GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
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After 40 years of environmental negotiations and the recent inconclusive results of Rio+20, there is an expanding consensus that the current negotiation model composed of a series of subsequent summits and conferences of the parties under the United Nations umbrella has been exhausted. This deadlock lead to a perception that real change is a “political impossibility” and inevitably installed a sense of fatalism. It is starting to be clear that the main obstacle that we are facing is not technological but consists of the construction of a new juridical-economic structure that is able to provide an answer to the global and structural dimension of the current crisis. Within this context, the Common Heritage of Mankind continues to be the only structure that can offer an international juridical framework capable of regulating goods that take us to a dimension of the human condition found outside the material realm, but which does involve the whole of humanity. The proposal to configure the climate system as common to the whole of humanity could serve as a basis to resolve a series of complex operational problems. These include the lack of intergenerational reach of Law that deals with new global phenomena or the global dispersion of positive and negative externalities of countries that affect the common system. The proposed classification would enable accounting and governance of externalities between countries, taking into consideration the actions of past generation and the rights of future ones. The first step consists of finding out how to describe this juridical object, which finds itself both outside and inside of all states, and how to measure and consequently attribute it to someone. This immaterial and intangible nature is that what really unites us all and turns us all global neighbors. The creation of a new Intangible Natural Heritage relative to the climate and ocean systems of which the owner should be all of humanity serves as the structural support that we propose to construct a new economy. http://www.earth-condominium.org/en/conference/earth-condominium-conference/
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GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 1. GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE A Joint Venture by Nuno G. Oliveira (ISG Business & Economics School, PT) & Sander Jacobs (University of Antwerp, BE)
- 2. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 3. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 4. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE Atmosphere Lithosphere Hydrosphere Biosphere Original land cover and derived land uses Human-made Capital (Built Capital, Human Capital Social Capital) Ecosystem Services Human Impacts Anthroposphere Solar Energy Natural Capital Rest of the World
- 5. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 6. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 7. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE Apocalypse Soon: Has Civilization Passed the Environmental Point of No Return? Madhusree Mukerjee, Scientific American, 23.05.2012
- 8. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 9. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 10. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 11. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 12. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 13. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 14. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 15. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 16. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 17. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 18. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 19. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 20. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 21. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE The Perverse Pyramid: The US Farm Bill's skewed system of subsidies helps explain why unhealthy foods are often cheap and plentiful, while healthy foods are more expensive and less available. The priorities in the subsidy system stand in stark contrast to the federal government's own advice on nutrition.
- 22. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 23. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE Well, since most of you came here to attend a lecture from Joshua Bishop…
- 24. Solutions? • Protect resources from market failures? • Expand market to internalize externalities? • A combined solution… Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 25. USA constitution1894 “forever wild” article XIV The lands of the state, now owned or hereafter acquired, constituting the forest preserve as now fixed by law, shall be forever kept as wild forest lands. They shall not be leased, sold or exchanged, or be taken by any corporation, public or private, nor shall the timber thereon be sold, removed or destroyed. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 26. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 27. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 28. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 29. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 30. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 31. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 32. • The system’s design is into the hands of financial institutions which are incentivized by short-term monetary gains. • Free Permits: for polluting companies (This prevents investment in clean energy, dividends to citizens and/or paying down our ecological debt to developing countries) • Offsetting: Difficult to track if the offsets are genuine, therefore false offsets can lead to increased polluting • Distraction: Cap & Trade is a distraction from solving the underlying problem of excessive carbon emissions. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 33. Expand the market to internalize externalities • Efficiency… • Carrying capacity? • Social fairness? Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 34. Expand the market to internalize externalities • Efficiency… • Carrying capacity? • Social fairness? So… we need a unit to account, evaluate, compare ALL three values. ECONOMY Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 35. Money & Sustainability – The Missing Link Bernard Lietaer, Christian Arnsperger, Sally Goerner , Stefan Brunnhuber I now understand, as proven clearly in this text, that the prevailing financial system is incompatible with sustainability in five ways: • it causes boom and bust cycles in the economy • it produces short-term thinking • it requires unending growth • it concentrates wealth • it destroys social capital Dennis Meadows Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 36. • Torekes: a city-based initiative to encourage volunteering while promoting green behaviour and social cohesion in a poor neighbourhood. It has been running since 2010 in the city of Ghent, Belgium. • ECOs: a national or Europe-wide system making it possible to fund critical components of large-scale ecological projects, such as climate change prevention and adaptation projects. It would be • An interest-free currency • Issued by governments • Businesses should contribute proportional to their total sales, payable only in ECOs. • Would be seen as a new type of corporate tax on the largest corporations. • May require governments to ‘declare war’ on run-away climate change and BD loss. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 37. Oliveira & Jacobs, 16.01.2013; Earth Condominium Conference, Gaia, PT GETTING INSIDE THE EXTERNALITIES: A SHORT TRIP TO THE HEART OF €CONOMIC$ FAILURE
