This article highlights how broken our political process is and provides a critical example of how issues that both major parties agree on (or ignore) are virtually removed from democratic scrutiny.
I wrote an article related to this one in New Matilda a while ago discussing economic growth as it relates to ecological footprint.
The edited volume that the article links to is really worth a read too.
Putting a foot in it: an election that ignores ecology
As we ponder who will lead our next government we need to ask who will best deal with Australia’s overblown ecological footprint. It’s about seven global hectares per person, which is about the size of seven soccer fields and is among the largest per capita footprints in the world. It is an issue that demands attention at the highest level.
So far in the election campaign, we have seen some discussion about reducing our carbon footprint, but none about how our economic system is putting more pressure on the planet than it can bear.
The ecological footprint measures the demand humans make on nature. It estimates how much biologically active land and water a human population uses to support its way of life. This system of accounting also measures bio-capacity, which is how much biologically productive area nature has available to provide these essential and nonessential services.
The available bio-capacity of the planet is declining alarmingly as human numbers and their individual demands on environments continue to increase.
Footprint analysis takes account of the sustainability of our food production and purchases, our manufacturing, buildings, transport systems and our energy systems.
By measuring and monitoring the ecological footprint of an individual, household, community, city, business, nation or all of humanity, we can continuously monitor our pressure on the planet and make progress in reducing it. We can and must learn urgently to live within the resource constraints of a single Earth.
Footprint methodology is well-validated science and it is being used nationally and internationally by governments and civil institutions to monitor comprehensively human impact on the environment.
It estimates footprints in global hectares per person. These are about the size of a soccer field. The 15% who live in rich countries use about 6.5 global hectares per person.
The 48% who live in middle income countries use 1.98 hectares per person and the 37% living in poor countries have an average footprint of 0.8 ha per person.
It’s time Australia’s politicians checked our footprint. AAP Image/Alan Porritt
For a population of 7 billion people to live sustainably, we can use about 1.8 ha per person. We are using about 50% more that that and the planet is in ecological deficit.
We are surviving this overshoot by depleting the earth’s resources, raising the earth’s temperature and reducing further the stock of biologically active land and water at the very time that human demands for them are increasing. Our environmental overshoot will go on increasing unless we very quickly transform the human mindset and the global economy, contain the growth in human numbers and develop more equitable systems for sharing across national borders.
The really good news is that about half of the human ecological footprint is attributable to carbon dioxide emissions. We know how to reduce these and by weaning our species off energy derived from burning fossil fuels, humanity’s footprint could be very significantly and rapidly reduced towards Earth’s bio capacity.
How is all of this relevant to the coming election? We need to see evidence that our aspiring leaders understand this desperately serious issue, and its implications for Australians and other world citizens. Business as usual is no longer a responsible option. If we continue to expand our footprint, it further constricts the ability of poor countries to expand theirs and hastens the decline in existing biologically active land and water. Our next prime minister must be ecologically footprint literate.
We must engage our would-be political leaders in an urgent national discussion about the disgraceful inadequacy of our current carbon emission targets.
To avoid doing what we could so easily do in drastically cutting our carbon emissions is a culpable crime, not only against our own citizens of the future, but against the capacity of people in developing countries to achieve even basic standards of health and wellbeing.
And we need a national debate about the way our economic system affects our growing footprint. We need fundamental discussions about what we want from an economic system and how we should measure progress in achieving it.
Which brings us to the issue of human health and wellbeing. Increasing numbers of thoughtful Australians are recognising the impossibility of continuing with business as usual and are seeking leadership that will place population health and wellbeing at the heart of the national enterprise, which it is manifestly not at present.
The future survival of our species depends on us reaching an acceptable relationship with the finite resources of the planet. The mental health of our young requires that they can envision a viable future for themselves and their children. They need to know we are doing the things that as a nation make hope possible.
We must engage Tony Abbott and Kevin Rudd in active consideration of these realities.
