<ul><li>Ecological Economics and Business Opportunity </li></ul><ul><li>Fall, 2011 </li></ul><ul><li>Maggie Winslow, PhD <...
US Chamber of Commerce: “Campaign for Free Enterprise” <ul><li>JUNE 10, 2009 </li></ul><ul><li>$100 million campaign to  “...
Allocate resources based on market price S D Q P P* Q*
 
Theory of Rational Markets
 
 
 
Classic Diagram From Macroeconomics Firms Households $ Goods and Services Labor $ Ecosystem
Classic Diagram From Macroeconomics Firms Households $ Goods and Services Labor $ Environment Ecosystem
Classic Diagram From Macroeconomics Firms Households $ Goods and Services Labor $ Ecosystem
Diagram from Ecological Economics Ecosystem matter energy matter energy recycling heat Economy
Thermodynamics - It’s the Law 1st Law In any closed system matter and  energy can be neither created  nor destroyed. Matte...
Thermodynamics - It’s the Law 1st Law In any closed system matter and  energy can be neither created  nor destroyed. Matte...
“ Production” is an illusion.  Throughput
“ Production” is an illusion.  Resource Degradation/ Pollution Throughput Resource Depletion
“ Production” is an illusion.  Resource Degradation/ Pollution Throughput The faster the throughput, the faster the deplet...
Limits to Growth <ul><li>Ecosystem’s capacity to   </li></ul><ul><ul><li>1. regenerate renewable resources </li></ul></ul>...
Can't man-made capital make up for natural capital?   The value delivered by the biosphere is estimated  to be in the rang...
Can Technology Save Us?   <ul><li>Until man duplicates a blade of grass, nature can laugh at his so-called scientific know...
Consequences of Economic Growth <ul><li>Increased growth can have positive as well as negative consequences.  </li></ul><u...
Is there is an optimal size for our economy Benefits and costs Size of the economy Marginal benefits Marginal costs
Optimal Scale in Microeconomics <ul><li>Activity should increase until marginal costs are equal to and not greater than ma...
Marginal Costs <ul><li>Marginal costs of production must be going up for economy as a whole because resources are getting ...
LRAC Curve Also Slopes Upward for Economy as a Whole <ul><li>In ecological economics, natural capital becomes the limiting...
Scale of Economy Also Relevant to Social Systems Church Nature Family Friends Market  -  buying and   selling
&quot; Getting and spending, we lay waste our powers.&quot;
Ultimate Ends What ends do we desire? What resources do we need to attain these ends? What ends get priority?
Economists Pondering Ultimate Ends and Consumerism is Nothing New <ul><li>Simonde de Sismondi (b. 1773) </li></ul><ul><li>...
Closed System and the Steady State <ul><li>Nicholas Georgescu-Roegen   (1906 - 1994):  </li></ul><ul><li>As we rely less a...
Human Capital Economic Production Process Goods and Services Evolving Cultural Norms and Policy Well Being ( Individual   ...
Question:  Can we have a vibrant economy (e.g. high employment levels) while limiting the extraction of scarce resources a...
<ul><li>Y= C+I+G+NX </li></ul>Income (Y, GDP) =  consumption  + investment + government spending + net exports
Y= C+I+G+NX   Consumption   <ul><li>Cg  - Consumption of non-durable goods and energy-intensive services </li></ul><ul><li...
Y= C+I+G+NX   Investment   <ul><li>I me  - Investment in energy-intensive manufactured capital </li></ul><ul><li>I mc  - I...
Y= C+I+G+NX   Government Spending <ul><li>G g   - Non-durable goods and energy-intensive services </li></ul><ul><li>G s  -...
What Would New Economy Look Like? Fewer, more  durable goods More services Living Smaller Shorter work weeks
Macro-Level Solutions <ul><li>Incorporate sustainability criteria in quantitative indices of national income. </li></ul><u...
Macro-Level Solutions Cont. <ul><li>Support policies that reduce population growth. </li></ul><ul><li>Reduce the work week...
Micro-Level Solutions Ethical Profits Reduce  throughput Reorient  products/ services Encourage fair  regulation Develop  ...
Encourage fair  regulation Pre-1960s,  Pollution denial 1970s and ‘80s End-of-pipe regulation Late ‘80s and ‘90s Pollution...
Comprehensive Efficiency Identity Reduce  throughput MMK  services gained NK services  sacrificed MMK  services gained MMK...
Comprehensive Efficiency Identity Reduce  throughput MMK  services gained NK services  sacrificed MMK  services gained MMK...
Comprehensive Efficiency Identity Reduce  throughput MMK  services gained MMK stock = MMK stock throughput throughput NK s...
