Systems theory is the proper way to plan and teach about how our world functions and needs to function. Here is a great example, which focuses on sustainable and green developments.–KAS
As the world emerges from recession, a clear message is emerging with it. ‘Business as usual’ is not working. There is real need for a new vision – a template for change. The green economy is that vision. A powerful new paradigm for the 21st century, it offers creative solutions to multiple global challenges by linking people, planet and prosperity.
Why a green economy?
Human and natural systems are tightly interwoven. The health of people and economies is founded on ecosystems and natural ‘services’, such as a stable climate and fresh water.
But while our global economy has produced benefits for many, its debt-fuelled, consumption-based growth patterns ultimately harm both environment and society. Environmental degradation in turn creates economic problems.
We have been living beyond our means, with crises in climate, energy, food, water, poverty, jobs and finance linked to economic activity. It’s clear that economic thinking must embrace people and planet.
Putting it together
Greening our global economy is firmly in the realm of the possible. The innovations – social and technological – are there, or in development.
These building blocks include:
- low-carbon energy, infrastructure and transport
- sustainable systems of food production, water and sanitation, and waste
- ways of protecting and sustainably using biodiversity green jobs and livelihoods that ensure social justice and equity, and set real measures for progress and wellbeing
- investment in green sectors, environmental ‘accounting’ and the introduction of new business models
- policy reform
All sectors have a stake in this – no one sector or organisation can drive the transition alone. So the time is ripe for a new grouping: the GRCSDEV.
The Great Transition
Finding ways to survive and thrive through financial crises, climate change and the peak and decline of global oil production.
Environmentally, time is running out. What would once have been desirable is now urgent and necessary. And it’s not just the climate. We are fast pushing a range of the Earth’s life support systems to breaking point.
Equality is not just a good thing, From health to crime, everyone in more equal societies almost always does better, including ability to respond to change.
Taking action is good for well-being: recent research suggests that activists are more likely to be “flourishing” than nonactivists
The Great Transition ∞ project was initiated and developed by GRCSDEV in response to recent economic and environmental crises, but builds on over 25 years of new economic thinking and practice.
The Great Transition ∞ is a new kind of campaign. It began with report called The Great Transition in 2009, but the campaign’s time horizon runs until the middle of the century. By then we must re-engineer our economies to tackle debt fuelled over-consumption, accelerating climatic instability and volatile energy prices underpinned by the approaching peak in global oil production. It means re-thinking how we bank, generate energy, travel, and grow the food we depend on. It is a massive task that needs lots of organisations and people working together. A big part of the campaign is helping to make that happen.
The Great Transition report set out why the transition to a new economy is not only necessary, but also possible and desirable. Keeping in mind the big picture, at different times the campaign will focus on particular issues. For example, without a financial system to support the necessary transition, little will happen. So, reforming the banks is an urgent priority.
Achieving the Great Transition has been put at the heart of all of the work that GRCSDEV does, but we cannot achieve the Great Transition on our own. From our understanding that change can only be built collaboratively, the Great Transition is embarking on a new phase of work with a growing range of partners and collaborators.
All of GRCSDEV’s work is about aspects of transition, but the Great Transition initiative has three key new elements: setting up a new economic commission, the development of a new economic model to guide the Great Transition; and a campaign to make it happen.
The Great Transition is a growing movement of individuals and organizations that recognize that a different world is possible if we work together to make it happen, because there is no Planet B.
The story of the Great Transition
The Great Transition builds on a rich and powerful body of work stretching back to Karl Polyani’s The Great Transformation. The economist Kenneth Boulding used the phrase in relation to the change required to keep economic development within the finite limits of the planet in a speech at Carroll College, Wisconsin in 1963. In 1995 the Global Scenarios Group, convened by the Tellus Institute and the Stockholm Environment Institute, used the phrase in their essay Great Transition: The promise and lure of the times ahead.
The Tellus Institute launched their Great Transition Initiative in 2003 as a global network of academics and activists. The Transition Towns Movement is applying many of these ideas in a practical way in a growing number of villages, towns and cities across the world. GRCSDEV’s Great Transition Initiative complements this work by building a broad movement for change, beginning in the UK.
“The future is not some place we are going to, but one we are creating. The paths are not to be found, but made, and the activity of making them changes both the maker and the destinations.” - John Scharr, Futurist
A New Economic Model
The pursuit of growth has failed on its own terms, and for people and the planet. We are working on a new way to structure the economy
“Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist” - Kenneth Boulding
There is nothing ‘natural’ about our current economic arrangements. They have been consciously designed to achieve a simple objective: growth. But growth is not making us happier, it is creating dysfunctional and unequal societies, and if it continues will make large parts of the planet unfit for human habitation.
We need to do things differently, and soon.
This means starting from first principles and building a new model for how the economy functions. Right now every one of us is dependent on growth. The way our economy is structured means that unless there is growth people lose their jobs, the tax base shrinks and politicians struggle to fund the public services we all rely on every day.
At GRCSDEV, we want to break that vicious cycle by building a new macro-economic model that is geared not towards growth, but towards achieving the outcomes that are important to society and that can be sustained by the planet’s finite carrying capacity.