Robert Douglas is a Director of the NGO Australia21 – http://www.australia21.org.au – which seeks to expand national understanding of issues such as Australia’s ecological footprint.
The consistently measured and sensible Ken Henry this week criticised both major parties for promising not to raise taxes. The Labor party has promised not to increase the total federal government tax take beyond 23.5% and the Coalition have promised to always be lower taxing than Labor. These promises are distressingly reminiscent of Swan’s ludicrous promise to return to surplus in 2012/13 no matter what.
Ken Henry’s criticisms were founded on the knowledge that we face unavoidable government expenditure increases in health and age pensions due to our aging population and that, if we don’t increase taxes, we will have to keep making deep cuts to other government programs. I agree with Dr Henry and have written about this topic elsewhere. However, I believe the reasons that we should increase the total tax take are much more profound than just covering the expenses of an aging population – we should do it for the happiness, health and future prosperity of our society.
What are the things that really improve our quality of life? More money in our pockets can help if we’re really poor but it has diminishing returns the wealthier we get. A lot of organisations and researchers have built indexes measuring different elements of quality of life in different countries and cities around the world. Looking across many of these measures, we see that those OECD countries with higher proportion of GDP taken in tax tend to perform better on measures of wellbeing. It’s complex and there are certainly measures which don’t show this trend and countries that buck trends within each measure but the underlying trend remains. Normative judgements about what is important shape every individual’s view about wellbeing making this a very difficult area in which to generalise.
Environmental protection is fundamental to happiness, health and prosperity but rarely generates enough income to pay for itself (tourism in some places is an exception). Our greenhouse gas emissions must be dramatically reduced if we are to avoid catastrophic effects of climate change. This requires either a high price on carbon through a tax or trading scheme or a large commitment in government expenditure. We also need to address salinity problems in our agricultural lands, biodiversity loss and the declining health of our river systems. These things are all critical imho but we currently lack the government funds to address any of them effectively.
Australia sits towards the lower end of OECD rankings with a total tax to GDP ratio of just over 30% (OECD average is around 36%). We can well afford to collect more tax in order to provide the best of what a wealthy country can offer its citizens. If we should choose to do so, I would again agree with Ken Henry that we should focus on taxing resource extraction and land values rather than increasing taxes on wages and profits.
I intend to make this the subject of future research so will likely make more posts on this topic over the coming months.
Housing affordability is an issue that perennially haunts political discourse. It rarely becomes the target of actual policy because the overwhelming majority of politicians refuse to face up to the real causes and are terrified of the few effective solutions. However, the truth is that introducing a broad-based land tax would take us a long way towards resolving concerns about housing affordability, urban sprawl, and falling government revenue.
If there are so many good reasons why we should increase our use of land taxes, why don’t we do it? The real estate lobby is obviously one well-resourced reason that land tax reform is difficult but there are about six million other reasons and they’re called home-owners.
The problem with land taxes is that explaining why they are good is complex and requires time, whereas the arguments that can be used by political opponents against them are simple, compelling and strike at the heart of modern consumerist security. In the age of the focus group and political sound bite, that stacks the odds firmly against land taxes despite overwhelming economic and social justice arguments for them.
An illustration of this has occurred just in the last few days with the Business Council of Australia including land taxes in their Action Plan for Enduring Prosperity and the activist group GetUp taking out full page newspaper ads, setting up a website spoofing the BCA plan and writing to members to take action, warning them that:
“Homebuyers would be invited to pay even more, by introducing a new land tax on home owner-occupiers.”
GetUp may be right to question the motives of the BCA and it may seem reasonable to assume that recommendations made by the big business lobby are going to have a questionable social justice impact. However, I’d be willing to bet GetUp didn’t really do their homework on this one. If they did, they’d probably conclude that broadly applied land taxes would be well aligned with their progressive agenda.
Every significant taxation review carried out by independent experts in Australia has recommended making greater use of land taxes. The most recent, Australia’s Future Tax System, often referred to as the Henry Tax Review, was no exception, citing land tax as a potential efficient source of revenue for states and territories, concluding:
“The future Australian tax system should increasingly rely on land values as a tax base.”