Comprehensive Efficiency Identity Reduce  throughput MMK  services gained MMK stock = MMK stock throughput throughput NK s...
Comprehensive Efficiency Identity Reduce  throughput MMK  services gained MMK stock = MMK stock throughput throughput NK s...
Reorient  products/ services Sustainable Value Pollution Prevention Pros: Cost and risk reduction Product Stewardship Pros...
Different strategies for different markets   (from Capitalism at the Crossroads, S. Hart) Developed Markets:   reducing co...
Creative Destruction There are limitations with  marginal improvements. Disruptive  technologies Breaking away from  path ...
What Do You Want the New Economy to Look Like?
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Winslow ecological economics fa2011

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  • PROBLEMS: Consumer sovereignty: Individual consumption decisions ≠ society flourishing Externalities and public goods Prices based on current generation’s valuation Focus on efficiency/ value-neutrality of markets Promotion of selfishness
  • Summary of ideas from: “Ecological Macroeconomics: Consumption, Investment, and Climate Change” Jonathan Harris, July 2008 GDAE
  • Regulation and preferential tax treatment can influence investors.
  • Reducing the work week could allow for full employment. Only possible if people are able to meet their needs working part time.
  • Traditiona markets: ruf and tuf jeans in India village cell phones small hydropower generators cook stoves
  • Winslow ecological economics fa2011

    1. 1. <ul><li>Ecological Economics and Business Opportunity </li></ul><ul><li>Fall, 2011 </li></ul><ul><li>Maggie Winslow, PhD </li></ul><ul><li>Presidio Graduate School </li></ul>
    2. 2. US Chamber of Commerce: “Campaign for Free Enterprise” <ul><li>JUNE 10, 2009 </li></ul><ul><li>$100 million campaign to “ defend the free market system ”. It includes: </li></ul><ul><ul><li>A public education ad buy. </li></ul></ul><ul><ul><li>Issue advocacy program tied to the 2010 midterm elections. </li></ul></ul>
    3. 3. Allocate resources based on market price S D Q P P* Q*
    4. 5. Theory of Rational Markets
    5. 9. Classic Diagram From Macroeconomics Firms Households $ Goods and Services Labor $ Ecosystem
    6. 10. Classic Diagram From Macroeconomics Firms Households $ Goods and Services Labor $ Environment Ecosystem
    7. 11. Classic Diagram From Macroeconomics Firms Households $ Goods and Services Labor $ Ecosystem
    8. 12. Diagram from Ecological Economics Ecosystem matter energy matter energy recycling heat Economy
    9. 13. Thermodynamics - It’s the Law 1st Law In any closed system matter and energy can be neither created nor destroyed. Matter and energy can be interchanged. You can’t make something from nothing.
    10. 14. Thermodynamics - It’s the Law 1st Law In any closed system matter and energy can be neither created nor destroyed. Matter and energy can be interchanged. You can’t make something from nothing. 2nd Law Energy and matter move towards a less ordered state. Transformations lead to increased entropy. Entropy increases in an isolated system. Recycling uses energy.
    11. 15. “ Production” is an illusion. Throughput
    12. 16. “ Production” is an illusion. Resource Degradation/ Pollution Throughput Resource Depletion
    13. 17. “ Production” is an illusion. Resource Degradation/ Pollution Throughput The faster the throughput, the faster the depletion and degradation and the more “lost opportunity.” Resource Depletion
    14. 18. Limits to Growth <ul><li>Ecosystem’s capacity to </li></ul><ul><ul><li>1. regenerate renewable resources </li></ul></ul><ul><ul><li>2. restore ecosystem services </li></ul></ul><ul><li>Technological capacity to </li></ul><ul><ul><li>3. recycle and/or substitute </li></ul></ul><ul><ul><li>non-renewable resources </li></ul></ul>
    15. 19. Can't man-made capital make up for natural capital? The value delivered by the biosphere is estimated to be in the range of US$33 trillion per year (1997 dollars). Global economy delivers US$18 trillion per year. -The value of the world’s ecosystem services and natural capital NATURE , VOL 387 , 15 MAY 1997
