Understanding the real economy

The key to achieving sustainable development

Introduction

People who keep their savings under the mattress or who spend capital as if it were revenue are generally considered to be less than prudent. We know that failing to follow basic economic principles not only causes personal hardship but also the collapse of major corporations or even national economies. However, it is not yet considered to be common sense to realise that rules that are fundamentally the same govern the planetary system, of which the human economic system is just a part.

Unfortunately, we are seldom reminded of the bigger picture and the greater cost, in the way that the new Archbishop of Canterbury, Rowan Williams did in his Dimbleby Lecture in December 2002. We forget that we are just one of the inhabitants of a planet that is part of a system centred on a star that is part of a galaxy, which is one of many in the visible universe (see picture to right - source Lowell Observatory).

How to recognise bad economic management

During my time working for the British Government's Department of Trade & Industry I witnessed some distressing examples of companies getting into trouble because they spent capital money as if it were revenue. The recent collapse of the Enron Corporation in the USA shows that even if banks comply in helping to pretend that loans are revenue this practise is unsustainable. Capital should be used to create revenue and is no longer available once spent as income. Revenue, in turn, needs to be used to generate further revenue, rather than being taken out of the system in some way. The loss of any vital capital or revenue resource leads to decline and eventual extinction and this applies to individuals, organisations and systems.

Recognising the capital & revenue of the planetary system

The planetary economy uses energy as revenue and energy sources as capital. The sun (see picture to right generated by SOHO - source NASA) is the prime local source of one of the more obvious types of energy in circulation, gravity and chemical action are two other types. Solar radiation is captured by plant life and then can be transferred to animals (including humans), as two stages of the system for circulating energy. Some of the solar energy that was trapped by plants and bacteria hundreds of millions of years ago by mixing it with the chemicals that were then in the earth's atmosphere is now available to us in the form of fossil fuels (coal, oil and gas) and this has become a capital resource that we can access via chemical action.

The real cost of our current practises

Currently we tend to use fossil fuels once, as if they were revenue. As a result we release the chemical components and energy back into the atmosphere and there is growing evidence that these two additions are causing the earth's climate to change. In addition, we have created novel chemical compositions that the rest of the planet's biosphere does not utilise as a resource. Whether they end up as invisible gasses in the atmosphere, get mixed with other liquids in the sea or end up on or under the ground, they remain as energy revenue that has been removed from the system. If they prove to be toxic, they will damage or destroy life (itself a vital capital resource), which is a part of the system for keeping the energy revenue circulating. People rely on other living components of the biosphere to recycle the oxygen they breath, purify the water they drink and provide palatable food. In the short term, treating fossil fuel capital as revenue has enabled the human population to expand rapidly (rising from 2 billion to 6 billion in the last seventy years). However, the diagram below shows some of the problems that we are already experiencing as a result of our actions.

Better ways to use planetary capital & revenue

The knowledge and technology already exists to tap available resources to provide humanity with the energy currently obtained from fossil fuels: collectively these are known as 'renewables' (see 'Why renewable energy is important for sustainable development'). There is also a widely recognised code (called the 'waste hierarchy) to guide us in the use of the products we create from planetary mineral and biological capital so that we can reduce our impact and return useable resources to the biosphere (see 'How to stop wasting our future'). 'Humanity has the ability to make development sustainable - to ensure that it meets the needs of the present without compromising the ability of future generations to meet their own needs' (Source: the 'Overview' from 'Our Common Future', the Report of the World Commission on Environment and Development, 1987). Understanding the distinction between planetary capital and revenue and applying this knowledge is how sustainable development will be achieved.

Paul Newman

January 03

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