"Doctor, there's a growth in my economy!"

Dr Philip Lawn "Doctor, there's a growth in my economy!"
A fascinating forum on that stuff that makes the world go around
Speaker:   Dr Philip Lawn. Senior Lecturer in Ecological Economics,
Flinders University. South Australia.

Dr Lawn's presentation will aim to demonstrate why 'growth' is making us worse off, apart from destroying the planet, and why the transition to a steady-state economy is necessary to achieve sustainable development.

The Growth Economy - The mainstream view.
The economy, society and the environment are seen as separate from each other, and the economy can grow indefinitely.

Steady State Economy - The economy is a subset of the community. The community is a subset of the environment.
What we choose to do must be ecologically sustainable.
All economic activity begins with natural resources, and creates economic assets; things we use up immediately and physical goods we use over an extended time.
There is always through-put, natural resources eventually become waste.

Through-put
The use of resources always creates goods and waste. Recycling allows us to use fewer virgin resources.
A growth economy only expands because can. For growth to continue throughput must expand continually.
We use two sorts of resources:
1. Non-renewable resources: eg oil, it can only be used once.
2. Renewable resources: Can only sustainability be used at the rate they are regenerated at.

In the 1970's we were concerned that the economy would by limited by the shortage of resources. (Limits to Growth, Club of Rome)
In 2010 is seems that the ecological capacity to absorb waste is a more important limit. (Global Climate Change)

Sustainable Scale
How big should an economy get? In principle there is a point where diminishing marginal benefit and increasing marginal cost maximize the value to society.
If we call this size of the economy S*, there is a larger possible size for the economy that is still sustainable, call is SS.
The Genuine Progress Indicator tells us that the Australian Economy passed S* in the 1970's and that current "economic" growth is diminishing our real benefits.

Natural Capital
Natural Capital has three forms:
!. The resources we use in economic activity.
2. Nature is a sink for wastes, that processes those wastes into new resources.
3. Nature produces life support services which are free for us to use.

The Genuine Progress Indicator
Economic activities have benefits and costs. If the economy was operating in a optimal way we would want the benefit of activity to be much more than the cost. There is a theoretical optimal scale where marginal benefit equals marginal costs, S*.
The Genuine Progress Indicator consists of 20 benefit and cost items.

Elements of the Genuine Progress Indicator
Dr Lawn lists many inputs into the GPI calculation.
Calculating the index is complex, made more so by the lack of reliable statistics about the environment.
GPI shows that Australia reached S* in the 1970's.
Since then despite increasing GNP, the GPI has been steady or falling.
The GDP and GDI of several countries is compared. Similar patterns are observed.

GDP and GDI of India and China
The graphs seem to show that later developing economies run into environmental constrains more quickly. Besides because they have less efficient plant and have taken over the "dirty" industries the more developed countries have abandoned, developing economies are paying excessive environmental costs for "growth".

Ecological Economic EfficiencyDr Lawn begins to how in a steady state economy the benefit curve and the cost curve might move relative to each other.

4 Ecological Efficiency Ratios
This is a technical discussion.
He end by saying that an Ecological Footprint is a useful measure.
He compares that with a Bio-Capacity Footprint.
For the world as a whole the Ecological Footprint is larger than the Bio-Capacity Footprint. That is not sustainable.
This leads to three policy debates and the limits of the marketplace.
1. What is the sustainable scale of the economy?
2. How do we achieve distribution equity? (Income, health, education, opportunity.)3. How do we achieve efficient allocation of resources.

Resource Allocation
Economic resources need to be allocated to public goods and private goods.
The market alone under-allocates resources to the public sector and government needs to correct that imbalance.

Distribution Equity
Should there be maximum and minimum levels of income?
How much should the highest incomes exceed minimum incomes.
1960: the CEO might earn 12 times the income of factory workers. 1974: the CEO might earn 35 times the income of factory workers.
1995: the CEO might earn 35 times the income of factory workers.
Many economist would argue that incomes greater than 12 times the factory wage are 100% economic rent and should be taxed away at a rate of 100%.
Governments have avoided the distribution problem relying on "economic growth" to lift all boats. The evidence for that is poor.

Correct Pricing
In Australia there has been a massive redistribution of wealth in favour of property owners, caused by the real estate boom.
For markets to succeed they must price resources correctly. The absolute scarcity of the resources should be indicated in the price.
He explains why the market in unable to reflect absolute scarcity in resource prices,and argues that government needs to correct this problem.

Ecologically Friendly Taxes
We are already seeing cap's used to limit the use of water and to control CO² production.
in the transition to cap and auction systems governments might choose to impose ecological taxes. (Taxes on "bad's".)
In the process they might also begin to reduce taxes on income.
These taxes will increase prices, but that's desirable, and if people can't afford water or electricity for instance, that's a distribution problem the government needs to solve.
in the long run these new taxes will become cap and auction systems, which regulate with more certainty and greater fairness.

CAP and Auction Systems
CAP's create permits to use resources. The secret to success is to correctly distribute the cap in the first place.
In the most simple system public owns the cap, and the government auctions it on behalf of the public.
The amount of resource allocated under the cap will need to be adjusted from time to time.
The cap is a control on through-put. The permit to use a specified amount of resource in a fixed time.
Caps are a necessary tool for the development of a sustainable economy.

Question Time (1)
Cap permits are only of value is you have some use of them. Even for resale, the buyer needs to have a purpose for using the resource.
Most firms might buy slightly more resource at auction than they need. Insurance against running out.
The spot price for unused permit allocation might be high or low near the end of the permit period.

Question Time (2)
There are probably gross inefficiencies in the present economy.
If resources like water were properly priced water use would be much improved.
The government claims that the economic fundamentals have never been better. That's false.
We are heading towards a collapse. Either we heed that warning and do something about it, of we proceed with business as usual until something very nasty happens.
Our present economy is geared to "grow". When growth stops is very unpleasant.
If the economy was geared to be a steady state economy different pressures drive the system. Life should be perfectly good, probably quite a lot better than now.

Question Time (3)
Just allowing the economy to slow down isn't the shift we need.
We really need to change all our instructions, their rules and their values.
We may need to prepare the economy to become a Steady State Economy.
I would expect ecological taxes to precede the introduction of cap and auction systems.
However given the water crisis in Australia I think a cap system should be introduced immediately.