Sustainability Under Under Scrutiny

8/3/2019 Sustainability Under Under Scrutiny

http://slidepdf.com/reader/full/sustainability-under-under-scrutiny 1/21

SuStainability

underScrutiny real ValueS and their role in Promoting

the new economicS of growth1

Discussion paper 01 /11

T H

E C L U B O F R O

M E

Ian Johnson , Secretary General, Club o Rome.



3The Club of Rome,

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

: therst 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 solu-

tion (all too oten this is reversed!); and it ocused us all on the longer

term. 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 the

course o the next two decades many ne books rom eminent research-

ers were prepared and submitted as reports to the Club o Rome. They

were ad hoc in nature but o high quality and great relevance.

introduction

2 See Donella H. Meadows, Dennis L. Meadows, Jorgen Randers and William W. Behrens III, Limits to Growth,

Universe Books, New York, 1972.

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, 31 May 2011.



5The Club of Rome,

Limits to Growth: Focused largely on bio-physical limits and the

identication o key global problems (“the Problematique”).4

Pathways to worLd deveLoPment: Included social and economic

actors, as well as biophysical, and stressed the inter-connectedness o

ve clusters o issues.5

And, as I discuss in this paper, a urther evolution towards:

new economics, Growth and reaL vaLues: An exploration o the

underlying causes and their remedies.6

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

the same. As we celebrate orty years o “Limits to Growth” it is worth

considering lie orty years onwards. I have chosen 2050 as a convenient

place to reset our global clock; to consider how the world may dier

rom today and as a convenient time rame through which we will have

to have in place a new planetary order i we are to satisy our dream o

a saer and airer world.

So what might we expect between now and 2050?

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 crises7:

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.

The world

in 40 years

Some our years ago, the Club moved towards an integrated work pro-

gramme: “Pathways to World Development”. This allowed us to revisit

the “problematique” and to state it in a more contemporary setting

where we had already witnessed the realities o “Limits to Growth” and

where new ndings and new research had provided us with new insights.

The “Pathways” work programme ocused on ve interlocking themes:

Environment and Natural Resources, Globalisation, International

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

Rome which ocuses on the systemic or “root” causes o the problems

we ace and on identiying potential solutions.

This paper presents my own thinking o how we must build upon the ne

legacy o the Club’s work and move it orward towards a new and

emerging set o issues that relate to addressing the underlying causes

and to seeking solutions to address the most pressing global issues we

ace.

So let me recap: We can see a clear evolution o thinking in the Club o

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-

spective, o integrated thinking and o a longer term perspective3 that

has evolved rom:

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 uture-

oriented 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.



7The Club of Rome,

and tomorrow’s worLd?

And as we refect upon the observations o this past decade it is worth

considering or a moment the world o tomorrow. I we look orward to

2050: as I have already noted, well within our children’s lietime, we can

envisage a number o signicant changes:

• Population will likely grow from close to 7 billion to perhaps 9.5 bil -

lion (current estimates range rom around 8 to 10.5 billion).

• Current estimates of global GDP are around US$ 60 trillion and even

at modest per capita growth rates in the emerging economies o the

world to meet poverty targets we could easily see a world (as we con-

ventionally measure it today) of closer to US$ 200 trillion. Three

worlds sitting on our present one world but s tretched to the limits with

regard to consumption and production patterns.

• The current sharing of global wealth in which 80% of the world’s

population account for only 20% of the global wealth is unsustainable.

While this ratio has been consistent or the past two decades it is

starting to shit. The year 2010 represents an interesting watershed in

terms o aggregate wealth: on a global GDP/Power Purchasing Parity

(PPP) basis, the emerging economies are roughly now equal to the

rich world. A signicant geo-economic shit and potentially an impor-

tant geo-political shit.

Finance:We remain in the midst o a global nancial crisis; one that

has aected millions o people throughout the world. What started as a

series o largely containable national and regional banking crises rom

the 1970s onwards has transormed itsel into a global crisis in the real

economies o the world. Improved management and oversight o our

nancial systems has started but the pace is glacial and the eorts

remain woeully weak and sporadic.

