Hungarian Academy Presentation Tatic Kasim

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Modern mainstream economics:

science or ideology?

Hungarian Academy of Science

27. November 2006

Prof.Kasim Tati, Ph.D.

School of Economics and Business Sarajevo

Institute for Advanced Studies on Science, Technology and Society, Graz

[email protected]



IdeologyIdeology is a shared belief system that mayis a shared belief system that mayserve at once to motivate and toserve at once to motivate and to justify justify..

It generally asserts normative values andIt generally asserts normative values andincludes causative beliefs. How do thingsincludes causative beliefs. How do thingshappen? What does it all mean?happen? What does it all mean?

An ideology may be utopian and progressive An ideology may be utopian and progressiveor or protective of the status quoprotective of the status quo..

It offers a way in which to order the world,It offers a way in which to order the world,defining enemies and allies, dangers anddefining enemies and allies, dangers andopportunities, us and them.opportunities, us and them.



Ideologies are formal, structured, and involveIdeologies are formal, structured, and involvetheir own particular logic, often appearingtheir own particular logic, often appearing

in the guise of sciencein the guise of science or or

objective knowledgeobjective knowledge..

Ideology is implicated in collective action, asIdeology is implicated in collective action, as

criticism, explanation, or promise.criticism, explanation, or promise. It is represented in symbols and beliefs heldIt is represented in symbols and beliefs held

by a community and is publicly expressed.by a community and is publicly expressed.



ScienceScience in the broadest sense refers to anyin the broadest sense refers to any

system of knowledge attained by verifiablesystem of knowledge attained by verifiable

meansmeans.. In a more restricted sense,In a more restricted sense, sciencescience refers to arefers to a

system of acquiring knowledge based onsystem of acquiring knowledge based on

empiricismempiricism andand experimentationexperimentation, as well as, as well as

to the organized body of to the organized body of knowledgeknowledge humanshumanshave gained by suchhave gained by such researchresearch..



Fields of science are commonlyFields of science are commonly

classified along two major lines:classified along two major lines:

Natural sciencesNatural sciences, the study of the, the study of the

natural phenomena;natural phenomena;

Social sciencesSocial sciences, the systematic, the systematic

study of study of human behavior human behavior andandsocietiessocieties..



NeoliberalismNeoliberalism -- A political movement A political movement

beginning in the 1960s that blendsbeginning in the 1960s that blends

traditional liberal concerns with antraditional liberal concerns with an

emphasis onemphasis on free marketfree market andand

continuouscontinuous economic growtheconomic growth..

It is againstIt is against government regulation,government regulation,environmentalism and fair trade.environmentalism and fair trade.



Neoclassical economics, as theNeoclassical economics, as theChicago School of thought is nowChicago School of thought is now

called, has become an international elitecalled, has become an international eliteconsensus, one that provides theconsensus, one that provides thefoundation for the entire global politicalfoundation for the entire global politicaleconomy.economy.

In the United States, young members of In the United States, young members of the middle and upper the middle and upper--middle class firstmiddle class firstlearn its precepts in the academy.learn its precepts in the academy.



Polls routinely show that economistsPolls routinely show that economistsand the general public have widelyand the general public have widely

divergent views on the economy, butdivergent views on the economy, butamong the wellamong the well--educated that gap is far educated that gap is far narrower.narrower.

A 2001 study ... showed that those with A 2001 study ... showed that those with

college degrees are more likely tocollege degrees are more likely tosubscribe to the views of neoclassicalsubscribe to the views of neoclassicaleconomists than the general public...economists than the general public...



Because neoclassical economics alwaysBecause neoclassical economics always

presents itself as apresents itself as a

valuevalue--neutral description of the worldneutral description of the world,,

its ideological commitments can beits ideological commitments can be

adopted by those who learn it without anyadopted by those who learn it without any

recognition that they are ideologicalrecognition that they are ideological..

This is the source of some very spiritedThis is the source of some very spirited

debate within the field itself.debate within the field itself.



A growing global movement of A growing global movement of

³heterodox´ economists has criticized the³heterodox´ economists has criticized the

ideological confines and blindspots of theideological confines and blindspots of theneoclassical approach.neoclassical approach.

As Nobel Laureate Joseph Stiglitz put it,As Nobel Laureate Joseph Stiglitz put it,

the dominance of the neoclassical modelthe dominance of the neoclassical model

is a ³triumph of ideology over science.´is a ³triumph of ideology over science.´



When equity and efficiency tradeoffs ... arise,When equity and efficiency tradeoffs ... arise,

mainstreammainstream economists are systematicallyeconomists are systematically

biased in favor of efficiency because that¶sbiased in favor of efficiency because that¶swhat they are experts on.what they are experts on.

EfficiencyEfficiency they can measure and analyze.they can measure and analyze.

FairnessFairness? That¶s the turf of philosophers and? That¶s the turf of philosophers and

politicians.politicians.



According to mainstream economists i According to mainstream economists ittis notoriously difficult to measureis notoriously difficult to measure

fairness; it is notoriously inefficient to tryfairness; it is notoriously inefficient to tryand that is whyand that is why the mainstreamthe mainstreameconomistseconomists efficiently pass it along toefficiently pass it along tothose to whom the opportunity cost of those to whom the opportunity cost of

arguing is zero: the philosophers.arguing is zero: the philosophers.



