Sunday, November 23, 2014

The Sustainability Mindset

MILAN – Markets and capitalist incentives have great strengths in promoting economic efficiency, growth, and innovation. And, as Ben Friedman of Harvard University argued persuasively in his 2006 book The Moral Consequences of Growth, economic growth is good for open and democratic societies. But markets and capitalist incentives have clear weaknesses in ensuring stability, equity, and sustainability, which can adversely affect political and social cohesion.

Obviously, abandoning market-capitalist systems, and implicitly growth, is not really an option. Collectively, we have little choice but to try to adapt the system to changing technological and global conditions in order to achieve stability, equity (in terms of opportunity and outcomes alike), and sustainability. Of these three imperatives, sustainability may be the most complex and challenging.

For many people, sustainability is associated with finite natural resources and the environment. The global economy will probably triple in size in the next quarter-century, largely owing to growth in developing countries as they catch up to developed-country incomes and adopt similar consumption patterns. Thus, there is a well-founded fear that the planet’s natural resources (broadly defined) and recuperative capacities will not withstand the pressure.

To some, this logic leads to the conclusion that growth is the problem, and that less growth is the solution. But, in developing countries, where only sustained growth can lift people out of poverty, limiting it cannot be the answer. The alternative is to change the growth model in order to lighten the impact of higher levels of economic activity on natural resources and the environment.

But there is no existing alternative to which we can all switch. Changing the growth model means inventing a new one over time, step-by-step, from complementary parts. The two key ingredients seem to be education and values. Everyone, not just policymakers, needs to understand the consequences of our individual and collective choices. We need to be aware for example, that population growth and rising consumption levels have intergenerational consequences, and that how we conduct ourselves will affect the lifestyles and opportunities of our children and grandchildren. 

Thus far, the quality of our choices has been unimpressive, reflecting little sensitivity to sustainability and the impact of our choices on future generations. As a result, many developed countries have built up dangerously large public debts and even larger non-debt liabilities, owing to unsustainable growth patterns.

Most of us, I believe, do not knowingly make choices that adversely affect future generations. So perhaps incomplete knowledge of the consequences of our choices is responsible. Moreover, an unfunded liability path, once taken, is hard to leave, because at the point of departure, some generation is paying for past commitments and at least beginning to fund future ones. That seems unfair, because it is.

Most people might agree that living beyond our means in the aggregate, via unfunded social services and insurance, or disproportionate use of resources, imposes a burden on our offspring. But we might still fail to reach agreement on who should pay for funding these programs, or for reducing our consumption of resources. Too often, it is easier to deal with the distributional problem by shifting the burden to those who are not present, and who are insufficiently represented by those who are.

Education and values are the foundation of sound individual and, ultimately, collective choices. Without them, the incentives and policies that economists rightly argue are needed to increase energy efficiency, limit carbon emissions, economize on water usage, and much more will lack support and fail in the democratic decision-making process.

If sustainability is to triumph, it must be predominantly a bottom-up process. Environmentalists are right to focus on education and individual choices, even when their policy proposals are not always on target. Education and values will drive local innovation, alter lifestyles, and shift social norms. They will also affect business behavior via choices by customers and employees, including business leaders. Thus, they are essential components of the formulas needed to pursue sustainable patterns of growth.

But, while education and values are necessary, they clearly are not sufficient. Complementary national policies and international agreements will require careful scientific and economic analysis and thoughtful choices. The need for burden-sharing, particularly between advanced and developing countries, will not magically disappear. Climate-change risks, though serious, should not be mistaken for the entire sustainability agenda.

There are clear steps that can be taken. Appropriate regulation and sufficiently long time horizons can make structures of all kinds much more energy-efficient, without imposing burdensome costs. In a similar way, transportation can become less energy-intensive without restricting mobility. Some of these shifts might be subject to international coordination, in order to avoid adverse competitive consequences, whether real or perceived.

But too much coordination can be a bad thing. That is why climate-change negotiations are shifting from the misguided objective of seeking risky 50-year commitments to binding carbon-emissions targets to focusing on parallel, step-by-step processes, including higher energy efficiency, better urban planning, improved transportation systems, and on learning as we go. Likewise, businesses and industries that are heavy water users will simply develop new technologies and thrive in the face of scarcity.

Progress has been helped by growing awareness in populous Asia – and in developing countries generally – that sustainability is the key to achieving their longer-term growth objectives. This perspective perhaps comes more naturally in an environment of rapid growth, because their growth models require continual review and adaptation to be sustainable.

Over time, values shift as knowledge is acquired and disseminated. Policies aimed at sustainability are likely to follow. What is unknown is whether we will reach that point fast enough to avoid major disruptions, or even potential conflict.

Read more from our "Michael Spence on Reinventing Growth" Focal Point.

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    1. CommentedJeffrey Scofield

      In the United States, scientists have been educating students for decades about the issues of sustainability and climate change.  Even though education is widely available, the problem is cognitive dissonance.  This cognitive dissonance becomes apparent in the political process, as large portions of the population counteract education with misinformation and propaganda.  Any education one may receive can quickly be undone by influential peers and dishonest media. While the Koch Brothers, Donors Trust, and Exxon spend absurd amounts of money funding contrarian fringe science, meanwhile the creationist driven agenda works to counteract this educational campaign at the local level.

      This trend we've seen in recent years is almost unbelievable as we've actually lost ground in the serious debate on sustainability and climate change.  It wasn't due to a lack of education that this trend occurred but due to willful ignorance, irrational fears, corporate driven media, and conspiracy theories run amuck.

    2. CommentedTerry Mock

      "Sustainability may be the most complex and challenging" - Yes, so let's "adapt the system" by using the industry-developed SLDI Code: The World’s First Sustainable Development Decision Model that is symbolized as a universal geometrical algorithm that balances and integrates the triple-bottom line needs of people, planet and profit into a holistic, fractal model that becomes increasingly detailed, guiding effective decisions throughout the community planning, financing, design, regulating, construction and maintenance processes while always enabling project context to drive specific decisions.

      Sustainable Land Development Initiative

    3. CommentedDavid Bell

      Hi Mike,

      This is beautifully written, and succinctly lands some very important points.

      Your emphasis on education and values is spot on – though I agree that they are necessary but not sufficient underpinnings of sustainability. I used precisely the same formulation in the conclusion to my book chapter (see p. 21ff.) entitled “Education for Sustainable Development: Cure or Placebo?” - see Ultimately we require a global “culture of sustainability” in order to provide the foundation for sustainability-based wise choices, decisions and policies in the economy, political system, and society generally.

      I am reminded of the scenario exercise conducted a number of years ago by the World Business Council on Sustainable Development (WBCSD). They outlined three main scenarios, each of which was premised on the increasing environmental toll of economic activity.

      The first scenario (“FROG”) led to environmental disaster. Business As Usual continued under the banner “Forever Recognize Our Growth”. The double entendre of the title referred to the idea that a frog placed in lukewarm water that is gradually heated to the boiling point will fail to “pick up the signals” and instead of jumping our of the pot, will eventually die. By analogy, the global environment in this scenario deteriorates beyond critical thresholds because governments, businesses, and society in general fail to “pick up the signals” in time to avert tragedy. (Cf. the last sentence of your piece!).

      In the second scenario, GEO, the signals are picked up in time and draconian action is taken under the aegis of a Global Environmental Organization that is given sufficient authority and power to regulate and legislate the world’s businesses, governments and individuals to behave more sustainably. Disaster is averted.

      The third scenario was much preferred. Entitled JAZZ, it entailed a transformation of behaviour achieved through the influence of education and value change rather than through the power and authority of an all powerful global regulatory body. (I’m using these terms as defined in my book Power, Influence and Authority: An Essay in Political Linguistics.) Jazz in this case is not an acronym but a metaphor. Jazz musicians are able to co-create music spontaneously and collaboratively by improvising on a structure outlined in a shared “chart” that shows the melody and chord changes. By analogy, in the JAZZ scenario businesses, governments and citizens/consumers/householders would all be “on the same page” because they would all understand sustainability imperatives and would share the values needed to coordinate actions to achieve sustainable outcomes. Pretty far fetched to be sure, but an intriguing idea. What strikes me as useful in this scenario is the notion that a culture shift toward sustainability would make it a lot easier for both businesses and governments to adopt appropriate policies and decisions.

      Another key point you raise is the challenge of developing a more sustainable alternative to the growth model. Basically I think we have somehow to effect a transition from 20th century capitalism to 21st century sustainable enterprise. But what does this entail? I’m sure you are correct that this transition will require plenty of invention and innovation (or what I referred to in an earlier comment as “sustainability ingenuity”.) As you pointed out in your comments back to me, lots of the requisite ingenuity appears to be going on. But how much more is needed? How can we hasten it along? And what will a sustainable economy look like?

      I think we have a fair idea of the “design specs” for a sustainable economy. At minimum I think a sustainable economy must:

      • Create sustainable livelihoods for (most of) the world’s 1 billion unemployed
      • Provide products and services that meet basic needs (food, shelter, water, energy) for a population of over 7 billion rapidly growing toward 9 billion
      • Drastically reduce waste (According to Paul Hawken et al.’s book Natural Capitalism, 99% of everything produced in the USA is in the waste stream within 6 months!!)
      • Reduce throughputs of energy and materials by factor of 10 (or more likely a factor of 20)
      • Operate on a low carbon basis that will allow us to reduce GHG’s approx 80% by 2050
      • Reduce environmental impacts and contribute to environmental conservation/restoration
      • Reduce transportation impacts (for workers, inputs, and products)
      • Encourage sustainable consumption
      • Ensure that all companies and businesses are socially and environmentally responsible
      • Achieve “smart” effective regulation.

