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From: [email protected]
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Sent: Sunday, July 26, 2009 8:10 AM
To: [email protected]
Subject: [TriumphOfContent] Toward A New Sustainable Economy
(Robert Costanza - Gund Institute for Ecological Economics, Univ.
of Vermont)
Toward A New Sustainable Economy
By Robert Costanza
25 March, 2009
Real World Economics Review
The fallacy that economic growth can lead to improved human welfare
underpins the global financial crisis. Now, we need to move beyond
'growth at all costs' and reorganise the economy based on the quality
of life rather than quantity of consumption, argues Robert Costanza.
--------------------------------------------
The current financial meltdown is the result of under-regulated
markets built on an ideology of free market capitalism and unlimited
economic growth. The fundamental problem is that the underlying
assumptions of this ideology are not consistent with what we now know
about the real state of the world. The financial world is, in
essence, a set of markers for goods, services, and risks in the real
world and when those markers are allowed to deviate too far from
reality, "adjustments" must ultimately follow and crisis and panic
can ensue.
To solve this and future financial crisis requires that we reconnect
the markers with reality. What are our real assets and how valuable
are they? To do this requires both a new vision of what the economy
is and what it is for, proper and comprehensive accounting of real
assets, and new institutions that use the market in its proper role
of servant rather than master.
The mainstream vision of the economy is based on a number of
assumptions that were created during a period when the world was
still relatively empty of humans and their built infrastructure. In
this "empty world" context, built capital was the limiting factor,
while natural capital and social capital were abundant. It made
sense, in that context, not to worry too much about environmental and
social "externalities" since they could be assumed to be relatively
small and ultimately solvable.
It made sense to focus on the growth of the market economy, as
measured by GDP, as a primary means to improve human welfare. It made
sense, in that context, to think of the economy as only marketed
goods and services and to think of the goal as increasing the amount
of these goods and services produced and consumed.
But the world has changed dramatically. We now live in a world
relatively full of humans and their built capital infrastructure. In
this new context, we have to first remember that the goal of the
economy is to sustainably improve human well-being and quality of
life.
We have to remember that material consumption and GDP are merely
means to that end, not ends in themselves. We have to recognize, as
both ancient wisdom and new psychological research tell us, that
material consumption beyond real need can actually reduce well-being.
We have to better understand what really does contribute to
sustainable human well-being, and recognize the substantial
contributions of natural and social capital, which are now the
limiting factors in many countries. We have to be able to distinguish
between real poverty in terms of low quality of life, and merely low
monetary income.
Ultimately we have to create a new model of the economy and
development that acknowledges this new full world context and vision.
This new model of development would be based clearly on the goal of
sustainable human well-being. It would use measures of progress that
clearly acknowledge this goal. It would acknowledge the importance of
ecological sustainability, social fairness, and real economic
efficiency. Ecological sustainability implies recognizing that
natural and social capital are not infinitely substitutable for built
and human capital, and that real biophysical limits exist to the
expansion of the market economy.
Social fairness implies recognizing that the distribution of wealth
is an important determinant of social capital and quality of life.
The conventional model has bought into the assumption that the best
way to improve welfare is through growth in marketed consumption as
measured by GDP. This focus on growth has not improved overall
societal welfare and explicit attention to distribution issues is
sorely needed.
As Robert Frank has argued in his latest book: Falling Behind: How
Rising Inequality Harms the Middle Class, economic growth beyond a
certain point sets up a "positional arms race" that changes the
consumption context and forces everyone to consume too much of
positional goods (like houses and cars) at the expense of non-
marketed, non-positional goods and services from natural and social
capital.
For example, this drive to consume more positional goods leads people
to reach beyond their means to purchase ever larger and more
expensive houses, fueling the housing bubble. It also fuels
increasing inequality of income which actually reduces overall
societal well-being, not just for the poor, but across the income
spectrum.
Real economic efficiency implies including all resources that affect
sustainable human well-being in the allocation system, not just
marketed goods and services. Our current market allocation system
excludes most non-marketed natural and social capital assets and
services that are critical contributors to human well-being. The
current economic model ignores this and therefore does not achieve
real economic efficiency. A new, sustainable ecological economic
model would measure and include the contributions of natural and
social capital and could better approximate real economic efficiency.
The new model would also acknowledge that a complex range of property
rights regimes are necessary to adequately manage the full range of
resources that contribute to human well-being. For example, most
natural and social capital assets are public goods. Making them
private property does not work well. On the other hand, leaving them
as open access resources (with no property rights) does not work well
either. What is needed is a third way to propertize these resources
without privatizing them. Several new (and old) common property
rights systems have been proposed to achieve this goal, including
various forms of common property trusts.
The role of government also needs to be reinvented. In addition to
government's role in regulating and policing the private market
economy, it has a significant role to play in expanding the "commons
sector", that can propertize and manage non-marketed natural and
social capital assets. It also has a major role as facilitator of
societal development of a shared vision of what a sustainable and
desirable future would look like. As Tom Prugh, myself, and Herman
Daly have argued in our book "The Local Politics of Global
Sustainability," strong democracy based on developing a shared vision
is an essential prerequisite to building a sustainable and desirable
future.
The long term solution to the financial crisis is therefore to move
beyond the "growth at all costs" economic model to a model that
recognizes the real costs and benefits of growth. We can break our
addiction to fossil fuels, over-consumption, and the current economic
model and create a more sustainable and desirable future that focuses
on quality of life rather than merely quantity of consumption.
It will not be easy; it will require a new vision, new measures, and
new institutions. It will require a redesign of our entire society.
But it is not a sacrifice of quality of life to break this addiction.
Quite the contrary, it is a sacrifice not to.
------------------------------------------------
Robert Costanza, Ph.D, is Gordon and Lulie Gund Professor of
Ecological Economics and Director, Gund Institute for Ecological
Economics, Rubenstein School of Environment and Natural Resources,
The University of Vermont. He can be contacted at:
[email protected]
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