The economy and sustainability

To have a sustainable economy, we need to start thinking about the long term costs of growth and some of our economic activities. As a community there are questions we need to explore.

Is growth always good for us? Perhaps not.

Think of growth as rain – is there such a thing as too much rain? We know there is.

What’s the right level of growth that provides people with employment and an adequate standard of living, without causing irreparable harm to the environment?

How should we manage our finite resources?

Is it fair to use finite resources for our own wishes today, knowing there will be less of these resources for future generations?

200 years ago people converted bushland to pasture by massive removal of trees. The consequence of this behaviour is erosion and salinity problems which threaten Australia’s ability to feed itself.

If people back then knew the problems they would cause future generations, would they and should they have taken this action?

Could they have done the job differently so that the outcomes today were much better? We have similar dilemmas facing us, how should we deal with them?

What’s the best way to measure and evaluate economic success, as well as human well being?

Today we measure economic success in terms of a growing GDP (Gross Domestic Product) – that’s the dollar value of producing all the goods and services each year. People have questioned this measure – for instance GDP includes the costs of fixing problems eg an oil spill, but doesn’t include the cost of the damage eg. loss of fish stocks.

We could also look at the GDP per capita. Australia has a rapidly rising population and the cost of supporting that population growth in terms of infrastructure spending is included in GDP. So GDP may rise, but that doesn’t mean people are better off, unless the GDP per capita is also rising.

Australian goods and services exports were valued at $217.5 billion in 2007

Australia’s largest individual merchandise export items were coal ($21 billion), iron ore ($16 billion) and gold ($11 billion)

Australia’s service exports reached $48 billion—22 per cent of total exports—led by education services

Australia’s exports of manufactured goods rose by 8 per cent to $30 billion (Source Department Foreign Affairs)

Where should Australia be investing and developing industries to ensure future economic success?

Given the global activity to reach agreements about carbon emissions, it does appear that more and more countries are convinced carbon emissions are a problem. In the future it is likely that our mining products will attract a carbon tax and alternate products substituted eg renewable energy instead of fossil fuels.

Should the Government be supporting growth in service industries and renewable energy technology, as a way of ensuring future economic growth?

Renewable energy industries offer significant job opportunities, especially in regional areas, and significant export earnings potential. For instance Germany has built a $6billion export industry from solar technology. There is no practical reason why Australia couldn’t do the same. The difference between Germany and Australia is the support provided by the Government to encourage the growth of this industry.

The role of the community in economic management

One of the major and ongoing debates between left and right politics, and between different economists has been the degree to which economic activity should be controlled by government versus the market. The awarding of the 2009 Nobel Prize for Economics to Elinor Ostrum has focused attention on a third view. The press release announcing her win said

“Elinor Ostrom has challenged the conventional wisdom that common property is poorly managed and should be either regulated by central authorities or privatized. Based on numerous studies of user-managed fish stocks, pastures, woods, lakes, and groundwater basins, Ostrom concludes that the outcomes are, more often than not, better than predicted by standard theories. She observes that resource users frequently develop sophisticated mechanisms for decision-making and rule enforcement to handle conflicts of interest, and she characterizes the rules that promote successful outcomes.”

As we consider how to manage our resources, especially the ones we hold in common – like clean air, oceans, the Himalayan glaciers – we can start to use the power and wisdom of communities to get better results. Whether it be as a local neighbourhood action group or as global citizens, people can and should become more accountable and empowered to make decisions that commercial firms and governments seem unable to address adequately.

Ostrom has described a framework for a more sustainable system, one that balances social, economic and ecological needs. Here are the fundamentals (taken from the article by Jessica Irvine in SMH, 16 October 2009)

1. We must stop looking for one “panacea” to solve all troubles. The diversity of problems, options and solutions needs to be embraced within the community and by government. Often there is no neat solution.

2. We must embrace complexity. Simple models may be attractive but are worthless if they fail to reflect reality.

3. Analysts must take a multi-disciplinary approach to addressing problems. This means not only a wide variety of experience and knowledge applied to these problems, but also local community expertise.

4. Models must be built from the ground up and to suit different scales – country, region, family – as no one size fits all.

5. Theoretical predictions must be backed up by real data to prove they work. Economic models are built on assumptions about how people and markets behave which are plainly incorrect – rational, well informed consumers; unfettered markets; and global “competition”. Governments make decisions based on economic modeling which are detached from reality.

6. Recognise the benefits of “institutional diversity” – local communities may have their own different and successful way of doing things.

What are the issues in Australia that might be better handled by engaging more deeply with the community?

How can we create processes that more overtly bring community knowledge, experience and views into the debate?

What might these processes be?

How can we devolve responsibility to the community to manage complex issues impacting them?

What new processes can we put in place that help us decide which issues to give back to the community to manage and how they can be managed?