Food: We have witnessed a ood crisis as a result o the rapid growth in

ood commodity prices, and their impact on poor countries and poor

people. It resulted in many being pushed below the poverty line. The ood

crisis was due to many reasons: historic low prices that couldn’t continue,

technological plateaus in productivity and competition or land use.

ecoLoGy: We have a global ecological crisis that aects us now and

well into the uture and the consequences o not repairing and then eec-

tively managing the Planet’s stock o natural capital will lead to

unknown but potentially very dangerous ou tcomes. Fortunately climate

change has now moved to centre stage: so much so that it is easy to

ignore other ecological issues such as the loss o orests, sheries and

biodiversity; all being lost at historic and unprecedented rates. To be

sure climate change will make matters worse yet, hopeully, it also

provides us with a greater sense o urgency to take action.

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 peo-

ple under-employed. Our inability to create jobs will consign many mil-

lions to poverty, induce social and political unrest, and will undermine

any hopes or a more secure and sustainable world. Unemployment re-

mains the single largest global ailure.



9The Club of Rome,

The wealth o our nations is changing dramatically; the shits in wealth

are reshaping our global body politic; those let behind are growing in

numbers and strength; and the search or prosperity has all too easily

become a search or economic growth on the assumptions that growth

alone would solve our problems.

As we consider the uture, let’s also not orget that we are wiser, more

inormed, better able to communicate with one another at speeds that

could not be considered even twenty years ago, we have a world o bright

capable minds who will want to contribute to a better world and we

understand the potential but also the limitations o technological devel-

opment. There is much to build upon even as there is much to do.

So where might we start?

In this paper I discuss three inter-related issues that orm a stable oun-

dation rom which to build and where I believe we can make a start:

Values, Economics and Institutions. I will make the case that the inter-

connected 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.

• Demand for goods and services are set to increase dramatically driven

by population, rising per capita income, and the shit rom current low

per capita income consumption patterns. Demand or ood is likely to

more than double by 2050 and energy needs increase threeold.

• 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

sanitation and to meet incremental demands rom a growing popula-

tion. Water resources will continue to be stretched, although globally,

water per se will not be scarce. However the costs o harnessing water

will rise exponentially and discontinuously and place huge scal and

economic burdens on countries to deliver water. Together with the pro-

vision o potable water, dramatic increases (ourold or more) in water

eciency in the agricultural sector will be needed.

• It is estimated that 27% of the world’s population is under the age of

teen: or the uture a large, capable and ready work orce in the

making? Perhaps? Or a major source o social unrest? Possibly, in-

deed 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.

thinking Measuring action

Values New Economics Institutions or Delivery

Employment Ecology

Real and Equitable

Prosperity



11The Club of Rome,



13The Club of Rome,

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

arises as to whether there are sets o global or universal values and, as

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:

universal values, rights and reedom are enshrined in the context o the

United Nations but these are state centric and state “negotiated” rather

than individual or “citizen values”. Nevertheless, the Universal Declara-

tion o Human Rights has now been accepted widely as a basis or

national legislation and the Charter o the United Nations itsel repre-

sented an important point o reerence in determining universal values.8

ValueS,

economicS &inStitutionS

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.

The larger question is, o course, 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-

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 hu-

manity. 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 behav-

iour; 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

general point.

The key, o course, is whether we are able to translate such values into

tangible actions. This brings me to the next point o discussion: Economics.

economics and economic policy are the backbone o public policy

decision-making. Economics is important as it helps establish the prices

or goods and services in society; it is the cornerstone o our market

economies and o our banking and nancial systems; and it helps us

establish priorities or investment and policy-making. Economic growth

is the metric by which we measure the wealth o nations and the changes

in such wealth are important components o international relations and

negotiations.

