SuStainability under Scrutiny real ValueS and their role in Promoting 1 the new economicS of growth Ian Johnson , Johnson , Secretary General, Club o Rome.
The Club of Rome,
introduction The Club o Rome was the rst and, or many years, the most infuential thinker on long-term uture issues. In 1972 “Limits to Growth” 2: the rst book to the Club o Rome and a pioneer work at the time “kick started” the environmental movement that was to ollow, infuenced thousands o people into thinking about our natural environment and shaped some o the more en-lightened policy-makers o that time. In many ways, the genius o Limits to Growth was the act that it asked the right questions; it posed the dilemma as a problem in search o a solution (all too oten this is reversed!); and it ocused us all on the longer term. Intellectually Intellectually it also s tressed the importance o systems thinking. And it coined a new term: “The Problematique”. There was intense debate around Limits to Growth, especially amongst the technological optimists and those who mistakenly understood the book as a series o predictions rather than a refection o outlooks and scenarios. Over Over the course o the next two decades many ne books rom eminent researchers were prepared and submitted as reports to the Club o Rome. They were ad hoc in nature but o high quality and great relevance.
1 This paper is based upon a series o speeches given to the Spanish As sociation o the Club o Rome: “Conerencia: El Club De Roma Hoy Y Su Vision Del Futur Humano”, 26 de Abril 2011, Caixa Forum, Barcelona; to the EU Chapter o the Club o Rome as part o the 77 th Aurelio Peccei Lecture, Brussels, 26 May, 2011; and to the Japan Chapter o the Club o Rome, Tokyo, Tokyo, 31 May 2011.
2 See Donella H. Meadows, Dennis L. Meadows, Jorgen Randers and William W. Behrens III, Limits to Growth, Universe Books, New York, 1972.
The Club of Rome,
Some our years ago, the Club moved towards an integrated work pro-
Limits to Growth: Focused largely on bio-physical limits and the
gramme: “Pathways to World D evelopment”. This allowed us to revisit
identication o key global problems (“the Problematique”). 4
the “problematique” and to state it in a more contemporary setting where we had already witnessed the realities o “Limits to Growth” and
Pathways to worLd deveLoPment: Included social and economic
where new ndings and new res earch had provided us with new insights.
actors, as well as biophysical, and stressed the inter-connectedness o
The “Pathways” work programme ocused on ve interlocking themes:
ve clusters o issues.5
Environment and Natural Resources, Globalisation, International And, as I discuss in this paper, a urther evolution towards:
Development, Social Transormation, Peace and Security. Although not quite complete (it will be completed this year) our eorts have already provided valuable insights to move towards a new phase or the Club o
new economics, Growth and reaL vaLues: An exploration o the
Rome which ocuses on the systemic or “root” causes o the problems
underlying causes and their remedies.6
we ace and on identiying potential solutions. This paper presents my own thinking o how we must build upon the ne
The world in 40 years
One important hallmark o the Club o Rome is its willingness to think orward. And to move into the substance o my paper I would like to do
legacy o the Club’s work and move it orward towards a new and
the same. As we celebrate orty years o “Limits to Growth” it is worth
emerging set o issues that relate to addressing the underlying causes
considering lie orty years onwards. I have chosen 2050 as a convenient
and to seeking solutions to address the most pressing global issues we
place to reset our global clock; to consider how the world may dier
rom today and as a convenient time rame through which we w ill have to have in place a new planetary order i we are to satisy our dream o
So let me recap: We can see a clear evolution o thinking in the Club o
a saer and airer world.
Rome over the past orty years although we have held on to our basic belies and principles: that o global relevance, a systems-oriented per-
So what might we expect between now and 2050?
spective, o integrated thinking and o a longer term perspective 3 that has evolved rom:
today’s PLiGht? I start with our current situation and some o the warning signs beore us. Within the rst decade o this Millennium we have seen ve crises 7: Poverty: We are witnessing the moral crisis o a Planet with plenty,
yet shared with so ew. It remains indeensible that more than one third o our ellow humans remain in dire and absolute poverty. At the turn o the Century our world leaders pledged to hal world poverty by 2015. These goals will not be met. 3 The Articles o Agreement o the Club o Rome now cover the ull range o perspectives and are governed by the ollowing principles: “(i) The need to adopt a global, systems-oriented perspective in examining the issues o the modern world, with the awareness that the increasing interdependence o nations and the globalization o problems pose predicaments beyond the capacity o individual countries; (ii) The need or coherent, integrated thinking to achieve a deeper understanding o the complexity and connectedness both o contemporary problems and o practical solutions – political, social, economic, technological, environmental, psychological and cultural-which the Association terms “the World Problematique”; (iii) The need to emphasize the trans-disciplinary and longer-term perspectives which are too oten neglected by governments and other decision makers and to ocus on the choices, policies and actions which will determine the destiny o present and uture generations so as to stimulate public interest and to provide responsible leaders with a sound basis or the ormulation and implementation o utureoriented policies.”
4 See Donella H. Meadows, Dennis L. Meadows, Jorgen Randers and William W. Behrens III, Limits to Growth, Universe Books, New York, 1972. 5 See Club o Rome, Work Programme: A New Pathway or World Development”, 2008. 6 See Club o Rome, “The New Economics o Growth, Wealth and Real Values: Towards a New Economics or a Global Society”, Speech by Secretary General to the Club o Rome, Winterthur, 2010. 7 See Ian Johnson, The Perect Storm, Volume 1 Issue 2 CADMUS, The Wealth o Nations Revisited, April 2011.
The Club of Rome,
Finance: We remain in the midst o a global nancial crisis; one that
and tomorrow’s worLd?
has aected millions o people throughout the world. What started as a series o largely containable national and regional banking crises rom
And as we refect upon the observations o this past decade it is worth
the 1970s onwards has transormed itsel into a global crisis in the real
considering or a moment the world o tomorrow. I we look orward to
economies o the world. Improved management and oversight o our
2050: as I have already noted, well within our children’s lietime, we can
nancial systems has started but the pace is glacial and the eorts
envisage a number o signicant changes:
remain woeully weak and sporadic. • Population will likely grow from close to 7 billion to perhaps 9.5 bil Food: We have witnessed a ood crisis as a result o the rapid growth in
lion (current estimates range rom around 8 to 10.5 billion).
ood commodity prices, and their impact on poor countries and poor people. It resulted in many being pushed below the poverty line.The ood
• Current estimates of global GDP are around US$ 60 trillion and even
crisis was due to many reasons: historic low prices that couldn’t continue,
at modest per capita growth rates in the emerging economies o the
technological plateaus in productivity and competition or land use.
world to meet poverty targets we could easily see a world (as we conventionally measure it today) of closer to US$ 200 trillion. Three
ecoLoGy: We have a global ecological crisis that aects us now and
worlds sitting on our present one world but s tretched to the limits with
well into the uture and the consequences o not repairing and then eec-
regard to consumption and production patterns.
tively managing the Planet’s stock o natural capital will lead to
unknown but potentially very dangerous ou tcomes. Fortunately climate
• The current sharing of global wealth in w hich 80% of the world’s
change has now moved to centre stage: so much so that it is easy to
population account for only 20% of the global wealth is unsustainable.
ignore other ecological issues such as the loss o orests, sheries and
While this ratio has been consistent or the past two decades it is
biodiversity; all being lost at historic and unprecedented rates. To be
starting to s hit.The year 2010 represents an interesting watershed in
sure climate change will make matters worse yet, hopeully, it also
terms o aggregate wealth: on a global GDP/Power Purchasing Parity
provides us with a greater sense o urgency to take action.
(PPP) basis, the emerging economies are roughly now equal to the rich world. A signicant geo-economic shit and potentially an impor-
work: An unemployment crisis o global proportions is upon us now.
There is uncertainty about the uture levels o unemployment, currently estimated globally at over 200 million, with perhaps up to a billion people under-employed. Our inability to create jobs will consign many millions to poverty, induce social and political unrest, and will undermine any hopes or a more secure and sustainable world. Unemployment remains the single largest global ailure.
tant geo-political shit.
The Club of Rome,
• Demand for goods and services are set to increase dramatically driven
The wealth o our nations is changing dramatically; the shits in wealth
by population, rising per capita income, and the shit rom current low
are reshaping our global body politic; those let behind are growing in
per capita income consumption patterns. Demand or ood is likely to
numbers and strength; and the search or prosperity has all too easily
more than double by 2050 and energy needs increase threeold.
become a search or economic growth on the assumptions that growth alone would solve our problems.
• Demand for clean water will rise to meet the needs of the present one
billion plus people who have no access to potable water or decent
As we consider the uture, let’s also not orget that we are wis er, more
sanitation and to meet incremental demands rom a growing popula-
inormed, better able to communicate with one another at speeds that
tion. Water resources will continue to be stretched, although globally,
could not be considered even twenty years ago, we have a world o bright
water per se will not be sc arce. However the costs o harnessing water
capable minds who will want to contribute to a better world and we
will rise exponentially and discontinuously and place huge scal and
understand the potential but also the limitations o technological devel-
economic burdens on countries to deliver water.Together with the pro-
opment. There is much to build upon even as there is much to do.
vision o potable water, dramatic increases (ourold or more) in water eciency in the agricultural sector will be needed.
So where might we start?
• It is estimated that 27% of the world’s population is under the age of Real and Equitable Prosperity
teen: or the uture a large, capable and ready work orce in the making? Perhaps? Or a major source o social unrest? Possibly, indeed likely? Future numbers are unknown but on current trends it is possible that around three billion young people will be job seeking by
the middle o this Century. Unemployment uels discontent and social
turbulence and perpetuates poverty, misery and disenranchisement. A sustainable uture is a job-ull uture. A job-ull uture is a saer and more secure uture.
Institutions or Delivery
In this paper I discuss three inter-related issues that orm a stable oundation rom which to build and where I believe we can make a start: Values, Economics and Institutions. I will make the case that the interconnected global challenges o ecology and employment are essential to long term stability and sustainability. I believe that by the middle o this century we will need to have made signicant progress to re-align our economies to meet these challenges.
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The larger question is, o cours e, how such values are transormed into real change. At the turn o the Millennium the United Nations made a bold attempt to rearm those rights in the context o the Millennium Development Goals: a mix o (sometimes overlapping) social and eco-
ValueS, economicS & inStitutionS
nomic goals aimed at reducing poverty in the emerging world. Sadly, progress on meeting these goals has been slow and sporadic. Others have ocused on what might be termed common values or humanity. They centre around saety, community and relationships (oten termed social capital); decent living conditions and an ability to earn sucient money to more than cover basic needs (wealth); and a cleaner and saer environment (ecology). My point in this paper is really not to dwell on a philosophical discourse on values 9 but rather to state the obvious: there are reasonable values that most people adhere to. Most value honesty over dishonesty; ethical behaviour over unethical behaviour; a decent lie or themselves, their amily and their children; decent health and education aorded to all; a cleaner and saer environment within which to live; a level o prosperity that takes them out o poverty; a sense o belonging to community; a strong sense o social capital and purpose in lie. The list could go on but I hope that I have made the
vaLues lie at the heart o who we are and what we do. Values shape
cultures, organisations, politics and policies. Values are more oten described at the individual, religious, tribal or national level. A question
The key, o course, is whether we are able to translate such values into
arises as to whether there are sets o global or universal values and, as
tangible actions.This brings me to the next point o discussion: Economics.
we move to a more inter-connected and globalised world, whether they are sucient in scope and detail. To some extent the answer is clear:
economics and economic policy are the backbone o public policy
universal values, rights and reedom ar e enshrined in the c ontext o the
decision-making. Economics is important as it helps establish the prices
United Nations but these are state centric and state “negotiated” rather
or goods and services in society; it is the cornerstone o our market
than individual or “citizen values”. Nevertheless, the Universal Declara-
economies and o our banking and nancial systems; and it helps us
tion o Human Rights has now been accepted widely as a basis or
establish priorities or investment and policy-making. Economic growth
national legislation and the Charter o the United Nations itsel repre-
is the metric by which we measure the wealth o nations and the changes
sented an important point o r eerence in determining universal values. 8
in such wealth are important components o international relations and negotiations.
8 For a useul description o the application o universal rights declaration see, Ko Annan lecture at Tübingen University, Germany, “Do we still have Universal Values?” 12 December 2003. See also, Richard T. Kinnier, Jerry L. Kernes, Therese M. Dautheribes, A Short List o Universal Moral Values, Counselling and Values, October 2000, Volume 45. This paper analyzes values that have consistently appeared throughout history and across religious and secular organizations.
9 However, this would be an important area or urther work within the Club o Rome.
The Club of Rome, 15
The oundations or modern economics were built when the world was
More generally, economists need to also turn their attention towards a
dramatically dierent rom today. Current economic theory rests large-
better understanding o normative values; as well as ensure that societal
ly on assumptions that were made over 200 years ago but many are no
values that are unmeasured and thereore largely ignored by economists
longer valid or today’s world. Shits in liestyles, communications, pro-
are brought into the mainstream o economic policy.The continuance o
duction and consumption patterns have been suciently large as to call
economic policy to ignore real societal values remains a central
into question the validity o current economic theory. It is based on a
barrier to addressing the global humanity challenges we ace.
time when physical capital was scarce and natural capital abundant; when global population was a raction o w hat it is today; when econo-
As economics grew more s pecialised it also lost much o its philosophi-
mies were agriculture based and services o little importance; when
cal underpinnings. Ends gave way to means. Finding equilibrium be-
global public goods were unheard o; and when public policy was limited
tween supply and demand dominated economics thinking while maxim-
ising human welare or minimising human suering was relegated. We lost sight o the real purpose o economics. Market outcomes that cre-
These acts have been recognised by leading thinkers and economists
ated surplus money were celebrated even i they resulted in lost jobs,
and there is now a nascent movement to review the underpinning o
lost homes and increased personal misery. It is time or economics to be
economic theory as well as to begin using economics to measure many
re-engineered and made t or purpose.
goods and services that have hitherto remained unmeasured, including natural resources.
The need to rethink economics is gaining currency. A number o leading economists, both within the Club o Rome and external to it, have ques-
Economics exists also in a wider spectrum o human societal activities:
tioned the ecacy o our economics thinking. Forty years ago leading
ecological, political and social, and increasingly the lines between disci-
academics began to lay the groundwork or a discourse on the uture o
plines are blurred: witness, or example, the growth in ecological eco-
economics. “Limits to growth” was the rst to postulate that, in the
nomics and the valuation o natural capital.
absence o remedial action, natural limits would begin to impose constraints on economic growth. Daly et al 11 promoted the concepts o eco-
Indeed, economics has also become both more specialised and more
logical economics and the need to balance economy with ecology. Dur-
inter-disciplinary. The simple micro and macro schism o the past no
ing the last twenty years environmental economists have attempted to
longer seems valid.The branches o economics have grown considerably:
measure real wealth; assess genuine savings12; ecologically adjusted
growth rates; and place economic values on natural resources.
industry, health, agriculture), climate (adaptation and mitigation), inormation and environmental to name a ew well established streams; and others emerging that directly link psychology with economics such as the economics o happiness or o social capital 10. Yet all appear to have one thing in common: a sense o unease that the economics o today is unt or purpose. It neither appears to address the real issues o today’s world nor does it measure the things that really matter to people. Economics has lost its way. It may not yet be broken but it needs a serious overhaul.
10 See or example, Andrew Caplin and Andrew Schotter, The Foundations o Positive and Normative Economics, March 2008.
11 Herman Daly,“A Steady-State Economy: A ailed growth economy and a steady-state economy are no t the same thing; they are the very dierent alternatives we ace.” Sustainable Development Commission, UK (April 24, 2008). Daly, Herman E. & Cobb, John B. Jr. (1989), For the Common Goods: Redirecting the economy toward community, the environment and a sustainable uture. Boston: Beacon Press.orHerman Daly, E. 1984. See also A Economia do Século XX I. Porto Alegre R.S., Brasil, Mercado Aberto Editora 116 p. 12 Kunte, Arundhati ; Hamilton, Kirk ; Dixon, John ; Clemens , Michael “Estimatin g national wealth: methodology and results”, World Bank Departmental Working, Paper1998/01/31 Report Number: 18257.
The Club of Rome, 17
More recently, the Stern Report on Climate Change 13 ocused on the
And yet or all o its faws it remains s tubbornly the most quoted metric
concept o global public goods and global market ailure. Others such as
o economic achievement and o measuring relative economic peror-
Joseph Stiglitz 14 have ocused on the role that asymmetric inormation
mance17.The use o national income accounting metrics to ass ess wealth
plays in undermining the eciency o markets as well as the broader
and social progress is more outdated today than ever beore. And as we
propositions o reorming economics and Amartya Sen 15 has ocused on
look to the uture, with a rapidly changing global economic structure, a
economics, ethics and inequality.
world where complexity is increasing, where services are rapidly replacing manuacturing, and in a world where many people are beginning to
Economics is neither supporting real wealth creation in the 21st Century
question the extent to which economic policy and markets has ailed to
nor is it acilitating the creation o the kinds o markets, policies and
bring about real, sustained and lasting welare, it is timely to not only
instruments that will guide us towards long-term sustainability. It is
revisit our measurements o wealth but actually change them into some-
timely to re-think and change our ways.
thing meaningul or the 21 st Century.