"Efficiency' can really only apply to machines or machine"Efficiency' can really only apply to machines or machine--likelikeactions. That is, one can tinker with a machine to make it goactions. That is, one can tinker with a machine to make it gofaster, (car engines), or do more maneuvers etc; That can befaster, (car engines), or do more maneuvers etc; That can be

measured.measured.

But markets are not machines, they're fictional or abstractBut markets are not machines, they're fictional or abstractcreations, (in the same sense money is), that allowcreations, (in the same sense money is), that allowtransactions between humans. Because they're fictional or transactions between humans. Because they're fictional or abstract, they can be created any number of ways.abstract, they can be created any number of ways.

There are no "marketsThere are no "markets--inin--themselves" to use a Kantian terminology.themselves" to use a Kantian terminology.



MMarkets can be created to reflect certain social/arkets can be created to reflect certain social/philosophical/ religious values that can bephilosophical/ religious values that can be"measured" in a sense."measured" in a sense.

The presentThe present--day market reflects the values thatday market reflects the values thatsociety now holds. Those values are, (as far as Isociety now holds. Those values are, (as far as Isee), the accumulation of material wealth and thesee), the accumulation of material wealth and theexpansion of means to create more wealth.expansion of means to create more wealth.

They are not values that hold the needs of futureThey are not values that hold the needs of futuregenerations in view, nor the environment, nor thegenerations in view, nor the environment, nor thespread of economic and social equality to as many asspread of economic and social equality to as many aspossible.possible.



This tendency is most pronounced in discussions of This tendency is most pronounced in discussions of economic growth, and how the benefits of that growtheconomic growth, and how the benefits of that growthshould be distributed.should be distributed.

Nobel Laureate Bob Lucas, saNobel Laureate Bob Lucas, saidid thatthat

³once you start to think about the benefits of high³once you start to think about the benefits of highgrowth, it¶s hard to think about anything else.´growth, it¶s hard to think about anything else.´

In other words, first worry about how best to grow theIn other words, first worry about how best to grow thepie, then how to slice it up. Let efficiency trumppie, then how to slice it up. Let efficiency trumpequity, create wealth, and then you can use the extraequity, create wealth, and then you can use the extrawealth you¶ve created to alleviate inequality.wealth you¶ve created to alleviate inequality.



This makes a certain amount of sense.This makes a certain amount of sense.

But when this rhetoric comes toBut when this rhetoric comes to

dominate our politics, the problem of dominate our politics, the problem of inequality is never addressed.inequality is never addressed.

NNOWOW is always the time for growing,is always the time for growing,

LATERLATER is always the time to addressis always the time to addressconcerns about equity. ...concerns about equity. ...



In 2003 the top 1 percent of householdsIn 2003 the top 1 percent of households

owned 57.5 percent of corporate wealth,owned 57.5 percent of corporate wealth,

up from 53.4 percent the year before,up from 53.4 percent the year before,according to a Congressional Budgetaccording to a Congressional Budget

Office analysis of the latest income taxOffice analysis of the latest income tax

data.data.

The top group's share of corporate wealthThe top group's share of corporate wealthhas grown by half since 1991, when it washas grown by half since 1991, when it was

38.7 percent.38.7 percent.



From 2003 to 2004, the average incomesFrom 2003 to 2004, the average incomesof the bottom 99 percent of householdsof the bottom 99 percent of households

grew by less than 3 percent, after grew by less than 3 percent, after adjusting for inflation.adjusting for inflation.

In contrast, the average incomes of theIn contrast, the average incomes of thetop one percent of householdstop one percent of householdsexperienced a jump of almost 17 percent,experienced a jump of almost 17 percent,after adjusting for inflation. (Census dataafter adjusting for inflation. (Census datashow that real median income fell betweenshow that real median income fell between2003 and 2004.2003 and 2004.



The problem is thatThe problem is that mainstreammainstream

economicseconomics cannot offer a coherentcannot offer a coherent

development concept except "let'sdevelopment concept except "let's just go on and see what happens". just go on and see what happens".



³ ³The whole mainstream economicsThe whole mainstream economics

focuses onfocuses on economic growth,economic growth,

how fast we can make economies grow.how fast we can make economies grow.

Economic growth does tend to raise all Economic growth does tend to raise all

boats." boats."

In the literal sense of causing sea levels toIn the literal sense of causing sea levels torise,rise, they they may have a point.may have a point.



Existing model of economic growth represent anExisting model of economic growth represent aninefficient use of human resources.inefficient use of human resources.

The hidden model that lies at the heart of neoThe hidden model that lies at the heart of neo--classical economics as it exists in practice isclassical economics as it exists in practice isSocial Darwinism, the belief that biology andSocial Darwinism, the belief that biology andscience support the existence of a particular science support the existence of a particular social order, the social order which, by happysocial order, the social order which, by happycircumstance and the virtue of our history,circumstance and the virtue of our history,happens to be the one in place at this time.happens to be the one in place at this time.



Globalization



What is sustainable

developmentWhat is the link betweenWhat is the link between

the Biblethe Bible

Friedrich Nietzche,Friedrich Nietzche,

andandsustainable development ?sustainable development ?



