“We do not need to invent sustainable human communities. We can learn from societies that have lived sustainably for centuries. We can also model communities after nature’s ecosystems, which are sustainable communities of plants, animals, and micro-organisms. Since the outstanding characteristic of the biosphere is its inherent ability to sustain life, a sustainable human community must be designed in such a manner that its technologies and social institutions honor, support, and cooperate with nature’s inherent ability to sustain life.”
In theory the economy exists to support society and enhance human well-being. It is the system within a society where limited resources (land, labour and capital) are managed fairly and sustainably.
Economy literally means “household management” and comes from the Greek words oikos, meaning “house” and nomos which means “custom” or “law”. Economics is the social science that studies the factors which determine the production, distribution and consumption of goods and services. The ultimate goal of economics is to improve the living conditions of people in their everyday life.
The economy cannot be separated from society, it is an integral part of it, but the fact that the economy is just one part of a society has been largely forgotten. The economy and economic thinking should not drive society but rather, support society in it’s aims.
In turn human society should support the environment which it is part of. Economics has not valued natural capital properly, if at all. Natural capital are the natural resources that humans need to meet their fundamental needs; they are things like fresh water, soil, fisheries, forests, air, etc. Since the beginning of the industrial revolution human economies everywhere have spent our natural capital as if was income. Humanity, particularly the rich industrial part of humanity, has done irreparable damage to the environment removing resources that can never be replaced.
What is a sustainable economy?
An ideal and sustainable economy is one which provides for the greatest amount of general well-being with the least amount of resource use and environmental harm. In economic terms, to be truly sustainable, the overall demand for natural resources (also known as ecological footprint) must be less than the nature’s renewable supply of resources (also known as biocapacity).
The old economics
People are often led to believe that their well-being is driven by economic factors. This is largely not true. The economy is just one organ of society. Its fundamental purpose is to organise resources such as labour and raw materials in order to produce goods and services that create well-being.
Supply and demand
Modern industrialised economies over-produce. Average levels of life satisfaction have not increased in the past 50 years in these economies and yet the amount of production has more than doubled. If the purpose of the economy is to provide well-being and more production is not creating more well-being then it’s a complete waste.
The constant drive for economic growth is only partly connected to population growth and increases in standard of living. In most countries in the developed world the economy is more than big enough to provide a high standard of living and well-being for everyone. Once an economy has reached a certain size (measured in GDP per capita) any further growth is not only unnecessary, it is also damaging. Read more about economic growth.
Capital and profit
A capitalist economy is a market system where goods are produced and sold for profit. The profits gained tend to be invested in capital, in the form of producer goods, things such as factories, machines, tools and other productive resources. It is easy to see that this continuous reinvestment of profits leads to the growth of production. This growth is compounding because there is growth on top of previous growth. It is also easy to infer that wealth in a capitalist economy always tends towards more inequality because capital begets capital. Read more about capital and profit.
External costs are costs imposed upon a third party when goods and services are produced and consumed. Goods and services with external costs are effectively being subsidised by society-at-large which ends up paying them. Goods and services should internalise all costs and therefore pass them on to the direct consumers of the goods and services. Read more about true costs.
Productivity and efficiency
Higher productivity (measured as GDP per capita) is the goal of most economies. However productivity includes production that is wasteful, harmful or just bad! Things like military weapons, cigarettes and all sorts of useless junk are all counted in GDP. The paradox is that a lot of really good services are not factored into GDP including housework, DIY, childcare and volunteer work. Increasing productivity does not mean increased well-being, it can mean the opposite with overworked, stressed parents having less time for things that really provide well-being including family and friends, personal development and meaningful pursuits. Read more about productivity and efficiency.
A new economics
Considering the fact that developed economies continue to grow, continue to harm the environment and continue to not increase the well-being of people what is to be done?
There are a number of ways to create sustainable economies which are considered in the section New Economics. These strategies include economies that are: