Policies to Achieve Sustainable Development

Abstract

Given the need to achieve sustainable development to resolve the climate change crisis, a number of sustainable development policies are outlined in this chapter. Before this can be done, it is first explained why achieving sustainable development requires the resolution of three major policy goals: (i) ecological sustainability; (ii) distributional equity; and (iii) allocative efficiency. Secondly, it is explained why resolving these three policy goals requires the application of the following policy instruments: (i) quantitative restrictions (caps) on the rate of resource throughput to achieve ecological sustainability (including explicit restrictions on global greenhouse gas emissions); (ii) transfer systems to achieve a just distribution of income and wealth; and (iii) relative prices determined by interacting demand and supply forces to achieve allocative efficiency. Ecological economists also believe that the policy goals must be resolved in the above order. This means that the sustainability and distributional goals must be resolved prior to letting markets allocate the incoming flow of natural resources. With this in mind, the policies recommended in this chapter cover such broad areas as ecological tax reform; cap-auction-trade systems to effectively manage renewable resources and the generation of pollution (including greenhouse gas emissions); vegetation clearance controls; population stabilisation; maximum income limits and a guaranteed minimum income; labour market and monetary system reforms; market failure; national accounting reforms; foreign aid; and international reforms to overcome the negative side-effects of globalisation.

Notes

• 1. There are, of course, many policy goals applicable to achieving sustainable development. The three policy goals listed here are best thought of as all-encompassing categories where: (i) the first goal captures the ecological dimension of sustainable development; (ii) the second goal captures the social and ethical dimension; and (iii) the third goal captures the economic dimension. For example, the second goal of distributional equity would include more than just considerations about the distribution of income and wealth. It would also include political and social justice concerns.

• 2. Whether a good is directly ‘consumed’ or ‘used’ depends on whether it is a durable or a non-durable good. Non-durable goods such as food, beverages, and petrol are consumed. Durable goods such as cars, televisions, and clothes are used. Whilst durable goods are not directly consumed, they depreciate over time.

• 3. Mainstream economists acknowledge that markets cannot ensure distributional equity.

• 4. The term ‘Pigouvian taxes’ has been applied to the internalisation of environmental externalities into market prices since the work of Pigou (1932).

• 5. These are broad-based terms to describe the policy instruments required to resolve the three policy goals. See Daly (1991, 1996) and Lawn (2000, 2007) for more detail.

• 6. The increase in hourly wage rates is dependent upon workers being able to share in the increased profits that arise from the production of better quality goods.

• 7. At low real wage rates, the labour supply curve for an individual is typically upward sloping insofar as an individual worker will generally be willing to work more hours as their real wage rate rises. However, once real wage rates and consumption levels are very high, the marginal benefit of additional work (i.e., the marginal benefit of consumption) becomes quite small. At some point—that is, once a particular real wage rate is reached—the marginal benefit of leisure exceeds the marginal benefit of consumption. It is above this real wage rate that an individual’s labour supply curve is downward sloping or backward bending in the sense that a rise in the real wage will induce the worker to increase their leisure time (and reduce their work time).

• 8. In actual fact, taxes received by currency-issuing central governments do not increase their spending power. As a consequence, currency-issuing central governments do not technically earn revenue from taxation. Taxation involves the destruction of private-sector spending power. Following the imposition of a tax, private-sector banks accounts held at the nation’s central bank are debited. However, despite there being a double-book ‘T’ account entry, there is no crediting of a government account. Central-government spending involves the creation of high-powered money (net financial assets) out of nothing and its insertion into the economy via the central government’s spending. Assuming the government has hired labour and/or purchased goods and services generated by the private sector, private-sector accounts are credited but there is no actual debiting of a government account. In reality, therefore, a central government surplus constitutes a ‘net financial asset-destroying fiscal stance’ and a deficit constitutes a ‘net financial asset-injecting fiscal stance’. Thus, if a currency-issuing central government achieves tax-revenue neutrality following the alteration of tax rates, it is merely leaving unchanged the difference between the net financial assets it is injecting into the economy and those it is destroying. However, for the sake of exposition, I shall continue to refer to the destruction of net financial assets from taxation as equivalent to raising tax revenue. The issue of tax revenue and government spending is better left to an alternative forum. For more, see Mitchell and Muysken (2008).

• 9. Redistribution is also important given that depletion/pollution taxes do not discriminate between rich and poor and are therefore regressive.

