The Accounting Crisis Behind Climate Change
The Economics of What We Don’t Count and Counting What Actually Matters
Climate change is usually framed as an energy problem. But in many ways it is actually an accounting problem. Degrowth asks how we can shrink harmful economic activity. Regrowth Economics asks a different question: how do we rebuild the natural and social systems that sustain human prosperity?
Every month, like many millennials, I sit down and divide my expenses into categories: essential needs, the things that keep me sane, and luxuries I can cut if necessary. Budgets force us to recognize limits. Yet the global economy—the system that organizes how we use energy, land, and water—tracks financial capital with extraordinary precision while largely ignoring the ecological limits that make life possible. When environmental costs never appear on balance sheets, the economy systematically rewards activities that degrade the planet. From the perspective of running our cities, balancing budgets which include ecological and social metrics might actually be an unexpected solution to climate change.
For deep history buffs of capitalism, most of us end up at the enclosure of the commons. The origins of the capital stocks required to get capitalism started came from fencing off natural resources like grass for sheep and coppiced wood that were collectively managed by common people for their subsistence needs. While every natural resource on the planet has now effectively been privatized (or set aside for conservation in national parks, public lands, or international waters), nature is not the only non-financial capital stock. Communities also rely on other forms of capital: social relationships, cultural knowledge, functioning ecosystems, public infrastructure, shared political institutions, and scientific knowledge (as well as other sources like craft knowledge and indigenous knowledge) are just a few examples. These sources of wealth are routinely used to build businesses. Identifying excess stocks of untapped and undercapitalized wealth is still a basic skill taught in MBA entrepreneurship courses, even if it isn’t explicitly framed that way. Facebook, for example, is a classic textbook case study of capitalizing social relationships, moving social connection and relationships from the inherent wealth it brings to our lives into the world of transactions.
Sociologist Cornelia Butler Flora helped formalize the framework of multiple capital stocks as the Community Capitals Framework—a way of understanding that economies depend on multiple forms of wealth, not just money. Her work emerged from rural development efforts that asked a simple question: how can communities rebuild after corporations extract wealth and leave? The answer begins with identifying the assets that remain—strong social networks, local knowledge, functioning ecosystems—and using them as the foundation for rebuilding local economies.
The history behind Flora’s framework is important, as it gives a deeper understanding of why it works. Flora worked as a sociologist within the US Cooperative Extension system, a program built on top of the U.S. university and college Land Grant program. The Land Grant system was founded after the American Civil War to research how to develop a wage labor and capitalism-based agriculture system to replace slave labor production. In many ways the Land Grant system echoed earlier enclosure movements in Europe, reorganizing land, labor, and agricultural production around market-oriented systems. Cooperative Extension becomes an important part of the history of Capitalism during the New Deal era by enclosing the last of America’s natural resources into either profitable enterprises or National Parks.
When the community capitals approach is used today to rebuild rural communities after corporations leave, the remaining wealth in the community is diligently identified through extensive community participation and then leveraged as assets within carefully structured public organizations and private enterprises to build more community wealth assets. For example, close knit families who know each other and work together well have social and political resources. Leveraged, that becomes a source of capital which can be used to develop cultural wealth or regenerate their environment. These in turn can be leveraged to build more community wealth in a “positive” spiral of development. As long as the wealth is not fenced off and privatized and siphoned off before the community has managed to create a sustainable economy (defined as the community being viable and has the potential to grow rather than continuing to loose population) then the community can literally rebuild from the ashes.
Part of the “carefully structured” part of this plan is using legal structures for organizations and businesses which are mandated to not privatize the new wealth. Examples of these legal structures include cooperatives, municipalized utilities that manage infrastructures, nonprofits, community land trusts, stakeholder managed organizations, social enterprises, and other forms of economic democracy. Broadly speaking, these legal structures collectively are called the Solidarity Economy. The positive spiral of development only works if Solidarity Economy enterprises reinvest the fruits of their labor into any of the non-financial capital stock categories such as social, cultural, political, natural, human, or built material objects... which in turn can be leveraged to make more of it.
One popular economic development model that puts the Solidarity Economy into practice is Community Wealth Building (CWB). Developed by The Democracy Collaborative in the early 2000s, the strategy focuses on building locally rooted economic institutions that cannot easily extract wealth from communities. Anchor institutions (like hospitals and schools and city governments) are deliberately used to direct purchasing from Solidarity Economy enterprises, creating a city version of “import substitution” to deepen the local “multiplier effect.”
CWB has become a critical component of post-industrial city recovery across the US Rust Belt as corporations moved away when local environments were no longer profitable. The model has spread to Europe and Australia, integrating into climate change sustainability approaches, particularly with Europe’s Doughnut Economics model of identifying the thresholds for natural resource use and social needs. Like with Multicapital asset-based development, Doughnut Economics identifies sustainable stocks of natural resources, critical infrastructures, and sociocultural needs which are then bracketed out from commodity production for profit by doing local economic development of the Solidarity Economy. This essentially reclaims the commons, in the modern industrial society form.
For cities and communities, building modern commons for our basic needs and doing the accounting to identify sustainable thresholds gives cities quantifiable budgets for what wealth can be moved into markets for innovation and growth opportunities, rather than relying on the markets’ “invisible hand” to magically cover the basic needs of humans and nature. Research by Jason Hickel and Dylan Sullivan suggests that 30% of current global resource and energy use could provision decent living standards (DLS) for 8.5 billion people- something 80% of the world does not yet achieve. Meaning that there is still plenty of resources to provide even higher standards of living or channel it into capital market production. Most importantly, this economic development policy approach protects capital stocks from being over-exploited to the point that cities experience a downward spiral of poor social conditions and a degraded environment imperiling the health of both humans and nature. Cities also get more reliable tax revenues from the Solidarity Economy because of deeper local multiplier effects than relying solely on tourism, venture capital dependent startups, and chasing “growth” opportunities.
Surprisingly, the mechanisms that makes CWB work is unassailably bipartisan. For example, the majority of cooperatives in the US are actually located in Red counties (mostly because of electricity and agricultural cooperatives). Municipal infrastructures like the Sacramento Municipal Utility District (SMUD; N.B.: Sacramento is the capitol of the 4th largest economy in the world) are popular, providing lower rates and more reliable service than private versions in neighboring regions. And the Trump administration has made precedents with a two tiered electric rate structure for AI datacenters to protect the rates of households. The governance mechanisms for managing utilities like electricity and water are actually based on the commons governance system developed by Elinor Ostrom, for which she won a Nobel Prize. And while a more authentic commons governance would expand these utility boards to include a way for ALL users to meaningfully participate, we already have many of the systems required (or models of systems which can be duplicated for other capital stock categories) to do the accounting and budgeting to address climate change and poverty.
Climate change persists not because we lack solutions, but because our economic accounting ignores the ecological budgets that make civilization possible. Markets are excellent at allocating scarce goods—but only after societies decide which resources are too essential to leave to the market. When communities steward shared resources responsibly, prosperity and sustainability can reinforce one another. Stabilizing basic needs like housing, energy, transportation, and healthcare does not suppress innovation. In fact, it may enable it. When people are not constantly struggling to meet basic needs, they are better able to take entrepreneurial risks, build new businesses, and experiment with new ideas. The institutions of the solidarity economy—cooperatives, public utilities, and community-owned assets—already demonstrate how climate stability, poverty reduction, and economic development can advance together. The challenge now is to extend the budgeting discipline cities already apply to finances to the bioregional ecological systems that sustain them. If we do, we may yet end this century better than we began it.