The fact that an overwhelming majority of tax economists advocate for increased land taxes doesn’t automatically mean we should agree. The overwhelming majority of economists are wrong about an alarming number of issues, some of them fundamental to our wellbeing.
However, in this case there are many good reasons that so many tax economists are keen on land taxes: they improve housing affordability and increase housing supply; they’re very difficult to avoid; and they are relatively easy to administer (we pretty much already do this everywhere for local government rates). They encourage the efficient use of land; they do not distort markets; they reduce rent-seeking behaviour by investors; they discourage land price bubbles caused by speculative investing and they can recoup government expenditure on services and infrastructure such as public transport, libraries, parks, schools and hospitals.
In fact, the reasons are so compelling that there are some who believe we should only have one tax and that should be a land tax. I wouldn’t go that far but I certainly include myself in the group of tax economists who believe land taxes should play a much greater role in our tax mix.
Fundamental in understanding all of these arguments is that we are talking about taxes on the unimproved value of the land only, not the land plus buildings and other infrastructure.
The capacity for the judicious use of land taxes to pay for infrastructure expenditure is potentially revolutionary. The amount that new infrastructure increases land values is a very good proxy for how useful and valued by the community that infrastructure is.
If we prioritised infrastructure projects based on projected land value increases and then taxed enough of that windfall gain to pay for the infrastructure, we could have rolling investment in major projects that pay for themselves. This was the essence of the point being made by the BCA report.
Prompted by the Henry Tax Review, the ACT is leading the way in state and territory tax reform. The ACT government has recently begun a transition away from inefficient stamp duties and insurance taxes towards land taxes. They are dealing with the tricky transition by rolling it out very slowly over 20 years, thus spreading the impact on land prices broadly enough to make it negligible in any particular year.
Other states and territories should follow suit as soon as they can. Even if they are reluctant, I expect the success of the ACT system will force them to eventually follow because those states and territories that get rid of insurance taxes, payroll taxes and stamp duties and replace them with land taxes will create a more attractive operating environment for business, more affordable housing and have a stronger more sustainable revenue base. Who could argue with that?
Warwick Smith does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.
Federal treasury just released a scoping paper on corporate taxation and have warned that they are basically impotent when it comes to preventing profit shifting by multinational companies. We’ve all heard about high profile cases like Apple and Google but this kind of behaviour is very widespread. These companies can’t shift the land they use overseas. Billionaires can’t pay clever accountants to hide the land they and their companies use in the same way they hide their income in trusts, super funds and other, more arcane tax dodging instruments. They can be more efficient with their use of land in order to reduce tax – but this is a good thing.
For more information on land taxes and land prices, see the Henry Tax Review Volume 2 pp. 247-270.
Last year it was estimated that there were over 90,000 vacant houses in Melbourne alone that were not available to rent. That’s right, 90,000 houses just sitting vacant while the owners wait for the land prices to go up. Sufficient land tax would discourage land banking of this kind as well as the more familiar land banking on urban fringes. A tax of just one or two per cent of the land value per annum would make other investments more appealing than land banking and would bring most of these houses back on the market – either for sale or for rent. So, not only would supply increase – in a much more real sense than that created by urban sprawl – but many buyers would be removed from the market because some property investors would turn to other kinds of investment.
Taking some investment buyers out of the market will reduce price rises or lead to price drops depending on the rate of the tax. In the medium to long term, taxes could be set to keep land price rises well below wage increases. In this way, housing affordability could be restored while avoiding a price crash and the resulting broader economic downturn.
A serious political challenge with the introduction of land taxes is that the it causes a one-off drop in land values the moment it is announced (see the Henry Tax Review V1 p249). This is beneficial for those about to buy land but it comes at the expense of current landowners. The transition must be carefully and sensitively managed, requiring long term planning and the capacity and willingness to explain quite complex ideas to the community.
For more information on land taxes and land prices, see the Henry Tax Review Volume 2 pp. 247-270.