Let me now turn to s ome key issues w here, I believe, economics has be-
Today’s growth perpetuates over-consumption. As growth weakens, gov-
come divorced rom “real values”:
ernments promote consumption (to get companies back on their eet and to provide governments with more revenue). The act that more
the economics oF Growth and weaLth: The limitations o the
consumption is part o the problem and not part o the solu tion escapes
classical measurements o national wealth have been well documented
all but the clear minded. It may also lead us to a point where we experi-
ever since the creation o national accounts and their use in determining
ence, on a large scale, the phenomena o what Herman Daly has called
relative wealth16. GDP has long been the most quoted and least under-
“uneconomic growth”, where the extra costs o a unit o GDP growth
stood metric o economics. It is a fow measure most oten quoted as a
are more than the benets. 18
stock. It excludes a great many actors that are o vital importance to the ull unctioning o society. In many cases, it manages to include, as
Economic growth has been o concern to economists or many years
a positive contribution, actors that most o us would deem undesirable
both as a measure o how wealth was changing and also as a measure
(crime, social unrest and war) and exclude actors that are perceived as
o economic and social progress. Growth was expected to be linear and
highly desirable (the protection o natural habitats, orests). In par ticu-
non-binding: technology and human ingenuity would provide the buer
lar, national wealth calculations ignore the eects o the depletion o
against any limits to growth. This was rst questioned by the Club o
natural capital, such that the destruction o orests and other natural
Rome in its seminal report “The Limits to Growth” 19 which postulated
capital are a net asset contribution to wealth. Finally, it ignores eco-
that, in the absence o orward thinking policies, the world could go into
nomic externalities such as the social costs o unemployment; the posi-
unsustainable “overshoot” with dire consequences to growth and wel-
tive benets o unpaid work; and the distributional eects o income.
are. Remedial actions would be suciently costly to negatively aect economic growth. This view, contentious at the time, is looking increasingly valid with time.
13 Nicholas Stern , The Economics o Climate Change: The Stern Review, Cabinet Oce - HM Treasury, January 2007 14 Proessor Joseph E. Stiglitz, Proessor Amartya Sen, Proessor Jean-Paul Fitouss, Report by the Commission on the Measurement o Economic Perormance and Social Progress, Paris, 14 September 2009. 15 Amartya Sen, On Economic Inequality, Clarendon Press, Oxford 1997; The Idea of Justice, Harvard University Press, 2009. 16 Almost all textbooks on national income accounting include summaries o what is let out o national accounts, especially subsistence agriculture, housework, voluntary work etc.
17 While still the case in the popular press, economists such as Stiglitz and others are promoting change. See Stiglitz: op cite. 18 See Daly op cite. 19 Donella H. Meadows, Dennis L. Meadows, Jorgen Randers and William W. Behrens III, Limits to Growth, Universe Books, New York, 1972.
The Club of Rome, 19
Ecological economics was, to a large extent, born out o this debate. The
the economics oF naturaL caPitaL: When ecologists began work-
link between geo-physical assets and human welare spawned concerns
ing with economists an important alignment was ormed: ecologists
over the earth’s carrying capacity. Demographic projections and income
worried about the physical depletion o the natural resource base o our
requirements o the poor par ts o the world re-enorced this view.20 It is
planet and economists worried that it was being accounted or as a
important not to lose sight o the issues o both limits to growth and the
positive contribution to wealth and growth. Theoretically, the depletion
limits o growth in meeting the needs and aspirations o humanity. In-
o natural resources has been well documented23 and case studies have
deed, an emerging body o economics literature is posing the question o
been developed24 or several sectors. A literature exists on the value o
whether urther growth is possible: they make the case that limits have
biodiversity. 25 The major challenge has been to incorporate such values
into public policy. Robust economics work in this domain has or too long sat on the shelves o academia, rarely made it into ministries o
The issue o inequity lies at the heart o a airer and more just world.
environment and almost never into ministries o nance. And yet the
The poorest 40% of the world’s population account for only 5% of
consequences o using incorrect economic values o natural resources
global income. The global assets o the wealthy have multiplied expo-
can be considerable: the under-pricing o water leading perhaps to the
largest single global economic subsidy in the world today. The manage-
Development economists have been at the oreront o arguing both the
ment o our water resources represent an interesting case o rising costs
moral and economic case or high growth and redistributive policies. In
and increasing scarcity o capital. The economic cost or “real value” o
an increasingly connected world in which “overshoot” conditions arise,
water is rising rapidly and discontinuously in many countries. This rep-
the issue o global production and consumption patterns have become
resents a nuanced view o “limits” where the physical limit o resh
an important element o economic discourse.
water is not reached but the massive and discontinuous costs impose a
nentially, from $ 12 trillion in 1980 to almost $ 170 trillion in 2006.
signicant real bind on economic growth. An associated environmental issue relates to the negative costs associated with pollution, what environmentalists oten reer to as the “brown agenda” to distinguish it rom the erosion o natural capital. The health related incidence o pollution is now well understood and documented. In some countries it can have a s ignicant impact on the calculations o real wealth.
20 Robert Costanza , John Cumberland, Herman Daly, Robert Goodland , Richard Norgaard, An Introduction to Ecological Economics, The encyclopedia o Earth, October 2, 2007. 21 New Economics Foundation, Growth isn’t possible, January 2010; Sustainable Development Commission, UK, Prosperity without Growth? – the transition to a sustainable economy; and see also a paper prepared by Herman Daly or the Sustainable Development Commission, A Steady S tate Economy. 22 Giarini, Jacobs and Slaus in “An Introductory paper or a Programme on the Wealth o Nations Revisited”. They also note that income inequality continues to grow, rustrating the rising expectations o the world’s poor, and increasing the propensity or social unrest, crime and violence.
23 P. S. Dasgupta, G. M. Heal, Economic Theory and Exhaustible Resources, Cambridge University Press, March 31 1980. 24 See or example: Pearce, D.W., and Warord, J.J., 1993. World withou t End: Economics, Environmen t and Sustainable Development, Oxord University Press, New York. M. Munasinghe, Environmental economics and sustainable development. World Bank, Washington, 1993. 25 See or example: David William Pearce, Dominic Moran, The economic value o biodiversity, Earthsca n, 1994. David William Pearce, R. Kerry Turner, Economics o natural resources and the environment, Johns Hopkins University Press, 1990. Paulo Augusto Lourenço Dias Nunes Nunes, Jeroen C. J. M. van den Bergh, Peter Nijkamp,The ecological economics o biodiversity: methods and applications , 2003.