This will not be easy. But we believe that if we can create an economy to achieve the goal of growth then we can also create an economy that delivers for people and the planet.
What we’re doing
From 2009, we will be working with other economists on a radical new approach to economic modelling. Standard models take no account of resource use and environmental constraints, and are blind to social outcomes in terms of equity and, of course, human well being. They are open-ended by nature, with growth being the primary output of interest. Inputs feed in, interact with each other, achieve balance (or equilibrium) and outcomes result.
Our approach turns this on its head. We will start with the hard outcomes we need – environmental sustainability; equitable economic justice; and high levels of human well-being – link these to relevant economic determinants within the model (aggregate output, income distribution and working hours, respectively, for example) and to ‘reverse engineer’ what this would imply for the levels and types of differing inputs.
Steady State Economics
Steady State Economics presents a different view of how we could run the world, instead of chasing perpetual growth – which is an illusion. It offers the concept of an economy that is completely sustainable. A community with a size and structure that doesn’t grow, but remains stable to match the limits of the natural environment and its resources.
Greed and self-interest led to the latest global financial meltdown. It was an inevitable result of Government policies, big business demands, and mass gullibility. It will happen again (and again) unless Governments, industrialists, commercial interests and individuals choose a different path from the God ‘growth’. The same greed has resulted in a pathetic and useless outcome from the climate change talks in Copenhagen.
Traditionally, economics taught in our universities has been based on an assumption that continuous growth is the only way to generate a better life for everyone on the planet. It argues that growth will raise living standards, lift people out of poverty whilst the cycle of supply and demand will solve environmental problems and the depletion of world resources. The classic view is that exponential growth is good and fast growth is even better.
Advocates of steady-state economics dispute this view. One of the first was John Stuart Mill in the 19th centuary and he has been followed by people like Herman Daly who maintains that the economy is a subset of our ecosystem. The global ecosystem is finite, a closed system which cannot grow. Matter neither enters nor leaves it. The ecosystem also provides the economy’s resources and a sink for its wastes. Continuous growth forces a collapse in the ecosystem which then becomes unable to support the economy and the community.
Some who question the current economic system, note that the ecology of the planet is increasingly under pressure, with natural resources such as forests, fish stocks, minerals and soil being depleted at alarming rates. Land for food production is increasingly scarce and pollution levels are making water and air unusable or unsafe.
The idea of a steady state economy is a way of addressing the problems of an unsustainable human society. Because the resources of the economy are all derived from the natural environment, the ecological dependence and the availability of natural capital means there are strict limits to any growth. Instead of continuous growth and ‘development’, a steady state economy would have zero growth, at sustainable levels of production and resource use. Renewable resources would only be used at a natural replacement rate and non-renewable resources would be used no faster than renewable alternatives could be found. Limits would be needed for population size, consumption, and the gathering of personal wealth. The steady state would maintain the entire population at a comfortable level which neither threatens the natural eco-systems and resources of our world, nor forces people to live uncomfortable lifestyles.
One definition of sustainability is to have a population and an economy in equilibrium. The birth rate matches the death rate and commercial activity is maintained at a constant level. If we reach this state, the peaks and troughs of a demand-driven society expecting to make more money this year than in the previous year will be a matter of ancient folk lore
There have been many arguments against the steady state theory. One is that zero growth would result in a serious economic depression, high unemployment and huge shortages. However, Daly counters this by pointing out that such a depression is part of the design of the current economic system. It’s an inevitable consequence of chasing growth. A steady state economy has an entirely different basis that requires a smaller economy which better matches the availability of resources. Under a steady state system there can be no shortage. Our current economy has become far too large relative to the ecosystems and it cannot be sustained at this level. Just as economists and accountants teach that a business has an optimal scale of operations, where the marginal revenue equals the marginal cost, the optimal scale of the economy is where the marginal gain from growth equals the marginal cost of growth – costs such as pollution and resource depletion. It’s clear that over time, growth generates more costs than beIits.
Implementing the theory of steady state economics is inherently difficult. It requires a total change of ideology for economists, consumers and governments of developed and developing countries, and meets strong opposition to what is seen as its extreme requirements. Their whole thinking revolves around growth. It’s hard to imagine the mandarins in organisations like the World Bank, the International Monetary Fund or any of the Government leaders in the G20 looking kindly on any suggestion that they should stop worshipping growth.
But Daly, along with many others has identified the most urgent step in fixing the world’s economic problems as cutting unfettered growth. This demands limits on family size and allocating fixed stocks of manmade capital.
The world’s population has outstripped the carrying capacity of the earth. Steady state economics requires that the population be stabilised at well below the natural carrying capacity, rather than at that level. This means that resources will be better utilised and lifestyles maintained at comfortable levels, rather than at low standards of living. The gathering of personal wealth needs to be limited to avoid over-consumption and waste that reduces the food and other goods and services available to the wider community.
In order to achieve the steady state, the following steps have been suggested to limit growth, stabilise populations and wind production back to a sustainable level:
- Apply substantial taxes on fossil fuels, especially petrol – fossil fuels are finite and reliance on them can therefore only be temporary. There needs to be deterrents to using fossil fuels and incentives for finding alternative sources of energy.
