[R-G] [BillTottenWeblog] Toward A New Sustainable Economy

[Bill Totten]

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.

by Robert Costanza

Real World Economics Review (March 25 2009)


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 (2007), 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 (1999), 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, PhD, 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: Robert.Costanza at uvm.edu

http://www.countercurrents.org/constanza250309.htm


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