9 However, this would be an important area or urther work within the Club o Rome.



15The Club of Rome,

The oundations or modern economics were built when the world was

dramatically dierent rom today. Current economic theory rests large-

ly on assumptions that were made over 200 years ago but many are no

longer valid or today’s world. Shits in liestyles, communications, pro-

duction and consumption patterns have been suciently large as to call

into question the validity o current economic theory. It is based on a

time when physical capital was scarce and natural capital abundant;

when global population was a raction o what it is today; when econo-

mies were agriculture based and services o little importance; when

global public goods were unheard o; and when public policy was limited

or non-existent.

These acts have been recognised by leading thinkers and economists

and there is now a nascent movement to review the underpinning o

economic theory as well as to begin using economics to measure many

goods and services that have hitherto remained unmeasured, including

natural resources.

Economics exists also in a wider spectrum o human societal activities:

ecological, political and social, and increasingly the lines between disci-

plines are blurred: witness, or example, the growth in ecological eco-

nomics and the valuation o natural capital.

Indeed, economics has also become both more specialised and more

inter-disciplinary. The simple micro and macro schism o the past no

longer seems valid. The branches o economics have grown considerably:

monetary, scal, growth, nancial, market, development, sector (energy,

industry, health, agriculture), climate (adaptation and mitigation), in-

ormation 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.

More generally, economists need to also turn their attention towards a

better understanding o normative values; as well as ensure that societal

values that are unmeasured and thereore largely ignored by economists

are brought into the mainstream o economic policy. The continuance o

economic policy to ignore real societal values remains a central

barrier to addressing the global humanity challenges we ace.

As economics grew more specialised it also lost much o its philosophi-

cal underpinnings. Ends gave way to means. Finding equilibrium be-

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-

ated surplus money were celebrated even i they resulted in lost jobs,

lost homes and increased personal misery. It is time or economics to be

re-engineered and made t or purpose.

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-

tioned the ecacy o our economics thinking. Forty years ago leading

academics began to lay the groundwork or a discourse on the uture o

economics. “Limits to growth” was the rst to postulate that, in the

absence o remedial action, natural limits would begin to impose con-

straints on economic growth. Daly et al11 promoted the concepts o eco-

logical economics and the need to balance economy with ecology. Dur-

ing the last twenty years environmental economists have attempted to

measure real wealth; assess genuine savings12; ecologically adjusted

growth rates; and place economic values on natural resources.

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 “Estimating national wealth:

methodology and results”, World Bank Departmental Working, Paper1998/01/31 Report Number: 18257.



17The Club of Rome,

More recently, the Stern Report on Climate Change13 ocused on the

concept o global public goods and global market ailure. Others such as

Joseph Stiglitz14 have ocused on the role that asymmetric inormation

plays in undermining the eciency o markets as well as the broader

propositions o reorming economics and Amartya Sen15 has ocused on

economics, ethics and inequality.

Economics is neither supporting real wealth creation in the 21st Century

nor is it acilitating the creation o the kinds o markets, policies and

instruments that will guide us towards long-term sustainability. It is

timely to re-think and change our ways.

Let me now turn to some key issues where, I believe, economics has be-

come divorced rom “real values”:

the economics oF Growth and weaLth: The limitations o the

classical measurements o national wealth have been well documented

ever since the creation o national accounts and their use in determining

relative wealth16. GDP has long been the most quoted and least under-

stood metric o economics. It is a fow measure most oten quoted as a

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

a positive contribution, actors that most o us would deem undesirable

(crime, social unrest and war) and exclude actors that are perceived as

highly desirable (the protection o natural habitats, orests). In particu-

lar, national wealth calculations ignore the eects o the depletion o

natural capital, such that the destruction o orests and other natural

capital are a net asset contribution to wealth. Finally, it ignores eco-

nomic externalities such as the social costs o unemployment; the posi-

tive benets o unpaid work; and the distributional eects o income.

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.