      For me the most hopeful point you make in The Sustainability Mindset is about the growing attention to sustainability in Asia and throughout the developing world. No doubt you are doing what you can to encourage this.

      Thanks again Mike!

      David V. J. Bell

    4. CommentedZahed Yousuf

      whilst I agree with most of what has been discussed so far with regards to Sustainability - the question I have is who do want to drive forward this bottom up approach? Do we trust politicians and policy makers - as F Hayek points out it is impossible for central planners to have sufficient knowledge to be able to allocate resources efficently and effectively for the benefit of the whole society. Therefore the power to make decisions and policies should be decentralised to many different individuals who are more closely affected by the decisions. This is consistent with the bottom approach but it will mean the private sector will be required to take a much more pro active role in our decisiosn making process. At present the private sector and the financing of the private sector is not designed in such a way to cope with this responsibility and talking to investment bankers and politicians there does seem to be a change in mindset

    5. Portrait of Kristy Mayer

      CommentedKristy Mayer

      Incomplete knowledge is one explanation for why people so often make choices that reflect little sensitivity to sustainability. But, behavioral economics concepts - e.g., hyperbolic discounting, payment decoupling, aspects of prospect theory, and mental accounting theories (which postulate that people have sticky, pre-conceived notions of how much they will spend on different types of goods, like electricity bills) - also seem to explain much of our poor choices.

      In recommending how to encourage sustainability mindsets going forward, it is important to acknowledge these behavioral factors. Education and improved values would still be part of the solution, but behavioral explanations suggest that education might focus not just on the consequences of making inefficient decisions but also on the logistics of how to make efficient decisions. Further, it suggests a broader role for public policy - beyond burden sharing, public policy could also improve decision making by introducing channel factors or re-framing efficiency decisions.

    6. CommentedProcyon Mukherjee

      One cannot agree more that education and values hold the key to the future of the sustainability framework. I am however completely influenced by the Swiss example of pricing a common good at all fairness that reflects not only the opportunity costs but also the true long term value that it should command keeping in view the sustainability stand point. Water may be abundant in this country but it is priced the highest in relative terms compared to any other country of the world, which is a small example of how it drives behavior towards conservation. This is true for any other facet from handling of wastes to conservation of natural endowments; this element of sacrifice holds the key to the future, a value that is greatly neglected in the currency of consumption on which the world attempts to prosper.

      Procyon Mukherjee

    7. CommentedPaul A. Myers

      If sustainability requires making good collective choices, then meaningful feedback needs to get back into the decision-making process. This requires pricing externalities into economic decisions.

      In the US today, and this year's election in particular, huge forces led by billionaire plutocrats are working to negate the processes by which negative consequences feed back into the collective choice processes of American society. Denial, not consequence, is the desired rule.

      A major problem in the developed world is that wealth concentration favors extraction of short-term gain at the expense of long-term sustainability. Will democratic processes be able to overcome this force?

    8. CommentedKen Peterson

      Well said, Zsolt!
      Things never work out in logical fashion as we all know. The horror that will be delivered upon the unsuspecting of the earth will never be equitably shared between the 1 and the 99.
      Should there ever, in fact, be a return to earth of the Man who said "care for the meek and the needy," the coming 50 years should be the perfect time.

    9. CommentedZsolt Hermann

      I completely agree with the author that the only options we have to change our present human model is education and values of society.

      And I also agree that the way it is happening today has very minimal effect on most part of society, especially as the leading layers of society ignore it and if it becomes too close to them discredit even the scientific data showing the ill effects and unsustainable nature of the constant growth model. And since this is the social layer that could truly drive a mass scale global education we are in a dead end. How could we motivate the top layer to buy into this education program changing social values?

      Fortunately humans are not above the system of nature, but we are parts of it, bound by its natural laws.

      The constant growth model with its way beyond necessity production/consumption requiring outsripping resources is unsustainable because it goes against all the natural laws of living systems, breaking the balance and homeostasis of the system.

      Thus we are witnessing a system failure and we see every day that there is no solution, the desperate helpless attempts of our politicians and financial leaders just make our situation even worse making recovery much more difficult.

      By now it is quite clear there is no way out using our previous methods and tricks, and it is also clear to most people that this new closed, integral, interdependent system is something we never experienced before.

      The crisis and the lack of solution and the growing public anger, global demonstrations could provide the negative motivation, the pinch from the backside moving the leaders out of their comfort zone to consider initiating the global education necessary.

      Of course if we are wise and look at the vast data already available we could avoid the negative push from behind, and strat education and changing values before the crisis gets so bad that we all suffer from it from the 1% to the 99%.