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Economics for the twenty-first century

In its State of the World 2008, the Worldwatch Institute focuses on the innovations needed to bring about true sustainability. The think-tank calls for a realistic approach to bringing markets and limited ecosystems into balance, writes Maryann Bird.

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“Economists who thought they could analyse the economic world as if it were separate from the physical world may have a hard time finding work in the years ahead,” says Christopher Flavin, president of the Worldwatch Institute. In the Washington-based environmental think-tank’s State of the World 2008 report, focusing on progress toward a sustainable society, Flavin warns that the economic model that grew out of the late-eighteenth-century Industrial Revolution will not survive the twenty-first century.

“In a physically constrained world,” he writes, “material growth cannot continue indefinitely, and when that growth is exponential—and involves mega-countries like China and India—the limits are reached more abruptly and catastrophically than even the best scientists are able to predict.” At a time when, in Flavin’s words, “the ecological systems that underpin the global economy are under extraordinary stress” – when water tables are falling, fisheries are collapsing and oil prices are rising – continued human progress “now depends on an economic transformation that is more profound than any seen in the last century”.

What’s required, he says, is a shift to “the emerging field of sustainable economics, which embraces many of the principles of market economics, including its ability to allocate scarce resources”; simultaneously, however, sustainable economics explicitly recognises “that the human economy is but a part of the larger global ecosystem”. This new field, Flavin adds, “goes on to analyse the economic limits imposed by the physical world, and proposes a range of innovative ideas for bringing the economy into balance with the global ecosystem.”

Flavin and his report-writing colleagues – expert authors who examine topics such as energy, industrial production, agriculture, species conservation, property regimes, investing for sustainability, and measuring wealth and well-being – came away from the 2008 project “with a strong sense that something large, perhaps even revolutionary, is struggling to be born, as business leaders, investors, politicians and the general public create the architecture of sustainable economics”.

Responding to climate change and other environmental problems, the Worldwatch document – subtitled “Ideas and Opportunities for Sustainable Economies” – asserts that pioneering entrepreneurs, NGOs and governments are testing out a range of innovations that may well provide opportunities for long-term prosperity. They include the billions of US dollars invested in renewable energy; the explosive growth in carbon trading; breakthrough environment-friendly production initiatives (and shifts in attitude) by major corporations; the plethora of new environmental and energy hedge funds; the investment of venture capital in “clean technology”; and a lengthening list of banks endorsing the Equator Principles. Launched in 2003, the principles are a banking industry framework for addressing environmental and social risks in project financing.

“Once regarded as irrelevant to economic activity,” say Worldwatch project co-directors Gary Gardner and Thomas Prugh, “environmental problems are drastically rewriting the rules for business, investors and consumers, affecting over $100 billion in annual capital flows.”

Just as some scientists have suggested that the Holocene epoch – encompassing all of recorded human history – has ended and that mankind is now in a new time period, the Anthropocene -- in which human industrial processes have transformed the planet on a colossal scale -- Gardner and Prugh see a similar economic impact. Radical physical and philosophical differences in the world today “make key features of conventional economics dysfunctional for the twenty-first century” and “signal the close of one economic era and the need for a new economic beginning”, they contend.

So, what has changed? Over the last 200 years, in their view: “humanity’s relationship to the natural world, the understanding of sources of wealth and the purpose of economies, and the evolution of markets, governments and individuals as economic actors”. The world has been operating with an outdated economic blueprint, says Worldwatch. The “assumed independence of economic activity from nature, always illusory, is simply no longer credible,” write Gardner and Prugh, adding that “resource scarcity has made ‘natural capital’ an increasingly vital consideration in economic advance.” Ocean fish, forests, water and other key resources long relied on all are dwindling.

In their chapter on “seeding the sustainable economy”, Gardner and Prugh take issue with other shaky, “outdated tenets”: that growth ought to be the primary goal of an economy; that markets are always superior to government spending and policies as economic tools; and that self-interested individual actions are the economic motivator behind positive collective outcomes.