The World Bank produced a report in 2008 titled Unlocking Land Values for Financing Urban Infrastructure. This report assesses and summarises many studies showing that well targeted infrastructure spending results in land value increases greater than the costs. Usually the majority of the increased value goes to private land owners. The critical social justice question here is why should a small proportion of lucky land owners receive large windfall gains for infrastructure paid for by all tax payers? If you just happen to live close to a new train station on an extended line your land value will increase dramatically through no effort or action of your own.
In addition to suburban public transport infrastructure, high speed regional rail in Australia could fall into the category of self-funding (or at least partially self-funding) infrastructure investment as it would make commuting for work into capital cities from regional centres more feasible and therefore lift land prices in those regional centres. This we would help address overcrowding, road congestion and housing affordability in major cities.
For a primer on land value capture for infrastructure and a list of links to other resources head over to the Prosper Australia site.
Compulsory superannuation was introduced by the Keating government in 1992 as a way of dealing with the ballooning age-pension costs resulting from an ageing population and the looming retirement of hordes of baby boomers. As it turns out, the superannuation scheme we now have is costing the government more money than it’s saving. How could this be and why aren’t we doing anything about it? An examination of the growing financial sector in Australia and its increasing resemblance to a giant Ponzi scheme provides some of the answers.
Ponzi schemes are named after Charles Ponzi who, in the United States in 1920, offered investors fantastic returns on money he said would be used to buy international reply coupons in Italy, where they were cheap, and cash them in for stamps in the US with profits of over 400 per cent. Instead, he took investors’ money and used it to pay previous investors (as well as taking a cut for himself, of course). Using money from current investors to pay previous investors’ returns is the core element of a Ponzi scheme.
Why do I think this is relevant to superannuation in Australia? Super is clearly not solving the problem that Keating claimed it would, and yet we are planning to pour more and more of Australia’s wages into it. The Australian government is currently spending about $32 billion per year on superannuation tax expenditures (taxation based incentives for superannuation contributions). It has been estimated, by the superannuation industry, that this $32 billion in tax expenditures is currently saving the government about $7 billion in pension costs. So, if we dumped all of the superannuation tax concessions, we could not only provide pensions to all of those who would become eligible but also increase payments to provide a more comfortable retirement. Similarly, a CPA Australia report concluded that the current superannuation arrangements are having a ‘minimal impact’ on retirement savings and that high levels of household debt mean that many retirees will still be reliant on the age pension despite contributing to super all their working lives.
If super is not protecting government coffers from blowouts associated with providing pensions to the baby boomers, who really benefits from the current superannuation arrangements? To find out, we should follow the money. Let’s consider Australian superannuation in its entirety, not just the compulsory part, as this gives us the full context of the compulsory component. About 38 per cent of the superannuation tax expenditure goes to the wealthiest 10 per cent, which means that by 2014–15 the top 10 per cent of income earners will receive over $17 billion in tax concessions. So why exactly are we planning to spend $17 billion per year helping the wealthiest Australians save for their retirement?
Even those staggering figures don’t really explain who benefits from the current super arrangements. Seventeen billions might seem like a lot but the total assets currently in superannuation funds approach $1.5 trillion. We know private fund managers reap massive rewards at the expense of their customers and we know firms that help the wealthy manage their Self-Managed Superannuation Funds (SMSFs) are laughing all the way to the bank, but they are still just skimming the surface of the massive super-pot.
In 2011–12, about a third of super was invested in Australian shares, about a third in overseas shares and about 10 per cent in real estate. Most of the rest is in interest bearing investments of various kinds. This means that about $500 billion has gone from wages into the Australian share market. More money is pouring into super funds every payday. A substantial proportion goes into shares, regardless of what’s happening in the broader economy, simply because there aren’t many options and because that’s what many default portfolios do. At this point, the Ponzi scheme comparison begins to emerge.