    16. 20. Can Technology Save Us? <ul><li>Until man duplicates a blade of grass, nature can laugh at his so-called scientific knowledge.... </li></ul><ul><li>-Thomas Edison </li></ul>
    17. 21. Consequences of Economic Growth <ul><li>Increased growth can have positive as well as negative consequences. </li></ul><ul><li>At some point the costs of growth become greater than the benefits. </li></ul>
    18. 22. Is there is an optimal size for our economy Benefits and costs Size of the economy Marginal benefits Marginal costs
    19. 23. Optimal Scale in Microeconomics <ul><li>Activity should increase until marginal costs are equal to and not greater than marginal benefits. </li></ul><ul><ul><li>Firms: </li></ul></ul><ul><ul><ul><li>how much to produce (set MC = MR) </li></ul></ul></ul><ul><ul><ul><li>how much labor to hire (set W = VMPL) </li></ul></ul></ul><ul><ul><li>Consumers: </li></ul></ul><ul><ul><ul><li>how much of a product to buy (set MUx/Px = MUy/Py) </li></ul></ul></ul><ul><ul><li>Economy: </li></ul></ul><ul><ul><ul><li>how much of good X should be produced (Set MWTP = MC) </li></ul></ul></ul><ul><li>When MC = MB, optimal scale is reached. </li></ul><ul><li>There is no “optimal scale” in macroeconomics. </li></ul>
    20. 24. Marginal Costs <ul><li>Marginal costs of production must be going up for economy as a whole because resources are getting scarcer. </li></ul><ul><li>If MC is increasing, AC must be increasing as well at some point. </li></ul>AC MC $ Q
    21. 25. LRAC Curve Also Slopes Upward for Economy as a Whole <ul><li>In ecological economics, natural capital becomes the limiting factor in production. </li></ul><ul><li>It is important to know if ecosystem services and other aspects of natural capital are being depleted faster than they can regenerate. </li></ul><ul><li>NNP = GNP – C – MMKd - NKd </li></ul>
    22. 26. Scale of Economy Also Relevant to Social Systems Church Nature Family Friends Market - buying and selling
    23. 27. &quot; Getting and spending, we lay waste our powers.&quot;
    24. 28. Ultimate Ends What ends do we desire? What resources do we need to attain these ends? What ends get priority?
    25. 29. Economists Pondering Ultimate Ends and Consumerism is Nothing New <ul><li>Simonde de Sismondi (b. 1773) </li></ul><ul><li>John Ruskin (b. 1819) </li></ul><ul><li>Thornstein Veblen (b. 1857) </li></ul><ul><li>John Hobson (b. 1858) </li></ul><ul><li>John Kenneth Galbraith (b. 1908) </li></ul>
    26. 30. Closed System and the Steady State <ul><li>Nicholas Georgescu-Roegen (1906 - 1994): </li></ul><ul><li>As we rely less and less on current solar energy (flow) and more and more on fossil hydrocarbon and other mined resources (stock) , economic activity needs to be understood as moving toward a closed system and subject to the 2nd law of thermodynamics. </li></ul><ul><li>Economic activity as an entropic process - takes high quality energy and materials and reduces them to waste heat and dispersed minerals. </li></ul>
    27. 31. Human Capital Economic Production Process Goods and Services Evolving Cultural Norms and Policy Well Being ( Individual and Community) Consumption (based on changing, adapting preferences) Education, training, research. Building Investment (decisions about, taxes community spending, education, science and technology policy, etc., based on complex property rights regimes) Individual Public GDP Wastes Common Ecological services/ amenities having, being - having, - being negative impacts on all forms of capital being, doing, relating Restoration, Conservation Natural Capital Manufactured Capital having positive impacts on human capital capacity doing, relating Complex property rights regimes Solar Energy Social Capital Limited Substitutability Between Capital Forms Model of the Ecological Economic System Waste heat Institutional rules, norms, etc. Materially closed earth system From: Costanza, R., J. C. Cumberland, H. E. Daly, R. Goodland, and R. Norgaard. 1997. An Introduction to Ecological Economics. St. Lucie Press, Boca Raton, 275 pp.
    28. 32. Question: Can we have a vibrant economy (e.g. high employment levels) while limiting the extraction of scarce resources and the degradation of natural capital? YES!