The Club of Rome, 21
Climate change has been described as the larges t market ailure in our
unemployment, dramatic shits in distributional outcomes, displacement
history. The Stern Review 26 has documented the economic issues raised
through poor decisions on the value o natural capital and massive
by our concerns with climate change which provide new dimensions to
wealth gains amongst the very ew, can all lead to high social capital
our tasks o applying economics to an environmental “bad” that is inter-
costs which, in turn, lead to high and negative economic impacts. On the
generational, requires long-term investment, a global public good and
positive ledger, research is being undertaken on the economics o happi-
raises issues o generational and spatial equity. It also raises questions
ness: the bridging o economics and psychology. To some, happiness ap-
o equitable treatment o nance or both mitigation o, and adaptation
pears to be a rather esoteric concept or economists to grapple with.
to, climate change. Much o the literature has ocused on the costs o
However, surely everyone on earth aspires to a happier and more con-
addressing climate change. The counteractual case is rarely made: that is
tented lie: a lie o strong social capital where welare is maximised
what benets to economic welare does long-term and early action bring.
and security assured. The economics o happiness is non-trivial.
the economics oF sociaL caPitaL: The pioneers o economics
Economics needs not only to refect on natural and social capital but
largely considered a single orm o capital, man-made. Labour-capital
also explore whether other orms o separable capital exist. Cultural
ratios would nd the correct optimum between the cost o physical cap-
capital, human capital, technological capital and knowledge are des erv-
ital and the price o labour. Our world is now signicantly more complex
ing o attention. How the various orms o capital relate to each other
and other orms o capital are beginning to be recognised as potentially
and how they drive us towards real wealth creation remain an area or
binding and important to our understanding o economics. Natural cap-
ital has been discussed previously and has led the way in terms o a more inormed understanding o its potential binding constraints on economic
the economics oF time: High discount rates together with political
development and growth.27
myopia have long produced a tendency to ocus on the shor t term. High discount rates and short political terms o oce have become the enemy
Social capital has been largely untreated by economists and yet it may
o sustainability, marginalising long term gains in sectors and activities
provide a better understanding both o the purpose o economics as well
that require long term planning and nurturing and encouraging markets
as a more prac tical understanding o how economies work. Social capi-
to capture short term protability and ignore long term nancial sus-
tal may be described as the range o social interactions that can add
tainability. A sustainable world is one that is capable o managing assets
value to our contentment, happiness, and eelings o sel wor th. It has to
over time, restoring them and nurturing them or uture generations.
do with how secure we eel within our amilies, our communities and our
Many have argued that high discount rates have had a negative eect
cities, and how sae we eel or our children and their uture. The deple-
on natural capital and long term management o global commons issues
tion o social capital can extract a very high economic cost as social
which require thinking in terms o generations28. The debate on the issue
disruption, violence, destruction o physical assets, crime and vandalism
o inter-generational equity exceeds the remit o this paper although
increase. Given our presumption that economics should be about max-
there is a persuasive moral argument or such considerations. The time
imising human well-being it is remarkable that social capital has taken
dimension o economics remains an important issue.
a back-seat. Economics that leads to incorrect market signals, increased
26 Nicholas Stern , The Economics o Climate Change: The Stern Review, Cabinet Oce – HM Treasury, January 2007. 27 See Donella H. Meadows , Dennis L. Meadows , Jorgen Ran ders and William W. Behrens III, Limits to Growth, Universe Books, New York, 1972; which rst postulated that natural capital constraints would need to be actored into the pace at which economic growth could continue.
28 Economic literature is replete with examples o economic discounting and its eects on cos t benet analysis. A more interesting debate is the extent to which a zero discount rate should be applied to natural capital stocks such as atmospheric change due to climate change: an issue o s tock depletion and repletion. The argument has been made that i a country has an obligation over say a thirty year period to reduce its contribution to the stock o greenhouse gases it may be indierent as to the precise timing o when it takes actions do so; at the extreme all in Year One or in Year 29 and hence there is an argument or applying a zero discount rate.
The Club of Rome, 23
the economics oF the unknown: In an uncertain world where non-
institutions are all too oten thought o as organisations. My deni-
linear events are possible, where booms and busts are common-place,
tion o institutions is much broader: it embraces all structures, ormal
where civil strie and economic asset destruction can occur at any time,
or inormal, that provide or social order and cooperation including cus-
the role o risk and uncertainty becomes an important parameter or
nancial and economic decision-making. Recently, climate change has
trading and marketing systems as well as more ormal structures o
ocused our attention increasingly on probability theory and the man-
governance 30. Institutions matter to the conduct o our uture aairs.
agement o non-linear events. Yet economics has, to a very large d egree,
They shape the values and provide legitimacy to the rules we need to
remained deterministic in nature. We need to upgrade our economics
ensure social cohesion and social progression: without them we cannot
thinking to embrace risk and uncertainty in a more rigorous and sophis-
take collective actions or the betterment o society. Institutions are the
ticated manner. Least risk may need to replace least cost planning. Op-
delivery mechanisms we rely upon.
tions theory may need to replace deterministic planning. It is an area where economics has been historically weak and, as we move into in-
In this paper I will ocus on our inter-related “institutions” to make my
creasing uncertainty, never more important. 29
point about the need or re-alignment, new values and new economic thinking. The rst is that national policies must be realigned to refect
Risk management needs to be implemented
Risk management also has its practical aspects when applied to inra-
the realities o a new and rapidly changing world.The second is the Role
structure investment. The scope or new and additional investment in
o Markets and the need or markets to deliver a new generation o
climate-adapted inrastructure may simultaneously provide additional
goods and services essential to our uture in a manner that is both e-
employment, lower social and natural capital risks while also providing
cient, transparent and air. The third refects the increased inter-
opportunities or new insurance protection (or homes). Integrating so-
dependence o our world and the inability to tackle global problems in
cial and environmental standards into public investment decision-mak-
the absence o more creative and ocused approaches to global govern-
ing lowers implementation risk, improves the quality o the built envi-
ance. Individual behaviour at the household or local level will also be
ronment and may reduce other environmental risks. Such standards now
required and the role that local communities play is central also.
need to be explicitly recognised in a risk management ramework and, where societal risks are lowered, rewarded. How to link economic risk more ormally with social and environmental quality improvements remains an open ques tion. In addition, the issue o how sys tems o publicgood risk, time-dependent risk (especially inter-generational) and private risk co-exist needs attention. Much o my paper to this point has ocused on how values and economics are inter-twined but, unless we transorm our measurements o values into tangible outcomes, we will not succeed in our journey to a secure 2050.
