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A primer on ecological economics

A brief history

The 1960’s saw a large-scale protest movement that focused on the Vietnam War but also criticized the commercialization of American life in all its insidious forms. Though hippies tend to be identified with the anti-war movement, tuning and dropping out was much less a critique of American foreign policy than a critique of the American "way of life." The war merely gave a focal point to a wide range of special interests that would have otherwise had a hard time articulating just what they were frustrated with. That many of them were horrified by the deeper, long-term implications of pro-growth, militaristic corporatism, which emerged in the wake of WWII as the dominant expression of American exceptionalism didn’t seem to occur to many of them. One has to wonder, if it had would that have created a much better rallying cry than protesting the Vietnam War, considering nearly all critiques fell under the umbrella of anti-capitalism protest (feminist, environmentalist, ecological, anti-war)?

At any rate, hitching their protest movement to the horses of war had the ironic result of giving the protesters very little to be officially upset about when the war ended. Thus economic criticism fizzled in the 1970s and was nearly completely squashed in the 1980s as Reagan, riding a cresting wave of cheap fossil fuels and capitalistic enthusiasm, seemed to prove that perpetual economic growth was possible, and that America would remain at the top forever.

The 1990's was powered by the conversion from an industrial economy to a service economy and all the necessary infrastructure, as well as the opening of the BRIC markets to foreign investment. But, though the 90's seemed like a freewheeling, prosperous time, the conversion to a service economy was really just a one-time boost that fizzled by the turn of the 21st century once there was no more outsourcing to do, and all the fat had been cut from domestic payrolls.

So, by 2001 most American companies, seeking new markets to fuel their need for growth, moved into the financial markets, taking advantage of new and exotic financial products in order to make their money work overtime to compensate for the fact that there were precious few growth opportunities in the real economy. Real estate and the barnacles of financial products that clung to it was the easiest target and so the real estate bubble blew and blew and blew, until it blew up. And now, more than 10 years later, the money people, having been bailed out by governments worldwide, are still busy engaging in the same shell game that got us in trouble in the first place, and the stock indices climb higher and higher, though the real economy, so-called Main Street, is still suffering as though there were no recovery at all. The companies that survived are still searching for the next growth opportunity, but having blown up manufacturing, service, real estate, and the banking industry, they’re left with precious little to eat up in the name of growth.

Throughout this period of market liberalization and growth-obsession there have been a long stream of protest movements that have focused on a wide array of critiques of the global capitalist system, but very few have had a solid economic grounding from which to offer an alternative. However, in 1996, after two decades of shouting in the wilderness, Herman Daly published his book Beyond Growth, which spawned a whole cottage industry for what would eventually be called ecological economics (or steady-state economics). Daly’s theory, pulling from ecology, was that economic growth was the problem, and that the constant pursuit of growth would only lead to resource scarcity, and ultimately to economic collapse.

Essentially the theory is a two-pronged attack on the current hyper-capitalist model, one focusing on the damage inflicted on the natural world through growth, and the other centered on modern accounting principles, which allow companies to ignore the true costs of production, hence externalizing those processes that are most destructive to the natural world. What Daly and his acolytes ultimately call for is a steady state economy, which actively promotes full employment over growth, and accounting standards that take into account the primacy of what they call "natural capital" in the human economy and attaches a value to this natural capital, thus promoting a human economy that is in sync with the natural world.

Limits to growth?

In order to field their critique of growth, ecological economists reach back to an unlikely place: classical economics. One of the chief things that distinguishes classical economics from neoclassical economics, is that fellas like Adam Smith understood implicitly that all human economy comes from surpluses created through manipulation of the natural world. Essentially, without agriculture, mining, logging, etc. there could be no secondary human economy. Thus, the classical economic inputs were: labor, capital, and land (natural capital). This stuck for almost two hundred years until, believing that natural capital was effectively unlimited, neoclassical economists decided to focus almost exclusively on the other two inputs: labor and capital. This oversight has continued to the present day, with nearly every economic model, and even the very accounting standards that rule the global economy, ignoring natural capital, or taking it as a constant.

