ECONOMY:

“Economy” is generally thought of as the range of formal monetary transactions in a local, national, or international financial system. But as a global issue, economy can be considered in a much larger sense.

The word itself comes from the Greek “oikonomia,” meaning management of a household. In that context, economy would include not only financial exchanges, but also a range of social and environmental transactions people undertake to make a living. These “external” transactions may include industrial output and energy consumption, as well as the unpaid work of women and children hauling water or fuel-wood, the burning of rainforest to clear land on which to grow food for one’s family, drug-trafficking and other crime, traditional barter, and cooperative labor exchange.

There are many ways we could restructure our current economic models that might better serve people and the environment. For example, we can restructure our current tax system and we can use new models to indicate a community’s health and well-being that take into account external factors in addition to the GNP. These measures would provide a better indication of the true costs and progress of our actions and would help to influence them.

Where We Are Today

The formal world economy has grown exponentially over the past half century. Gross World Product (GWP) has increased more than seven fold, from some $6 trillion US in 1950 to $47 trillion US in 2001 (CIA World Fact Book).

This expansion has occurred in parallel with a series of shifts in types of economic activity – first away from agriculture toward hard goods manufacturing, then toward soft goods production, and most recently, toward services. These changes reflect the increasing value of educated people.

At the same time, the economy has increasingly “globalized” as materials, labor, and capital have freely moved across borders in search of markets and investment opportunities – a trend that greatly accelerated after the end of the Cold War and the development of market capitalism.

This combination of growth and increasing globalization has raised the material standard of living in most industrialized nations, and in a few developing nations, but has also generated or exacerbated a number of problems.

The benefits of economic expansion have been very unevenly distributed, both within and among nations. Roughly half the world’s people live on less than $2 a day and neither benefit from nor participate in the global economy to any significant degree. The gap between the rich and poor has also widened significantly in many industrialized nations, including the United States.

Economic activity is still largely based on “throughput” – the constant extraction and processing of natural resources, which itself has been increasing exponentially, causing damage to the environment, driving deforestation, extinction of species, global climate change, and even disrupting the earth’s basic carbon, nitrogen, and freshwater cycles.

Economies have always been subject to disruptions. However, the economy is increasingly interconnected and complex, and therefore susceptible to serious disruptions that effect many more people around the world such as “Black Monday” in the US stock market, the Asian “implosion” and resulting capital flight of the late 1990’s, or the global slump exacerbated by September 11, 2001 terrorist attacks on the United States.

Many negative impacts of economic activity, including pollution and resource depletion, are ignored (“externalized”) by accounting practices. This has created an impression of unlimited economic growth, while not accounting for ecological and social deficits such as the loss of natural capital due to environmental degradation and the loss of traditional cultures due to increasing globalization.


Solutions

Restructuring our economy holds tremendous potential for dealing with poverty, environmental decline, and security concerns, and moving us toward a just, sustainable future. It can begin accounting for the true costs to the environment, phasing out subsidies that mask those costs, damage the environment, distort markets, and hurt small producers.

Taxes are often used to adjust for some of these hidden costs. Explicitly shifting taxes away from things we want (like income and investment) and on to things we don’t want (like resource depletion and pollution) can be an important part of helping move business toward sustainability, and stimulating employment, which will in turn help alleviate poverty and protect the environment.

Overhauling economic indicators to reflect human and ecological well-being is essential, since current indicators such as GWP measure only the quantity of economic activity – not the quality of that activity. New indicators can tell us how we’re doing by reflecting human and ecosystem health through such benchmarks as infant mortality, education, gender equality, social cohesion, water and air quality, volunteer time, and biological diversity. For example, the non-profit research institution, Redefining Progress has developed the Genuine Progress Indicator, which considers these externalities in addition to a nation’s GDP.

It is possible – using current technologies – to create a “factor 10” reduction in throughput, meaning we can support the same level of economic activity and lifestyle while reducing resource consumption and pollution by 90 percent. Components of a factor 10 economic transformation include a “closed loop” materials economy, in which virtually everything is designed to be reused and recycled; conversion to a clean, renewable energy system centered around solar and hydrogen power; and sustainable agriculture, forestry, and fishing.

An economy whose goal is unlimited growth, that views nature only as a source of free materials, and that values capital over labor, may continue to generate the outcomes we see today – massive environmental destruction, unemployment and underemployment, inequity and poverty, and social disruption and conflict.

An economy whose goal is development in support of human and ecological well-being, that views “public goods” and “commons” – such as clean air and water – as shareholders whose interests must be protected, and that values meaningful work for all the world’s people, could generate far different and far more positive outcomes.

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