TOPIC 9 ECONOMIC SUSTAINABILITY

The Definition of Economy The wealth and resources of a country or region, especially in terms of the production and consumption of goods and services.

Economic Systems Economic systems is a system/mechanism of production and exchange of goods and services as well as allocation of resources in a society.

Economic Unsustainability Issues Worldwide

The Meaning of Economic Sustainability Relationships of economic system to environmental and social sustainability Comparison with static and dynamic economic efficiency Weak versus strong sustainability Approaches to pervasive uncertainty

Relationships of economic system to environmental and social sustainability THE FOUR TYPES OF ECONOMIC SYSTEMS

Comparison with static and dynamic economic efficiency

Weak versus strong sustainability

Approaches to pervasive uncertainty Uncertainty is the enemy of effective planning and ultimately, economic success. Yet uncertainty has become a pervasive part of the economic activities. – Examples of economic uncertainty: Financial crisis Rapid change New demand Globalization Approaches: – Operational effectiveness – Proactive change management – Product innovation – Flexibility and adaptability

Why Study the Economics of Sustainability Roles of economic systems and their effects Linked environmental, social and economic issues Natural capitalism Ecological economics Globalization and international trade

Causes of Environmental Degradation and Social Problems Externalities – A side effect or consequence of an industrial or commercial activity that affects other parties without this being reflected in the cost of the goods or services involved, such as the pollination of surrounding crops by bees kept for honey.

Negative Externalities – Negative externalities occur when the consumption or production of a good causes a harmful effect to a third party. – Examples of negative externalities: If you play loud music at night your neighbour may not be able to sleep. If you produce chemicals and cause pollution as a side effect, then local fishermen will not be able to catch fish. This loss of income will be the negative externality. If you drive a car, it creates air pollution and contributes to congestion. These are both external costs imposed on other people who live in the city. If you build a new road, the external cost is the loss of a beautiful landscape which people can no longer enjoy. – Implications of negative externalities If goods or services have negative externalities, then we will get market failure. This is because individuals fail to take into account the costs to other people. To achieve a more socially efficient outcome, the government could try tax the good with negative externalities. This means that consumers pay the full social cost.

Positive Externalities – This occurs when the consumption or production of a good causes a benefit to a third party. – Examples of positive externalities: When you consume education you get a private benefit. But there are also benefits to the rest of society. E.g you are able to educate other people and therefore they benefit as a result of your education. A farmer who grows apple trees provides a benefit to a beekeeper. The beekeeper gets a good source of nectar to help make more honey. If you walk to work, it will reduce congestion and pollution, benefiting everyone else in the city. – Implications of positive externalities: With positive externalities the benefit to society is greater than personal benefit.

Public goods Government policy failures Incomplete environmental and social service measurement and accounting

Approaches to Solve Environmental and Social Degradation Property rights, markets and macroeconomic relationships Criteria for policy approaches – economic – non-economic Choosing policy instruments

What can economists do? While science and technology will do much of the work there is still a need to better understand the interaction between economy and environment. Formulate appropriate government policy – taxes and subsidy Understand equity implication of economic policies and climate change and devise corrective measures (such as taxes on carbon and technology transfer).