A World That Works For All

The Solutions Journal
June 2012

The global economy rests on a knife’s edge. The financial crash of 2008 caused 50 trillion dollars and 80 million jobs to evaporate.1 And the wreck is not over. This article describes the major challenges facing the economy and proposes solutions.

The Challenges

The International Labor Organization sets forth the following grim statistics:2

  • Studies of 69 of 118 countries with available data show an increase in the percentage of people reporting worsening living standards in 2010 compared to 2006.
  • People in half of 99 countries surveyed say they have little confidence in their national governments.
  • In 2010, more than 50 percent of people in developed countries lacked decent jobs (in Greece, Italy, Portugal, Slovenia, and Spain, it is more than 70 percent).
  • The share of profit in Gross Domestic Product (GDP) increased in 83 percent of countries studied between 2000 and 2009, but productive investment stagnated globally during the same period.
  • Growth in corporate profits increased dividend payouts (from 29 percent of profits in 2000 to 36 percent in 2009) and financial investment (from 81.2 percent of GDP in 1995 to 132.2 percent in 2007). Bankers regained their bonuses, but workers face falling wages.
  • Food price volatility doubled from 2006 through 2010 compared to the prior five years. Financial investors benefit from this; food producers do not. Remember, it was a food riot that touched off the Arab Spring in Tunisia.

Nobel Laureate economist Joseph Stiglitz observed, “Unless we have a better understanding of the causes of the crisis, we can’t implement an effective recovery strategy. And, so far, we have neither.” His diagnosis: ideological driven release of the financial sector from the regulations that had prevented collapse since the 1930s, bubble-fueled consumption, and growing inequality. His prescription: promote energy conservation, reduce inequality, reform the global financial system to drive productive investment instead of a buildup of cash, and strong government expenditures to aid restructuring.3

Despite warnings that the economy faces continuing peril,4 governments are doing none of this. Fixated on austerity (read: ensuring profits for bankers, rather than investing in real prosperity in communities), governments threaten their citizens’ quality of life not only in the Euro-zone countries facing difficulties—Portugal, Ireland, Italy, Greece, and Spain—but across the globe. Despite the Millennium Development Goals, developing nations struggle to lift from poverty the half the world’s population that lives on less than $2 a day. But the situation is worsening: millions of drought-driven refugees in the Horn of Africa join people threatened by too much or too little glacial meltwater and monsoon floods from the Himalayas to Colombia.5 It is clear that climate change will hit the most vulnerable hardest.6,7 Yet, these poorest three billion emit only 7 percent of global emissions. The richest 7 percent (about half a billion people) spew out 50 percent.8The primary crises the globe faces are created by an economy geared to overconsumption in the North.

The global dependence on fossil fuels that drives the climate crisis, in turn, endangers the economy. Six months before the financial collapse, oil prices rose to $150 a barrel. When gasoline in the United States exceeded $5 a gallon (far below prices in Europe), American workers chose to drive to work instead of paying their mortgages; the housing market collapsed and the September 2008 financial collapse ensued.9

Between 2005 and 2010, ExxonMobil, Chevron, Shell, and BP reduced their U.S. workforces by 11,200 workers10 but pocketed $4 billion a year in tax subsidies. Globally, subsidies to the fossil fuel industry top $550 billion every year,11,12at least 12 times any subsidies given to energy efficiency and renewable energy.13 In 2011, ExxonMobil made $5 million in profit every hour, or more than $41 billion, but paid lower taxes than the average American.10 In 2012, as oil prices hit $120 a barrel, oil companies made an additional $5 billion from American workers.14 Prices could reach as high as $250 a barrel if Iran blockades the Strait of Hormuz.15

In 2010, the third edition of Global Biodiversity Outlook,16 building on the 2005 Millennium Ecosystem Assessment,17warned that climate change and other assaults are tipping three of the earth’s major ecosystems into collapse: By the end of this century, if we proceed with business as usual, there will be no living coral reefs on the planet. The Amazon now releases more carbon than it soaks up. The acidifying oceans risk ending life as we know it.16

These “drivers of change” mean that something is going to give.

The Solutions

Solutions to these challenges will come from a combination of international leadership, good policy at the national level, action by states and provinces, a suite of market-based measures, and a growing commitment by individuals to create the future we want.