- 38. Sander Jacobs (University of Antwerp, BE) jacobs.sander@gmail.com Nuno G. Oliveira (ISG Business & Economics School, PT) nuno.gaspar.oliveira@gmail.com
Editor's Notes
- In the begining and in the end, the idea of the garden of eden guided man towards an ethical behaviour in a world full of sin. Trouble begun when men actually brought sin into the world…
- …and then capitalism was born
- During the following millenia we have refined our way to “live” more and more focused in our ‘own space’ and taking all we wanted from the biosphere and the rest of the wild open world
- But soon we found out that the world was ‘shrinking’, getting more crowded, lest bountiful, more complicated and … less natural. Nowadays there are no wild borders to be crossed and there are less and less virgin landscapes to conquer, reap and sell in a free market without caring for the after effects
- Eventually we developed the body of knowledge and the technology to fully disclosure the importance of ecosystems and the services provided by these and the biodiversity. We can now map the services of provision, support, regulation and cultural benefits of those
- But did we actually LEARNED something out of these findings? The data shows that we are operating like as if we are still leaving in the empty world with wild frontiers to be conquered and the land of plenty waiting for us on the other side of the sea. Unfortunately, the limits are being brutally tested and there is a price to pay
- One of the most amazing developments of ‘post-starwars’ capitalism is the almost total convertion of the productive and manufactoring system into a largelly service supported system, where the buy-sell-speculate-buy-sell endless cycle reached the zenith and finance became the one and only thing that actually mattered, with the GDP and rating agencies becoming the full expression of this change
- But what is exactly GDP then? Its a rather simple equation that tells you that you are richer (therefore, your Utility increases) if and only if you are really good at transforming and consuming resources, spending public money in services and financial support for more resource consuming, invest in manufacturing and commercial infrastructures and that you can sell things with a profit margin. Where do you see here in this equation the importance of clean air, clean water, amenity, and the actual value of the raw materials and resources? Right, its just not there
- That is to say, the economy growns when your profit increases and when jobs are created in a way that the people that work on these jobs can actually contribute to your GDP growth
- The problem with this model is that the model creates many problems, usually called ‘externalities’, better defined as stuff that happens outside the markeplace. Minor stuff like rising sea level and ocean acidification, biodiversity loss and climate change. Nevertheless, some people try to view it from an angle…
- This image became one of the most popular memes of 2012, reaching an amazing over one million posts on facebook in less than one hour. It’s an alleged image of the sandy storm in NY and its a fake image, but it reflects an event that might have changed the course of US elections. Also not fake is the fact that 25% of the US GDP was held ‘hostage’ during 5 days, since the markets in NY couldn’t function under the sandy attack
- This one’s not a fake, it’s very real and it’s Phoenix, in arizona, under attack by one of the now recurrent sand storms that sweep the city as a result of the growing desert. Nonetheless, cattle ranches along with oil and golf camps keep Phoenix’s GDP growing
- And it’s amazing how much we don’t care for the so called externalities, in a simple example, an analysis of matters published in the wall street journal during almost all last year showed what are the true main topics for finance advisors and analists
- All is well, the hunter has become the consumer
- But then again those irritating externalities that have no impact on pricing and subsidies tend to appear, as in this example where we can see the carbon emissions associated with the goods we eat. Maybe we should focus on a diet, both regarding food and climate disorders
- One good example when everything fails, economics, governance and foreign policy support is the price of 3 eggs in Zimbabwe, one of the most agriculture productive countries on Earth where money is simple worthless, thus maintaining this land available to landgrab as soon as the current dictator resigns power or dies.
- The point is if everything that supports true living costs are worthless or misspriced, labour will still be vital for maintaining some living expectations, therefore many more people will be available for working nomatter the conditions
- Biodiversity and ecosystems only have real market price if there is direct or indirect consumption, transformation into transactionable goods and services and as something that can be offered to pay for credit debts. We’re talking about food, water, shelter, medicine, materials, etc with severe pricing bias
- For example, most animal and plant species are only valuable if they can be of any ‘good use’ to our current economic models, otherwise, they’re externalities, not included in GDP or any other economic indicators that countries and corporations normally use
- The game is not even a fair one at the end of the day, as we can see in this graph showing the subsidy policies for food production in the US and the federal nutrition recomendations, basically, we subsidize heavelly the narrow end of the pyramid and expect that the rest can be competitive when it gets to consummer’s choice in such a violent market where the social and environmental impacts of meat and dairy production are simply obliterated.
- So, this is current linear economics, a balance between the market interests and the rest of that ‘externalities’ stuff
- In short, considering that most of you could be expecting to attend a lecture from Joshua Bishop, we appologise for the first part of this presentation and let’s ear out someone that can actually know something about this subject