Some key features of sustainable

development



Can we have growth and

environmental sustainability? Y esY es -- but it needs to be:but it needs to be:

± ± Smart Smart

± ± Appropriate Appropriate

± ± Low carbonLow carbon

± ± Efficient in resource useEfficient in resource use



Can we have growth and

environmental sustainability? Developed countries have managed toDeveloped countries have managed to

increase resource efficiencies asincrease resource efficiencies as

technology has improvedtechnology has improved But«consumption growth hasBut«consumption growth has

swamped these gains in efficiency of swamped these gains in efficiency of unitsunits

We need innovation in consumption andWe need innovation in consumption anddistribution as well as in productiondistribution as well as in production



globalization represents the process of globalization represents the process of

increasing convergence andincreasing convergence and

interdependence of national economiesinterdependence of national economiesand of the international scope andand of the international scope and

availability of markets, distributionavailability of markets, distribution

systems, capital, labor, and technology.systems, capital, labor, and technology.



Gl obal ization onGl obal ization on all all l evel s l eads toward l evel s l eads toward continuous requests for increased continuous requests for increased

competitivenesscompetitiveness. . Our goal is to highl ight the rol e and Our goal is to highl ight the rol e and

significance of the environment and significance of the environment and natural resources in the process of natural resources in the process of creation of competitive advantages increation of competitive advantages in

a g l obaly connected wor l d .a g l obaly connected wor l d .



Competitiveness

Competitiveness can be thought of asCompetitiveness can be thought of asthe ability of a company (or industry, or the ability of a company (or industry, or

country) to constantly increase itscountry) to constantly increase itsproductivity in creating differntiatedproductivity in creating differntiatedgoods that respond to market demand,goods that respond to market demand,and to bring those goods to marketsand to bring those goods to markets

efficiently, while at the same timeefficiently, while at the same timefostering an increasingly discriminatingfostering an increasingly discriminatingcustomer base. (Porter)customer base. (Porter)



EU Thematic Strategy on the

Sustainable Use of Resources Objective:

³ensuring that the consumption of resources

and their associated impacts do not exceedthe carrying capacity of the environment and

breaking the linkages between economic

growth and resource use´

( common position adopted by the counci l

27/9/2001)



Concerns

growth of economies outweighsgrowth of economies outweighsresource productivity improvementsresource productivity improvements

waste generation is 1:1 coupled towaste generation is 1:1 coupled toeconomic growtheconomic growth

emissions of selected pollutants isemissions of selected pollutants is

decreasing but aggregated pressuresdecreasing but aggregated pressurescontinue to increase: territorialcontinue to increase: territorialdegradation, urban sprawl, etc.degradation, urban sprawl, etc.



Concerns

green house gas emissions fromgreen house gas emissions from

transport and tourism continues totransport and tourism continues to

increaseincrease

biodiversity, tropical forests, fishbiodiversity, tropical forests, fish

stocks, groundwater quality, urbanstocks, groundwater quality, urban

air quality, ozone layer integrity, etc.air quality, ozone layer integrity, etc.are endangeredare endangered



Energy data OECD

1998 2020 change

TPS (1) 213 400 275 622 +30%

TPS/GDP (2) 10.9 8.0 -19%

TPS/capita (3) 196 221 +18%

(1) Total primary energy supply in PJ

(2) TPS divided by GDP in GJ/100 US dollars

(3) GJ/capita

Energy units are measured in petajoules (PJ). One PJ equals (approximately) 278

million kWh of electricity; 25 million cubic metres of natural gas; 24 thousand tonnes

of oil equivalent; and 34 thousand tonnes of coal equivalent.





Decoupling

The termThe term decouplingdecoupling refers to breaking therefers to breaking thelink between ³environmental bads´ andlink between ³environmental bads´ and³economic goods.´³economic goods.´

Absol ute decoupl ing Absol ute decoupl ing is said to occur when theis said to occur when theenvironmentally relevant variable is stable or environmentally relevant variable is stable or decreasing while the economic driving forcedecreasing while the economic driving forceis growing.is growing.

Decoupling is said to beDecoupling is said to be rel ativerel ative when thewhen thegrowth rate of the environmentally relevantgrowth rate of the environmentally relevantvariable is positive, but less than the growthvariable is positive, but less than the growthrate of the economic variable.rate of the economic variable.



Decoupling

Decoupling can be measured byDecoupling can be measured by decouplingdecouplingindicatorsindicators that have an environmental pressurethat have an environmental pressurevariable for numerator and an economic variable asvariable for numerator and an economic variable as

denominator. Sometimes, the denominator or drivingdenominator. Sometimes, the denominator or drivingforce may be population growth or some other force may be population growth or some other variable.variable.

The evidence presented in the OECD ReportThe evidence presented in the OECD Report³Indicators to Measure Decoupling of Environmental³Indicators to Measure Decoupling of Environmental

Pressure from Economic Growth´ shows that relativePressure from Economic Growth´ shows that relativedecoupling is widespread in OECD Member decoupling is widespread in OECD Member countries.countries.



Decoupling

The concept of decoupling isThe concept of decoupling is

attractive for its simplicityattractive for its simplicity. Graphs. Graphs

displaying a rising GDP juxtaposed withdisplaying a rising GDP juxtaposed withdiminishing pollutant emissions, or diminishing pollutant emissions, or

pollutant emissions rising faster thanpollutant emissions rising faster than

GDP, convey a very clear message.GDP, convey a very clear message.



Decoupling

However, graphs of synthetic decouplingHowever, graphs of synthetic decoupling

indicators often conveyindicators often convey mixed, or double,mixed, or double,

messagesmessages. In a growing economy, relative. In a growing economy, relativedecoupling will imply that environmentaldecoupling will imply that environmental

pressures are still rising.pressures are still rising.

