Philip Andrew Lawn

A theoretical foundation to support the Index of Sustainable Economic Welfare (ISEW), Genuine Progress Indicator (GPI), and other related indexes

Abstract For some time now, ecological economists have been putting forward a ‘threshold hypothesis’—the notion that when macroeconomic systems expand beyond a certain size, the additional cost of growth exceeds the flow of additional benefits. In order to support their belief, ecological economists have developed a number of similar indexes to measure and compare the benefits and costs of growth (e.g. the Index of Sustainable Economic Welfare, ISEW, and the Genuine Progress Indicator, GPI). In virtually every instance where an index of this type has been calculated for a particular country, the movement of the index appears to reinforce the existence of the threshold hypothesis. Of late, a number of observers have cast doubt over the validity of these alternative indexes. One of the concerns commonly expressed is the supposed lack of a theoretical foundation to support the ISEW, the GPI, and other related indexes. By adopting a concept of income and capital outlined by Fisher (Nature of Capital and Income. A. M. Kelly, New York, 1906), this paper demonstrates that these alternative indexes are theoretically sound but, in order to be broadly accepted, require the continuous development of more robust valuation methods.

Sustainable development indicators in ecological economics

Since the late 1980s and early 1990s, national governments have introduced a range of policy measures designed to steer their economies along a more sustainable path. Yet how are we to know how successful these have been? This significant new book discusses the ways in which sustainable development indicators can be improved in order to both assess the impact of past policies and avoid the repetition of previous failings.

Toward sustainable development: an ecological economics approach

Introduction An Ecological Economic View of the Sustainable Development Concept An Overview of the Sustainable Development Concept What is Development? What is Sustainability? What is Sustainable Development? Sustainable Development, Economic Theory, and Macro Policy Goals and Instruments Sustainable Development and an Optimal Macroeconomic Scale Economic Efficiency and Policy Goals and Instruments Sustainable Development and the Role of Relative Prices Sustainable Development and the Role of the Market Sustainable Development and the Co-evolutionary Paradigm The Neoclassical Economic Framework as a Product of the Newtonian World View The Development of a Co-evolutionary-Based Conceptual Framework The Market: A Co-evolutionary Feedback Mechanism Toward Sustainable Development Toward Sustainable Development: A Framework for Policy Setting and National Accounting Reform Towards Sustainable Development: Sustainable Development Indicators Toward Sustainable Development: Policy Conclusions and Prescriptions Toward Sustainable Development: The Need for Moral Growth Appendices Acronyms References Index Tables Figures

Frontier Issues in Ecological Economics

Ecological economics formally emerged in the late 1980s in response to the failure of mainstream economic paradigms to deal adequately with the interdependence of social, economic and ecological systems. Frontier Issues in Ecological Economics focuses on a range of cutting-edge issues in the field of ecological economics and outlines plausible measures to achieve a more sustainable, just, and efficient world for all.

Is steady-state capitalism viable? A review of the issues and an answer in the affirmative.

Most ecological economists believe that the transition to a steady‐state economy is necessary to ensure ecological sustainability and to maximize a nations economic welfare. While some observers agree with the necessity of the steady‐state economy, they are nonetheless critical of the suggestion made by ecological economists—in particular, Herman Daly—that a steady‐state economy is compatible with a capitalist system. First, they believe that steady‐state capitalism is based on the untenable assumption that growth is an optional rather than in‐built element of capitalism. Second, they argue that capitalist notions of efficient resource allocation are too restrictive to facilitate the transition to an “ecological” or steady‐state economy. I believe these observers are outright wrong with their first criticism and, because they misunderstand Dalys vision of a steady‐state economy, are misplaced with their second criticism. The nature of a capitalist system depends upon the institutional framework that supports and shapes it. Hence, a capitalist system can exist in a wide variety of forms. Unfortunately, many observers fail to recognize that the current “growth imperative” is the result of capitalist systems everywhere being institutionally designed to grow. They need not be designed this way to survive and thrive. Indeed, because continued growth is both existentially undesirable and ecologically unsustainable, redesigning capitalist systems through the introduction of Daly‐like institutions would prove to be capitalisms savior. Whats more, it would constitute humankinds best hope of achieving sustainable development.