• 10. Why the highest bidders? Presumably those who are willing to pay the highest price to obtain a permit are those able to add the most value to the resources they wish to secure (i.e., are able to sell the end product made from the resources at the highest price). Hence, selling to the highest bidders is likely to better facilitate qualitative improvements in all newly produced goods. Of course, the capacity to pay a higher price for a permit is also a key factor. Being rich is likely to confer an advantage when bidding for permits. This conceded, the extent of the advantage of the rich—which applies to the purchase of all things—is a matter of distribution, which ought to be dealt with by ensuring an equitable distribution of income and wealth. It might also be an issue of market power. This can be dealt with by ensuring all markets are suitably ‘contestable’ (Baumol et al. 1982; Lawn 2000) and by limiting the number of permits that any individual or entity can purchase.

• 11. Short permit life-spans would also massively reduce the incentive for people to engage in the speculative buying and selling of permits.

• 12. By this I mean, firstly, the incorporation of quantitative limits to achieve ecological sustainability; secondly, the public capture of scarcity rents and their redistribution to achieve distributional equity; and thirdly, the internalisation of ecological limits into renewable resource prices to facilitate allocative efficiency.

• 13. In both cases, it is necessary to police resource buyers and sellers to prevent abuse of the system. Hence, there is no logistical advantage here.

• 14. Of course, cap-auction-trade systems are not immune from bureaucratic error. Whether they assist in achieving ecological sustainability depends largely on how accurately the sustainable rate of throughput is estimated. If an overestimation is made and too many permits are auctioned off, the incoming resource flow will exceed the maximum sustainable rate. Should depletion/pollution taxes be preferred, any overestimation of the maximum sustainable rate of throughput will result in insufficient tax rates. Hence, the possibility of error does not amount to an argument against cap-auction-trade systems. To avoid any problems that might emerge from incorrectly estimating the maximum sustainable rate of throughput, it would be wise to adopt a ‘precautionary’ approach and limit the incoming resource flow and the number of permits sold to, say, 75 per cent of the estimated maximum sustainable rate.

• 15. In doing so, one satisfies the condition of ‘strong sustainability’. See Lawn (2007).

• 16. As a means of illustration, if 50 units per year is the maximum quantity of renewable matter-energy cultivatable from an investment of the non-renewable resource in question, the sustainable exhaustion schedule increases to 19 years (20 extractions) and the annual amount of non-renewable matter-energy available for production purposes falls from 38.61 to 31.16 units of low-entropy matter-energy.

• 17. Public goods exhibit two main characteristics: (i) non-rivalry in consumption/use; and (ii) non-excludability in consumption/use. It is because of these features that it is often financially unviable for the private sector to provide public goods in sufficient quantities (DeSerpa 1988). This explains why the public goods problem constitutes a form of market failure and why there is a need for governments to provide public goods.

• 18. Wilson believes it should be more in the region of 50 per cent.

• 19. This in many ways supports the proposition that a lack of economic independence of women—often the poorest citizens in many countries—reduces the capacity of women to reduce birth rates.

• 20. Having a government authority administer the market for transferable birth licences would provide a reputable clearing-house for unsold licences. This would enable the number of outstanding licences to be tallied and guarantee sellers a fair price for their licence. It would also ensure that people are not forced to sell their licence under duress. Meanwhile, a government authority could provide counselling services and ‘cooling off’ periods (say, one week) to ensure individuals are making rational and calculated decisions.

• 21. People below the age of eighteen would not be encouraged to use their licences and, in many countries, would be below the age of consent. However, teenage pregnancies do occur and licences would be forfeited if such people went through with the birth of the child.

• 22. Under the scheme, child rearing would not be the exclusive preserve of heterosexual couples, or couples at all, for that matter. Surrogacy, donated sperm, and in vitro-fertilisation would enable homosexual couples and single people to make use of their freely allotted birth licence and any purchased licences.

• 23. Because of the so-called ‘one-child’ policy first adopted in China in 1978, China’s 2008 population was estimated to be 300–400 million people less than what it would have been without the policy. Criticism has been directed at the one-child policy because of the abuses associated with the preference many Chinese have for a boy over a girl. This is a separate human rights issue that cannot be attributed directly to the one-child policy.

