The Essentials Economic Sustainability

• The industrial era of economic development has resulted in many material benefits.– However, the benefits have not been equitably

shared within or among the societies of the world.– In addition, the natural and human resources that

have sustained industrial economic development are being rapidly degraded and depleted.

• The modern model or paradigm of industrial economic development is not sustainable.

#1-Essential Questions of Economic Sustainability

• Change is normal and usual, but some changes are truly revolutionary.

• Questions of sustainability are driving revolutionary change – a great transition.

• How can we meet the economic needs of the present without diminishing economic opportunities for future? – the essential question of economic sustainability.

Sources of Economic Value

• All economic value comes from nature by means of society.

• Sustainability is a question of energy.• Anytime energy is used to do anything useful,

some of its usefulness is lost. Law of ENTROPY• Economic productivity depends on people to

make things of nature useful to other people.• Productivity depends on both physical energy

and social energy – on society.

Economic Relationships• Economic relationships are individual,

instrumental, and impersonal.• Social relationships are individual, instrumental,

and personal – non-economic.• Social relationships evolve into ethical

relationships – into cultural values.• Ethical relationships are communal, non-

instrumental, and impersonal – non-economic.• Cultures value the “common good” – not just

individuals – relationships matter.

Emergent Properties: A whole is more than the sum of its parts

• Families, communities, and societies are more than collections of individuals. Sustainability is an emergent property of caring societies.

• Emergent properties within economies may enhance the value of economic enterprises but lack individual incentives - TOC.

• Real people don’t make purely economic decisions, publicly-traded corporations do.

Social and ethical values are essential for economic sustainability.

• Some social and ethical relationships also have economic value – not enough for sustainability.

• Some relationships are purely social or ethical.• An economy motivated solely by economic value is

not sustainable.• Social and ethical values cannot be “internalized.”• A society motivated solely by individual value is

not sustainable.• Sustainability ultimately is an ethical question.

Economic value is inadequate to ensure economic sustainability.

• Economic value gives priority to the present.• Interest is cost/return of delayed gratification.• Well-being of future generations has too little

economic value to ensure sustainability.• Economic value of social & ethical behavior is

insufficient for sustainability.• Non-economic and economic investments are

both necessary for economic sustainability.

#2- The Hierarchies of Sustainability

• Most economists limit concerns to spheres of nature and society that have economic value.

• Questions of sustainability arise from a different worldview – how the world works & where we fit.

• Society is a sub-set of part of nature and the economy is a sub-set or part of nature.

• Nature is at a higher hierarchal level than society; society is higher than the economy.

• Humanity exists within nature, not apart from it.

Economic Perspective

Ecological Perspective

Nested Hierarchies defined byPurpose and Possibilities

• Purpose of society is derived from nature.• Purpose of economy is derived from society.• Possibilities of society affected by its economy.• Possibilities of nature affected by society.• Higher levels change more slowly, stronger.• Higher levels set limits for lower levels.• Higher levels define principles for lower levels.• Society & economy function by laws of nature.

Hierarchy of Intentionality

• Humans are capable of intentional actions.• Sustainability of humanity – the dominant

species on earth – depends on intentionality.• Ethical value is highest level of intentionality,

social value is next & individual value is lowest.• Higher levels define purpose and principles.• Lower level affect possibilities of higher level.• Higher levels are slower and stronger.• Higher levels set bounds & limits for lower levels.

Sustainability: alignment of hierarchies of sustainability & intentionality

• Constitutions with laws of nature – ethical values.• Laws & regulation with social values, with nature.• Economy with individual values, with society.• Nature must have priority over society.• Society must have priority over the economy.• Ethical decisions require consent of people.• Social decisions require citizen involvement• Individual autonomy, within society & nature.

#3-Ecological Principles of Economic Sustainability

• Sustainability is a human centered concept.• Sustainability recognizes that human well-

being is interrelated with well-being of nature.• Humans & nature share the same elements &

same energy – both depend on solar energy.• Purpose and principle of sustainability of

humanity are purpose & principles of nature.

Living things function according to Ecological Principles.

• Holism: Everything is interconnected; wholes are more than sums of parts; wholes have emergent properties; relationships matter.

