for labor and calling it progress and efficiency,
only to find that capital and energy are scarce, and labor surplus.
Discard the idea that spending or recycling money is a bottleneck
limiting national income. It does not at all square with the facts
today, if it ever did. Instead of running down, the turnover of demand
deposits has risen rapidly for many years now, even as the money
supply does, and banks press on their reserve requirements to meet the
demand for loans. Instead of a fatal deflationary imperative, there
have been years of violent inflation which failed to solve the fatal
unemployment problem. New Economists have mastered all too well the
arts of creating and spending money. Delivering the goods is where
they fail, and it is real goods ready to consume that turn play money
into real money.
Instead of a glut of loanable funds and a shortage of investment
outlets there is a capital shortage. Instead of a glut of goods there
are shortages, an energy crisis, materials scarcities, limited
selections in inventory, delivery delays, islands of famine and fears
of hunger. Money, like labor, is in long supply. It is land,
materials, commodities and investment funds that are short.
Unfortunately, the concerns that prevailed when the twig of the New
Economics was bent are built into its axioms, laws, models, circuitry
and conditioned reflexes. In addition they drew upon deep springs in
the cultural subconscious. New Economics was always a misleading name;
it was more of a regression.
"There is not an opinion more general among mankind
than this, that the unproductive expenditure of the rich is
necessary to the employment of the poor. Before Adam Smith the
doctrine had hardly been questioned; ... if consumers were to save
... the extra accumulation would be merely so much waste, since
there would be no market for the commodities
Stuart Mill, Principles 1, Ch. V., Para. 3).
Now everything is different but this mode of thinking on which
prevails at the top of the economics profession and leads us ever
deeper into error and trouble.
Keynesian pessimism sees supply overwhelming demand. Inflationary
pessimism sees demand overwhelming supply. A confirmed pessimist
profession sees both calamities at once, and there are always some of
those. Yet each calamity is the counterpart to and solution of the
Calamity results from neither, but from restrictive and braking
policies of other kinds adopted or tolerated by pessimists who
believe, or proclaim that they must forestall these imagined problems.
These are the real macro-economic bottlenecks.
What are they? They include all institutional biases that interfere
with the intensive application of labor to land, biases we have
accepted and endorsed because we were in doubt about the aggregate
benefits of taking the brakes off production and payrolls. There are
too many to list here, but a good example is the tendency to base most
taxation on the use of land, the activity on land, the payroll on
land, the sales, the output, the income generated from land. The
alternative is to base more taxation on the value of land, prompting
owners to use it harder to serve customers, and make jobs.
They also comprise biases that interfere with the rapid turnover,
recovery and reinvestment of capital.
A third set of biases are in payroll taxation. The U.S. social
security payroll tax rose sixfold, 1960-75, up to about 25 percent of
all federal receipts. The personal income tax, largely another payroll
tax, raised another 44 percent. The tendency of payroll taxes is to
make labor costlier to employers than beneficial to workers, who
always have and increasingly exercise the options of welfare, crime,
prison time, and military employment. Prison time may not be
voluntary with the prisoner, but risky behavior is, and the U.S. now
houses some 25% of all the prisoners in the world.
Once the basic idea is clear a host of policy changes write
themselves. I leave this Imagineering to the reader. Environmentalists
are distressed at the perpetual invasion of wild land by men seeking
jobs, led by others seeking rents. They should be glad to learn that
is not where to make jobs after all, anyway.
The traditional last great sink of capital is war, and the policies
of mercantilism and imperialism that attend it. War combines the
frontier fallacy and the public works syndrome and the
waste-makes-jobs doctrine into a claim on the national treasure that
is greatly inflated above the simple cost of police protection.
Imperialism has generally been an economic and environmental
catastrophe for most of the players, invaders as well as invaded. Our
current hemorrhaging of blood, treasure, and national morality in Iraq
merely replicates what has happened to previous world imperialists
over centuries. Perhaps they will learn when they run out of useful
idiots, but that takes too long. They may learn sooner when they run
out of resources, and are made aware of it. We can help by making
The policy of lowering the land and capital coefficients of labor
will help us find full employment on our present land base,
permanently, freed from the compulsion to grow and expand and pollute.
We can continue to create capital, and we can apply new ideas more
quickly than now as faster replacement lets us embody new techniques
in capital in a shorter time. Thus we can grow in every good sense by
substituting real progress for the random lateral expansion and
environmental destruction of the past. We can find full employment in
peaceful labor on our share of this small planet, and doing so, drop
the burden of imperialism that may otherwise destroy us in the
ultimate environmental calamity.