The problem is that in the last hundred years it has become increasingly apparent that natural capital is far from unlimited, but our economic models and accounting standards have not adapted to the new information. Or rather, they’ve adapted with a band-aid of sorts, by asserting that technology will be able to make use of natural resources so efficiently that it will be as if natural capital is unlimited. This is, of course, possible, but in the thirty years since that theory was put forward, technological efficiency hasn’t come close to outstripping our use of natural resources.

So what does this have to do with growth? Well, classical and ecological economists both understand that if all human economy derives from a surplus of natural capital, then human economy cannot continue without natural capital, thus growth in the human economy must necessarily use more natural capital.

To understand the predicament we’re in, I like to use Brian Czech’s analogy of the gorilla in a cage. The cage is the earth (constant, limited, protective) and the human economy is the gorilla (dynamic, struggling against his bounds, and eager to grow). As you can see from this analogy, the gorilla has only two sane choices: stay the same size, or shrink. Growing bigger will only kill the gorilla. Thus it is with the human economy; unlimited growth in a limited world will ultimately create a disastrous situation for our grandchildren and great-grandchildren. Any use of natural resources beyond what is necessary to provide a comfortable living for the world’s people now is effectively stealing from the stores our grandchildren and great-grandchildren will have to draw from for their economy.

And yet economists and politicians the world over continue to use growth as the chief measuring stick for the health of the world’s economies. This has grown partially from a misguided belief that a rising tide raises all boats. This was true to a certain degree while resources were plentiful and cheap, but in an era of dwindling resources we should see exactly what we are already seeing to a certain degree: more and more resources diverting to the upper echelons, while the lower two-thirds of society struggle to get by. This is because, as resources become more expensive, those at the top can absorb this increase, while those in the middle and bottom will either eschew common resource consumption patterns, or spend themselves poor trying to keep up.

Continued reliance on growth not only is incapable of providing the most economic bang for your buck, so to speak, but it could lead to a wholesale economic collapse of the human economy if the natural capital we rely on most becomes too scarce. It is well documented that complex systems tend to collapse terrifyingly fast, after seemingly absorbing blows for decades. And most models of resource scarcity show a curve that bumps along at the top for a long while before the bottom drops out and the curve careens exponentially down to zero. After all, resource scarcity is not really a matter of supply dropping off, so much as demand outstripping supply so that prices rise so high that demand collapses. Growth practically guarantees that collapse in demand, which is what Czech means by a supply shock. After repeated price shocks due to demand outstripping supply, demand finally collapses. After all, look at how dramatically the oil shocks of the 1970's altered the automotive and oil and gas industries. Now imagine the shocks become permanent. Already, we have been facing a drawn-out sluggish “recovery” for over 10 years, partially due to stubbornly high resource prices.

Supply side solutions

What the ecological economists offer as a balm for the overheated ecstasy of growth obsession is something called a steady state economy, which focuses instead on full employment and sustainable use of natural capital so that future generations might have the same, if not more, natural capital than we have today.

If the primary goal of a steady-state economy is to keep the global economy in stasis with the natural world so that it provides only what is needed for the current population, leaving large swaths of natural capital untouched, then one logical outgrowth of this could be full employment since there would be no benefit to increased efficiency. One of the principal ways that companies produce “growth” is through efficiency by reducing the workforce and cutting costs, while simultaneously getting more out of that reduced workforce. This produces the illusion of economic growth, but it also continues the dramatic increase in resource use we’ve seen over the last 4 or 5 decades, and produces a systemic unemployment problem since all companies are using the same tactics to produce growth. Some companies may hire more workers in the future because the company is growing at too fast a clip, but the increase in workers rarely sops up the growing pool of un- and under-employed, since other companies are off-loading workers as fast as the growing companies are picking them up.

One way to slow economic growth would be to simply re-introduce inefficiency back into the system by hiring back workers and making processes more labor intensive. Given that most workers are wasting a full 1/3 of their time at work, a company could hire twice as many workers and have them work 25 or 30 hour weeks. The key is that the company would still need to pay them for a full 40 hour week. This would, of course, increase costs, but since the goal is to decrease profits and slow the speed of resource consumption, this is precisely the goal.

Two obvious issues stem from this scenario: 1. giving more workers a decent living wage and more free time could paradoxically produce more resource consumption; and 2. there is no way that companies are going to voluntarily increase costs and lower profits.

