• Executive Summary
• What is economics?
• Local and global markets
• Energy: price and cost
• Equity
• Natural, human, and social capital
• Resources

Executive Summary

More than anything else markets have been praised for their efficiency, for the way that they coordinate millions of actions of individuals through what Adam Smith called the 'invisible hand' of the market. According to market theory, by acting rationally and pursuing our own self?interest, we will collectively end up with more wealth than if we had tried to collectively plan and direct our economy. Is the most efficient way to get a job done necessarily the most enjoyable, or the best way? Is efficiency the only goal we share as a society, should it even be the most important one we have? Rational efficiency and self?interest may cause us to devalue community and other elements of a sustainable society that cannot be quantified.

What is economics?

The word economics comes from Greek, oikos, which means house or home, and nomos, which means management. Eco-nomics is at its root closely related to eco-logy. While ecology is about the study of the home, economics is about managing it. The modern interpretation of economics has a much narrower focus. Modern economics has to do with the science of the production, distribution, and consumption of goods and services. Over the last century economics has been transformed from a broad political philosophy into a carefully defined technical science. And economists have in a short time gone from being one of many different kinds of political advisors to being the dominant managers of society. An understanding of sustainability is incomplete unless we comprehend the significance of economics in the management our present society.

Local and global markets

Local markets and limited long-distance trading were the basis of the economy for thousands of years. National and global markets are a phenomenon of the last couple of centuries. These larger, all-encompassing markets have developed alongside the stronger national governments and accompanying enforcement structures. We see a trend toward globalization of economies moving with great momentum, as reflected in NAFTA, APEC, and GATT. On the other hand we see a reemergence of local markets, including farmers markets, local currencies, and barter networks. Is globalization inevitable and desirable? How does globalization interact with local economics?

How does globalization degrade communities and ecosystems? If a global company chooses to assemble a product in Mexico instead of the Pacific Northwest, the costs include people in the Pacific Northwest losing jobs, people in Mexico working for very low wages, the Mexican environment being polluted, and the global environment being polluted by more shipping and transportation costs. Is progress necessarily about competing in the global marketplace, or might it also mean a redevelopment of local and regional economies?

Energy: price and cost

Here in the Pacific Northwest energy seems to be cheap. The price paid for electrical energy is low, partially because it does not come close to representing the True Costs of producing and distributing that energy. There are many costs associated with energy that are external to the energy market. Consider the situation of hydropower created through damming of rivers, a major source of electricity in the Pacific Northwest. While hydropower appears to be a 'clean' and attractive energy source, we are slowly learning about some of its hidden costs. Building the dams to produce hydropower was heavily subsidized by the federal government, which means the rest of the country is paying much of the original capital outlay for construction costs.

Hydropower also incurs ecological costs, in terms of damage to water quality and habitat, most clearly demonstrated in reduced salmon runs. There are cultural costs in the loss of traditional and sacred grounds for Native Americans, as well as serious negative impacts on farming and other rural communities. Hydropower production has aesthetic costs as well, as wild rivers and valleys are turned into a series of reservoirs. There are a number of long-term economic costs that have resulted from the use of hydropower as a source of cheap energy, not least of which is that communities have been built to be dependent on inefficient and wasteful land use patterns and lifestyles.

When we look at the True Costs of hydropower, as we now are doing in the Pacific Northwest, we see that in fact dams and power plants are more expensive than we thought. The True Costs of hydropower energy far exceeds the price we pay. Conservation of energy is becoming a competitive form of energy production in the energy use equation. We get more for our dollar by investing in energy conservation programs than by building new dams and power plants. Sustainable economics recognizes the failure of prices to reflect the real costs to community, the environment, and the future.

Qualitative development and quantitative growth
The prevailing economic and political theories advance economic growth as the primary strategy for protecting the environment and helping the world's poor. However, it is also known that sustained physical growth and expansion on a planet of limited resources and space is an impossibility. While it is possible to develop qualitatively without growing quantitatively, our dominant culture still holds on to the dream of limitless and unbounded material growth. It is possible to have economic progress and prosperity without increasing our levels of production and consumption. The earth does not grow, but humanity does develop. Humans, as with all plants and animals, grow physically to maturity but then, hopefully, we will work on developing mature communities.

Equity

Neither extreme poverty nor extreme affluence are sustainable. If peace and understanding between people and communities are necessary for sustainability, then extreme differences and inequities in income and wealth need to be reduced. Our cultural obsession with affluence and growth can be seen as an avoidance of the politically more difficult policies of wealth and resource redistribution and sharing.

Problems of poverty
Communities can be destabilized by hunger, homelessness, and lack of adequate health care and education. Hungry people will do what they need to survive, even if that means scouring the landscape for the last remaining food. When people cannot meet their basic needs, poverty is clearly not sustainable.

Problems of affluence
Too much affluence isolates people from each other, and can weaken interdependencies and communities. When we celebrate affluence and accumulation, we are rewarding people for consuming. A culture that celebrates material wealth does so at the expense of community and spiritual wealth, and at the expense of sustainability.

For some, the notion of economic growth is inconsistent with notions of a sustainable society. While not of that camp, we do recognize that economic growth is not an end in itself even though it is often treated as such. Economic growth can be a means toward increased security and social equity within our communities if we keep a few things in mind. One is that benefits of economic growth must be broadly accessible rather than narrowly held. Unless individuals can legitimately hope that through their efforts they will share in the benefits, our societies will become ever more troubled. Another is that we must stop deferring the costs of growth. The ability of future generations to meet their own needs is largely dependent on the resources we preserve for their use and the economic, social and environmental burdens we pass on to them. And, finally, we must recognize that we are each something more than the sum of our possessions. Economic growth which does not add lasting value to our lives will not make us secure or happy for long.

Natural, human, and social capital

There are other forms of wealth and capital besides money. Some of these are natural and social capital. Think of capital as something that can generate interest when there is enough of it invested, as money in a savings account. Sustainability then means living off of the interest, and not spending the capital. Not spending capital allows a community to preserve opportunities for coming generations, or to be prepared for challenges.

Natural capital includes the biological health and productive capacity of ecosystems, and the web of life. We are spending natural capital when we destroy soil, habitat, and forests, and cause species to go extinct. Social capital includes the trust and understanding we have for each other, the commitments we have to our communities and our children, and our ability to cooperate. We are spending social capital when communities are over stressed, when relationships are weakened by fear and alienation, and when families are destabilized by hunger, homelessness, and are deprived of education and health care.

Redefining wealth
What is our cultural story? What kind of wealth do we talk to our children about, and what do we wish for them? To what extent do we value the accumulation of money and physical things, as compared with the value we place on our relationships, our communities, on peace, and having beauty around us?

Resources

Cahn, Edgar and Jonathan Rowe. 1992. Time dollars. Rodale Press.

Daly, Herman E. and John Cobb. 1989. For the common good. Boston: Beacon Press.

Durning, Alan. 1992. How much is enough? New York: Norton.

Ekins, Paul. 1992. Real-life economics: understanding wealth creation. New York: Routledge.

Pearce, David W. and Jeremy Warford. 1993. World without end: economics, environment, and sustainable development. New York: Oxford University Press.

Rifkin, Jeremy. 1995. The end of work: the decline of the global work force and the dawn of the post-market era. New York: Tarcher-Putnam.