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
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
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
Australia, have also set up systems to assign values to formerly
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.
of the World 2008.