Despite “cornucopian prosperity and opportunity for people in dozens of countries” – on a planet where 40% of the population is racked by poverty – “troubling numbers began to appear in environmental and societal balance sheets” as the twentieth century wore on. These imbalances, the writers argue, suggest that “what is called ‘economic growth’ entails significant losses – of species, healthy ecosystems and a stable climate, for instance”.

Global economic stability, say Gardner and Prugh, is in danger of being undermined by the liabilities of modern economics. Such “self-subversion”, they add, is illustrated by three issues: climate change, ecosystem degradation and wealth inequality. The steep cost of mitigating climate change by reducing greenhouse-gas emissions -- estimated at around 1% of gross world product (GWP), or US$650 billion in 2007 alone – will be a bargain compared with the cost of doing nothing. Worldwatch cites former World Bank chief economist Nicholas Stern’s 2006 report for the British government, in which Stern concluded that inaction could dampen global economic output by 5 to 20% annually over the course of the twenty-first century.

On degradation of ecosystems, State of the World 2008 notes that “comprehensive data on the economic value of ecosystem services are scarce”, but the emerging research picture suggests that “these services are of major, though often hidden, economic importance”. Loss of forests, mineral and energy sources; depletion of fisheries; pollution of air and water; and a decline in biodiversity all carry economic costs.

“A lack of hard data regarding the actual value of the services of particular ecosystems,” says the report, “hampers the incorporation of value into business and government decision making.” Also, the authors say, there is little incentive for involved companies or individuals to care for a species or ecosystem whose benefits accrue to society as a whole, rather than to themselves; furthermore, “the net value of converting an ecosystem may be artificially skewed by subsidies, tax breaks and other government-sponsored incentives”.

Gardner and Prugh note that “reformist economists” are taking another look at the conventional worldview, with new thinking in such areas as economic scale, growth versus development, environmental costs in pricing, nature’s contributions, the precautionary principle, commons (public assets) management and the value of women’s work all helping to turn economic activity in “more-sustainable directions”.

“Some analysts,” they say, “believe the innovations fueling sustainable economics are spawning the sixth major wave of industrial innovation since the start of the Industrial Revolution” – surges that have stretched from the steam engine to biotechnology and information networks, and that have opened new eras of material prosperity. “The sixth wave, which taps green chemistry, bio-mimicry, industrial ecology and other sustainability innovations, offers the promise of breakthroughs in using natural wealth efficiently, wisely and equitably.”

And by using social and institutional innovations as well, “this new wave provides leadership roles for consumers and nongovernmental groups, businesses and governments”. Examples include consumer-driven “market muscle” in favour of “green” products, socially responsible investing that can reshape industries for decades to come, and governmental use of “regulatory and market-shaping powers” to move away from fossil fuels.

Gardner and Prugh, after examining ways of “seeding the sustainable economy”, reached an optimistic prognosis. “Societies worldwide stand poised to rewrite the ongoing human drama of economics with a new chapter: the sustainable wealth of nations”, they assert.

Other chapters in State of the World 2008 – written by other authors -- address a range of issues of vital interest to anyone with an interest in “economies that operate within ecological boundaries to advance genuine human development” as the twenty-first century unfolds. Topics include sustainable lifestyles, the resource-use costs of meat and seafood, building a low-carbon economy, engaging communities for a sustainable world, the “parallel economy of the commons”, new approaches to trade governance and investing for sustainability. A special section on “paying for nature’s services” delves into the specific challenges of improving carbon markets, water in a sustainable economy and protecting the planet’s biological wealth.

The challenge to the earth as a whole is growing along with China and India and their carbon footprints. As Tim Jackson, professor of sustainable development at Britain’s University of Surrey puts it in the Worldwatch report: “How is it going to be possible for … one billion Indians and great numbers of Chinese (not to mention people in Africa, Latin America and the rest of southeast Asia) to achieve the standard of living taken for granted in the United States—and still ‘solve the problem’ of climate change? How can a world of finite resources and fragile environmental constraints possibly support the expectations of nine billion people in 2050 to live the lifestyle exemplified for so long by the affluent West?”