• 24. A negative income tax involves a person receiving a universal cash payment from the central government (demogrant) that exceeds what he or she pays in the form of income tax. The amount of a negative income tax therefore constitutes the difference between the cash payment and the total income tax paid. For example, if the minimum cash payment is $10,000 per year and the marginal tax rate on all income is 40 per cent, then a person with an income of $20,000 per year would have an annual tax bill of $8,000 (i.e., $20,000 × 0.40). They would therefore retain $12,000 per year, meaning they would receive a negative income tax of $2,000 (i.e., $10,000 − $8,000). For a person earning $25,000, their tax bill of $10,000 (i.e., $25,000 × 0.40) would be equal to the minimum cash payment. Clearly, only people with incomes above $25,000 per year would pay a positive income tax. For example, for a person earning $50,000, their tax bill is $20,000 (i.e., $50,000 × 0.40), and their positive income tax is $10,000 (i.e., $20,000 − $10,000).

• 25. Although it is not the aim of the Job Guarantee scheme to compete against the private sector for labour, workers are free to quit their private-sector job, if dissatisfied, and accept a Job Guarantee occupation. This allows the government to indirectly impose on the private sector a minimum hourly wage and minimum conditions of employment.

• 26. The NAIRU differs to the natural rate of unemployment. The natural rate arises as a consequence of people moving between jobs or because of an imbalance between the location and skills of the unemployed and those of the jobs on offer. It is a rate of unemployment independent of the rate of price inflation. The NAIRU, on the other hand, exists entirely in the context of a non-accelerating rate of price inflation. It is therefore possible for the NAIRU to exist at an unemployment rate where structural unemployment is quite prevalent. In most cases, the NAIRU is slightly higher than the natural rate of unemployment.

• 27. The NAIRU is typically around 5–6 per cent of the labour force in most countries.

• 28. The higher is the interest rate, the greater is the opportunity cost of employing cleaner production techniques. See Lawn (2007, Chap. 13).

• 29. An increase in aggregate demand is still permissible, even with cap-and-trade systems in place, if a nation’s current rate of resource use is well within ecologically sustainable limits.

• 30. Hyperinflation would result if the financial claims on real goods and services remained largely unchanged, but, as a consequence of the withdrawal of labour, the quantity of goods and services for sale dramatically declined. The same purchasing power would be chasing fewer goods and services, thereby devaluing the currency (inflation).

• 31. By a nation’s real income, I mean all real output irrespective of whether it is included in a measure of a nation’s real GDP.

• 32. This would not apply to old-age pensioners and people on disability-support payments. These people would still receive the full payment.

• 33. One would prefer to see traditional non-paid work remain unpaid on the basis that it constitutes an integral part of a nation’s social capital. But if market forces have the propensity to deplete social capital (Hirsch 1977; Daly and Cobb 1989), the preservation and replenishment of social capital may require non-pecuniary assets to be valued in the same way as other assets. If so, the case for a modified basic income guarantee is further enhanced.

• 34. A 100 per cent marginal tax rate on income beyond a certain income threshold is not as unrealistic as many people believe. In fact, recent moves by G20 leaders to cap executive salaries indicates that income caps are politically feasible and socially acceptable.

• 35. This takes into account the concessions received by old-aged pensioners with respect to transport, health, rental assistance, and utility bills.

• 36. 0.7 per cent of real GDP was the figure agreed to by wealthy donor countries when making pledges as part of their Monterrey (2002) and Gleneagles (2005) aid commitments.

• 37. Two other key areas related to property rights—namely, universality and the transferability of property—are generally well covered by property rights legislation.

• 38. The size of royalty payments would be determined by a government department dealing with patent and copyright applications. The department would set the payments at a level which provides the creators of knowledge an adequate financial return on their investment without pricing prospective users of the knowledge out of the market.

• 39. By altering human behaviour, the information provided by governments can sometimes reduce the initial emergence of inefficiencies and externalities (Kennedy et al. 1994). Indeed, in some cases, government-provided information can act as a form of ‘moral suasion’—a case where governments convince citizens they have a moral obligation to refrain from behaving in ways that are detrimental to society (Kahn 2005).

• 40. I have already explained how the potential information problem should be dealt with by governments.

• 41. Nor, at this point, is it beneficial for polluters to receive a payment to further reduce their pollution levels.

• 42. In both cases, allocatively efficient outcomes ensue. See Perman et al. (2003) for a diagrammatic explanation.

• 43. What’s more, the ongoing trade in depletion/pollution permits ensures that the embedded scarcity tax varies in accordance with changing market forces. It is therefore a low-cost means of achieving allocative efficiency.

