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Green Economics: Turning Mainstream Thinking on Its Head


By Thomas Prugh
Worldwatch Institute
February 22, 2008


"Ideas about how the world works that don’t accord with reality can be
unhelpful. That’s especially true about mainstream economics, which is
based in part on ideas that made a lot of sense at some point in the last
250 years but that have outlived their time and usefulness."

A few years ago, a homeowner in Las Vegas—a place that gets maybe five
inches of rainfall a year—was confronted by a water district inspector for
running an illegal sprinkler in the middle of the day. The man became very
angry. He said, “You people and all your stupid rules—you’re trying to
turn this place into a desert!”

Ideas about how the world works that don’t accord with reality can be
unhelpful. That’s especially true about mainstream economics, which is
based in part on ideas that made a lot of sense at some point in the last
250 years but that have outlived their time and usefulness.

These ideas—such as the reliance on GDP as the key index of general
wellbeing—still dominate assumptions and thinking about economic matters
in the media, governments, businesses, and popular consciousness.

But in recent decades, economics theoreticians and researchers have
suggested a variety of reforms that would make economics truer, greener,
and more sustainable. My colleague Gary Gardner and I describe seven of
these in Chapter 1 of the Worldwatch Institute’s latest report, State of
the World 2008: Innovations for a Sustainable Economy:

1) Scale. How big is the global economy relative to the global ecosystem?
This is crucial, because the economy resides totally inside the global
ecosystem—the ecosystem gives the economy a place to operate, supplies all
of its raw materials, and supports it with many critical services. In
physical terms, economic activity is basically converting bits and pieces
of the ecosystem to human uses: trees and forests into lumber and houses,
grasslands and other habitats into farms to feed the billions of humans, and so on.

We’ve gotten really good at economic growth. Since Adam Smith’s time, the
number of people in the world has exploded from about 1 billion to nearly
7 billion. And in the last 200 years, Gross World Product has risen by
nearly a factor of 60. The ecosystem has suffered as a result, hence the
headlines we see every day: climate change, species extinctions, dwindling
rainforests, water shortages, and all the rest.

Piecemeal, we’re starting to get the message about the economy’s scale.
For instance, we know that there’s too much carbon floating around for the
system to handle benignly. Last year, more than 90 major corporations,
including General Electric, Volvo, and Air France, called on governments
to set goals for reducing greenhouse gas emissions, and the European Union
has set up a carbon cap-and-trade system.

Waste minimization is another way to reduce scale. Every year we dig up
and process more than half a trillion tons of raw materials—and six months
later more than 99 percent of it is waste. That can be fixed too: Ray
Anderson’s Interface carpet company is a leader in this area, reducing
manufacturing waste by 70 percent since the mid-1990s and saving over $300
million while doing it.

2) Stress development over growth. That is, make the economy better at
satisfying human needs, not simply bigger.

This is partly about eco-efficiency. It’s now cost-effective to boost
resource efficiency by at least a factor of four—and possibly by a factor
of 20. And given the need for billions of people to grow their way out of
dire poverty, we have to pursue these gains.

But it’s also about asking the question, what is an economy is really for?
Not only can the global economy not keep growing forever, growth isn’t
even working for many of us in wealthy nations anymore: U.S. per-capita
income has tripled since 1950, for instance, but the share of Americans
who say they’re very happy has dropped over the last 30 years. Studies in
hedonic psychology reveal that higher incomes only improve life
satisfaction up to a point. The research also says that the more
materialistic people are, the lower levels of happiness they report. And
it says that there appears to be a correlation between rising consumption
and the erosion of the things that do make people happy, especially social
relationships, family life, and a sense of community.

In response, a lot of people are rejecting the competition and get-ahead
mentality of consumerism. They’re downshifting and pursuing voluntary
simplicity all over the globe, and they’re taking collective action via
campaigns for healthy eating, work leave for new parents, and shortened
workweeks. The governments of Australia, Canada, and the United Kingdom
have made wellbeing a national policy goal, and there is a lot of interest
in indicators that measure wellbeing more directly than GNP.

3) Make prices tell the ecological truth. Cheating a bit here—this isn’t
really a conceptual reform. Every economist knows that markets fail when
prices don’t reflect actual costs. The reform would be actually applying
this rule to the ecosystem. For instance, climate change is arguably the
result of failing to charge for dumping carbon dioxide into the
atmosphere. Another example is human-caused species extinction. We’re
basically dismantling our life-support machinery, and by and large until
recently nobody paid for it. Fortunately, governments and business are
beginning to experiment with carbon markets, water pricing mechanisms, and
conservation banking. Carbon market trading was worth $59 billion in 2007,
and there are now several hundred wetlands and species banks in the United States alone.

4) Account for nature’s services.This is closely related to #3. In the
United States, the pollination performed by honeybees is worth about $19
billion per year. There’s also air and water purification, soil
generation, pest control, seed dispersal, and nutrient recycling, among
the many other services that nature provides. Tearing up ecosystems
undermines these services, so some countries have begun trying to value
them properly. Costa Rica, for example, pays landowners to preserve
forests and their biodiversity, with the money coming from fuel taxes and
sale of environmental credits to businesses. Mexico and Victoria,
Australia, have also set up systems to assign values to formerly free services.

5) The precautionary principle. This is just the age-old wisdom of “first,
do no harm” and “look before you leap,” but applied to public policy
toward new products (like chemicals) and technologies that could pose
serious risk. Ordinary risk analysis asks, “How much environmental damage
will be allowed?” But the precautionary principle asks, “How little damage
is possible?” Today we’re seeing the principle adopted more and more
widely. The Maastricht Treaty that created the European Union in 1991 puts
the principle at the center of its environmental policy, and San Francisco
made precaution official policy in 2003.

6) Commons management. People generally believe that there are only two
workable regimes for managing resources: private property or government
control. But commons management regimes are a third way, one that taps the
strong human impulse toward cooperation and the common good. Commons
management has proven itself over centuries of experience—there are
collectively managed irrigation systems in Spain that were begun in the
15th century, for instance, and other commonly managed forests and
pastures in Switzerland, Japan, the Philippines, and Indonesia that are
centuries old. Commons management lives and thrives today in such things
as Wikipedia, community gardens, and farmers markets everywhere. The
writer and entrepreneur Peter Barnes has suggested that the atmosphere,
which everyone ought to own, could be successfully managed and protected
via a commons regime. Ocean fisheries might be as well.

7) Value women. Economic systems ought to be gender-blind but they’re not.
A UN report in the 1990s noted that “most poor people are women, and most
women are poor.” All over the world, women earn less than men for
equivalent work, they lack access to land and credit, and they do more
than their share of child- and elder care, volunteer work, and other
unpaid labor. There is evidence that this gender bias actually suppresses
economic activity. In response, a few governments in industrial countries
are trying to develop policies that take unpaid work into account.

Muhammad Yunus’s Grameen Bank in Bangladesh is using the terms of its
loans to help to ensure that wives are legally entitled to their share of
a couple’s assets. And the microfinance movement appears to have given
millions of women a valuable economic boost.

These seven ideas are hardly the only changes brewing in economics, but
the innovations described in State of the World 2008 can generally be
traced to one or more of them. Hopefully, they are on the way to
transforming economics from “the dismal science” into more of a delightful
one—or, to paraphrase E.F. Schumacher, into an economics as if people and
the planet mattered.

Tom Prugh is editor of the Worldwatch Institute’s bimonthly magazine,
World Watch, and co-director, with Gary Gardner, of State of the World 2008.

 

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