Christopher Flavin is encouraged by “how much innovation has been unleashed by the wave of concern about climate change that has broken across the world in the past year”. He notes that “innovative ideas and big money are a powerful combination—and the sums now moving in a green direction are eye-popping. Billions of dollars have been invested and pledged over the coming decade by international financial organisations such as Citigroup and Goldman Sachs, for new energy technologies.

“Both in China and the United States, ‘clean technology’ is now the third-largest sector for venture capital investment,” writes Flavin. “More momentous still are innovations such as China’s new renewable energy law and Europe’s carbon emissions trading system, which ensure that these kinds of investments will continue to flow for many years to come.”

Still, shifting to an ecological, sustainable economy “will require years of change on many levels – from classroom theory to business practice and governmental policy. … Sustainable economics will need to meet human as well as planetary needs if it is to prevail.”

“Proponents of market economics and globalisation often point to the 300 million people who have escaped from poverty since 1990—most of them in China and India,” says Flavin. “This still leaves more than a billion desperately poor people in today’s world, and the developing countries that have not yet benefited from the immense growth in the global economy over the last century are determined to close this gap in the decades ahead. … With so much to do in such a short time, efficient allocation of resources and motivating people to action are more important than ever. But twenty-first century economics must be grounded in a more realistic understanding of the physical and biological world on which we depend.”

In sum, Flavin recommends the wisdom of the physicist Albert Einstein to those in economics classrooms, corporate boardrooms and legislative chambers around the world: “We can’t solve problems by using the same kind of thinking we used when we created them.”

Maryann Bird is associate editor of chinadialogue.

Homepage photo by aussiegall

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匿名 | Anonymous


世界观察研究所的这个报告是个不错的向导,但是否有个放之四海皆真理的准则来应对那么多形形色色的全球性的举措呢?加德纳和普鲁格在建议发展不应该是新的经济时代的首要目标的这点上基本达成一致.的确那种满足日益增加的消费需求的理念显然要对我们这个不大而有限的星球带来致命的打击。然而,消费者满意度也恰恰是我们每一个民主政治家在自由选举中对选民的许诺。我对听到像不丹的许多佛教徒对他们国王最近实行的民主改革不是很满意这样的事情是很感兴趣的.因此,或许现在很大程度上取决与是否中国的"计划经济 " 能够打破这个局面-当然在它还是计划经济的时候!
Des McConaghy,利物浦,英格兰。

Key principle?

This is a good guide to the Wordwatch Report but among the vast list of new global initiatives is there one all-embracing principle? Gardner and Prugh come close when suggesting growth should not be the primary goal of the new economic era. Indeed the idea of satisfying ever increasing consumer demands is clearly fatal for a small and finite planet. Yet consumer satisfaction is precisely what every democrat politician has to promise the electorate at free elections everywhere. I was interested to hear that many Buddhists in Bhutan are not pleased by their King's recent introduction of democracy. So perhaps much now depends on the Chinese “planned economy” to square this circle – that is while it still is a planned economy! Regards Des McConaghy, Liverpool England.