• 44. In other words, without government intervention, the macro-allocation of the incoming resource flow to the public sector is inevitably insufficient, thus resulting in the provision of too few public goods. Macro-allocation is a relatively new term used by ecological economists to distinguish between the resource flow respectively allocated to the private and public sectors (Daly and Farley 2004).

• 45. A normal economic profit is one where the accounting profit earned (i.e., revenue less explicit costs) is equal to implicit costs. Implicit costs constitute the foregone value of the next best use of time and capital.

• 46. For a detailed and rigorous explanation of contestable markets and the importance of sunk costs, see Baumol et al. (1982).

• 47. Privatisation involves the sale and subsequent transfer of public assets to the private sector. Corporatisation, on the other hand, involves the introduction of private enterprise-based objectives and practices to the operations of government instrumentalities.

• 48. Private banks cannot exactly create money out of nothing since the creation of something out of nothing is forbidden by the first law of thermodynamics. All money has some physical dimension, even in cases when its creation involves a simple increase in the credit value of a deposit account on a computer hard-drive. The term ‘created out of nothing’ in the context of money is therefore designed to indicate that banks can create money without the need for reserve money to fully support it.

• 49. The increase in the financial claims on real wealth are denoted as ΔM = M¹ − M.

• 50. The increase in the monetary base would require the issuance of more non-interest-bearing fiat money by the central government.

• 51. Seigniorage is the difference between the monetary value of a money token and the cost of producing and maintaining the token. Seigniorage provides a money-creating entity considerable power to obtain real resources and/or goods and services. For example, if an entity can create $100 of spending power, it can claim $100 of real wealth. If the creation of the $100 only requires the entity to expend (forego) $1 of real resources, the entity can obtain $99 of real wealth simply through its power to create money. This entity would enjoy $99 of seigniorage.

• 52. In earlier work, the GPI was referred to as an Index of Sustainable Economic Welfare (ISEW). It has also been labelled a Sustainable Net Benefit Index (SNBI) (Lawn and Sanders 1999; Lawn 2000).

• 53. While there are often disparities between the non-price rules of different states or provinces in a given country, they are usually much smaller in magnitude than the disparities between different nations.

• 54. Price-determining parameters are the various economic, social, and environmental factors that constitute the institutional context within which a particular market operates. As such, these parameters influence or ‘determine’ the market price for different goods and services. Examples include natural capital services, human know-how, cultural norms and beliefs, as well as individual tastes and preferences (d’Arge 1994).

• 55. There are, however, a number of countries with very large foreign debts that appear quite serviceable. According to Pitchford (1990), most foreign debts are of little concern since many are the result of numerous rational arrangements established between domestic borrowers and foreign lenders. While this may be so, one must be careful not to fall victim to the fallacy of composition. Micro rationality can lead to macro irrationality if transactions between individuals and entities across international borders are incommensurate with the social and environmental standards of the countries in which they reside.

• 56. Self-sufficiency was promoted as a desirable national goal in the United Nations Report on the World Summit on Sustainable Development held in Johannesburg in 2002.

• 57. This last question is particularly pertinent to the climate change issue. In many high-GDP countries, the concern about the loss of industries and associated jobs has led many governments to avoid introducing an emissions-trading system or emissions tax.

• 58. More recent work by Cole and Fredriksson (2013) has provided statistical support for the proposition that the impact of environmental standards on foreign direct investment is deterring governments from introducing stringent environmental regulations.

• 59. Compensating tariffs would be protectionist insofar as they would protect hard-won social and environmental standards. They would not be protectionist in the sense of shielding genuinely inefficient industries. If, following the imposition of a compensating tariff, the price of a Third World good remained lower than in a high-GDP country, the compensating tariff would not prevent the producer in the rich country from being competed out of existence. In other words, the compensating tariff would not preserve a genuinely inefficient producer in a high-GDP country.

• 60. Taken from an internet seminar on Herman Daly’s book, Beyond Growth (http://csf.colorado.edu/seminars/ daly97/proceedings).

• 61. It would not internalise standards entirely because the appreciation of domestic IMPEX dollars would affect the willingness to import all foreign goods, not simply the ‘advantaged’ foreign goods. Hence, the need for compensating tariffs remains.

• 62. A 2 to 3 per cent rate is consistent with the regeneration rate of most renewable resource stocks—in effect, the interest rate generated by the natural capital that all nations are ultimately reliant upon.

• 63. The WTO emerged out of the General Agreement on Tariffs and Trade (GATT), an original Bretton Woods institution.