Beth  Stratford  |  Masaryk  University  |  March  2015   MOVE  AROUND  THE  ROOM  TO  INDICATE  YOUR  CURRENT   THINKING  ON  THESE  TOPICS!   ¡  Why  is  there  a  need  for  ‘green’  economics?   ¡  *Can  we  have  infinite  economic  growth  on  a  finite  planet?   ¡  *Is  it  possible  to  deliver  ‘prosperity  without  growth’?   ¡  *Is  the  current  monetary  system  compatible  with   environmental  sustainability?   ¡  *Is  capitalism  compatible  with  environmental   sustainability?   ¡  *Should  we  try  to  put  a  price  on  nature’s  services?   ¡  How  can  we  guarantee  fair  access  to  resources  under   conditions  of  scarcity?   ¡  How  should  we  measure  society’s  progress?   Environmental   Economics   Ecological   Economics   Green   Economics   Environmental   Economics   • Emerged  in  60s   • Lots  of  overlap  with   resource  economics   • Sub-­‐discipline  within  Neo-­‐ classical  Economics   • Focussed  on  maths,   modelling,  theory   • Optimistic  about  finding   technological  ‘fixes’  for   environmental  problems   Environmental   Economics   Ecological   Economics   Green   Economics   Environmental   Economics   • Emerged  in  60s   • Lots  of  overlap  with   resource  economics   • Sub-­‐discipline  within  Neo-­‐ classical  Economics   • Focussed  on  maths,   modelling,  theory   • Optimistic  about  finding   technological  ‘fixes’  for   environmental  problems   Ecological  Economics   • Emerged  in  80s   • View  of  economy  as  sub-­‐ system  within  ecological   system   • Pluralistic  –  drawing  heavily   on  natural  science   • Concern  with  scale,   complexity,  uncertainty   • Pessimistic  about  likelihood   of  technology  ‘fixes’  for   environmental  problems   "The  economy  is  a   wholly  owned   subsidiary  of  the   environment,  not  the   reverse.”     Herman  Daly   Environmental   Economics   Ecological   Economics   Green   Economics   Environmental   Economics   • Emerged  in  60s   • Lots  of  overlap  with   resource  economics   • Sub-­‐discipline  within  Neo-­‐ classical  Economics   • Focussed  on  maths,   modelling,  theory   • Optimistic  about  finding   technological  ‘fixes’  for   environmental  problems   Ecological  Economics   • Emerged  in  80s   • View  of  economy  as  sub-­‐ system  within  ecological   system   • Pluralistic   • Concern  with  scale  and   uncertainty   • Pessimistic  about  likelihood   of  technology  ‘fixes’  for   environmental  problems   • Some  tensions  within   Green  Economics   • Emerged  late  90s   • Lots  of  overlap  with   Ecological  Economics,   particularly  critique  of   growth   • Pluralistic   • Focus  on  social  justice   • actively  engaged  as   politicians  and  campaigners  -­‐   ‘civil  society  intellectuals  or   academic  activists’       § Linear  to  circular  economy.  Cradle  to   cradle.   §   Match  the  metabolism  of  the   natural  world  (Porritt)   §   Bioregionalism  (trade  subsidiarity)   §   Calls  for  a  new  consumption  ethic   and  for  “conviviality  instead  of   productivity”   § Participatory  politics   Environmental   Economics   • Emerged  in  60s   • Lots  of  overlap  with   resource  economics   • Sub-­‐discipline  within  Neo-­‐ classical  Economics   • Focussed  on  maths,   modelling,  theory   • Optimistic  about  finding   technological  ‘fixes’  for   environmental  problems   Ecological  Economics   • Emerged  in  80s   • View  of  economy  as  sub-­‐ system  within  ecological   system   • Pluralistic   • Concern  with  scale  and   uncertainty   • Pessimistic  about  likelihood   of  technology  ‘fixes’  for   environmental  problems   • Some  tensions  within   Green  Economics   • Emerged  late  90s   • Lots  of  overlap  with   Ecological  Economics,   particularly  critique  of   growth   • Pluralistic   • Focus  on  social  justice   • actively  engaged  as   politicians  and  campaigners  -­‐   ‘civil  society  intellectuals  or   academic  activists’   ¡  Classical  economics  started  out  as  branch   of  moral  philosophy   ¡  Neo-­‐classical  economics  aspired  to  be   more  like  a  natural  science   ¡  This  led  to  a  distinction  between  positive   and  normative  economics  and   condemnation  of  latter  as  ‘unscientific’:   §  Posi%ve  economics  is  in  principle  independent  of  any  par%cular  ethical  posi%on  or   norma%ve  judgments…  Its  performance  is  to  be  judged  by  the  precision,  scope,  and   conformity  with  experience  of  the  predic%ons  it  yields.  