And yet or all o its faws it remains s tubbornly the most quoted metric

o economic achievement and o measuring relative economic peror-

mance17. The use o national income accounting metrics to assess wealth

and social progress is more outdated today than ever beore. And as we

look to the uture, with a rapidly changing global economic structure, a

world where complexity is increasing, where services are rapidly replac-

ing manuacturing, and in a world where many people are beginning to

question the extent to which economic policy and markets has ailed to

bring about real, sustained and lasting welare, it is timely to not only

revisit our measurements o wealth but actually change them into some-

thing meaningul or the 21st Century.

Today’s growth perpetuates over-consumption. As growth weakens, gov-

ernments promote consumption (to get companies back on their eet

and to provide governments with more revenue). The act that more

consumption is part o the problem and not part o the solu tion escapes

all but the clear minded. It may also lead us to a point where we experi-

ence, on a large scale, the phenomena o what Herman Daly has called

“uneconomic growth”, where the extra costs o a unit o GDP growth

are more than the benets.18

Economic growth has been o concern to economists or many years

both as a measure o how wealth was changing and also as a measure

o economic and social progress. Growth was expected to be linear and

non-binding: technology and human ingenuity would provide the buer

against any limits to growth. This was rst questioned by the Club o

Rome in its seminal report “The Limits to Growth”19 which postulated

that, in the absence o orward thinking policies, the world could go into

unsustainable “overshoot” with dire consequences to growth and wel-

are. Remedial actions would be suciently costly to negatively aect

economic growth. This view, contentious at the time, is looking increas-

ingly valid with time.

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.



19The Club of Rome,

Ecological economics was, to a large extent, born out o this debate. The

link between geo-physical assets and human welare spawned concerns

over the earth’s carrying capacity. Demographic projections and income

requirements o the poor parts o the world re-enorced this view.20 It is

important not to lose sight o the issues o both limits to growth and the

limits o growth in meeting the needs and aspirations o humanity. In-

deed, an emerging body o economics literature is posing the question o

whether urther growth is possible: they make the case that limits have

arrived.21

The issue o inequity lies at the heart o a airer and more just world.

The poorest 40% of the world’s population account for only 5% of

global income. The global assets o the wealthy have multiplied expo-

nentially, from $ 12 trillion in 1980 to almost $ 170 trillion in 2006. 22

Development economists have been at the oreront o arguing both the

moral and economic case or high growth and redistributive policies. In

an increasingly connected world in which “overshoot” conditions arise,

the issue o global production and consumption patterns have become

an important element o economic discourse.

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.

the economics oF naturaL caPitaL: When ecologists began work-

ing with economists an important alignment was ormed: ecologists

worried about the physical depletion o the natural resource base o our

planet and economists worried that it was being accounted or as a

positive contribution to wealth and growth. Theoretically, the depletion

o natural resources has been well documented23 and case studies have

been developed24 or several sectors. A literature exists on the value o

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

environment and almost never into ministries o nance. And yet the

consequences o using incorrect economic values o natural resources

can be considerable: the under-pricing o water leading perhaps to the

largest single global economic subsidy in the world today. The manage-

ment o our water resources represent an interesting case o rising costs

and increasing scarcity o capital. The economic cost or “real value” o

water is rising rapidly and discontinuously in many countries. This rep-

resents a nuanced view o “limits” where the physical limit o resh

water is not reached but the massive and discontinuous costs impose a

signicant real bind on economic growth.

An associated environmental issue relates to the negative costs associ-

ated 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.

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, Earthscan, 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.