Equally, if economic activity is falling, relativeEqually, if economic activity is falling, relative

or even absolute decoupling may not imply aor even absolute decoupling may not imply apositive development for society as a whole.positive development for society as a whole.



Decoupling

DDecoupling concept has no automatic link toecoupling concept has no automatic link tothe environment¶s capacity to sustain, absorbthe environment¶s capacity to sustain, absorbor resist pressures of various kindsor resist pressures of various kinds

(deposition, discharges). In the case of (deposition, discharges). In the case of renewable natural resources, a meaningfulrenewable natural resources, a meaningfulinterpretation of the relationship of interpretation of the relationship of environmental pressure to economic drivingenvironmental pressure to economic drivingforces will require information about theforces will require information about the

intensity of use of the resource in question,intensity of use of the resource in question,i.e. of harvesting rate compared to renewali.e. of harvesting rate compared to renewalrate.rate.



Increase in energy

consumption According to Joke Waller According to Joke Waller--Hunter, former Director of Hunter, former Director of

the Environment Directorate of OECD, despite ecothe Environment Directorate of OECD, despite eco--efficiency improvements, overall environmentalefficiency improvements, overall environmental

degradation has persisted in most cases. OECDdegradation has persisted in most cases. OECDcountries reduced thecountries reduced the energy intensityenergy intensity of their of their economies by 31% in the period 1973economies by 31% in the period 1973--1996, but they1996, but theyincreasedincreased total energy consumptiontotal energy consumption by 23% over by 23% over the same period. Their total energy use is expectedthe same period. Their total energy use is expected

to grow by a further 30to grow by a further 30--50% to 2020. (Waller 50% to 2020. (Waller--Hunter Hunter 2000).2000).



GHG emission

The similar situation is withThe similar situation is with greenhouse gasgreenhouse gas

emissionsemissions. While the output of GHG . While the output of GHG

emissions relative to GDP has fallen for emissions relative to GDP has fallen for OECD countries in recent years, totalOECD countries in recent years, total

absolute emissions have risen. Under currentabsolute emissions have risen. Under current

policies, OECD countries could increasepolicies, OECD countries could increase

GHG emissions by a further 30% to 2010, far GHG emissions by a further 30% to 2010, far from the overall Kyoto Protocol target of a 5%from the overall Kyoto Protocol target of a 5%

reduction from 1990 levels to 2008reduction from 1990 levels to 2008--2012.2012.



Transport increase

In some cases, there are no signs of In some cases, there are no signs of

any real improvement. This is true of any real improvement. This is true of

transportationtransportation, where motor vehicle, where motor vehiclekilometers traveled in the OECD arekilometers traveled in the OECD are

expected to increase by at least 65% inexpected to increase by at least 65% in

the period 1990the period 1990--2020 and passenger air 2020 and passenger air kilometers are expected almost tokilometers are expected almost to

quadruple.quadruple.



Increse in energy

consumption ³³EnergyEnergy is a key resource for our economy. Overallis a key resource for our economy. Overall

demand is predicted to grow substantially over thedemand is predicted to grow substantially over thecoming decades, by 30% for the OECD countries andcoming decades, by 30% for the OECD countries and

by 70% for the world as a whole in the next 30 years.by 70% for the world as a whole in the next 30 years.For the EU, these increases are smaller than theFor the EU, these increases are smaller than thetargeted doubling of the economy over the sametargeted doubling of the economy over the sameperiod; if efforts are maintained, the decoupling of period; if efforts are maintained, the decoupling of energy use from economic growth will continue.energy use from economic growth will continue.

However, energy consumption will still increase inHowever, energy consumption will still increase inabsolute terms (European Commission 2003,).absolute terms (European Commission 2003,).



EU Directorate forecast

An annual economic growth of 3% l eads An annual economic growth of 3% l eads

to a doubl ing of the economy in 25 to a doubl ing of the economy in 25

y earsy ears .. ( ( An annual growth of 3% leads An annual growth of 3% leadsto a cumulated growth in 25 years withto a cumulated growth in 25 years with

a factor of (1.03)25 = 2. Hundred yearsa factor of (1.03)25 = 2. Hundred years

of growth gives rise to a cumulatedof growth gives rise to a cumulatedgrowth of (1.03)100 = 20growth of (1.03)100 = 20))..




I f this growth is real ized within theI f this growth is real ized within the

production and consumption patterns of production and consumption patterns of

today, inc l uding the use of current ly today, inc l uding the use of current ly avai l abl e technol ogies, the resource useavai l abl e technol ogies, the resource use

wi ll grow with a factor 2 as well . I n thiswi ll grow with a factor 2 as well . I n this

case there is a 1:1 coupl ing of economic case there is a 1:1 coupl ing of economic growth and resource use. growth and resource use.




F ortunately, this scenario wi ll F ortunately, this scenario wi ll not not happen.happen.

T he economic growth is not simply real ized T he economic growth is not simply real ized by doing more of the same. by doing more of the same. II n the coming n the coming decades a considerabl e amount of val ue wi ll decades a considerabl e amount of val ue wi ll be created , which material and energ y be created , which material and energ y intensit y is l ess than today¶ s products and intensit y is l ess than today¶ s products and services. services. Reasons:Reasons: T he growing contributionT he growing contributionof services to the economy of services to the economy and and T he ongoing T he ongoing improvement of technol ogies is another one.improvement of technol ogies is another one.