In  short,  posi%ve  economics  is,   or  can  be,  an  “objec%ve”  science,  in  precisely  the  same  sense  as  any  of  the  physical   sciences.  (Friedman,  1953:4)   ¡  Job  of  government  to  determine   normative  goals.  Economists  to  provide   ‘value-­‐free’  technical  knowledge     ¡  Compare  outcomes  not  proceedures   ¡  Concerned  almost  exclusively  with   efficiency.   Vilfredo Pareto!               A  Pareto-­‐optimum  is  said  to  obtain  when  nothing   more  can  be  given  to  the  hungry,  the  cold,  the   ragged  and  the  homeless  without  incommoding   the  glutton,  the  miser,  the  usurer  and  the  play-­‐boy     (John  Peet,  1992).   By  efficient  we  mean    an  allocation  of  goods  such   that  no-­‐one  can  be  made  better  off  without   somebody  else  being  made    worse  off        The  Efficient  Market  Hypothesis  states  that  a   perfectly  competitive  market  will  deliver  a   distribution  of  goods  that  is  Pareto  efficient.        The  market  equilibrium  is  ‘called  the  point  of   ‘constrained  bliss’  because  it  represents  the  unique   organization  of  production,  exchange  and   distribution  that  leads  to  the  maximum  attainable   social  welfare’  (Ferguson,  1969:454).       In  neoclassical  economics…   ¡  Social  welfare  =  the  sum  of  private  utility   ¡  Utility  =  the  advantage  or  fulfillment  a  person   receives  from  consuming  a  good  or  a  service   ¡  Utility  revealed  in  people’s  willingness  to  pay     §  Both  firms  and  people  act  ‘rationally’  and  selfishly,   weighing  the  costs  and  benefits  of  their   consumption  choices,  in  order  to  maximise  their   own  personal  utility   §  All  objects  of  utility  have  some  common   characteristic  that  allows  them  to  be  compared   (value  monism)   §  The  utility  we  receive  by  consuming  is  not  affected   by  interpersonal  comparison     GDP  measures  take  no  account  of   how  wealth  is  distributed   ¡  Social  welfare  involves  much  more  than   satisfying  individual  consumption   preferences!   ¡  a  reasonable  economic  decision  for  an   individual  acting  in  a  market  setting  at  a   particular  point  in  time  might  be   inappropriate  for  society  as  a  whole.   §  E.g.  Discount  rate  -­‐  like  an  interest  rate  used  in   reverse  to  calculate  the  PRESENT  value  of  some   future  asset.   ¡  cut  down  the  entire   oak  forest   ¡  earn  £100,000   immediately   ¡  harvest  only  10%  of   the  forest  per  year   ¡  earn  £10,000  every   year,  over  50  years   ¡  Total    =  £500,000.     ¡  cut  down  the  entire   oak  forest   ¡  Net  Present  Value  =   £100,000   ¡  harvest  only  10%  of   the  forest  per  year   ¡  Net  Present  Value= £93,010.     Assuming    11%   discount  rate   ¡  What  if  the  economic  institutions  themselves   alter  our  ‘preferences’?   Marx  thought  that   capitalism   ‘estranges  man   from  …nature,   from  his  spiritual   essence,  his  own   human  essence”   James  O’Connor   (1998)  extends   the  concept  of   ‘alienation’   Kate  Soper  (1996)   discusses   ‘commodity   fetishism’   ¡  To  characterise  a  choice  as  ‘irrational’  is  to  criticize  it,  not   merely  to  describe  it  (Hausman  and  McPherson,  1993:681).   ¡  Business  and  economics  students  behave  in  a  way  more   self-­‐interesed  that  the  rest  of  us!  (Marwell  and  Ames,  1981;  Schneider  and   Pommerhene,  1981).   ¡  policies  designed  to  appeal  purely  to  self-­‐interest   actually  ‘diminish  ethical  or  other  reasons  for   complying  with  social  norms  and  contributing  to  the   common  good’  (Bowles,  2008)   ¡  Efficient  functioning  of  markets  depends  on  moral   commitments  such  as  trust,  honesty  and  goodwill   which  may  be  undermined  by  the  spread  of  market-­‐based   relationships  Polanyi  (1944),  Hirsch  (1976)  and  Hirschman  (1985)     Consumers  and   producers  must   have  perfect   information   including  about   the  future     Goods  must  be   purely  private:   “Rival”  and   “Excludable”   Perfect     Competition   no  agent  should  have   the  power  to  influence   the  terms  on  which   trade  takes  place;  no   barriers  to  entry  and   exit  from  a  market;  no   economies  of  scale   production  and   consumption   must  only  affect   those  who  have   chosen  to   engage  in  them     Rival Non-rival Excludable Non-Excludable Market Good: Food, clothes, cars, land, timber, fish once captured, farmed fish, Potential market good but inefficient (the tragedy of the non-commons!) patented information, streetlights Pure Public Good: climate stability, ozone layer, clean air/water/land, Biodiversity, information, habitat, life support functions, etc. Open Access Regime: (misnamed: Tragedy of the commons) Oceanic fisheries, timber etc. from unprotected forests, waste absorption capacity of the sea/air Non-rival, congestible Private beaches, private gardens, toll roads, zoos, movies Public beaches, gardens, roads, etc. if,  for  any  level  of   production,  the  cost  of   providing  it  to  an   additional  individual  is   zero  (or  close  to  zero),   then  a  good  is  non-­‐ rival.       A  good  whose   consumption  by  one   consumer  prevents   simultaneous   consumption  by  other   consumers         The  conditions  described  by  the  Efficient   Market  Hypothesis  do  not  exist  anywhere.       But  neo-­‐classical  economists   argued  that  the  perfectly   competitive  market  is  not  a   description  of  reality,  but  a   benchmark  against  which  to   appraise  actual  markets.     The  idea  prevails  that   ‘market  failure’  is  the   exception  to  the  rule,  and  can   be  corrected  by  government   intervention  –  e.g.  expanding   the  market  or  taxing   ‘externalities’.         ¡  The  market  will  sort  it  out!     ¡  If  prices  reflect  value,  as  resources  get  more   scarce,  they  will  get  more  expensive,  and  the   search  will  begin  for  substitutes.   ¡  Externalities  are  seen  as  the  exception  to  the   rule  –  and  something  that  can  be  ‘corrected’   ¡  Uncertainty  is  played  down   ¡  Changes  at  the  margin  are  linear   Formally  established  in  80s,  but  founded   on:   ¡  Concerns  in  1960s  and  70s  about  limits   to  growth  (e.g.  Boulding  1966;   Meadows  et  al.,  1972)   ¡  Study  of  the  flow  of  energy  and   materials  in  the  economy  based  on  the   work  of  Georgescu-­‐Roegen  (1971)   ¡  Observation  that  environmental   externalities  are  pervasive  –  prices  don’t   reflect  values  (Kapp,  1950).     ¡  Drew  heavily  from  natural  sciences   Earth  has  a  finite  carrying  capacity  -­‐  >   Limits  to  growth   Non-­‐marginal  change  -­‐>  complex   systems  thinking   Uncertainty  -­‐>  focus  on  process  over   outcome   Values  are  disputable  and   incommensurable  -­‐>  we  cannot   escape  need  for  ethical  deliberation   ¡  Clive  Spash  (1999),  The  Development  of  Environmental   Thinking  in  Economics,  Environmental  Values  8:  413–435     ¡  John  Gowdy  and  Jon  D.  Erickson  (2005),  The  approach  of   ecological  economics.  Cambridge  Journal  of  Economics  29:   207–222     ¡  Molly  Scott  Cato  (2012).  Green  economics:  putting  the   planet  and  politics  back  into  economics.  Cambridge   Journal  of  Economics  36:  1033–1049     ¡  Clive  Spash  (2012).  New  foundations  for  ecological   economics.  Ecological  Economics  77:  36–47