How much of this investment is based on the underlying value of the companies whose shares are being purchased? Individual decisions about investment may be directed by the relative value of one stock versus another but are often not based on absolute value. In an inflated share market just about everything is overvalued, yet that doesn’t matter if people are still buying, because returns will be generated by capital gains, not by dividends.
Because money is constantly flowing into the share market due to mandatory superannuation contributions, the likelihood of capital gains is artificially raised. This makes buying shares an even better prospect so more get on board, thus driving prices up further. This disconnect with the actual value of the underlying asset is the very essence of a Ponzi scheme in which your return is reliant on money flowing in from future investors.
Ponzi schemes usually unravel when the amount of money coming in from new investors isn’t enough to cover the payments to previous investors. Here come the retiring baby boomers, needing their super and pulling that money out of the share market. How will we prop up the Ponzi scheme? Simple: the Australian parliament has already passed legislation increasing the mandatory contributions from 9 per cent of wages to 12, as more and more baby boomers retire. This keeps the extra money coming in despite the fact that there are not enough people entering the workforce. The Henry Tax Review panelconcluded that it was not necessary to increase super contributions above 9 per cent and gave clear reasons why. But we’re doing it anyway. Why is that? I’m pretty sure it’s got more to do with protecting the financial sector than protecting retirement incomes for wage earners or protecting government coffers.
I don’t mean to imply that that the entire equities market is one big Ponzi scheme; more that it has Ponzi elements that distort the system, and prevent it acting as initially intended. Instead of being a vehicle for companies to raise revenue and for small investors to have part ownership of large companies, share market investments are predominantly speculation on price increases, many of which are driven by factors which have no bearing on the underlying value or performance of the companies being bought and sold.
Compulsory super has dragged every Australian wage earner into this game of bubble blowing with the level of their retirement income being dependent on whether they retire while the beautiful bubble is still in the air. Do we really want our retirement incomes to depend on the activities of major speculators? The ironic thing here is that our super funds have become some of the biggest players in the speculation game.
If we go back to the central concern and focus on providing a reasonable income to retired Australians then there are definitely more appealing options than Ponzi schemes. One is obviously the public option of providing broad access to an age pension. While this has serious budgetary implications, as highlighted at the beginning of this article, these are not nearly as severe as they are made out to be once you acknowledge how much is being spent providing superannuation tax concessions.
Another option, as recently floated by super industry giant IFM, is to use the money in superannuation funds to pay for important infrastructure projects. The government could facilitate this at relatively low costs by providing guaranteed returns. Instead of governments borrowing the money to pay for infrastructure, super funds could provide the capital. Interest that governments would have paid on loans could instead be supporting the retirement incomes of its citizens. There are many models through which this could occur, from the issue of dedicated infrastructure bonds through to more direct investment in infrastructure projects – and the outcome would be roughly the same.
Superannuation is now a massive industry in Australia and has, as a result, become a powerful political lobbying force which resists any move that might decrease its importance in the Australian economy. The genie can still be put back in the bottle if we do that rarest of things in politics, which is to stick to the principles, but there’s no sign of that happening at the moment.
The Victorian Minister for State Development, Peter Ryan, spoke in State Parliament:
Victoria has one of the world’s most extensive brown coal deposits and the government is committed to maximising the opportunities to develop this resource in support of economic development, investment and job creation.
Seriously? While every well meaning individual and organisation in the world is desperately trying to work out how we can stop using this stuff the Victorian government sees expanding its use as our economic saviour. In terms of government ideas for solving problems I’d say brown coal ranks right down the bottom, just above eugenics and war.
In the verbal volley between Gillard and Abbott, Swan and Hockey, there is a conversation that we are not hearing. It bubbles below the consciousness of mainstream Australia, a conversation that is old news for many of us who delve beyond the broadsheets and broadcasts and, for some, a lifetime mission to see in the mainstream.
I believe this conversation can be summed up by the question: what is progress and how should we measure it? Catchphrases such as mateship and “family values” aside, we don’t talk much about our core values or our aspirations in any sense that is not economic.