N everthel ess, the increase of energ y and material N everthel ess, the increase of energ y and material use wi ll be considerabl e, e.g . the energ y use inuse wi ll be considerabl e, e.g . the energ y use inOECD countries is expected to grow in the next 20 OECD countries is expected to grow in the next 20

y ears by 35% and by 51% wor l dwide (OECD 2001). y ears by 35% and by 51% wor l dwide (OECD 2001). T his means that economic growth and resource useT his means that economic growth and resource useare decoupl ed to some extent . are decoupl ed to some extent .

R Rresource use is growing , but l ess steep than theresource use is growing , but l ess steep than thegrowth of the economy . T his phenomenon is call ed growth of the economy . T his phenomenon is call ed

rel ative decoupl ing . Absol ute decoupl ing woul d takerel ative decoupl ing . Absol ute decoupl ing woul d take pl ace if the growth of the resource use woul d be pl ace if the growth of the resource use woul d benegative´ negative´ (European Commission 2002,(European Commission 2002,))



Decoupling resource use from

economic growtth



If the resource use increases it may beIf the resource use increases it may beassumed that various environmentalassumed that various environmentalpressures, associated with resource use, alsopressures, associated with resource use, alsogrow. Environmental statistics show that thisgrow. Environmental statistics show that thisis indeed the case, although the growth of is indeed the case, although the growth of various environmentally relevant variables isvarious environmentally relevant variables isconsiderable less than the economic growthconsiderable less than the economic growth

and less than the growth of the resource useand less than the growth of the resource useas well. Thus the phenomenon of decouplingas well. Thus the phenomenon of decouplingis also visible if environmental pressures areis also visible if environmental pressures arerelated to economic growth.related to economic growth.



For example, the growth rate of For example, the growth rate of

emissions of sulphur dioxide is less thanemissions of sulphur dioxide is less than

the growth rate of GDP. However, sincethe growth rate of GDP. However, sincemany environmental pressures are stillmany environmental pressures are still

increasing decoupling is onlyincreasing decoupling is only relativerelative

for these emissions.for these emissions.



Decoupling environmental

pressure from economic growth

D li f d



Decoupling of resource use and

environmental pressure from

economic growth



In drafting this figure it is assumed that theIn drafting this figure it is assumed that thegrowth of the environmental pressure is lessgrowth of the environmental pressure is lessthan thethan the

growth of resource use, both in case of growth of resource use, both in case of relative decoupling and absolute decoupling.relative decoupling and absolute decoupling.

The reason is obvious: if the input of The reason is obvious: if the input of resources per unit of GDP resources per unit of GDP can be reduced,can be reduced,thethe environmental pressure per unit of GDP environmental pressure per unit of GDP will also decrease.will also decrease.



It may even be expected that the latter It may even be expected that the latter

decreases steeper than the first, sincedecreases steeper than the first, since

using new environmental technologiesusing new environmental technologiesthethe environmental pressure per unit environmental pressure per unit

of resource useof resource use may be reducedmay be reduced

considerably.considerably.



The environmental problems thatThe environmental problems that

caused the greatest concern in the pastcaused the greatest concern in the past

were related to pointwere related to point-- source pollution,source pollution,which could be tackled by a "cherrywhich could be tackled by a "cherry--

picking" method: the easiest issuespicking" method: the easiest issues

were largely dealt with, leavingwere largely dealt with, leavingbehind the more difficult questions tobehind the more difficult questions to

be faced in the future.be faced in the future.



Moreover, most problems were tackled byMoreover, most problems were tackled by

good house keeping attitudes and using endgood house keeping attitudes and using end

of pipeof pipe technologies. In order to make a next step,technologies. In order to make a next step,

inherently benign technologies have to beinherently benign technologies have to be

developed and applied, which will requiredeveloped and applied, which will require

institutional changes on international levelinstitutional changes on international level(such as getting the prices right). The present(such as getting the prices right). The present

situation may be visualized as follows:situation may be visualized as follows:



Relating economic growth, resource productivity

and eco-efficiency



The dashed (The dashed (blueblue) line represents the) line represents theincrease of resource productivity betweenincrease of resource productivity between1800 and 2000.1800 and 2000.

For example, advances in steam engineFor example, advances in steam enginetechnology since 1750 have reduced coaltechnology since 1750 have reduced coalconsumption per unit of power 25 fold. Thisconsumption per unit of power 25 fold. Thisimprovement is by far not a linear process:improvement is by far not a linear process:

between 1800 and 1900 the improvementbetween 1800 and 1900 the improvementwas approximately a factor of 10, leaving awas approximately a factor of 10, leaving afactor of 2.5 for the period between 1900 andfactor of 2.5 for the period between 1900 andtoday.today.



Finally the dotted (Finally the dotted (greengreen) line) line

represents the ecorepresents the eco--efficiencyefficiency

improvement which is needed toimprovement which is needed tocompensate the economic growth andcompensate the economic growth and

to achieve decoupling of economicto achieve decoupling of economic

growth and environmental pressure.growth and environmental pressure.



Decoupling thus requires an ecoDecoupling thus requires an eco--efficiencyefficiency

revolution, similar to the resource productivityrevolution, similar to the resource productivity

revolution in the 19th and 20th century. Thus:revolution in the 19th and 20th century. Thus: -- mining and agriculture should exploitmining and agriculture should exploit

ecological resources environmentally benignecological resources environmentally benign

andand

-- emissions from industry and householdsemissions from industry and householdsshould be reduced or should become nonshould be reduced or should become non--

destructive for ecodestructive for eco--systems (e.g.systems (e.g.

biodegradable).biodegradable).