I will look at the second issue first, since decreasing consumption is a much stickier wicket. The goal of making the economy less efficient ideally would be taken up by the companies themselves as they began to understand that continued growth threatens their existence as well as their customers. Since this is unlikely, the inefficiency would either need to be mandated or taken up by the government itself. Inefficiency could be mandated by a variety of ways, but some of the most obvious would be putting a maximum cap on profits or by abolishing exempt employees and limiting the hours worked to 30 or less. Putting a cap on profits would force successful companies to find outlets for their additional revenue in order to remain under the cap, and labor would likely be one of those investments since investments in further efficiency producing capital would make no sense. Abolishing exempt employees and limiting the work week would force many companies to hire extra workers since they would still need X number of hours filled by, say, engineers to complete projects. Government can induce inefficiency itself by raising taxes and then using those taxes to hire workers directly to complete important public works projects.

The bigger issue with this supply-side scenario is that if companies are laden with additional costs they will either have to raise their prices, which will lower demand (hence resource consumption) or they will increase production since they will have the labor and the profit motive to do so. Hopefully in this scenario, greed would win out and the company would raise prices in hopes of retaining the sorts of profits they were getting before, thus decreasing demand. However, if they increase production we will be in exactly the same situation we are in now, with exponential increases in resource consumption.

A possible solution to this would be to employ all of these tactics at once: limit worked hours, install a profit cap, and raise taxes so that the government would be able to hire additional workers for public works projects. This would not directly affect how companies chose to price their products in order to deal with these changes, but it would put the government in a position to change the physical landscape in order to make American cities more resource efficient, thus making increasing production a losing strategy for companies.

These are just a few supply-side solutions for decreasing the reliance on growth, and introduce inefficiency in to the system so that resource consumption slows. But arguably the least invasive, and most powerful solution is simply altering international accounting standards to account for the negative side effects of a company’s products. For instance, if the only rational use for gasoline is to be burned for fuel, and the carbon produced by burning this gasoline has a quantifiable negative effect on the environment, then accounting standards could be changed so that oil and gas companies are required to account for these negative effects on their income statements. Consumers are already taxed for this, but producers are allowed to essentially offload all responsibility for the negative side effects of the rational use of their products. Allowing this to continue is immoral and unfair, since some of the worst polluters are allowed to externalize an important social and environmental cost instead of taking responsibility for the intended use of their products.

One of the chief responses to this line of reasoning is that pollution is hard to quantify. This is unconvincing, since companies can currently account for such ephemeral things as “brand value” on their balance sheets. Anything can be quantified and we can witness a similar process occurring with something like real estate. It is very difficult to put a price on land, so it has become customary to allow the “market” to decide the value of land. Essentially, land is worth whatever someone is willing to pay for it. This accounts for why real estate prices fluctuate so much. Cap and Trade schemes attempt to do something similar with carbon by creating a market where the price of pollution can be “discovered”.

You could also achieve a similar goal by simply determining how much carbon we can put in the atmosphere before we’re toast, then putting a starting price on carbon PPM’s, then determining how much carbon is released for every barrel of oil. For every barrel of oil sold, the company would have to charge the pollution cost to their income statement. Since the price of carbon would be continually increasing as we got closer to the cap point, the cost of doing business would become increasingly prohibitive, as it should.

Obviously, this is a far more Draconian policy than Cap and Trade, but if things continue as they have, there is an increasing chance that large companies could be sued over climate change outcomes. It may be heavy-handed, but charging for the negative social outcomes from rational use of products would force companies to account for the damage their products do, and provide space for socially conscious companies to grow in the market place. For instance, as it stands it is difficult for solar power to compete with oil and gas because the onerous costs of oil and gas is not paid by the company, while the bulk of the cost of producing solar power is borne by the company.

Cultural change

All of this talk of supply side policies ignores the obvious problem of stemming the increasing demand for products. Demand is extremely pliable. In one generation tastes can change completely, so it is possible that today’s kids will grow to dislike obscene consumption as much as the Boomers love it. But a change in taste will be required if resource consumption is to decrease to a sustainable level, and Climate Change halted. This is by far the stickiest wicket facing ecological economics, since there are really no policy alternatives other than making it illegal to consume too much. That may come to pass, but it is unlikely to be enacted right now. Our current economic policies and consumption patterns, ironically, are set to achieve the ultimate aims of a steady state economy, since exponential growth in consumption will collapse the natural economy and ultimately the human economy, thus creating a situation in which we simply can’t produce enough stuff to meet demand. This could lead to more or less permanent recession and stagnant supply of key resources, which achieves a sort of miserable steady state economy. Obviously ecological economists wish to avoid this path to a steady state.