21The Club of Rome,

Climate change has been described as the largest market ailure in our

history. The Stern Review26 has documented the economic issues raised

by our concerns with climate change which provide new dimensions to

our tasks o applying economics to an environmental “bad” that is inter-

generational, requires long-term investment, a global public good and

raises issues o generational and spatial equity. It also raises questions

o equitable treatment o nance or both mitigation o, and adaptation

to, climate change. Much o the literature has ocused on the costs o

addressing climate change. The counteractual case is rarely made: that is

what benets to economic welare does long-term and early action bring.

the economics oF sociaL caPitaL: The pioneers o economics

largely considered a single orm o capital, man-made. Labour-capital

ratios would nd the correct optimum between the cost o physical cap-

ital and the price o labour. Our world is now signicantly more complex

and other orms o capital are beginning to be recognised as potentially

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

development and growth.27

Social capital has been largely untreated by economists and yet it may

provide a better understanding both o the purpose o economics as well

as a more practical understanding o how economies work. Social capi-

tal may be described as the range o social interactions that can add

value to our contentment, happiness, and eelings o sel wor th. It has to

do with how secure we eel within our amilies, our communities and our

cities, and how sae we eel or our children and their uture. The deple-

tion o social capital can extract a very high economic cost as social

disruption, violence, destruction o physical assets, crime and vandalism

increase. Given our presumption that economics should be about max-

imising human well-being it is remarkable that social capital has taken

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 Randers 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.

unemployment, dramatic shits in distributional outcomes, displacement

through poor decisions on the value o natural capital and massive

wealth gains amongst the very ew, can all lead to high social capital

costs which, in turn, lead to high and negative economic impacts. On the

positive ledger, research is being undertaken on the economics o happi-

ness: the bridging o economics and psychology. To some, happiness ap-

pears to be a rather esoteric concept or economists to grapple with.

However, surely everyone on earth aspires to a happier and more con-

tented lie: a lie o strong social capital where welare is maximised

and security assured. The economics o happiness is non-trivial.

Economics needs not only to refect on natural and social capital but

also explore whether other orms o separable capital exist. Cultural

capital, human capital, technological capital and knowledge are deserv-

ing o attention. How the various orms o capital relate to each other

and how they drive us towards real wealth creation remain an area or

urther consideration.

the economics oF time: High discount rates together with political

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

o sustainability, marginalising long term gains in sectors and activities

that require long term planning and nurturing and encouraging markets

to capture short term protability and ignore long term nancial sus-

tainability. A sustainable world is one that is capable o managing assets

over time, restoring them and nurturing them or uture generations.

Many have argued that high discount rates have had a negative eect

on natural capital and long term management o global commons issues

which require thinking in terms o generations28. The debate on the issue

o inter-generational equity exceeds the remit o this paper although

there is a persuasive moral argument or such considerations. The time

dimension o economics remains an important issue.

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.



23The Club of Rome,

Risk

management

needs to be

implemented

the economics oF the unknown: In an uncertain world where non-

linear events are possible, where booms and busts are common-place,

where civil strie and economic asset destruction can occur at any time,

the role o risk and uncertainty becomes an important parameter or

nancial and economic decision-making. Recently, climate change has

ocused our attention increasingly on probability theory and the man-

agement o non-linear events. Yet economics has, to a very large degree,

remained deterministic in nature. We need to upgrade our economics

thinking to embrace risk and uncertainty in a more rigorous and sophis-

ticated manner. Least risk may need to replace least cost planning. Op-

tions theory may need to replace deterministic planning. It is an area

where economics has been historically weak and, as we move into in-

creasing uncertainty, never more important.29

Risk management also has its practical aspects when applied to inra-

structure investment. The scope or new and additional investment in

climate-adapted inrastructure may simultaneously provide additional

employment, lower social and natural capital risks while also providing

opportunities or new insurance protection (or homes). Integrating so-

cial and environmental standards into public investment decision-mak-

ing lowers implementation risk, improves the quality o the built envi-

ronment and may reduce other environmental risks. Such standards now

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 re-

mains an open question. In addition, the issue o how sys tems o public-

good risk, time-dependent risk (especially inter-generational) and pri-

vate 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.

institutions are all too oten thought o as organisations. My deni-

tion o institutions is much broader: it embraces all structures, ormal

or inormal, that provide or social order and cooperation including cus-

toms, behaviour patterns, codes o conduct, religions, legal systems,

trading and marketing systems as well as more ormal structures o

governance30. Institutions matter to the conduct o our uture aairs.