Efficiency

Bringezu and Schutz argue that in order Bringezu and Schutz argue that in order

to reduce global resource extraction byto reduce global resource extraction by

half, ³industrial countries shouldhalf, ³industrial countries shouldincrease the efficiency of overall primaryincrease the efficiency of overall primary

resource requirements of energy andresource requirements of energy and

materials in the next 30 to 50 years by 4materials in the next 30 to 50 years by 4to 10 times´.to 10 times´.



Environmental Sustainability

Index (ESI) ESI measures overall progess towardESI measures overall progess toward

environmental sustainability for 142environmental sustainability for 142

countries.countries. Environmental sustainability isEnvironmental sustainability is

measured throughmeasured through 776 variables grouped6 variables groupedinto 2into 211 indicators:indicators:

Air Quality Air Quality

Water QuantityWater Quantity

Water QualityWater Quality



ESI

BiodiversityBiodiversity

LandLand

Reducing Air PollutionReducing Air PollutionReducing Water SressReducing Water Sress

Natural Resources ManagementNatural Resources Management

Reducing Ecosystem StressesReducing Ecosystem Stresses

Reducing Waste and Consumption PressuresReducing Waste and Consumption PressuresReducing Population GrowthReducing Population Growth

Basic Human SustenanceBasic Human Sustenance



ESI

± ± Reducing EnvironmentReducing Environment--Related Natural Disaster Related Natural Disaster VulnerabilityVulnerability

± ± Environmental HealthEnvironmental Health

± ± Science and TechnologyScience and Technology

± ± Environmental GovernanceEnvironmental Governance

± ± Private Sector ResponsivessPrivate Sector Responsivess

± ± EcoEco--EfficiencyEfficiency

± ± Participation in Internatinal Colaborative EffortsParticipation in Internatinal Colaborative Efforts ± ± Greenhouse Gas EmissionsGreenhouse Gas Emissions

± ± Reducing Transboundary PressuresReducing Transboundary Pressures



ESI

ESI tracks relative success for eachESI tracks relative success for each

contry in five core compnents:contry in five core compnents:

± ± Environmental SystemsEnvironmental Systems

± ± Reducing Environmental StressesReducing Environmental Stresses

± ± Reducing Human VulnerabilityReducing Human Vulnerability

± ± Social and Institutional CapacitySocial and Institutional Capacity ± ± Global StewardshipGlobal Stewardship







ESI



Finland case



Decoupling: Development of Finland¶s real GDP,

emissions, and use of materials and energy



Global competitiveness report

2004-2005

The Report on Global Competitiveness hasThe Report on Global Competitiveness has

ranked 103 countries according to the value of ranked 103 countries according to the value of

two indexes:two indexes: Economic Growth Competitiveness Index,Economic Growth Competitiveness Index,

andand

Business Sector Competitiveness Index.Business Sector Competitiveness Index.




2004-2005

Economic Growth Competitiveness Index isEconomic Growth Competitiveness Index is

composed of the three component indexes;composed of the three component indexes;

technological index, public institutions indextechnological index, public institutions indexand macroeconomic environment index.and macroeconomic environment index.

Detailed analysis of the content and theDetailed analysis of the content and the

structure of these component indexes showsstructure of these component indexes shows

that neither of them takes into account thethat neither of them takes into account theelement of the environment.element of the environment.




2004-2005

In the process of calculation of theIn the process of calculation of the

Business Sector Competitiveness twoBusiness Sector Competitiveness two

basic segments were taken into account:basic segments were taken into account:functioning and the strategy of functioning and the strategy of

companies, andcompanies, and

the business environment in thethe business environment in thecountrycountry..




2004-2005

CCertain mistakes and shortcomings inertain mistakes and shortcomings in

the methodology have occurred,the methodology have occurred,

primarily due to the wish of the authorsprimarily due to the wish of the authorsto apply the same commonto apply the same common

methodological framework to verymethodological framework to very

different countries.different countries.




2004-2005

As of natural resources, the orthodox As of natural resources, the orthodox

economic thought has been used whicheconomic thought has been used which

treats the natural resources simply as atreats the natural resources simply as agiven, or as a supposition which will ingiven, or as a supposition which will in

one way or the other, somewhere and inone way or the other, somewhere and in

some form would always be available tosome form would always be available toentrepreneurs, and their technologyentrepreneurs, and their technology

used in the production processes.used in the production processes.

G




2004-2005

TThe Report completely ignoreshe Report completely ignores

principles of sustainable developmentprinciples of sustainable development

which is primarily based on thewhich is primarily based on therecognition and acceptance of therecognition and acceptance of the

longlong runrun..



Professor Michael Porter, as the main author Professor Michael Porter, as the main author

of the methodlogical framework and theof the methodlogical framework and the

theoretical background of the Report, basedtheoretical background of the Report, basedhis approach to competitivenes on thehis approach to competitivenes on the

premises of the neoclasical economypremises of the neoclasical economy

underestimating the role of natural resourcesunderestimating the role of natural resources

and neglecting practically the concept andand neglecting practically the concept andideas of environmentaly sustainableideas of environmentaly sustainable

development.development.