- Abolish subsidies encouraging fossil fuel use – fuel prices in many countries are subsidized, so that the price reflects neither the value, nor the finite nature of fossil fuels.
- Price water to reflect scarcity and encourage conservation – over-consumption and wasteful use has resulted in scarcities of drinkable water in many countries, both developed and undeveloped, and the pollution of waterways.
- Halt immigration – in developed countries the natural population is below the replacement rate and population growth comes largely from immigration. Halting immigration will mean that local populations will gradually decline naturally. It is also claimed that such a move would have global beGRCSDEVits as immigrants from poor nations living at even low standards of living in developed countries would consume more than they would in their own countries.
- Eliminate subsidies to industrial agriculture – mass production of food, through crowding or excessive use of fertilisers are already revealing massive repercussions such as ‘mad cow’ disease, declining soil fertility, and pesticide contamination of soil, water and animals.
- Abandon globalization – this concept completely challenges economic notions of free trade, as Daly argues that ‘by encouraging consumption of cheap imports and pressuring domestic producers to cut costs, makes it harder to set prices so as to reflect ecological costs’ and domestic markets need to be protected from cheaper imports to maintain sustainability.
Steady State economics challenges the view that a traditional ever-growing economy will lead to wide-spread global prosperity, including the preservation of the environment through the mechanisms of supply and demand.
Daly concluded that increasing global wealth will never raise the living standards of the poor, because the beGRCSDEVits of growth go to the owners of surplus, who are not poor. Furthermore the need for surplus will deplete all the natural resources and result in widespread economic destruction. With a steady state economic system the resources of the world can be maintained. The population would be stabilised, growth would be brought to an end and the economy would continue to draw on renewable resources but at completely sustainable levels.
Is superannuation just a con?
Any investment that relies on tax concessions to make it effective should be treated with great caution. And that’s the main problem with superannuation. It’s a great way of generating a huge financial pool with Governments, fund managers, investment advisers and merchant bankers skimming off the top – but Joe Blow citizen at the bottom of the pile has no guarantee that much will be left when he (or she) needs it. The industry spruiks about it’s financial performance as though it is something wonderful. However if you look at the figures it really only works if there is continual growth which is not going to happen.
In the end its an elaborate sham, a lottery in which there are many winners along the way. Some individuals enjoy the beGRCSDEVits when they finally retire but there may well be many who don’t receive anything like they expected. For them the gamble won’t pay off!
The financial sector has been given unprecedented support by policymakers, at the expense of the real economy. We’re researching and advocating reforms that will make finance work for society.
New economics regards finance as a means, not an end. Its role is to provide a support for other areas of the economy. It should underpin the productive economy of shops, manufacturers and food producers. And it should support society’s vital operating systems: the core economy of family, neighbourhood and community, and the natural economy of the biosphere, our oceans, forests and trees.
But the current financial system fails to do this most basic task. As the credit crunch of 2008 made clear, the sheer profitability of finance has corroded these other areas of the economy. Finance has become a monoculture, populated by a few giant companies, and as such is prone to instability and collapse. GRCSDEV believes we need a diverse ecology of finance, with different institutions, of all sizes, performing a variety of specialised jobs.
GRCSDEV works on economic policies and financial models which support inclusive, fair and sustainable economic activity. We believe that banks often work better when they’re embedded in communities, in the middle of local economic life, and we support policies, such as the USA’s Community Reinvestment Act, which bring banks closer to the needs and lives of everyday people.
Businesses are sources of innovation and wealth, but they can also have negative impacts on the environment and people. We are working on ways to align the interests of business with society.
Businesses have existed for millennia. People have always come together to trade and soon learned to pool their resources to do so more effectively. But although business in the most general sense is a natural form of activity to emerge in a society that produces and trades, the precise form it takes is not.
Business models are designed to pursue particular commercial goals and their evolution is strongly influenced by the cultural, legal, regulatory and competitive environment in which they are situated. These forces come together to shape the ‘rules of the game’. Over the generations, businesses have made us richer and improved our quality of life. But businesses by definition are profit-creating entities and so one of the key functions of the ‘rules of the game’ is to ensure that the pursuit of profit is not at the expense of other things we value as a society: the natural environment, social justice and so on.
At GRCSDEV, we believe that growing environmental and social problems are a sign that we are not getting the balance right. We need to get better at aligning the societal interests with the activities of the mainstream business sector. The rules of the game need to change.
Our work focuses on two main areas:
- Getting prices right
Prices need to reflect real social and environment costs if we are to align the goals of business with those of society. Unless businesses are directly held to account for the social and environmental costs that result from their activities, there will be little incentive to change and it will be only an altruistic few that do.
- New forms of ownership
Changing the way we think about ownership may open up opportunities for greater accountability and equality. GRCSDEV recognises that society needs businesses to innovate, create jobs and generate wealth. But we are developing new rules of the game that will enable businesses to do this in a way which is compatible with a sustainable environment, and which promotes equality, social cohesion and well-being.