29 Those in the insurance and re-insurance industry as well as in the nancial economics sector would undoubtedly disagree. However, application in other economics domains such as the economics o sustainability and natural resource policy is weak.
30 See or example, North D.C (1990), Institutions, Institutional Change and Economic Perormance. Cambridge University Press, Cambridge.
The Club of Rome, 25
nationaL PoLicies: Local and central governments will need to play a
the roLe oF markets: Markets remain the cornerstone o neo-clas-
central role in the design o new economic instruments and policies and
sical economics and are an essential aspect o our lie. Our banking
most importantly introduce institutional arrangements that transcend
systems are based on the development o money markets now so large,
short-term political mandates. A detailed assessment o national and
complex, multi-national and interwoven that many observers believe
local options or the kind o changes that are needed is beyond the scope
that markets have become separated rom economics and have begun to
o this paper. Nevertheless, a start could be made to introduce real value
lead a lie unto them-selves. The current recession has also highlighted
estimates into all public and private investment decisions and to ensur-
the values and ethics that underpin nancial markets and the banking
ing high standards o transparency and ethical behaviour into banking
sector. Our economist oreathers believed in markets as being the most
and nancial decisions, including reasonable caps or bonuses. Fiscal
ecient means to match supply and demand or goods and services and
policies need to be evaluated not in terms o classical economic or nan-
to nd a reasonable price between the two. Money, the currency o trade,
cial eciency but in terms o refec ting employment needs and striking
was a means to the end o satisying human needs in a air and transpar-
the right balance between the real costs o production between labour
ent manner. The de-regulation o markets in almost all economic elds
and capital. Local and national legislators need to play a stronger role
provided a platorm that moved markets, poorly regulated at best and
in establishing a new generation o “rules o conduct” on ethical behav-
un-regulated at worst, towards speculation and shortly thereater into
iour in the nance and banking sec tors and to ensuring that institutions
avarice. Risks and consequences have been disproportionately shared.
are built to withstand political intererence yet retain the trust o
Property markets originally designed to nd housing or those in need o
people. More creativity is required to test out new institutional arrange-
a home ound their way into speculative bubbles, producing massive
ments: ones where all stakeholders can assemble in decision-making
negative equity or millions o home owners. Massive bank bailouts us-
ormats, where decisions made transcend immediate political considera-
ing taxpayer unds have been accompanied by bankruptcies and oreclo-
tions and where decisions or the uture are perceived to be on the basis
sures that have required government support and the payment o social
o objective and robust assessment.
saety nets: a double negative public dividend. Greed and extreme bonus payments have all added to a growing sense o anger, disillusionment
Political leadership at the national and global level is ess ential yet con-
and distrust. Markets shited out o the real economy and into “illusory”
spicuous by its absence. Few politicians appear interested in anything
wealth creation31 with disastrous results or all but a handul o lucky
other than the next election, ew are willing to lay out the nature o the
speculators32. The market had become a casino: where ew win and most
challenges we ace, ew are willing to make the case or dramatic changes
lose. There is a need to reposition economics as an important driver o
in the way we live, the levels o consumption we must adjust to, nor the
air, equitable and ecient markets.There is an urgent need or an e thi-
sharing o wealth that will truly be required to reduce global poverty.
cal code o conduct that goes well beyond what is on the books today.
More promising is the growth in local political leadership, community and local government leaders willing to drive new agendas and create space or new ideas.
31 See David Korten, Agenda or a new Economy: From a Phantom wealth to real wealth, 2nd Edition, Beret Koehler Publishers, 2010. 32 These gains can be very large indeed. The top 25 hedge fund managers “earned” $22 billion in 2010 and one fund manager was able to take home a b onus during that year of $4.9 billion (appeared in a New York Times article, 2010).
The Club of Rome, 27
In addition, markets will need to play a new role in acilitating the und-
Markets need to be re-oriented to ensure that real economic values are
ing and delivery o a great many services that will be required or a
refected ully in market d ecisions:
2050 sustainable world including ecosystems services and carbon reduction. New markets will also increasingly display both a public good and a private good character suggesting that new orms o risk-reward
• Moving wealth into productive and sustainable investment opportuni -
ties and measuring real gains.
rameworks will be needed to ensure that both streams are served and provided appropriate returns.
• Developing new market mechanisms that can better realise the real
value o all as sets, including social and natural capital. Four sets o questions need to be addressed: • Substituting opaqueness for transparency to reduce nancial risks. • What form of national and international regulation and oversight can
provide the correct balance between protability and public good con-
• Substituting prudency and predictability for the kind of “casino bank -
cerns? What levels o transparency protect the common good yet pro-
ing” that has produced such s pectacular ailings and human misery.
vide the incentives or nancial accumulation. What is good governance and how can it be rewarded?