• Ignorance of holism has consequences: – Human health– Global climate change– Economic exploitation of society & nature– Inadequate government policies

Ecological Principles of Sustainability

• Diversity means having dissimilar or different parts or aspects; necessary for resilience & reproduction; moves away from entropy.

• Ignorance of diversity has consequences:– Species extinction – consequences for humanity?– Industrialization – direct conflict with diversity– Over-population/consumption; human extinction

• Diversity: Best single ecological indicator

Ecological Principles of Sustainability

• Interdependence: Mutually beneficial; interconnected, decentralized, source of “something more.” Relationships of choice among people; intentionality with nature.

• Human consequences of ecological ignorance:– Environmental – losing the battle with nature– Failure to respect indigenous wisdom– Lack of respect for life– Lack of sustainability of humanity

Ecological Principles: Also Relevant to Social Relationships• Sustainable families, communities, and

societies must be see as more than collections of individuals – relationships matter.

• Cultural and social diversity is necessary for sustainable communities and societies.

• Mutually-beneficial, interdependent relationships are necessary for sustainable families, communities, and societies.

Ecological Principles:Relevant to Economic Relationships

• Sustainable economic organizations must be managed as wholes, not divisions or parts.

• Sustainable economic organizations and economies must be diverse, rather than specialized and standardized.

• Economic relationships must be mutually beneficial – not extractive or exploitative.

#4-Social Principles ofEconomic Sustainability

• Human relationships are unique and special because we know what it means to be human.

• Societies include all direct and indirect human relationships – economic, social, and ethical.

• Humans are not the only social species, but the only “intentionally” social species.

• Cultural values evolve from social relationships.• Societies share core values: honesty, fairness,

responsibility, respect, compassion.

Social Principles of Sustainability

• Trust: Rule-based, universal; depends on values of honesty, fairness, responsibility.

• Ignorance/betrayal of trust has consequences.– In business & politics: loss of public confidence– In marriage & friendship: loss of companionship

• Sustainable relationships depend on trust.– Demand honest and truthfulness– Reject discrimination: race, gender, age…– Expect and require responsibility

Social Principles of Sustainability

• Kindness: Care-based, situational; depends of values of respect, compassion, and empathy

• Lack of kindness has consequences:– Everyone makes mistakes, needs forgiveness,

needs mercy or charity rather than justice.– Trust is necessary but not sufficient to sustain

relationships.• Conflicts among social values can be resolved

through internal consistency.

Social Principles of Sustainability

• Courage: Good intentions without action are of little consequence; not just bravery; it takes moral courage to be trusting and kind.

• Lack of courage has consequences:– Courage to reject end-based ethic: utilitarianism– Courage to reject labels of naivety and idealism– Courage to be make social investments necessary

for economic sustainability

Social Principles also Relevant to Ecological Relationships

• Relationships with nature have positive and negative consequences for other people.

• Sustainable relationships with nature must reflect honesty, fairness, and responsibility.

• Use of resources and the environment must reflect respect and compassion for others.

• People must have the courage to be trusting and kind in their relationships with nature.

Social Principles also Relevant to Economic Relationships

• Sustainable economic relationships must be based on trust: honest, fair, responsible.

• Contracts may be necessary but not sufficient.• Sustainable economic relationships must be

based on kindness: respectful, compassionate.• It takes courage to be trusting and kind in an

economic environment which considers such things to be idealistic and naïve.

#5-Essential Economic Principlesof Sustainability

• Purpose of economy derived from society but potential of society depends on the economy.

• Individuals must meet their own needs plus contribute to needs of society and humanity.

• Respect for individuality, of thought and behavior, is essential for sustainability.

• Principles of economic sustainability are principles of individual human behavior.

Economic Principles of Sustainability

• Scarcity: Not enough for everyone to have all they need or want – source of economic value

• Economic value is different from intrinsic value.• Law of diminishing returns: less scare, less value• Law of demand: greater quantity, less value• Law of supply: greater quantity, more cost • Market price: price where value equals cost• Ignorance of scarcity & value has consequences.– Economic value does not reflect need or human necessity.– Economic value does not ensure economic viability

Economic Principles of Sustainability

• Efficiency: Economic value relative to economic cost – net return on investment

• Comparative advantage: greater relative efficiency – lower opportunity costs

• Everyone has a comparative advantage in something, no matter how inefficient.

