21112005

Economy drivers, uncertainty and surprises

by

Arild Vatn Department of International Environment and Development

Studies, Norwegian University of Life Sciences

At the EEA workshop “Research foresight for Environment and Sustainability – workshop on mega-trends and

surprises”, Copenhagen, May 14-15, 2007.

Su

sta

inab

ility – th

e n

eed

for in

stitu

tion

al c

han

ge

2

NO

RW

EG

IAN

UN

IVER

SIT

Y O

F LIF

E S

CIE

NC

ES

www.umb.no

Standard economic drivers

DPSIR: driving forces, pressures, states, impacts, responses

Population growth Tastes/preferences/needs (a given) Technology (a driver, a problem or a

solution) Economic growth (a driver, a problem or

a solution)

The way we organize our economy – the institutional structure– The match between the problems we face and the

way we can respond

Su

sta

inab

ility – th

e n

eed

for in

stitu

tion

al c

han

ge

3

NO

RW

EG

IAN

UN

IVER

SIT

Y O

F LIF

E S

CIE

NC

ES

www.umb.no

Ecosystems limitations and economic development

Time

Carryingcapacity

Load=PIT

Su

sta

inab

ility – th

e n

eed

for in

stitu

tion

al c

han

ge

4

NO

RW

EG

IAN

UN

IVER

SIT

Y O

F LIF

E S

CIE

NC

ES

www.umb.no

A mega trend I

Economic growth – about 2,5 % per year – the average for the 20th century

Implies a doubling of the economy every 30 years

Why growth– Increase well-being– Eradicate poverty– Make us rich enough to protect the

environment– To stabilize the economic system – growth as

a lubricant in a situation where e.g., the bottom line is a core allocative instrument

Su

sta

inab

ility – th

e n

eed

for in

stitu

tion

al c

han

ge

5

NO

RW

EG

IAN

UN

IVER

SIT

Y O

F LIF

E S

CIE

NC

ES

www.umb.no

Growth and happiness

Su

sta

inab

ility – th

e n

eed

for in

stitu

tion

al c

han

ge

6

NO

RW

EG

IAN

UN

IVER

SIT

Y O

F LIF

E S

CIE

NC

ES

www.umb.no

A mega trend I

Economic growth – about 2,5 % per year – the average for the 20th century

Implies a doubling of the economy every 30 years

Why growth– Increase well-being– Eradicate poverty– Make us rich enough to protect the

environment– To stabilize the economic system – growth as

a lubricant in a situation where e.g., the bottom line is a core allocative instrument

Su

sta

inab

ility – th

e n

eed

for in

stitu

tion

al c

han

ge

7

NO

RW

EG

IAN

UN

IVER

SIT

Y O

F LIF

E S

CIE

NC

ES

www.umb.no

A mega trend II We regulate environmental problems by

reacting when problems appear and mainly when relationships are proven

Creates tremendous time lags in a rapidly growing economy. Strong interests develop that are linked to status quo – climate change as the exemplar case

Our system does not have the capacity to develop and treat early warnings. It lacks the necessary sensitivity and flexibility

Lacking strong incentives to produce the right technologies (e.g., ‘eco-innovation’ to create a less harmful man-nature interactions)

Su

sta

inab

ility – th

e n

eed

for in

stitu

tion

al c

han

ge

8

NO

RW

EG

IAN

UN

IVER

SIT

Y O

F LIF

E S

CIE

NC

ES

www.umb.no

The fundamental driver

A fundamental driver: The mismatch between the ecological system and our institutions – economic and political

In the case of the economic system: A complex, multidimensional natural system meets an economic system based on one-dimensionality + the rule that harm must be proven

This mismatch creates an information problem– We face (at least) three irreducible value dimensions

• Utility/satisfaction of needs• Ethical issues • Sustaining natural and social systems resilience

– Time lags

Su

sta

inab

ility – th

e n

eed

for in

stitu

tion

al c

han

ge

9

NO

RW

EG

IAN

UN

IVER

SIT

Y O

F LIF

E S

CIE

NC

ES

www.umb.no

Ecosystems limitations and economic development

Time

Carryingcapacity

Load=PIT

Su

sta

inab

ility – th

e n

eed

for in

stitu

tion

al c

han

ge

10

NO

RW

EG

IAN

UN

IVER

SIT

Y O

F LIF

E S

CIE

NC

ES

www.umb.no

Institutions and motivation Motivations are institutions dependent:

– Competition vs. cooperation– Whether it is the individual interest or the interest

of the group that is focused– Tastes/preferences are also influenced by our

institutions • Preferences demand structure of production • Institutions interests/preferences demand

structure of production• Institutions structure of production

interests/preferences demand

We are starting to learn more about this through experiments in economics and social psychology

Here lies a hope!!

Su

sta

inab

ility – th

e n

eed

for in

stitu

tion

al c

han

ge

11

NO

RW

EG

IAN

UN

IVER

SIT

Y O

F LIF

E S

CIE

NC

ES

www.umb.no

Conclusion

DPSIR: Looks at drivers as exogenous (?)

What drives the drivers?

What if drivers are endogenous and cumulative?

An expanding economy: We are deemed to be surprised. We need institutional capacity/resilience– To reduce the amount of surprises– To be able to treat those that appear– To (gradually) reduce the dependency on growth (rich

countries)

Research needs: How to build this capacity