While economic growth, interest rates and inflation are all good things to measure, they tell us very little about who we are, what we want and how well we’re achieving goals that really make a difference to our lives. Most importantly, how do they help us know if our government is focused on providing us with an environment in which we can achieve those goals?
For many people in the developed world, consumption has become integrated into our sense of identity and into our measure of progress. Who we are and who we associate with is in part defined by what we buy. Our goals are often material: a new car, a renovated kitchen or a 3D TV will make us happier. In this Sisphyean culture, we roll our boulders to the top of the hill and then look about for the next boulder and the next highest hill, glancing at our neighbour’s boulders and their hills as our measure of self-worth. How did we get here? And is it what we want?
A little insight into modern economic theory can help explain our predicament. In undergraduate courses, the core of modern economics is usually fleetingly mentioned in the first lecture with a one-liner like:
The crux of this assumption is that the more things we buy or sell that include an economic surplus, the better off we are. A surplus is simply how much more we would have paid for something than it costs (consumer surplus) or how much less we would have sold something for than somebody paid for it (producer surplus).
That’s it. That is how economists maximise human welfare. Leisure has a price too, which fits into the model, and with that included, working out how to make the world a better place becomes remarkably simple…deceptively simple.
Unfortunately, the relationship between income and direct measures of wellbeing is logarithmic, at best. This means that increasing somebody’s income from $200,000 to $400,000 per annum will provide the same increase in wellbeing as an increase from $2000 to $4000. These diminishing returns on GDP growth for wealthy countries cast the whole enterprise into doubt.
The problems only get worse when economists try to create a tally of society’s welfare by adding one person’s economic welfare to another’s.
Money may talk but another conversation is bubbling below the broadsheet headlines and politician volleys. Shutterstock/Nikola Bilic
Not all people like the same things to the same extent. This means every person gains a different amount of utility from the same product at the same price. You can’t add up all of the consumer surpluses from a fall in the price of chocolate because the benefit to an individual depends on how much they like chocolate. How do economists get around the fact that it’s simply not possible to measure every person’s tastes for every possible product? They cheat.
In order to aggregate social welfare, economists assume that there is only one consumer with one set of tastes who gains the same benefit from each extra unit of consumption (even if it’s the 40th apple for the day). Every single product is also assumed to maintain its share of an individual’s budget no matter what their income. Economic models then calculate the economic welfare of this individual and multiply the result by the number of people in the population.
If you follow the logic of these models it leads inexorably to the desirability of an ever-expanding economy. In terms of overall economic welfare it doesn’t matter who has the extra money. Give a loaf of bread to a homeless person or to Gina Rinehart and the overall social welfare increases by the same amount. This result flows, not from any data or evidence, but from these obviously flawed assumptions that are built into the model to make the mathematics work.
There is a saying about mathematical models: garbage in, garbage out. If we remove the garbage assumptions made about products improving welfare no matter how many are consumed and products taking up the same proportion of our income no matter how much we earn, then we get a very different picture. And it’s one that places a great deal of importance on economic equality. It really does matter if the bread goes to somebody who would otherwise be unable to afford it and the first apple somebody has in a day is much more valuable than the 40th.
Economists have hoodwinked us into thinking measures of economic progress are measures of real progress. This begs the obvious question, how do we measure non-economic progress?
Former French President Nicolas Sarkozy commissioned a report in an attempt to answer this very question. The report, published in 2009, is a great summary of the topic but makes few tangible recommendations. As it says, the report represents the beginning of a conversation.
This is a conversation we are not having in the Australian mainstream and it is almost entirely absent from federal politics. Labor and the Coalition are still focused on economic growth as the yardstick of success – tempered by fears of inflation and debt.
We need to start measuring and valuing things that actually make a difference to people’s lives and use these measures to gauge our progress as a nation. Once we do, we can measure policies and policy-makers against a yardstick that means something tangible to us. We may also find new meaning in our lives as we work for something more valuable than the latest gadget or the biggest house.
