CHAPTER 14
Towards a Sustainable Economy?
Summary
Points to remember from this chapter:
Quotes for Reflection
The difficulty lies not with the new ideas, but in escaping the old ones.
— John Maynard Keynes
The important problem of steady state would not be production but distribution. You can no longer avoid the problem of relative distribution by resorting to growth.
— Herman Daly, personal communication
In industrial capitalism, the production of economic goods along with the system of allocating them has conditioned the type of satisfiers that predominate…. [it] leads to an alienated society engaged in a senseless productivity race. Life [is] placed at the service of artifacts, rather than artifacts at the service of life. The question of the quality of life is overshadowed by our obsession to increase productivity.
— Max-Neef, Human Scale Development, 1991
‘…the modern economist has been brought up to consider ‘labour’ or work as little more than a necessary evil… Hence the ideal from the point of view of the employer is to have output without employees, and the ideal from the point of view of the employee is to have income without employment… The Buddhist point of view takes the function of work to be at least threefold: to give a man a chance to utilize and develop his faculties; to enable him to overcome his egocentredness by joining with other people in a common task; and to bring forth the goods and services needed for a becoming existence… the Buddhist sees the essence of civilisation not in a multiplication of wants but in the purification of human character… [which] is primarily formed by a man’s work… While the materialist is mainly interested in goods, the Buddhist is mainly interested in liberation… [and] it is not wealth that stands in the way of liberation but the attachment to wealth; not the enjoyment of pleasurable things but the craving for them’.
— Schumacher, Small is beautiful, 1971
Economic growth is as addictive to the body politic as is heroin to one of us; perhaps we have to keep the craving in check by using a safer substitute, an economist’s methadone.
— Lovelock 2006:150
In the longer term…a technological solution may seem it has the potential to set humanity on a path to the ultimate form of slavery. The more we meddle with the Earth’s composition and try to fix its climate, the more we take on the responsibility for keeping the Earth a fit place for life, until eventually our whole lives may be spent in drudgery doing the tasks that previously Gaia had freely done for over three billion years.
— Lovelock 2006:152
Multimedia
- Watch this video on YouTube for an interesting interview with the economist Partha Dasgupta, with questions about Green Economy, international trade, the inadequacy of GDP (see also Chapter 5) and the role of economists.
Readings
Related websites
Indicators, Models and Games
1. depletion and price feedback: it leads to cost and thus price increases (often delayed by technological progress) that tend to reduce (growth in) demand/use, 2. externality feedback (mixed up possibly with price feedback as environmental policies increase costs (possibly also delayed by technological progress): a societal feedback due to the fact that people, upon becoming more affluent, start to demand more environmental policies to restrain the loss in quality of their environment (EKC), and 3. dematerialisation: with increasing income, the use of energy and materials becomes less per unit of GDP, thus lower material impacts at the margin.
Weak sustainability refers to the assumption that the use of resources and sinks can completely be subsituted for by other non-resource inputs (capital and ingenuity). The strong sustainability view argues that resources and sinks are not completely substitutable..
The basic equation (14.5) indicates that dk/dt = 0 for k^α – c – (m+n) k = 0, or that c = k^α – (m+n) k. If one plots in the phase plane dk/dt as a function of k, it is seen that it is a stable attractor: for given c, any k-level different from k* will tend to move the system back to the equilibrium. For fixed values of m and n, only technological progress in the production function (A in eqn. 14.8a) can bring the system to higher levels of economic output.
Constant returns to scale is indicating that production is assumed to scale proportionately with an increase in all production factors, i.e. for Y=f(K,L) with the two production factors capital K and labour L, f(bK,bL) = bY for any b. In agriculture, an important production factor is land. For land, as a finite resource, one inevitably reaches a point at which less productive soils are to be used and output will be less than proportional. In information services, one may have the opposite: a positive feedback loop due to interactions among different components of the system can cause a more than proportional output.
This is done by connecting energy and/or material inputs (resources) and outputs (pollutants) in physical units to the sectors in the I-O-table. As explained in Appendix 14.C, it is then possible to use the formalism to calculate the use of resources / emission of pollutants throughout the economy for an increase in final demand.
It can be shown that the optimal i.e. cost-minimizing combination of inputs X1 and X2 (e.g. capital K and energy E) occurs when X1/X2 = p2/p1 with pi the price of the input Xi per unit. The implication of an energy price shock (p2 up) is that producers will equilibrate to a new situation in which the ratio X1/X2 increases by investing more capital (X1) to reduce energy input (X2). The rebound effect refers to the phenomenon that measures (e.g. investments) to reduce energy inputs cause lower operational costs (for energy) and therefore more money is available for other activities that cause energy inputs to increase. Usually, the additional energy use thus induced will be less than the amount saved. If a producer responds to higher energy prices by investing in energy efficiency, it will make the price increase of his product less than it would otherwise, but the price will still increase – so demand will still be less than before the energy price increase. But if one considers the wider system, the revenues of higher oil prices in producer countries may contribute to a rebound effect.
1. GDP (or income: GDP/cap) is measuring people’s quality of life inadequately, because many aspects of quality of life cannot be quantified in monetary terms. So if sustainable development is considered to be about people’s quality of life, it is an inadequate measure. 2. GDP does not account for large parts of the economy, notably subsistence activities and informal activities (not part of a country’s statistical accounts, e.g. household and informal labour, criminal activities), and 3. GDP does not account for the long-term dynamic implications of present activities, such as depletion and pollution. Evaluation of the ISEW, the EF and the GPI can be done by looking up the relevant websites. All three indicators are an attempt to include other aspects of quality of life (section 5.5).
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I ask as one who knew the brook, its strength
and impulse, having dipped a finger length
and made it leap my knuckle, having tossed
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