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匿名 | Anonymous



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匿名 | Anonymous


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匿名 | Anonymous


来自利物浦的1号评论者问由于经济增长在新世纪不该是主要追求的目标,那么在新的全球可持续发展倡议中是否有一种适用一切的原则?其实,世界观察报告提出了很多新方法—“一系列新倡议”以及在世界各地进行试点例子。未来的主要原则可以用“创新”一词概括。这是世界观察报告前言的主笔,耶鲁大学丹尼尔 艾斯提(Daniel C Esty)的观点。艾斯提写道:“根本改变环境发展趋势需要科技创新。”—发展将花费数千亿美元。世界各地的政府需要建立鼓励创新的激励机制来吸引私营部门的大量投资。“政府尤其需要将造成的环境破坏用金钱衡量,这样那些致力于消除污染和减少使用不可再生资源的企业将会受到嘉奖。”他同时补充道:“在经济激励机制下,公司(以及购买其产品的个人)会发现他们要对自然造成的每一点破坏或是消耗的每一点资源付出代价,这样他们就会有动力找出减少花费的方法。“谁污染谁付费”的原则将占主导位置。艾斯提同时也提议要用现在的数字化信息技术来更好的检测废气排放和资源使用。比如,“跟踪监控从每一根烟囱,每一家工厂,每一家企业和每一辆汽车排放的有害气体。 先进的管理体系会让建立绩效衡量标准,监控和找出问题和发现环保创新措施更加有效。 ”成功的战略在市场中会受到嘉奖。实现环境和经济的可持续性需要明智的政府政策和清晰的经济激励机制。但是也必须让消费者们理解他们在防止污染和减少不可再生资源消耗方面的作用。(谈到兑现政治承诺和满足消费者日益增长的需求,中外对话的Cooler Living论坛将在近日举行一场关于经济衰退是否有益环境的大讨论。敬请关注并积极参加讨论!)---Maryann Bird, 中外对话,伦敦

Key principle?

Comment no. 1 from Liverpool asks if there is “one all-embracing principle” among new global sustainable-economy initiatives, noting the suggestion that growth should not be the primary goal in a new era. The Worldwatch report is full of suggested new approaches -- that “vast list of initiatives” – as well as examples of some ideas that are being tried in various places around the world.
The over-arching principle for the years ahead can be summed up by the word “innovation”. At least that’s the view of Daniel C Esty of Yale University, who wrote the Foreword to Worldwatch’s document. “A fundamentally changed environmental trajectory,” Esty writes, “requires substantial technological breakthroughs” – developments that will cost hundreds of billions of US dollars.
Governments around the world, he says, need to establish innovation-promoting incentives that attract huge private-sector investment. “In particular,” Esty continues, “they need to put a price on causing environmental harms so that those who offer ways to eliminate pollution and cut down on nonrenewable resource use will be rewarded.” He adds: “Under an economic-incentive-based approach … as companies (and the individuals who buy their products) find themselves paying a price for every increment of harm caused or natural resource consumed, a strong incentive emerges to figure out ways to reduce these payments.” It’s the “polluter pays” principle writ large.
Esty also wants to see current digital-age information technologies used to better monitor emissions and resource use – for example, “to track emissions from every smokestack, factory and business in the country and from every car’s tailpipe as well”. Advanced management systems, he says, “make it much easier to benchmark performance, track trends, spot problems and identify which environmental innovations are effective.” Successful strategies reap rewards in the marketplace.
The path to environmental and economic sustainability, Esty argues, requires “smart government policies” and “clear economic incentives” for businesses. “But individual consumers must also be made to understand the part they play in polluting and consuming nonrenewable resources.”
(Regarding political promises and the satisfaction of ever-increasing consumer demands, chinadialogue’s Cooler Living forum will shortly initiate a new debate on whether economic recession would be environmentally beneficial. Look out for that in the near future and please join the debate!) -- Maryann Bird, chinadialogue, London

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匿名 | Anonymous



I can sense high-level discussions

I shall do some thorough research later.
Comment translated by Dongying Wang

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匿名 | Anonymous



Who is at fault?

Why is it that as soon as someone brings up any environmental and natural resources issues, both China and India have to be mentioned. Aren't researchers from the West viewing these issues with a distorted vision? It's important to know that developed nations, after reaching a certain stage of development, are still seeing China and India negatively and treating such countries' development as a political mistake. They should first review their own political position, keep a rein on their own massive economic-restructuring. Since they stand for most of the world, they shouldn't lay particular stress on India and China's emissions and the size of such emissions. The reason the world is as it is now is because it was created by the leading economies of the developed nations of the West during the 19th and 20th centuries. The West must also take responsibility for the consequences. If economists continues to view China and India in this context, then they are not worthy of consideration in the 21st century.
Translated by Anna Gaskell