• Inefficiency has consequences.– Waste of scarce natural resources– Depletion of non-renewable resources

Economic Principles of Sustainability

• Sovereignty: Freedom of choice; Economists “assume” consumers have sovereignty; many do not – advertising, coercion, deception

• Loss of sovereignty has consequences.– Inability to benefit from international trade– Inability to make wise individual purchases– Lack of employment opportunities

• Must reclaim sovereignty for sustainability.

Sovereignty of Nations Essential for Global Economic Sustainability

• Obstacles to mutually beneficial “free trade.”– Excessive debt– Military agreements– Unfair trade agreements

• Free Trade requires freedom to “not trade.”• Every nation has a right and must accept

responsibility to protect its people and its natural resources from exploitative trade.

Economic Principles also Relevant to Ecological and Social Relationships

• Natural resources become ecologically scare before they become economically valuable.

• Ecological efficiency: ecological benefits relative to ecological costs

• Ecological Sovereignty: ability to restore ecological integrity

• As social relationships become more scarce or fewer, they become more valuable.

• Societal efficiency: social benefit relative to social costs• Social sovereignty: Ability to choose interdependent

relationships.

#6 Essential Characteristics of Sustainable Economies

• Economies are “living systems.”• Systems: pattern, structure, and process• Living systems: living processes continually

renew structure according to pattern (DNA).• Industrial economies:– Managed as non-living systems: fixed structure– Economic model: Incompatible with sustainability

• Industrial economies are not sustainable

Economy: A Purposeful Organization

• Living economies are individualistic and dynamic. Purpose of economy is determined by society.

• Purpose is encoded in principles, not in structure.• Healthy living systems balance efficiency with

regeneration and resilience.• Three R’s of Sustainability– Resourcefulness (reduce, reuse, recycle)– Regeneration (renew, reproduce, reorganize)– Resilience (resistant, responsive, redundant)

Same characteristics are relevant to organizations & lifestyles.

• Most sustainability initiatives focus on 3-Rs of resourcefulness: reduce, reuse, recycle.

• Renewable energy is necessary but not sufficient – must racially redesign, reorganize.

• Sustainability: social & ecological regeneration & resilience, balanced with resource efficiency

• Natural tendency toward economic efficiency threatens economic integrity – sustainability.

Authentic Sustainability:Ecological Worldview; Systems Thinking

• Ecological world of complex systems: – Selective or semi-permeable boundaries– Continuous feedback loops – acceleration, decay– Self-organizing , emergent properties, chaotic

• Collaborative learning for sustainability:– Co-learners, rather than teachers and students– Beyond thinking alike to group intelligence– Sharing of intellectual, social, and spiritual gifts

#7 Essential Characteristics of Markets

• All economies mixed: markets and planning• Markets facilitate choices among substitutes– Choices in consumption & in production– Choices between natural & human resources

• Markets can establish economic value– Scarcity: What? Where? When? Who?– Different people value same things differently– Economic value affected by form, place, and time.

Markets can serve “collective” interests of society.

• Markets must be efficient and effective.• Operation efficiency: efficient cost of production• Allocative efficiency: effective use of resources– Supply and demand can allocate use of resources– Efficiency depends on economic competitiveness

• Many buyers and sellers• Freedom of entry and exit• Accurate information• Economic sovereignty

• Today’s global economy is not competitive.

Markets facilitate international trade.

• Benefits depend on comparative advantage.• Mutually-beneficial trade: “Free Trade.”– Selective boundaries – economic competitiveness– Resolution of internal conflicting interests– Absence of distortions in currency values– Immobility of capital & labor

• Today’s global economy does not ensure mutual benefits from international trade.

Markets provide incentives for Economic Development

• Growth is not essential for economic “development” or betterment.

• Economic growth from can be achieved from changes in individuality, form, place, and time – without using more natural resources.

• Changes in value involve risks & uncertainties• Profit is the market-based reward for taking

risks – a market incentive for change.

Markets provide incentives for Economic Development

• “Necessary” profits facilitate economic development or betterment. – Reward market risks– Reward financial risks

• “Unnecessary” profits, resulting from lack of competition, restrict economic development.

• Today’s global markets are neither economically competitive nor sustainable.

#8.Essential Functions of Government for Economic Sustainability

• Purpose of government: To ensure both individual and social autonomy and equity.