    29. 33. <ul><li>Y= C+I+G+NX </li></ul>Income (Y, GDP) = consumption + investment + government spending + net exports
    30. 34. Y= C+I+G+NX Consumption <ul><li>Cg - Consumption of non-durable goods and energy-intensive services </li></ul><ul><li>Cs - Consumption of human-capital intensive services </li></ul><ul><li>Cm - Household investment in consumer durables. </li></ul><ul><li>We need to limit Cg but can let the others grow. </li></ul>
    31. 35. Y= C+I+G+NX Investment <ul><li>I me - Investment in energy-intensive manufactured capital </li></ul><ul><li>I mc - Investment in energy-conserving manufactured capital </li></ul><ul><li>I n - Investment in natural capital </li></ul><ul><li>I h - Investment in human capital </li></ul><ul><li>Here we need to limit I me . </li></ul>
    32. 36. Y= C+I+G+NX Government Spending <ul><li>G g - Non-durable goods and energy-intensive services </li></ul><ul><li>G s - Human capital-intensive services </li></ul><ul><li>G me - Investment in energy-intensive manufactured capital </li></ul><ul><li>G mc - Investment in energy-conserving manufactured capital </li></ul><ul><li>G n - Investment in natural capital </li></ul><ul><li>G h - Investment in human capital </li></ul><ul><li>Here we need to limit G g and G me . </li></ul>
    33. 37. What Would New Economy Look Like? Fewer, more durable goods More services Living Smaller Shorter work weeks
    34. 38. Macro-Level Solutions <ul><li>Incorporate sustainability criteria in quantitative indices of national income. </li></ul><ul><ul><li>Include loss of natural capital as a negative in GDP. </li></ul></ul><ul><li>Develop better regulatory and incentive-based instruments to assure sustainability. </li></ul><ul><li>Invest in public goods. </li></ul><ul><li>Provide preferential interest rates for investments in energy efficiency and renewables. </li></ul>
    35. 39. Macro-Level Solutions Cont. <ul><li>Support policies that reduce population growth. </li></ul><ul><li>Reduce the work week, especially to accommodate productivity increases. </li></ul><ul><li>Actively assess new technologies for their beneficial aspects. </li></ul><ul><li>Equalize income. </li></ul>
    36. 40. Micro-Level Solutions Ethical Profits Reduce throughput Reorient products/ services Encourage fair regulation Develop disruptive technologies
    37. 41. Encourage fair regulation Pre-1960s, Pollution denial 1970s and ‘80s End-of-pipe regulation Late ‘80s and ‘90s Pollution prevention and stewardship Clean Tech, Eco-effectiveness, Cost savings, Opportunity
    38. 42. Comprehensive Efficiency Identity Reduce throughput MMK services gained NK services sacrificed MMK services gained MMK stock = MMK stock throughput throughput NK stock NK stock NK services sacrificed X X X MMK = Man-made capital stock (e.g. equipment, goods) NK = Natural capital stock (e.g. soil, minerals, living organisms)
    39. 43. Comprehensive Efficiency Identity Reduce throughput MMK services gained NK services sacrificed MMK services gained MMK stock = MMK stock throughput throughput NK stock NK stock NK services sacrificed X X X Service Efficiency How well are man made resources meeting what they are designed for? How well are we allocating resources? MMK = Man-made capital stock (e.g. equipment, goods) NK = Natural capital stock (e.g. soil, minerals, living organisms)
    40. 44. Comprehensive Efficiency Identity Reduce throughput MMK services gained MMK stock = MMK stock throughput throughput NK stock NK stock NK services sacrificed X X X Maintenance Efficiency or Durability How much man-made stock are we getting for a given level of throughput? Are things well-made and durable? MMK services gained NK services sacrificed
    41. 45. Comprehensive Efficiency Identity Reduce throughput MMK services gained MMK stock = MMK stock throughput throughput NK stock NK stock NK services sacrificed X X X Production Efficiency Are we getting a high level of throughput for the amount of NK stock available? MMK services gained NK services sacrificed
    42. 46. Comprehensive Efficiency Identity Reduce throughput MMK services gained MMK stock = MMK stock throughput throughput NK stock NK stock NK services sacrificed X X X Ecosystem Efficiency Amount of NK stock we can get for NK services sacrificed. MMK services gained NK services sacrificed
    43. 47. Reorient products/ services Sustainable Value Pollution Prevention Pros: Cost and risk reduction Product Stewardship Pros: Reputation and legitimacy, future cost savings Clean Technology Pro: Innovation and repositioning Base of the Pyramid Pros: Growth and future value
    44. 48. Different strategies for different markets (from Capitalism at the Crossroads, S. Hart) Developed Markets: reducing corporate footprint Emerging Markets: avoiding collision between economic growth and resource depletion and degradation Traditional/Survival Markets: understanding needs, developing native capacities
    45. 49. Creative Destruction There are limitations with marginal improvements. Disruptive technologies Breaking away from path dependence. Seeing sustainability as an opportunity not risk avoidance . <ul><li>Firms with large amounts of fixed assets (oil industry for example) do not want to change as much as adapt. </li></ul><ul><li>Service and retail are more able to switch course . </li></ul>Turnover in S&P 500: 1.5% per year in 1920 10% per year today -Creative Destruction, Foster and Kaplan
    46. 50. What Do You Want the New Economy to Look Like?

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