In the mentioned components theIn the mentioned components the

environment found its modest place inenvironment found its modest place in

the segment of demand conditions,the segment of demand conditions,although,it is not quite clear why, in thealthough,it is not quite clear why, in the

form of the expression Ästringency of form of the expression Ästringency of

environmental regulation³, it is placed inenvironmental regulation³, it is placed inthat particular segment.that particular segment.



Natural resources are even in the worseNatural resources are even in the worse

position. Among the factors having influenceposition. Among the factors having influence

on the business competitiveness naturalon the business competitiveness naturalresourcesresources were not even mentionedwere not even mentioned..

Porter treats them simply as an assumption,Porter treats them simply as an assumption,

as something that is out of the question andas something that is out of the question andalwaysalways readilyreadily available.available.



In the Report (p. 21) Porter said: ÄCompaniesIn the Report (p. 21) Porter said: ÄCompaniesin a nation must upgrade their ways of in a nation must upgrade their ways of competition if successful economiccompetition if successful economicdevelopment is to occur. Broadly, companiesdevelopment is to occur. Broadly, companiesmust shift from competing on inherentmust shift from competing on inherentendowments (comparative advantages suchendowments (comparative advantages suchas lowas low--cost labor or natural resources) tocost labor or natural resources) to

competing on competitive advantages arisingcompeting on competitive advantages arisingform efficient and distinctive products andform efficient and distinctive products andprocess³.process³.



And further (p. 23): ³National endowments And further (p. 23): ³National endowmentssuch as natural resources play a decliningsuch as natural resources play a decliningrole in competitiveness as the resourcerole in competitiveness as the resource

intensity of the economy fails and asintensity of the economy fails and astechnology substitutes for resources of openstechnology substitutes for resources of opensup new resource locations. ... It is theup new resource locations. ... It is theproductivity with which natural resources canproductivity with which natural resources can

be utilized, not the resources themselves, thatbe utilized, not the resources themselves, thatnormally have the strongest influence onnormally have the strongest influence onprosperity.prosperity.



Finally, Porter concludes (p. 44): ÄCountries withFinally, Porter concludes (p. 44): ÄCountries withlower levels of productivity are more dependent onlower levels of productivity are more dependent onnatural resources export³.natural resources export³.

This way, Porter, clearly recognizes and admits theThis way, Porter, clearly recognizes and admits therole that natural resources have as a mean of role that natural resources have as a mean of competitive battle on the world market.competitive battle on the world market.

It is entirely different matter how we see them inIt is entirely different matter how we see them inthat rolethat role ± ± as more or less valuable, as efficient or as more or less valuable, as efficient or inefficient, as desirable or less desirable.inefficient, as desirable or less desirable.



It is more than obvious, that naturalIt is more than obvious, that natural

resources have been and still are,resources have been and still are,for the large number of countries,for the large number of countries,predominant meanpredominant mean

in the competitive battlein the competitive battle

on the world marketon the world market,,



andand

dominant mean by which they realize their dominant mean by which they realize their economic growtheconomic growth,,

but probably notbut probably not economic developmenteconomic development,,and surelyand surely notnot sustainable developmentsustainable development,,envisaged as a complex goal realizedenvisaged as a complex goal realizedthrough athrough a balanced developmentbalanced development

simultaneously onsimultaneously on thethe four fields: economic,four fields: economic,environmental, social and cultural.environmental, social and cultural.



A Aaccording to the Report (WEF 2004, p.according to the Report (WEF 2004, p.

44) the countries that lead in the export44) the countries that lead in the export

(measured in the absolute physical(measured in the absolute physicalamountamount notnot as a size relative to their as a size relative to their

overall export) of minimally processedoverall export) of minimally processed

natural resources are the mostnatural resources are the most

developed countries: United States,developed countries: United States,

Canada, Russia, Australia and Norway.Canada, Russia, Australia and Norway.



Developed countries, like Japan, whoDeveloped countries, like Japan, who

is one of the most important is one of the most important

producers of steel despite the fact producers of steel despite the fact that it does not possess its ownthat it does not possess its own

metal ore at all, enormously usemetal ore at all, enormously use

natural resources of other countriesnatural resources of other countries

and to a significant extent base their and to a significant extent base their

competitiveness on them.competitiveness on them.



Exaggerated usage of the commonExaggerated usage of the common

environmental goodsenvironmental goods ± ± USA currentlyUSA currently

use 36 % of the atmosphere as a placeuse 36 % of the atmosphere as a placefor disposal of CO2 ,and CFC.for disposal of CO2 ,and CFC.

USA has not signed Kyoto agreement.USA has not signed Kyoto agreement.

Explanation ?Explanation ?



Transnational corporations from themost developed countries, in spite of the

most advanced technology in their

possession, constantly search locationsworldwide characterized by comparative

advantages in the form of cheap natural

resources and labor force.



It is another proof supporting the statementIt is another proof supporting the statement

that not only low developed countries usedthat not only low developed countries used

natural resources as a basis of their natural resources as a basis of their competitiveness but also the most developedcompetitiveness but also the most developed

countries.countries.

They use their higher productivity simply toThey use their higher productivity simply to

achieve larger production and easier achieve larger production and easier distribution of their products all over thedistribution of their products all over the

world.world.



Hence, not to include natural resourcesHence, not to include natural resources

in any way as a factor in the process of in any way as a factor in the process of

calculation of competitiveness indexcalculation of competitiveness index(justifying their exclusion by the(justifying their exclusion by the

statement that natural resourcesstatement that natural resources

represent the gift of God and not therepresent the gift of God and not the

result of the conscious efforts), simplyresult of the conscious efforts), simply

does not have real justification.does not have real justification.