International leadership is represented by Bhutan’s courageous commitment to measure its national accounts with the metric of Gross National Happiness.18,19 Asking what we want more of rather than counting only Gross National Product—the flow of money and stuff through the economy—grew from the work of Herman Daly in the 1970s on the Index of Sustainable Economic Welfare. In 1995, Clifford Cobb, Ted Halstead, and Jonathan Rowe proposed the Genuine Progress Indicator, taking Daly and Cobb’s work further to value volunteer work, cost of crime and family breakdown, the cost of underemployment, ozone depletion, and the loss of old growth forests. They calculated the GPI from 1950 comparing it to the GDP, finding that we’re not even breaking even. This same finding by the Chinese green GDP project resulted in its being consigned to an academic exercise, but it now appears to be re-emerging.20

 

Eric Hetzel

Solar panels on rooftops in Germany, where national renewable energy incentives have led to widespread adoption of renewable technologies. The feed-in tariff, for example, is on track to make solar energy prices competitive with grid electricity by 2013, and the related rising demand for solar panels has already generated 300,000 new jobs in four years.

 

More recently, the recognition that GDP is a wholly insufficient metric became the basis of the French Commission on the Measurement of Economic Performance and Social Progress,21 the Chinese Green GDP,22 the United Kingdom’s Happy Planet Index,23,24 the Genuine Progress Indicator, and an array of “circular economy” applications. Introduced in the 1970s by Walter Stahel,25the concept of the circular economy became the basis of Chinese development policy in 2008.26,27 A new report describes how it would net the European manufacturing sector $630 billion by 2025.28These initiatives, as well as the fortieth-anniversary update toLimits to Growth29 and the new report Beyond GDP,30 challenge the myth that growth is necessary for prosperity.31,32

National policies like Germany’s feed-in tariff (FiT) have unleashed that country’s renewable energy industry, underpinning German prosperity. In their first four years, FiTs created 300,000 new jobs and cut the unit cost of solar panels enough to reach grid parity (costing the same as grid electricity) by 2013.33 The program added only two to three euros per month to electricity bills, roughly $50 per customer annually, for a total of €8.6 billion. Deutsche Bank found that far from costing the economy, the savings outstripped the total cost of payments made by households. Had customers bought electricity from conventional coal generation, they would have paid an additional €9.4 billion.34 If the United States implemented a similar program it would create 2.5 million jobs.35

The green economy is emerging best, however, at the local level, as people realize that they must build their own plan for resilience in the face of an unaccountable global economy.36 The failure of global leadership to agree to climate protection at Copenhagen, Cancún, and Durban has spurred cities to implement sustainable practices. Denmark’s Samso Island is 100 percent renewably powered.37 The German town Wildpoldsried is as well, producing 321 percent more energy than it uses and selling the excess for $5.7 million each year.38 Over half of Germany’s renewables are owned not by utilities but by farmers and citizens.39 San Francisco is on track to be 100 percent renewable by 2020. This is good news, as already half of the world’s people live in cities, and three-quarters will by 2050. Projections warn that in the next decade or so, China will seek to move into cities yet unbuilt more people than there are in the United States. Just the copper wire this would require is more than current world copper production.40 In the business as usual scenario, by 2030 China will want more oil than the world now produces.41

Tools like Natural Capitalism Solutions’ LASER (Local Action for Sustainable Economic Development)42 have helped communities from Kazakhstan, to South Africa, to New Zealand, to Newburg, New York, implement renewable energy and a whole array of measures to build stronger locally based economies. Cities are developing locally appropriate sustainability indicators to enable them to judge whether they are gaining or losing, and they are adjusting policies to deliver greater well-being.43

Agricultural approaches like Allan Savory’s holistic management (which takes carbon from the air and returns it to the soil while increasing grazing output) and organic farming (which the UN Food and Agriculture Organization now admits will do a better job of feeding the world’s people) are coming to be recognized as superior to industrial agriculture.44

At the same time, companies are implementing more sustainable practices. When Walmart asked its global supply chain of 60,000–90,000 companies to measure their carbon footprint and report it to the Carbon Disclosure Project,45 the attention drove sustainability into even very small companies. More than 27 studies from the likes of the wild-eyed environmentalists at Goldman Sachs46 show that the companies that are the leaders in environmental, social, and good governance policies have a 25 percent higher stock value and the fastest-growing stock value; they also deliver superior financials and are better investment risks. Companies like Puma, Novo Nordisk, Baxter, and many others are counting the costs and risks of unsustainability in their financial reports. They have found that behaving more responsibly enhances core business value.