They shape the values and provide legitimacy to the rules we need to

ensure social cohesion and social progression: without them we cannot

take collective actions or the betterment o society. Institutions are the

delivery mechanisms we rely upon.

In this paper I will ocus on our inter-related “institutions” to make my

point about the need or re-alignment, new values and new economic

thinking. The rst is that national policies must be realigned to refect

the realities o a new and rapidly changing world. The second is the Role

o Markets and the need or markets to deliver a new generation o

goods and services essential to our uture in a manner that is both e-

cient, transparent and air. The third refects the increased inter-

dependence o our world and the inability to tackle global problems in

the absence o more creative and ocused approaches to global govern-

ance. Individual behaviour at the household or local level will also be

required and the role that local communities play is central also.

30 See or example, North D.C (1990), Institutions, Institutional Change and Economic Perormance.

Cambridge University Press, Cambridge.



25The Club of Rome,

nationaL PoLicies:Local and central governments will need to play a

central role in the design o new economic instruments and policies and

most importantly introduce institutional arrangements that transcend

short-term political mandates. A detailed assessment o national and

local options or the kind o changes that are needed is beyond the scope

o this paper. Nevertheless, a start could be made to introduce real value

estimates into all public and private investment decisions and to ensur-

ing high standards o transparency and ethical behaviour into banking

and nancial decisions, including reasonable caps or bonuses. Fiscal

policies need to be evaluated not in terms o classical economic or nan-

cial eciency but in terms o refecting employment needs and striking

the right balance between the real costs o production between labour

and capital. Local and national legislators need to play a stronger role

in establishing a new generation o “rules o conduct” on ethical behav-

iour in the nance and banking sec tors and to ensuring that institutions

are built to withstand political intererence yet retain the trust o

people. More creativity is required to test out new institutional arrange-

ments: ones where all stakeholders can assemble in decision-making

ormats, where decisions made transcend immediate political considera-

tions and where decisions or the uture are perceived to be on the basis

o objective and robust assessment.

Political leadership at the national and global level is essential yet con-

spicuous by its absence. Few politicians appear interested in anything

other than the next election, ew are willing to lay out the nature o the

challenges we ace, ew are willing to make the case or dramatic changes

in the way we live, the levels o consumption we must adjust to, nor the

sharing o wealth that will truly be required to reduce global poverty.

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.

the roLe oF markets: Markets remain the cornerstone o neo-clas-

sical economics and are an essential aspect o our lie. Our banking

systems are based on the development o money markets now so large,

complex, multi-national and interwoven that many observers believe

that markets have become separated rom economics and have begun to

lead a lie unto them-selves. The current recession has also highlighted

the values and ethics that underpin nancial markets and the banking

sector. Our economist oreathers believed in markets as being the most

ecient means to match supply and demand or goods and services and

to nd a reasonable price between the two. Money, the currency o trade,

was a means to the end o satisying human needs in a air and transpar-

ent manner. The de-regulation o markets in almost all economic elds

provided a platorm that moved markets, poorly regulated at best and

un-regulated at worst, towards speculation and shortly thereater into

avarice. Risks and consequences have been disproportionately shared.

Property markets originally designed to nd housing or those in need o

a home ound their way into speculative bubbles, producing massive

negative equity or millions o home owners. Massive bank bailouts us-

ing taxpayer unds have been accompanied by bankruptcies and oreclo-

sures that have required government support and the payment o social

saety nets: a double negative public dividend. Greed and extreme bonus

payments have all added to a growing sense o anger, disillusionment

and distrust. Markets shited out o the real economy and into “illusory”

wealth creation31 with disastrous results or all but a handul o lucky

speculators32. The market had become a casino: where ew win and most

lose. There is a need to reposition economics as an important driver o

air, equitable and ecient markets. There is an urgent need or an e thi-

cal code o conduct that goes well beyond what is on the books today.