• Social values must take priority over individual preferences – hierarchy of sustainability.

• Economic autonomy and equity are different from social autonomy and equity.

• Economic autonomy and equity can be ensured through economically competitive markets – economic sovereignty.

Essential Economic Functions of Government

• Maintaining competitive markets– Market structure: large number of small firms– Market conduct: absence of collusion, price fixing.– Market performance: • Operational efficiency: quantity, price, innovation• Allocative efficiency: competitive market structure

– A competitive “market structure” is essential for economic autonomy and equity.

Essential EconomicFunctions of Government

• Creating and managing currency – money– All forms of currency are actually loans.– Governments create money by making loans to banks.– Individuals & institutions also create money.– Currencies can inflate or deflate in value – scarcity.– Monetary policy: government regulation of money

• Reserve requirements• Interest rates

– Fiscal policy: taxing and spending by government

Essential Economic Functions of Government

• Creating & maintaining market infrastructure– Market facilities, legal structure, information

• Internalizing economic costs and benefits• Regulating international trade– Ensuring rights and responsibilities to protect

people and resources from economic exploitation– Economic autonomy and equity in international

trade cannot be allowed to take precedent over domestic social autonomy and equity.

Essential Social Functions of Government

• Government is an expression of culture.– Reflects evolution of people in a particular place– Reflects necessary restraints on individual actions

• Social equity protects culturally-defined values of persons within society – non-economic.

• Economic value is indifferent to persons.• Government is necessary to restrain economic

exploitation of society and nature.

Essential Social Functions of Government

• Constitutions & Charters: define and embody essential functions of government

• Sustainable governments must function with consent of the governed – regardless of form.

• Constitutions must protect rights of people:– Autonomy and equity within current generations– Equal rights of future generations

• Individuals must provide economic means for essential social functions of government.

Discretionary Functions of Government

• Public goods and services: “collective goods”– Non-excludable: accessible to all – not scarce– Non-rival: enough for all – not scarce

• Discretionary functions contribute to the good of society whenever economic incentives are absent or inadequate.

• “Essential” functions of government must take priority over “discretionary” functions.

• Ethical and social values of society must take precedent over individual and collective economic preferences.

#9 The Essential Mission of Sustainable Economies

• Sustainability, or lack of sustainability, of an economy reflects a societal consensus.

• Economic growth in not sustainable.• Growth industrial era was supported by cheap

fossil energy – no more cheap fossil energy.• Sustainable economy: “steady state” economy• Balance throughput with capacity of nature• Sustainable economy depends on solar energy• Economic growth is not longer a logical mission.

Quality of Life:Mission of Sustainable Economies

• Quality of life: individual, social, spiritual• No limits to social or spiritual development• Developed nations have enough “stuff.”• Developing nations need “sustainable”

economic development, not exploitation.• Population growth: result of lack of “security”• Enough resources to meet “needs” of all.• “Needs” are but one aspect of Quality of Life.

New Mission: Prosperity without Growth

• Prosperity: social, psychological, economic• Human progress does not require growth.– More value from less economic throughput– Individual progress within stable economy

• Cyclical unemployment: Share available work• Increase long-term employment:– Post-industrial technology to employ more people– Policies that stress quality of employment

Government Tax Policies for Economic Sustainability

• Shift from tax incentives for economic growth• To taxes on resource extraction & exploitation• Tax public “bads,” to subsidize public “goods”• Tax incentives for resilience & regeneration• Taxes on solar energy: the ultimate potential

source of all government revenue– The ultimate public good– The ultimate source of all economic value

Economic Sustainability: Not a Sacrifice… an Opportunity

• Not back to pre-industrial era – but forward• Sustainable prosperity is a realistic possibility.• Essentials for economic sustainability are the

same as essentials for happiness and QOL.• Steady state economy does not limit QOL.• Economic sustainability & happiness: same

ecological, social, economic principles.• Economic Sustainability: Sustainable QOL

The Challenge of Economic Sustainability

A sustainable economy must provide permanent sustenance for the individual, social, and ethical well-being of all, including those of the future. It must enhance the physical and mental health of individuals. It must promote the economic and social health of families, communities, and societies. It must sustain the productivity and ecological health of nature. And, it must provide a means of fulfilling the ethical responsibilities of each generation for the future of humanity.