There are ew who do not now believe that our market systems and the banking and nancial services that underpin them are in need o atten-
• How can markets be developed that provide the goods and services
that are commensurate with the need or a sustainable planet? How
tion. Failure to correct the excesses o the past decade will decrease trust, increase social disharmony and lead to undesirable outcomes.
do we lengthen the nancing horizon to ensure that long-term sustainable investments in orests or in climate change can be realised? How
GLobaL Governance: The world has rapidly become a smaller place:
do we develop markets or global and national public goods in which
the exponential rise in, and access to, electronic communications as well
air economic returns can be provided to the public good and air
as low transportation costs has resulted in a better awareness and a
nancial returns to the private sector? Where do the most promising
more inter-connected world population than at any time in our global
history. We have also witnessed a massive rise in interconnected issues
jobs, social outcomes)?
requiring management and common policies. Furthermore, each and every one o us is a global citizen: what we do aects our planet and
• What is the correct role for the public sector in a world where public
and private returns will be co-mingled? What is enlightened public policy and what role should it play in creating markets or uture goods and services with a high public good content? • Is there an ethical base that accompanies the economics of markets?
Does the corporate and private sector have a moral duty to serve beyond the “bottom-line.” And i so, how?
what happens to our planet aects us, no matter where we live, no matter what our income is.
The Club of Rome, 29
Indeed the uture o sustainability depends critically on how well we
LocaL communities: Individuals and local communities can and do
manage “issues without passports”. Recent literature has ocused on
make a dierence. Actions at the local level do address many o the
three groups o global issues that now require our urgent attention 33:
issues outlined in this paper. Individual behaviour and actions make a di-
The rise o “global commons” issues such as climate change and the
erence. Recycling, once considered the preserve o only a ew dedicated
loss o sheries and oceans damage; a strong “global conscience” that
environmentalists, is now a standard and accepted practice in millions o
has turned attention to world poverty, hunger and security; and a dra-
households. Personal choice on decisions to improve household energy,
matic rise in establishing “clear global rules” that make each o our
reduce personal and household carbon ootprint has had an eect.
lives saer, more predictable and protected. Global rules on common
Individual commitment and behaviour to a changed and better world is
standards o air saety, accounting standards, and on the conduct o war
undamental. Providing the opportunity, aligning the correct policies,
have been in existence or many years. New considerations are required
introducing the appropriate incentives are all important and yet it is at
or nancial and banking transactions, environmental goods and ser-
the individual and local community level that we will see real change.
vices, human tracking and on many more issues. Yet despite the de-
This suggests that individuals and their communities will need the inor-
mand or such services, the world has struggled to nd the correct insti-
mation to act; that schools should ensure that children are made aware
tutional and governance rameworks that can cost eectively and
o the world they will grow up in. Inormation and education are indis-
eciently derive new standards and provide the means or eective
pensible requirements to ensure people have access to the changing
implementation. The reasons or this are varied and complex but in-
world they live in.
clude: lack o political will and myopic leadership, ineective and underunded institutions such as the United Nations, undemocratic and
Major changes in the speed, cost and quality o inormation as well as
non-representative global institutions (such as the Breton Woods or-
more recent changes in scale economies in the energy and other sectors
ganisations), the inability to nd institutions that are multi-stakeholder
suggest that it may be easible to scale down to the household and com-
at a time when s tate-centric policies require broader legitimacy and the
munity rather than scale up to large point sources. The case or increased
marginalisation o the emerging economies in key global decisions. The
attention to “the rule o subsidiarity” is clear. Local community organisa-
spectacular ailings o the climate change meeting in Copenhagen
tions and local administrations will rise in importance over time.
brought it home to many: when consensus becomes the agreement o the least committed with the least interested we know we have an issue in global problem solving. As global citizens we deserve better. We deser ve a voice in global decision making and greater accountability. Global governance remains an issue or serious attention. Fortunately, a ew progressive governments and researchers are now beginning to explore whether new orms o global governance and associated institutions could provide broad-based support to implement progressive and equitable global policies.
33 Based on personal conversation with Jean François Rischard, ormer Vice President, World Bank.
The Club of Rome, 31
The Club of Rome, 33
It can be debated as to whether ecological damage (including climate change) or unemployment represents the most important global issues to be addressed i we are to move towards a sustainable world. Unemployment, o course, is more than an economic issue 34. It lies at the
emPloyment and ecology: the twin challengeS for humanity
heart o the problem o poverty; it uels discontent, alienation and a sense o hopelessness and this is oten transormed into social unrest. To some, it remains a undamental human right, a question not o whether economic growth can produce jobs but a re-tting o economics to assure that everyone has the right to employment. The employment dilemma lies at the heart o the essential debate about new economics and markets: • It raises a fundamental philosophical issue of e conomics. Should eco -
nomics set as its primary goal the ullment o human aspiration by ensuring that every human on this earth o employable age should have a right to a job? Those in avour argue that economics needs to be re-engineered to drive such a policy goal. Thus neo-classical economists whose denition o ull employment requires some level o unemployment remains undamentally fawed. 35 It asks the question what is the real value o unemployment, based upon the misery it produces, the social dislocation it erments and the contribution to society it denies. In some cases the real value o unemployment has been estimated to be signicantly higher than the cos t o employment. • The porosity of borders and the mobility of labour suggest that we
need to take into account the global nature o employment and the global social costs o unemployment.
The nal segment o this paper takes us right back to the beginning: the challenges we ace and the need to imbue these challenges with a new sense o values, a new and updated application o economics and a sense that new institutions will be needed to guide action.
34 There is a large body o literature related to the gender dimensions o employment, human capital ormation, and social consequences o unemployment. 35 For a more comprehensive review o the theoretical faws o economic theory with respect to employment see Orio Giarini and Patrick M. Liedtke, (2006 2nd Ed.) The Employment Dilemma and the Fu ture o Work, Report to the Club o Rome, Geneva: The Geneva Association.