WeWe think,think, thatthat globalization,globalization, whichwhich

supportssupports previously previously mentioned mentioned patterns patterns

of of behavior behavior representsrepresents thethe best best way way toto practically practically keepkeep alivealive otherwiseotherwise

unsustainableunsustainable competitivecompetitive advantagesadvantages..

It It isis eveneven worse,worse, they they areare constantly constantly

recommended recommended asas aa desirabledesirable model model of of behavior behavior..



But the Index known as theBut the Index known as the

Ecological Footprint clearly and Ecological Footprint clearly and

unambiguously point to that fact and unambiguously point to that fact and stress the unsustainability of such astress the unsustainability of such a

practice of economic growth of practice of economic growth of

developed countries and the world developed countries and the world

as a whole.as a whole.



I I f we combine, with proper weights, f we combine, with proper weights,

ES I and GC I into our proposed new ES I and GC I into our proposed new

sy nthetic index designated assy nthetic index designated asS ustainable Development S ustainable Development Competitiveness Index ( SDCI),Competitiveness Index ( SDCI),

we woul d get compl etelly different and we woul d get compl etelly different and more real istic picture and ranking of more real istic picture and ranking of particul ar countries. particul ar countries.



CompetitivenssCompetitivenss isis not not thethe goal goal for for

itself itself.. It It isis supposed supposed toto lead lead toto

economic economic development,development, whichwhich isissupposed supposed by by itself itself toto leaveleave toto better better

lifelife and and increased increased overall overall welfarewelfare of of

thethe citizenscitizens of of particular particular countries,countries,

and and not not toto thethe increaseincrease of of only only oneone

component component ± ± material material consumptionconsumption..



If If thethe ideaidea of of thethe sustainablesustainable

developmentdevelopment isis reallyreally accepted,accepted, andand notnot

onlyonly formally,formally, wewe areare convincedconvinced thatthatonlyonly oneone suchsuch syntheticsynthetic indicator indicator asas

SustainableSustainable DevelopmentDevelopment

CompetitivenessCompetitiveness IndexsIndexs wouldwould bebe aa

muchmuch better better indicator indicator of of thethe longlong± ±runrun

successsuccess of of aa nationalnational economyeconomy..



Porter again

Stating that technology replace naturalStating that technology replace natural

resources Porter evidently declareresources Porter evidently declare

himself as a technological optimist whohimself as a technological optimist whobelieves that technology alone canbelieves that technology alone can

resolve all the problems and insureresolve all the problems and insure

desirable continuous economic growthdesirable continuous economic growth

at the high ratesat the high rates..















Relative decoupling ±



Relative decoupling

recomended sollution

In the Report relative decoupling hasIn the Report relative decoupling has

been presented as a universal andbeen presented as a universal and

sufficient sollution to numeroussufficient sollution to numerousproblems relating to environment andproblems relating to environment and

natural resources overexploitation.natural resources overexploitation.



Need fr absolute decoupling

On the contrary, our opinion is thatOn the contrary, our opinion is that absoluteabsolute

decoupling is what is realy needed if thedecoupling is what is realy needed if the

mentioned problems are to be resolved in thementioned problems are to be resolved in the

long run. The emphasis is on the long run.long run. The emphasis is on the long run.

Since absolute decoupling has been verySince absolute decoupling has been very

rearly accomplished, emphasis of rearly accomplished, emphasis of

achievement of only relative decoupling isachievement of only relative decoupling iscounterproductive and even dangerous.counterproductive and even dangerous.

WHY?WHY?



BECAUSE:

Saying that the relative decoupling isSaying that the relative decoupling is

the final solution to environmental andthe final solution to environmental andnatural resources problems leeds to thenatural resources problems leeds to the

situtation in which incentives for further situtation in which incentives for further

efforts aiming at absolute decrease of efforts aiming at absolute decrease of quatity of limited resources used do notquatity of limited resources used do not

exist or are discouraged.exist or are discouraged.



Achievement of reduction of Achievement of reduction of

environmental impacts requires anenvironmental impacts requires an

absolute decoupling of environmentalabsolute decoupling of environmentalimpacts from economic growth.impacts from economic growth.



RelativeRelative decoupling tends to mean justdecoupling tends to mean just

resource efficiency, and resourceresource efficiency, and resource

efficiency measures alone will notefficiency measures alone will notdeliver the objective of ensuring thatdeliver the objective of ensuring that

³the consumption of renewable and³the consumption of renewable and

nonnon--renewable resources does notrenewable resources does not

exceed the carrying capacity of theexceed the carrying capacity of the

environment.´environment.´



Relative decoupling wouldRelative decoupling would notnot lead tolead to

reductions in environmental impacts,reductions in environmental impacts,

merely a slowing down of the increasemerely a slowing down of the increasein environmental impacts.in environmental impacts.



To achieve absolute decouplingTo achieve absolute decoupling

between environmental impacts andbetween environmental impacts and

economic growth, aneconomic growth, an overall reductionoverall reductionin resource use will be requiredin resource use will be required, and ..., and ...



...... significant changes are requested insignificant changes are requested in

the field of the field of consumptionconsumption andand

distributiondistribution of incomeof income, not only in the, not only in thefield of extraction and manufacturing.field of extraction and manufacturing.

Action, action, action .... Action, action, action ....Changes, changes, changes .....Changes, changes, changes .....







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