Scale, prices, and biophysical assessments

Abstract In a recent forum on biophysical assessments, a number of ecological economists expressed serious reservations about the use of prices to assess the appropriate scale of macroeconomic systems. While such reservations are warranted, the preference for biophysical assessments over prices indicates that many ecological economists are focussing on one notion of scale and neglecting another altogether. There are two notions of scale that are critical to achieving sustainable development (SD). One is the maximum sustainable macroeconomic scale; the other is the optimal macroeconomic scale. The maximum sustainable scale is the largest macroeconomic scale that can be sustained by a throughput of matter-energy that is within the ecospheres regenerative and waste assimilative capacities. The optimal scale is a preferable macroeconomic scale and is one that is not only sustainable, but one that maximises the net benefits of economic activity. Biophysical assessments are needed to determine the maximum sustainable scale because ecological sustainability is a biophysical problem, not an economic problem. Thus, it is through biophysical assessments that the necessary restrictions on the incoming resource flow can be calculated and imposed. However, since the achievement of an optimal macroeconomic scale is an economic problem — albeit a constrained economic problem — relative prices are required to efficiently allocate the sustainable resource flow so the macroeconomy can adjust to the optimum. Failure to recognise the two notions of scale and the most appropriate means of their assessment is likely to thwart rather than advance the movement toward SD.

Ecological Tax Reform: Many Know Why But Few Know How

Ecological tax reform involves the utilisation of the tax system to facilitate sustainable development. The generally accepted approach to ecological tax reform is to reduce tax rates on income and labour and to impose Pigouvian taxes on resource use and pollution emissions. While this approach is a vast improvement on current tax systems, it is an inadequate means of achieving sustainable development because it relies exclusively on the manipulation of market prices – an allocation instrument – when ecological sustainability is a throughput problem that requires a separate policy instrument to be adequately resolved. With the aid of a linear throughput representation of the economic process, it is argued that conventional ecological tax reform measures promote just two of the five behavioural modes put forward to achieve sustainable development. In order to promote all five behavioural modes, it is argued that ecological tax reform is best conducted with the incorporation of tradeable resource use permits and assurance bonds.

Environmental Macroeconomics: Extending the IS-LM Model to Include an 'Environmental Equilibrium' Curve

A decade has now passed since Daly made a plea for an environmental macroeconomics. Despite an expanding literature on “green” national accounting and the efforts of ecological economists to measure the sustainable net benefits of a growing macroeconomy, it is only recently that Dalys plea has been adequately answered. This has been achieved with the incorporation by Heyes of an “environmental equilibrium” or EE curve into the familiar IS–LM model. However, the IS–LM–EE model proposed by Heyes is incomplete. By extending Heyes’ model to include the role of technological progress and the need to institute policy instruments to ensure operation on the EE curve, this paper sends out a clear message that environmental concerns should be incorporated into macroeconomic models. They should not be solely confined to microeconomics.

How important is natural capital in terms of sustaining real output? Revisiting the natural capital/human-made capital substitutability debate

This paper revisits the natural capital/human-made capital substitutability debate by putting forward a production function incorporating the first and second laws of thermodynamics. Use of this alternative production function shows that, where relevant, the elasticity of substitution between natural capital and human-made capital is less than one. Moreover, as attempts are made to increase the stock of human-made capital to offset the depletion of natural capital, the elasticity of substitution moves closer to zero. This suggests three things. First, even if one focuses entirely on resource availability and ignores the need for waste assimilative and life-support services, human-made capital cannot serve as a substitute for natural capital. Second, since a given quantity of real output requires an irreducible quantity of resource input, there is a need to maintain a minimum stock of resource-providing natural capital. Third, natural resource policy and national income measurements should be based on a strong rather than weak sustainability stance.

Macroeconomic Policy, Growth, and Biodiversity Conservation

To successfully achieve biodiversity conservation, the amount of ecosystem structure available for economic production must be determined by, and subject to, conservation needs. As such, the scale of economic systems must remain within the limits imposed by the need to preserve critical ecosystems and the regenerative and waste assimilative capacities of the ecosphere. These limits are determined by biophysical criteria, yet macroeconomics involves the use of economic instruments designed to meet economic criteria that have no capacity to achieve biophysically based targets. Macroeconomic policy cannot, therefore, directly solve the biodiversity erosion crisis. Nevertheless, good macroeconomic policy is still important given that bad macroeconomy policy is likely to reduce human well-being and increase the likelihood of social upheaval that could undermine conservation efforts.