This Natural Capitalist47 approach is taking hold in companies in three ways. First, companies are eliminating waste and implementing more efficient use of resources. This drives profitability and buys time to solve climate change, resource constraints, and other challenges.48 Second, companies are redesigning how we make and deliver everything using sustainable approaches such as biomimicry,49 and leading companies are also profitably implementing cradle-to-cradle design.25,28,50 The third principle—that we manage all institutions to be restorative of human and natural capital, the forms of capital that underpin all life and thus the economy—is being embedded in innovative business schools. It is becoming the management philosophy of a whole new generation of business people.51-53

 

Walmart

Delores O’Dell of Liberty, Mississippi, shops the apparel section at Walmart, which recently requested that every company in its global supply chain – as many as 90,000 – report its carbon footprint to the Carbon Disclosure Project. Walmart is one of many companies that have realized behaving more responsibly can enhance core business value.

The world has reached, in the words of Canadian activist and author Naomi Klein, “a no kidding around moment.”54 The Arab Spring and the global phenomenon of Occupy Wall Street are challenging dictatorial regimes and the dominant economic paradigm, delegitimizing many aspects of the old order.55 The new economic model of co-op capitalism56 arising in these movements values community, networks, and collaboration over competition and acquisition. From occupiers who are helping foreclosed homeowners reclaim their houses, to Spain’s indignados, to the embattled activists in Syria, to farmers in Japan challenging the nuclear industry, to the villagers in Wukan voting out corrupt officials, the global conversation has entered a new phase. People are realizing that the powerful interests that ruled the last century will not solve their problems. They are retaking control over their own lives.

For this global populist movement to make a difference it will have to do more than protest. As it installs new governments, it must craft policies to relieve debt and encourage productive investment. Globally we need to enable countries like Greece and the whole of the developing world to escape the crushing debt that stifles efforts to build prosperity. Locally, it would be far better to pay people who are at risk of defaulting on their mortgages, enabling them to pay the banks and stay in their homes, than to bail out the banks, which are only hoarding their newfound cash.

The world needs to recognize that there is a difference between debt-fueled consumption and borrowing to invest in productive assets for the future. Economic policies and obsolete subsidies that reinforce inequality and constrain the transition to a green economy must be swept away.57

At present, we tax what we want: income and employment. And we subsidize what we do not: pollution and depletion of resources. This must be reversed. As Al Gore and David Blood wrote in their Manifesto for Sustainable Capitalism,58corporations must migrate away from short-term fixation on quarterly profits and share price.

Al Gore talked about it, Unilever CEO Paul Polman is doing it. He refused to issue quarterly reports just to fuel Wall Street’s appetite for volatility. The company’s share price fell 8 percent. His answer: good, that’s not the sort of investor I want. His plan: double sales and halve the environmental impact of Unilever’s products over the next ten years, improve the nutritional quality of its food products, and link half a million smallholder farmers and small-scale distributors in developing countries to its supply chain. Polman states, “The Occupy Wall Street movement sends out a very clear signal. If you look out five or 10 years … consumers will not give us a sense of legitimacy if they believe the system is unfair or unjust. Companies that miss the standards of acceptable behaviour to consumers will be selected out.”59 This is the sort of leadership to which all companies should aspire.

It is important, however, to recognize what markets are good at and for, and what government is better at. Market mechanisms are extremely powerful. Approaches like cap and trade work, drive environmental protection, and enhance profitability. But in the end, markets only allocate scarce resources efficiently in the short term. Adam Smith, the father of markets, was very clear that this is all they were ever intended to do. They were never created to protect grandchildren. This is the job of a free people coming together in a democracy and asking, as Rio+20 is now doing, what is the future we want?60 This is why humans created governments and it is what we should insist that they attend to.

Smith carefully distinguished between economic activity that enables nations to afford military forces to protect their boundaries and the broader suite of activities that bring happiness to individuals. A moral philosopher, Smith rejected the notion that greed was good, stating in The Theory of Moral Sentiments, “that to feel much for others, and little for ourselves, that to restrain our selfish, and to indulge our benevolent affections constitutes the perfection of human nature; and can alone produce among mankind that harmony of sentiments and passions in which consists their whole grace and propriety.” Smith continued: “The chief part of happiness arises from the consciousness of being beloved.”61

Which returns the conversation to the concept of Gross National Happiness. On March 18, 1968, Robert Kennedy put it elegantly:

Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things.… The gross national product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl.… Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.62

It is time for the world to reject the life-destroying economics of GDP and commit to achieving ever greater Gross National Happiness.

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