What is really at the heart of the consumption patterns in America is that we have an economic and financial culture of consumption that has become so entrenched that we believe it is the “natural” way of things. This is, of course, totally false. There is no natural way to order economies or societies, and we could, at any moment change the way we view our relationship to the natural world.

For instance, we could change the way we value real estate. As I mentioned before, we currently let the “market” decide the price of land, but the basic assumptions that go into this land valuation are relatively short-term. Since it is hard to gauge long-term value of something as dynamic as land, and we have a cultural bent toward short-termism, we do not consider what value that land might have in, say, 50 years. This had a perverse logic when colonists were first devising our land policies and they stood on but 1/64th of a gigantic continent, but it makes a lot less sense when land is now running scarce for important uses. We treat land as though there will always be more.

How might our economic system be different if we considered the opportunity cost of purchasing land and putting it to some use? For instance, how much should an acre of land in the mountainous areas of West Virginia be valued if it is to be used for a shale gas well? We know that the well will ultimately destroy that piece of land for several generations. I would argue that the proposed use of this land, versus its generational worth to West Virginians, should make it practically priceless for this use case. But because our financial and legal policies are geared toward the short-term, this piece of land would be sold for $50k, produce several millions of dollars in value over the next 5 years, and then be utterly useless for the next 100+. If you look to the long-term, then so many of our economic, financial, and social policies seem utterly ridiculous and immoral.

So, how might a steady state economy look? That is a complex question and one I can’t possibly answer fully here. But let me highlight a few details, many of which have been gleaned from Brian Czech’s excellent book Supply Shock. For starters, there are far too many people on this planet. We have clearly reached or exceeded the planet’s carrying capacity at our current consumption rates, leaving only two options for providing a decent standard of living for all humans (the ultimate goal of ecological economics and a steady state economy): stay at 7 billion people and have the rich drastically reduce their standard of living to raise the standard for the 2 billion poor; or reduce the number of people on this planet by half so that everyone can enjoy a medium standard without taxing the planet.

Both of these solutions sound terrible at first blush, and are rife with fascist possibilities, but the degree of terribleness is largely dependent on implementation. For instance, one way of redistributing income more evenly throughout the world would be for inheritance laws to be changed so that 95% of estates must pass to charitable organizations or governments, which would keep money from amassing in the hands of a select few and keep it flowing throughout the economy. Alternatively we could have 100% tax on all wealth above $100m.

On the population side of things, ensuring better resource sharing, and increasing education and economic opportunity should be sufficient to naturally bring the population back down to sustainable levels. After-all, it has been proven that with education and economic stability, birth rates go down, to the point that birth rates in industrial nations are practically stagnant. So, by enacting better education and more evenly distributing wealth across the planet, we could stem the exponential population growth over the course of a few generations, decreasing population to a more manageable level. Anyone suggesting more aggressive or violent population control measures is not advocating for a sustainable future, they're pushing eco-fascism.

Unfortunately there are no solutions to the resource scarcity and climate change problems that do not require some level of cultural change on the part of the richer nations of the world. If we are going to leave the planet a better place than we found it, we are going to have to change our attitudes to the natural world. The alternative is a collapsed human economy, set amidst the ruins of the natural world. Humans could survive this sort of scenario, but who knows what sort of society it might be. If our goal is to preserve as much as possible of our current civilization, then we must take proactive steps for doing so.

And the single most effective step we could make to answer many of the existential threats facing humanity has been in front of us for thousands of years: walkable, sustainable communities.