The Club of Rome, 35
• The mispricing of certain forms of capital may well distort labour capi -
An emerging theme or some economists 37 is what happens i job secu-
tal ratios and provide a disincentive or employment-creating economic
rity cannot be assured or at least contemplated. How will we unction in
activities. Furthermore, the externalities associated with unemployment
society where unemployment or partial employment is the expected
are not actored into relative input prices. A change in policy is urgently
norm? The world has become suciently technologically developed that
required: rom taxing employment (as many countries do) to taxing
it could probably produce all the material goods required with a small
non-sustainable or non-renewable consumption. Placing people at the
raction o the population. What social and institutional structures
centre o new economics would increase human capital ormation on the
could support such outcomes in a manner that provides or sustainable
one hand and, on the other, lower discrimination o labour costs.
societal benets? Can we live in a world without jobs and i so with what distributional, poverty and social capital consequences. I do not believe
• Technological substitution may reduce employment opportunities,
that we can.
even where overall economic eciency is improved.The shit towards service and inormation based sectors as well as increased mechanisa-
I have chosen Ecology (or our planet’s natural capital) as the twin
tion in historically labour intensive sectors such as agriculture has
global challenge because our natural capital will be both a binding issue
certainly aected employment opportunity. Finding the appropriate
as well as a dening issue or our uture. Daly has suggested that while
balance between technical and labour substitution remains a chal-
we once lived in an “empty world” with ar ewer binding constraints we
lenge that now needs to actor in the ull range o economic costs and
are now moving towards a “ull” world38.
benets. • Green growth has been heralded as a “win-win” strategy by politicians
and some economists. The hypothesis is that the new economy based on green growth and renewable energy is a win or the environment as well as a win or jobs. However, this has yet to be tested through serious research and enquiry. The link between growth, green or otherwise, and jobs is central to long term sustainability and poverty reduction. • The large scale global and national demographic shifts anticipated
will have proound impacts on the location and demand or labour, and this in turn, will aect the nature o economic, political and cultural lie in many countries. 36
36 For example, as populations age in a number o rich countries they are likely to require an increase in labor rom other countries to maintain their levels o economic growth. Estimates or Europe and Japan are that close to 70 million and 25 million people respectively would be needed.
37 See Anna Coote, Andrew Simms, Jane Franklin, 21 hours: Why a shorter working week can help us all to fourish in the 21st century, New Economics Foundation, London, 13 February 2010; which makes the case that in the UK under any plausible scenario there will be insucient jobs or all to work ulltime. 38 See Herman Daly op cite.
The Club of Rome, 37
First, it will impose limits – not always nite but moving us to new and
The twin challenges o addressing employment and ecology are daunt-
unheard o cost levels to manage. We are already witnessing examples
ing but essential. They are within the realm o possibility by 2050 but it
will require a new ethos, a new economics and new understanding o prosperity as well as a deeper and more proound understanding that
• A single tuna sh was sold recently in a Tokyo market for over Euro
social and economic equity is an investment or sel preser vation, peace
300,000 suggesting that we may well be reaching a level o unsustain-
and security. It will require new institutions built or purpose with greater
transparency, a new ethic and a new mandate: to produce the policies, goods and services that provide or a new humanity.
• The costs of exploration and delivery of water in some parts of the
world are higher than the costs o oil.
As noted earlier, we are living well beyond any reasonable limits o our planet to regenerate and change towards a more ullled and happier
• The ballooning costs of d elays in addressing climate change and mov -
ing to a no carbon global economy.
place. The evidence is clear and the warning signs are obvious. Unless we recognise that our global economy is bounded by ecosystem limits we will neither produce sustained growth nor sustained prosperity42.
Second, our natural capital will shape our uture. It will shape where we live, how we live and what we build. Our energy systems will need to be
It is clear that i we do nd jobs or those in need and i we run down
transormed through changing the way in which we consume energy 40
our global ecology we ace a world o low r esilience and high social ten-
and to an almost complete turnover o our energy capital stock. Even
sion. It is not a world most o us would want or our children or grand-
under conservative estimates o climate change and our desire to be
below dangerous levels o emissions build up (and to manage the transition rom oil as we approach peak oil) 41 we will need to be essentially carbon ree by 2050. And who knows, perhaps even nuclear ree? Our transportation and housing systems will need to be made resilient to the vagaries o changing weather patterns. Investment in agricultural research (especially in the tropics) will need increasing in order or it to be more resilient and more productive and our global sheries restored to a point where we sustainably harvest the sheries o-take. The management o our global ecology will require a dramatic increase in nancial resources but deployed eectively will provide outstanding societal (and nancial) returns.
39 For example, see: Guardian.co.uk, “Huge Bluen etches £250,000” – w hich notes that “Japan has not lost its appetite or endangered species”. 40 See or example, Ernst von Weissacker, Factor Five, or an excellent example o just what is possible to achieve in energy eciency. 41 Ian Dunlop, presentation to the Club o Rome, 2010.
42 For an excellent example see, Herman Daly, Ten Policies or a Steady-State Econo my, AAAS Annu al Meeting, February 2011, Washington DC. Daly notes that “In the empty world o yesterday growth economics was a triumphant success; in today’s ull world it is an obstructive nuisance”. He goes on to note that “…well beore reaching the biophysical limit we are encountering the orthodox economic limit in which the extra costs o growth become greater than the extra benets, ushering in the era o uneconomic growth.”
concluSion And so we have come ull circle. We need a change o direction based upon new and enriched values. We need a more human centred economics where real societal values are refected in public and private decisions and we need new institutions that guide us towards a more stable and secure uture. It would be easy to provide a long list o global problems: none more important than addressing the crippling poverty we see in the world today. However, i we do not nd a way to ensure ull employment and i we do not protect the very scarce natural capital we collectively steward and i we have not completed the bulk o the adjustment by 2050 our children will not look back with any sense o pride or grateulness.
We are at an infection point in global aairs. We have seen ve global crises this decade: not one has been managed with great skill or political determination and the remedial measures have been non-commensurate to the tasks at hand. The ault lines were clear. Yet none have explicitly recognised that these crises have common roots and need common actions.
We are entering into unchartered territory where non-linearity, shocks and surprises will become the norm. A world where shiting power bases, growing aspirations and demographic upheaval will shape uture agendas but where creative and enlightened public policy and ar-sighted corporate actions can move us towards a uture o which we can be proud. The Club o Rome has an opportunity to shape an agenda and to encourage a global public discourse on issues o proound importance to ourselves, our uture and our humanity. We can, by 2050, have built a brave and better new world. The choice is ours .