Economic Sustainability

Mikko Jalas (partly based on Angelina Korsunova’s slides) 11.9.2014

First step: getting a focus!

•  What is the economy? •  What things should be

governed by /included in the economy?

Environment

Society

Economy

Second step: qualifying a ’sustainable’ economy Building a strong, stable and sustainable economy, which provides prosperity and opportunities for all, and in which environmental and social costs fall on those who impose them (polluter pays), and efficient resource use is incentivised

(SD Commission for UK government)

Korsunova 2013/Jalas 2014

’prosperity and opportunities for all’

and in which environmental and social costs fall on those who impose them (polluter pays), and efficient resource use is incentivised

(SD Commission for UK government)

Korsunova 2013/Jalas 2014

•  Spatially

•  Temporally

’costs fall on those who impose them’ & benefits for those who bear the cost

Jalas 2014

Source: Suomen Luonto

Source: http://www.broccolicity.com/

Source: Rakennusperinto.fi

State subsidies for natural resource extraction

–  Tax breaks –  Transport infrastructure –  In Finland e.g. forest road subsidies –  Geological maps

’efficient resource use is incentivised’

Jalas 2014

Source: NBA

hakku.gtk.fi

•  Structure of the economy matters

•  Sustainable economy avoids lock-in situations –  Large MNC as established

players vs. –  Creative destruction & disruptive

innovation

An agile, public economy: Innovation towards sustainability

Jalas 2014

Serving for real needs

Jalas 2014

… with acceptable human costs

Korsunova 2012

… and ecological costs (Herman Daly: Steady-State-Economy)

”Empty” frontier economy

”Full” world economy

Korsunova 2013

The dynamics of welfare relationship to environment and the economy

•  Before 1960s: –  The economy is small relative to the environment –  The flow of welfare from the ecosystem (fresh air, beautiful

scenery, clean water, etc.) is relatively larger that the services from the economic system (products and services)

•  After 1960s: –  The ideas of economic growth and increased consumption –  Economy growth is so rapid that there is no time for the

ecosystems to regenerate (loss of biodiversity, forests, etc.) –  More welfare from the stream of goods and services (cars,

clothing, TVs, etc.)

Korsunova 2013

Shmelev 2012

Environmental economics approach

•  The concept of ”externalities” •  Priority to resource efficiency •  Maximization of utility and profit •  Growth optimism and ”win-win” options •  Monetary indicators •  External costs and economic valuation •  Global market and isolated individuals •  Partial, monodisciplinary, analytical

Van den Bergh 2000

economy

ecosystem

waste

extraction

Korsunova 2013

Ecological economics approach •  Priority to sustainability •  Fulfillment of needs and equitable distribution •  Growth pessimism and difficult choices •  Physical and biological indicators •  Local communities •  Environmental ethics •  Complete, integrative and descriptive •  Limited individual rationality and uncertainty •  Systems analysis, multidimensional evaluation

(MCDA), holistic approach

economy

ecosystem

Van den Bergh 2000

Korsunova 2013

Growth versus Development

•  Economic growth may be one aspect of economic development but is not the same

•  Economic growth: –  A measure of the value of output of goods and

services within a time period •  Economic Development:

–  A measure of the welfare of humans in a society

www.bized.co.uk

Korsunova 2013

Economic Growth •  GDP – Gross Domestic Product

–  The value of output produced within a country during a time period •  GNP – Gross National Product

–  The value of output produced within a country plus net property income from abroad

•  GDP/GNP per head/per capita –  Takes account of the size of the population

•  Real GDP/GNP –  Accounts for differences in price levels in different countries

www.bized.co.uk

Korsunova 2013

•  But how are the income & wealth distributed inside the country?

Distribution of global GDP (2008)

Shmelev 2012

Korsunova 2013

Seeing the BIG picture..

•  Distribution of global GDP per capita reflects the inequalities in the levels of economic development in the world

•  There is a significant correlation between the GDP per capita and CO2 emissions per capita

•  Other indicators, together with GDP, can provide more insight into the situation and make it more meaningful

Korsunova 2013

EU GDP per person employed (2005)

Shmelev 2012

Korsunova 2013

EU unemployment rates (2006)

Shmelev 2012

Korsunova 2013

R&D expedinture as a % of GDP (2005)

Shmelev 2012

Korsunova 2013

Students in tertiary education (2006)

Korsunova 2013

How to measure and evaluate development?

•  How can changes in the quality of life be measured?

•  Example: does additional earning bring with it additional stress, increases in working hours, increased health and family problems?

Korsunova 2013

Development is about people

•  Development is about people and not about objects –  Which development is better? How it could be compared?

(beyond GDP, GNP, etc.)

•  The best development process is the one that allows the greatest improvements in people’s quality of life –  What determines people’s quality of life?

•  Quality of life depends on the possiblities people have to adequately satisfy their fundamental human needs –  What are the fundamental human needs? And who decides

what they are? Max-Neef, 1991

Korsunova 2013

Development

•  Development incorporates the notion of a measure/measures of human welfare

•  As such it is a normative concept – open to interpretation and subjectivity

•  What should it include? –  Poverty (absolute vs relative) –  Inequality –  Progress (??) –  What else?

Korsunova 2013

Human Development Index (HDI)

•  HDI – A socio-economic measure •  Focus on three dimensions of human welfare: •  Longevity – Life expectancy •  Knowledge – Access to education, literacy

rates •  Standard of living – GDP per capita:

Purchasing Power Parity (PPP) www.bized.co.uk

Korsunova 2013