The best solution

One of the hardest things for Americans in dealing with resource scarcity and climate change is that leading more modest, less wasteful lives seems enormously difficult, requiring changing 1000's of daily habits and taking on onerous checks and balances. It seems this way because trying to lead modest, sustainable lives within a framework of suburban car accommodation is enormously difficult, almost literally impossible. Suburbia is based on the idea of separation of uses, which means residential is in one place and industry is another—and commercial is in yet another—with roads to connect these disparate zones. Walking from one place to another is practically impossible because of distance alone, but to make matters worse sidewalks are non-existent in most areas, and where they’re present pedestrians must walk across 6 lane roads, and huddle a mere 3 feet away from cars going 50+ mph. Public transit is, of course, not cost effective because everything is so spread out, which means the only logical solution is to drive everywhere, which builds a baseline amount of carbon usage into every suburban household. Combine that with our penchant for large houses that need to be heated and cooled, and all our electronic doodads, and Americans are energy hogs with almost no feasible way to cut back to anything approaching effectiveness.

It’s no wonder we’re failing at this; failure is literally built into the system.

Contrary to common thinking, suburban building patterns were not an inevitable step in the evolution of civilized society. It is a relatively new development that was born from specific corporate and governmental decisions that prodded and incentivized Americans into building a certain way. This is a significant break from the entirety of human civilization. For practically the entire length of human existence we have built cities that were tightly constructed, rarely over 6 stories, and based on human needs, not the ability to move vehicles rapidly through the streets. The move to widen streets and move into the suburbs was largely due to the confluence of several (now moot) historical oddities: abnormally cheap energy, World War II destroying all other industrial nations, massive pent up demand for housing, Cold War paranoia, a lingering bias against the supposed crime-ridden and unsanitary conditions of city life, and the rise of single-use zoning codes which practically mandate suburban development. For an excellent history of how this all came about, check out James Kunstler’s The Geography of Nowhere or the classic Suburban Nation.

Given that nearly all of the historical trends that lead to suburban development are in decline (or in the case of crime and sanitation, no longer apt), building cities and towns at the human scale seems to be the only way to combat all of the existential crises facing Americans in the remainder of the 21st century. For starters, walkable cities would provide an environment in which using less was far easier for the average American, because using less is already built into the system. Walkable communities use less resources because they are smaller and denser. Streets are narrower because they are built for people not moving cars, so you need less pavement. Less electrical cable and plumbing is required because they don’t have to stretch for miles of empty land to get from subdivision to subdivision. Since personal vehicles are no longer necessary there is no automatic barrier to entry to the estimated 80 million Americans without vehicles, and people have more disposable cash instead of wasting $5k+ on upkeep of their cars each year. And if you combine walkable communities with green energy solutions it may be possible to create a zero emission community.

There are additional economic benefits to walkable communities. Because they are mixed use, and most economic activity will happen within a 15 minute walk of one’s residence, there is a tremendous amount of commercial variety, and increased opportunities for a much wider segment of society. The truth is that auto-centric building patterns benefit large firms because they are able to purchase large pieces of land with which to carry out their economy of scale business models, thus undercutting local competition who are not able to compete on price. Walkable communities are denser, increasing the price of land and making large retail operations more expensive to operate, thus making it easier for small businesses to compete. Furthermore, since most consumers will be walking to local businesses within 15 minutes of their residence, there is increased opportunity for several of the same type of retailer to exist throughout a city, democratizing economic opportunity and leveling the playing field among a variety of retailers: large, small, and mid-sized.

But it is arguably the emotional benefits of walkable communities that are most important. Human beings are social creatures and no amount of technology or transportation solutions can replace the need to be around other people. When people have to walk everywhere they are open to all manner of random meetings and chance encounters that are simply not possible in a suburban environment. They feel a part of the community because the community is all around them and easily accessible. Beyond this, building at the human scale promotes better craftsmanship in architectural design because the fine grain details of the buildings will be noticed, and better urban planning is recognized, since the ways in which buildings work together to create outdoor rooms will make the best planned areas the most visited and cherished, and the most prestigious.

At its most basic, building at the human scale is rigorously egalitarian because the default setting of all locations is set to public, with anyone able to delight in the joys of urban living no matter their income. It eliminates the base economic necessity of car ownership, which currently excludes 80 million Americans from access to the best jobs, and it promotes small business ownership over Big Capital, since there are actually built-in disincentives for economy of scale business models.

