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Adapted from an article by Donnella H. Meadows, entitled 'Four visionary suggestions from a World Bank heretic'), from Human Economy, Volume 14, No. 2 (published by The Human Economy Centre, PO Box 28, West Swanzey, New Hampshire 03469-0028, USA) monitored for the Institute by Greg Wright.

When the World Bank hired Herman Daly in 1988, those who knew his work were amazed. Daly is, depending on your point of view, either the most dangerous economist in the world, or the most visionary. For years he taught economics at Louisiana State and wrote articles that stood much of economics on its head. Those who found those articles insightful and delightful didn't think he would last a month at the staid World Bank.

'Depending on your point of view, either the most dangerous economist in the world, or the most visionary'

To the credit of both Daly and the bank, he lasted six years. In 1994, he left to take up a professorship in ecological economics at the University of Maryland. The bank graciously asked him to give a parting address, which he did, to a packed audience.

Daly is a gentle man. His speech was not thunderous. But if the assembled economists who heard it take it to heart, that speech could revolutionise the bank, and the world. The World Bank was 50 years old in 1994; Daly was 55. He wanted to use his seniority, he said, to "prescribe a few remedies for the bank's middle-aged infirmities".

(1) Stop counting the consumption of natural capital as income. When the Philippines permits its forests to be carried off as logs to Japan, its balance of payments look good, for a few years. When Indonesia sells off its oil, when the US fishes its great cod populations down to remnants, the economy booms, until the resource is gone. That behaviour breaks the most time-honoured economic law, which is to take this year only what will leave intact the capacity to produce the same amount next year.

'Count the loss of natural capital when calculating whether to fund a dam or a road'

The bank is playing a pioneering role in 'greening the GNP' - adding natural resources to national accounting systems. The bank should also, said Daly, count the loss of natural capital when calculating whether to fund a dam or a road. Not to do so means biasing bank projects towards unsustainable development.

The bank should also correct balance-of-payment accounts when natural capital such as timber or petroleum is exported. Those exports are now counted as foreign exchange income. They should be counted as capital transfers. If they were, international lending and national development policy would change enormously.

(2) Tax labour and income less; tax throughput more. Throughput means flows of energy and materials from the earth, through the economy, and back in the form of waste to the earth. It makes no sense, said Daly, to tax what you want more of (income, capital gains) instead of what you want less of (depletion, pollution). Given that we have to tax something, we should tax energy and material extraction and pollution, not income.

'Tax energy and material extraction and pollution, not income'

(3) Maximise the productivity of natural capital and invest in increasing it. Economists don't have to be told that the smartest way to invest is to find the most limiting factor in an economy or economic process - the factor holding back production - and find a way to use it more efficiently or to get more of it. What economists do have to be told is that in many places the limiting factor is no longer labour or man-made capital. It is natural capital. "The fish catch is limited not by the number of fishing boats, but by the remaining fish in the sea. Cut timber is limited not by the number of sawmills, but by the standing forest." That realisation is slow to come, partly because of inadequate accounting, partly because many economists were trained in a half-empty world where nature was abundant.

'Globalising the economy means erasing much of the power of national governments to carry out policies for the common good'

(4) Move away from the ideology of free trade and free capital mobility and towards national production for internal markets. "The royal road to development ... is thought to be the unrelenting conquest of each nation's market by all other nations... It is necessary to remind ourselves that the World Bank exists to serve the interests of its members which are nation states. It has no charter to serve the cosmopolitan vision ... of converting many relatively independent national economies into one tightly-integrated world economic network, upon which the weakened nations depend for even base survival."

Globalising the economy means erasing much of the power of national governments to carry out policies for the common good. Any protection of local businesses, or of the environment, can be struck down as a restraint of trade - as if trade were the highest value, to which all other values must be sacrificed.

How did the bank audience react to all this heresy? "Much better than I had hoped," says Daly. "Maybe it's wishful thinking, but I think the first two suggestions, with time, will certainly be followed. The third is more debatable, but I'm confident of it in the longer run. It's going to be a real battle for the fourth."

Daly's optimism about the progress made in 'greeening' the World Bank was somewhat undermined by an internal study, leaked by Friends of the Earth and reported in the New Scientist (Sept '96). This suggested that the requirement for environmental assessments by any government receiving help from the World Bank tended to produce a mass of perfunctory and superficial documentation, but little or no tangible environmental impact.