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 bonus during that year of $4.9 billion (appeared in a New York Times article, 2010).



27The Club of Rome,

In addition, markets will need to play a new role in acilitating the und-

ing and delivery o a great many services that will be required or a

2050 sustainable world including ecosystems services and carbon re-

duction. New markets will also increasingly display both a public good

and a private good character suggesting that new orms o risk-reward

rameworks will be needed to ensure that both streams are served and

provided appropriate returns.

Four sets o questions need to be addressed:

• What form of national and international regulation and oversight can

provide the correct balance between protability and public good con-

cerns? What levels o transparency protect the common good yet pro-

vide the incentives or nancial accumulation. What is good govern-

ance and how can it be rewarded?

• How can markets be developed that provide the goods and services

that are commensurate with the need or a sustainable planet? How

do we lengthen the nancing horizon to ensure that long-term sustain-

able investments in orests or in climate change can be realised? How

do we develop markets or global and national public goods in which

air economic returns can be provided to the public good and air

nancial returns to the private sector? Where do the most promising

markets or sustainability lie (carbon, orestry, ecological services,

jobs, social outcomes)?

• 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?

Markets need to be re-oriented to ensure that real economic values are

refected ully in market decisions:

• Moving wealth into productive and sustainable investment opportuni-

ties and measuring real gains.

• Developing new market mechanisms that can better realise the real

value o all assets, including social and natural capital.

• Substituting opaqueness for transparency to reduce nancial risks.

• Substituting prudency and predictability for the kind of “casino bank-

ing” that has produced such spectacular ailings and human misery.

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-

tion. Failure to correct the excesses o the past decade will decrease

trust, increase social disharmony and lead to undesirable outcomes.

GLobaL Governance: The world has rapidly become a smaller place:

the exponential rise in, and access to, electronic communications as well

as low transportation costs has resulted in a better awareness and a

more inter-connected world population than at any time in our global

history. We have also witnessed a massive rise in interconnected issues

requiring management and common policies. Furthermore, each and

every one o us is a global citizen: what we do aects our planet and

what happens to our planet aects us, no matter where we live, no mat-

ter what our income is.



29The Club of Rome,

Indeed the uture o sustainability depends critically on how well we

manage “issues without passports”. Recent literature has ocused on

three groups o global issues that now require our urgent attention33:

The rise o “global commons” issues such as climate change and the

loss o sheries and oceans damage; a strong “global conscience” that

has turned attention to world poverty, hunger and security; and a dra-

matic rise in establishing “clear global rules” that make each o our

lives saer, more predictable and protected. Global rules on common

standards o air saety, accounting standards, and on the conduct o war

have been in existence or many years. New considerations are required

or nancial and banking transactions, environmental goods and ser-

vices, human tracking and on many more issues. Yet despite the de-

mand or such services, the world has struggled to nd the correct insti-

tutional and governance rameworks that can cost eectively and

eciently derive new standards and provide the means or eective

implementation. The reasons or this are varied and complex but in-

clude: lack o political will and myopic leadership, ineective and un-

derunded institutions such as the United Nations, undemocratic and

non-representative global institutions (such as the Breton Woods or-

ganisations), the inability to nd institutions that are multi-stakeholder

at a time when s tate-centric policies require broader legitimacy and the

marginalisation o the emerging economies in key global decisions. The

spectacular ailings o the climate change meeting in Copenhagen

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 deserve

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 institu-

tions 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.

LocaL communities: Individuals and local communities can and do

make a dierence. Actions at the local level do address many o the

issues outlined in this paper. Individual behaviour and actions make a di-

erence. Recycling, once considered the preserve o only a ew dedicated

environmentalists, is now a standard and accepted practice in millions o

households. Personal choice on decisions to improve household energy,

reduce personal and household carbon ootprint has had an eect.