The largest argument against this mode of living is that the market has “spoken” and Americans prefer suburban living. This is an outdated argument since all trends point to more and more Americans preferring walkable communities, with urban areas growing more rapidly than suburban areas, and garnering the lion’s share of investment and wealth. As proof, walkable areas are often the most expensive and most desirable places to live in the world. One merely needs to ask why millions of Americans choose to spend their hard earned vacation money to go to such walkable places as Paris and Venice versus Atlanta, to get an idea of what Americans want, if only it was articulated in their actual built environment. In reality, the “market” has spoken in favor of suburban development because outdated zoning and building codes practically made them inevitable and the largest home builder players built their businesses around providing cheap, cookie cutter housing, driving builders of other types of development out of business, leaving Americans with almost no affordable choices other than suburbia. Now that urban areas have grown blighted enough that they are affordable, Americans are swarming into them in droves. The market is indeed speaking, and it’s clear, walkable sustainable development is the future.

Another big argument against dense urban living is that it is dirtier, with more crime. This is a 100-year old argument that no longer holds water. Take a moment to look around your suburban neighborhood and tell me what exactly is overwhelmingly clean about it. With gas stations on every corner, an abundance of cars bringing street grit and grime, and massive tracts of unusable, wild land in between subdivisions, suburbia is plenty dirty and inhospitable, which is why we spend so much time in our cars and houses. It’s simply not pleasant to be anywhere else.

As far as crime, this too is an old argument. If suburbs seem safer it is merely because everything is so spread out that it insulates residents, a phenomenon that cuts both ways. It may be hard for strangers to reach you, but it also means you’re alone in a bubble. I would argue that the suburbs aren’t actually safer, because their most dangerous aspects aren’t really calculated when we compare urban and suburban areas. For instance 1400+ people died in car accidents in Georgia this year (with thousands more permanently maimed), almost all of them in the Atlanta metro area. Compare that to the 300 people murdered in Atlanta and you start to see how oddly skewed perception is about suburbia. It is no small stretch to argue that in order to maintain an auto-centric transportation system, 1100 people have to die every year. That’s just the way it is. Put aside the horrific callousness of that statement for a moment, and just focus on how ludicrous it is that we accept a sacrifice of 1100 people for the “freedom” of driving to Walmart, yet cringe at the prospect of 300 murders. We would have to have a murder rate 400% higher than we do now to match the carnage of suburbia, a likelihood that is remote no matter how densely-populated Atlanta becomes. Beyond that, many of the socioeconomic pressures that lead to high murder rates would be somewhat alleviated in a well-built, walkable, egalitarian community.

And this is just comparing the most extreme types of crimes. Other types of crime would go down as well in walkable communities, since many of the most blatant and pernicious types of crime in the city are aided by quick get-aways in vehicles. For instance, robbery seems far riskier if you have to walk away from the crime. I am in no way suggesting that crime is not a problem with dense communities, but crime is a problem in all human societies, and the main drivers of crime (wealth inequality, poor economic choices) could be lessened in a denser, tighter-knit community.

So, if walkable communities cost less, use less resources, would likely cut carbon emissions by 2/3, lead to a happier, more egalitarian society, would likely lead to fewer premature deaths, and could be a long term solution to unemployment and economic stagnation, why the heck aren’t we converting our cities right now? The answer is that walkable cities benefit the people and the economy as a whole, but could be disastrous for those in power. Some of the largest, most powerful firms in the world have every reason on earth to stop this from happening. Oil and Gas firms certainly wouldn’t want oil usage to be cut in half. Large retailers wouldn’t want shopping to happen in urban areas where they have less cost advantages. The biggest home builders in the country have no idea how to build idiosyncratic neighborhoods where every building is slightly different and the margins are lower because buildings are made to last generations, not a few decades. And generations of politicians have benefited from the antagonism of the urban versus the suburban. If that antagonism were eliminated, there would be far less room to play one against the other.

The good news is that money follows money, and as more Americans flock to walkable areas and projects like the Atlanta BeltLine prove that there is strong demand for walkable places, Big Capital will start to realize there is a lot of money to be made in this walkable, sustainable community thing. This is where we are heading in the next ten years. The key will be for enough like-minded entrepreneurs to be in the position to take that money and put it to good use, so that good places will get built and last for generations. Big Capital will want these places built cheaply (because that’s what capital does), but with intelligent, long-term-minded designers and developers, we can take the influx of cash and convert it into a walkable revolution that puts America on the path to prosperity in a resource scarce world and sets this country up as the leader on thoughtful climate change mitigation strategies.

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