Neoclassical Economics vs Ecological Economics

The most significant difference between neoclassical economics and ecological economics is the fundamental modeling of economics in relation to the planet’s ecosystem.  Neoclassical economics assumes we are in an Empty World, where the economics is only a small piece of the overall ecosystem picture.  Thus ecosystem is abstracted as an input output element.  In this neoclassical world, our actions are un-restrained by the ecosystem capacity simply because this element is not factored in.   Thus, the assumption is that we can grow indefinitely  In the ecological economics view, economics is contained within the ecosystem of the planet.  Thus the boundaries of the economy must remain within the boundaries of the ecosystem.  Physical laws of thermodynamics apply.  We can create matter; we have only what is available within the ecosystem.  In the Full World that we are in today, this view is more appropriate and realistic.

To take an example, let’s look at a cabin in the forest that needs to be heated.  The owner heats the cabin by chopping wood around the cabin.  Since the forest is very large, she is in an “Empty World” situation.  She has seemingly infinite amount of wood available.  Thus she does not need to calculate the wood renewal rate when she chops down wood for burning.  But then 300 more cabins are added to the forest.  Suddenly she is stuck in a “Full World” situation, and have to carefully manage the wood renewal rate with her neighbours, or face drastic decline in forest availability and quality of life.  Mankind used to be one cabin in the forest, but as our impact scales, we are outgrowing the forest, and must actively manage our resources or face irreversible depletion of these resources.

Daly H. & Farley J. (2004). Ecological Economics: Principles and Applications. Washington, DC

The price of nature



In the TED talk by Barry Schwartz on our loss of widom, he proposes that in our society mad with bureaucracy, what we need is fewer rules and more moral will and moral skill.  This concept applies in the debate on the price of nature.  Ecological Economists such as Daly and Farley believe that one cannot solve the debate on natural resources simply by pricing it and letting market forces ensue.  Schwartz's message supports this argument.  There are situations where price and incentives creates a counter effect, as in his example contrasting voluntary versus incentivized hazardous waste dumping where a community was more willing to accept the dumping on a voluntary basis.  By putting a price on nature, we impose rules and take moral-will out of the picture, thus motivating people to optimize against those rules instead of stopping to ask "Is this the right thing to do?"

Is government action or legislation ever powerful enough to bring about massive social change?

Massive social change is a slow process, and no singular action, be it government, business or civil society, can bring about this change alone.  Usually one body initiates the change, however, social change is at the intersection of all three, so all three forces need to act together in order to affect change quickly. World War II was one example where all three forces act together to create very fast changes.  The US government instigated by supporting wartime spending and creating wartime advertising.  Private sectors responded to wartime product needs.  And civil society, motivated by patriotism, responded by buying government bonds, working longer hours, sending their sons, and doing whatever else they can to support the troops.  The recent earthquake response for Haiti is another example of all three working together to solve a crisis.  Civil Society instigated  with compassion.  Individuals went to Haiti to pitch into the rescue, or helped from afar with effort such as the Open Street Mapping for Port-au-Prince to help on-the-ground workers find victims.  Then governments sent aid, private sectors actioned on the aid, or supported employee efforts to help Haiti.  The solar industry is another example where all three forces eventually aligned to create the momentum we have today. The Germany government initiated by offering feed in tariff.  Individuals passionate about solar started companies, and generated private enterprises that supported the solar effort.  Then homeowners pitched in with investments on solar systems, and word of mouth advertising to their communities.

The examples above were both social changes instigated by government and civil society.  Al Gore's "An Inconvenient Truth" qualifies as a change through civil society by using media. While government and civil society are the likely instigators in social change, there are some examples of businesses as instigators.  For example, Nike started a basketball culture in Africa in order to sell more footware to African men, who traditionally go barefoot.  It is important to realize that business for social change will inherently be bottom line driven.  Some would argue that for-benefit businesses exist.  However, for-benefit businesses, who generate social change for social betterment rather than for bottom line, were started by individuals who believe in a cause.  therefore the fundamental instigator in this case is civil society (individuals), and business is a medium for reaching the social change goal.

When affecting change, it is important to recognize where you reside in the forces.  Tennis player and activist Arthur Ashe states “Start where you are. Use what you have. Do what you can.”  First, recognize whether you can initiate the change through government action, individual action or business action.  If you can change laws then propose a law.  If you can talk to your neighbours, or make a movie, then do so.  If you can leverage your business towards action, start there.  Since all social change require all three forces, it doesn't matter where you start.  However, you must then partner with others who hold power in the other two forces in order to effectively generate momentum behind the social change you seek.