Until we have this conversation and establish national environmental and social-progress indicators to supplement raw economic indicators, we will be forever pushing boulders up hills and wondering why our lives feel a bit meaningless.
I’ve just had an article published in New Matilda. The article is reproduced below. Thanks to the folks at New Matilda.
Are Growth And Consumption Our Enemies?
Professor Ross Garnaut recently argued that those of us interested in sustainability must not make economic growth our enemy, but instead must focus on sustainable growth which reduces resource intensity:
“When we see economic growth in this light, we recognise that the important thing is to make sure that we put in place policies that encourage resource-conserving and discourage resource-using capital intensification and technological change”.
It’s an appealing argument. The theory is difficult to fault. If we recycle more raw materials, focus on services rather than goods and harness technological developments to improve resource productivity (producing the same or more with less raw materials) we can keep the economy growing while reducing our ecological footprint. However, if we move past the catchphrases and do some maths the enormity of the task becomes clear.
According to the Living Planet 2012 report, Australians use about 6.5 global hectares (gha) per person. A global hectare is one hectare of arable land with average productivity and is a way of combining many measures of resource use into a single figure. These measures include carbon dioxide emissions and a tally of the cropland, grazing land, forest, built up land and fishing grounds required to supply a population with their current consumption. While the world has a biocapacity of about 1.8 gha per person, Australia’s capacity is almost 15 gha per person.
Determining what a sustainable economy is rests on whether or not we look beyond our borders. Based on the above figures, we could say that we are already exceeding our footprint allocation by almost 400 per cent. Or we could conclude that we are at less than half our resource capacity. I use the Living Planet report only as an illustration here, others have used different measures to examine sustainable resource use and have come up with comparable results.
Of course, if we and all other countries with a global hectare surplus were to use it all for themselves it would leave substantially less than 1.8 gha per person for the rest of the globe. To me, the only ethically defensible position is to aim for the global average of available biocapacity and, through exports, share our excess with others. Making our economy sustainable by this measure, and maintaining economic growth as Professor Garnaut suggests, is a herculean task indeed.
If we assume a very successful long term GDP growth rate of 3 per cent, our GDP will quadruple over the next 50 years from about $1.4 trillion to just over $6 trillion. In order to play our part in creating a sustainable global economy we must cut our resource use down to 27 per cent of what it is now (1.8/6.5). So, taking account of economic growth, our resource intensity must be cut by about 94 per cent over the next 50 years in order to achieve sustainability. These back of the envelope calculations are rough (not least because the total number of available gha is decreasing over time and global population is rising) but good enough to illustrate the challenge.
On the other hand, if our economy didn’t grow, we would only have to cut resource intensity by about 73 per cent to be using up only our share of global resources Only 73 per cent!
Growth or no growth, if we take sustainability seriously – global sustainability that is, not parochial ideas about sustainability – then we have to quite radically change how we live and how we do business. There’s no indication that we’re even thinking about these issues, let alone ready to work on achieving sustainability.
In order to effectively curb greenhouse gas emissions and meet other sustainability goals, our governments need to be willing to make policy decisions which will not optimise economic growth and voters need to understand that this is desirable. Somehow the economists took over the halls of power and, being an economist myself, I know this is a serious problem.
Is anybody other than Ross Garnaut even talking about this stuff in the mainstream? Gillard or Swan? Abbott or Hockey? The Greens talk about these issues when they’re given the chance but even they have to temper the message to avoid being seen as too radical. A serious transition to a sustainable economy would take even more thought, planning and sacrifice than transforming to a low carbon economy.
I don’t believe economic growth per se is the problem; the problem comes from making growth the number one priority, above the environment and above social and individual wellbeing. Can we have a growing economy while we work towards sustainability? Yes. Can we have a sustainable economy which values the wellbeing of the citizens when growth is our primary goal? Almost certainly not.
While I agree with Professor Garnaut that we should not make economic growth our enemy, we should certainly re-evaluate the closeness of the relationship, not only for the sake of the environment but also for our overall happiness and wellbeing.
Reconstructing Economics 