Individual commitment and behaviour to a changed and better world is

undamental. Providing the opportunity, aligning the correct policies,

introducing the appropriate incentives are all important and yet it is at

the individual and local community level that we will see real change.

This suggests that individuals and their communities will need the inor-

mation to act; that schools should ensure that children are made aware

o the world they will grow up in. Inormation and education are indis-

pensible requirements to ensure people have access to the changing

world they live in.

Major changes in the speed, cost and quality o inormation as well as

more recent changes in scale economies in the energy and other sectors

suggest that it may be easible to scale down to the household and com-

munity rather than scale up to large point sources. The case or increased

attention to “the rule o subsidiarity” is clear. Local community organisa-

tions and local administrations will rise in importance over time.



31The Club of Rome,



33The Club of Rome,

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.

emPloyment

and ecology:the twinchallengeS

for humanity

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. Unem-

ployment, o course, is more than an economic issue34. It lies at the

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 economics. 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 econo-

mists whose denition o ull employment requires some level o un-

employment 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 cost 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.

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.



35The Club of Rome,

• The mispricing of certain forms of capital may well distort labour capi -

tal ratios and provide a disincentive or employment-creating economic

activities. Furthermore, the externalities associated with unemployment

are not actored into relative input prices. A change in policy is urgently

required: rom taxing employment (as many countries do) to taxing

non-sustainable or non-renewable consumption. Placing people at the

centre o new economics would increase human capital ormation on the

one hand and, on the other, lower discrimination o labour costs.

• Technological substitution may reduce employment opportunities,

even where overall economic eciency is improved. The shit towards

service and inormation based sectors as well as increased mechanisa-

tion in historically labour intensive sectors such as agriculture has

certainly aected employment opportunity. Finding the appropriate

balance between technical and labour substitution remains a chal-

lenge that now needs to actor in the ull range o economic costs and

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.

An emerging theme or some economists37 is what happens i job secu-

rity cannot be assured or at least contemplated. How will we unction in

society where unemployment or partial employment is the expected

norm? The world has become suciently technologically developed that

it could probably produce all the material goods required with a small

raction o the population. What social and institutional structures

could support such outcomes in a manner that provides or sustainable

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

that we can.

I have chosen Ecology (or our planet’s natural capital) as the twin

global challenge because our natural capital will be both a binding issue

as well as a dening issue or our uture. Daly has suggested that while

we once lived in an “empty world” with ar ewer binding constraints we

are now moving towards a “ull” world38.

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.



37The Club of Rome,

First, it will impose limits – not always nite but moving us to new and

unheard o cost levels to manage. We are already witnessing examples

o this:

• A single tuna sh was sold recently in a Tokyo market for over Euro

300,000 suggesting that we may well be reaching a level o unsustain-

able depletion39.

• The costs of exploration and delivery of water in some parts of the

world are higher than the costs o oil.

• The ballooning costs of delays in addressing climate change and mov-

ing to a no carbon global economy.

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

transormed through changing the way in which we consume energy 40

and to an almost complete turnover o our energy capital stock. Even

under conservative estimates o climate change and our desire to be

below dangerous levels o emissions build up (and to manage the transi-

tion 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 re-

search (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.

The twin challenges o addressing employment and ecology are daunt-

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

social and economic equity is an investment or sel preservation, peace

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.

As noted earlier, we are living well beyond any reasonable limits o our

planet to regenerate and change towards a more ullled and happier

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.

It is clear that i we do nd jobs or those in need and i we run down

our global ecology we ace a world o low resilience and high social ten-

sion. It is not a world most o us would want or our children or grand-

children.

42 For an excellent example see, Herman Daly, Ten Policies or a Steady-State Economy, AAAS Annual 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.”



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 economicswhere 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, shocksand surprises will become the norm. A world where shiting power bases,

growing aspirations and demographic upheaval will shape uture agen-

das but where creative and enlightened public policy and ar-sighted cor-

porate 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 en-

courage 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 .

concluSion



Documents

Sustainability Under Under Scrutiny