“The mainstream model of development . . .

is based on a number of assump-

Stewardship for a “Full” World

T
he economies of China and India are grow- only marketed goods and services, and to think of
ing at a rapid clip. But these nations seem the goal as increasing the amount of goods and ser-
to be making the same environmental mis- vices produced and consumed.
takes that Western countries made during their The world, however, has changed dramatically
development—this time with a vengeance, given since that time. We now live in a world relatively
their enormous populations. And their “real” eco- full of humans and their built infrastructure. Since
nomic improvements, the end of World War II, the planet has experi-
RESOURCES once the costs of envi- enced what some have called “the great accelera-
Global Trends, 2008 ronmental and health tion” in the consumption of fossil fuels and the
damage are subtracted, growth of market economies. The human footprint
may turn out to be much smaller than growth rates has grown so large that, in many cases, limits on
would suggest. Is this an inevitable byproduct of the availability of natural resources now constrain
development, one they will eventually outgrow? real progress more than limits on capital infrastruc-
Or is there something inherently wrong with the ture do.
conventional development model? Is the impact In this new context, we first have to remem-
on the world’s natural resources sustainable? Is ber that the goal of an economy is to sustainably
there a better way? improve human well-being and quality of life.
The mainstream model of development, some- Material consumption and GDP are merely means to
times known as the “Washington Consensus,” is that end, not ends in themselves. We have to rec-
based on a number of assumptions about the way ognize, as both ancient wisdom and new psycho-
the world works, what the economy is, and what logical research tell us, that material consumption
the economy is for (see the table on page 33). beyond real need can actually reduce well-being.
These assumptions emerged during a period—the Such a reorientation leads to specific tasks. We
early industrial revolution—when the world was have to identify what really does contribute to
still relatively empty of humans and their built human well-being, and recognize and gauge the
infrastructure. Natural resources were abundant, substantial contributions of natural and social
social settlements were sparser, and inadequate capital, both of which are coming under increasing
access to infrastructure represented the main limit stress. We have to be able to distinguish between
on improvements to human well-being. real poverty in terms of low quality of life, and
It made sense, at that time, not to worry too merely low monetary income. Ultimately we have
much about environmental and social “externali- to create a new vision of what the economy is and
ties.” They could be assumed to be relatively small what it is for, and a new model of development that
and ultimately manageable. It made sense to focus acknowledges the new full-world context.
on the growth of the market economy, measured
in terms of gross domestic product (GDP), as a pri- THE PRICE OF MATERIALISM
mary means of improving human welfare. It made The World Bank and the International Mon-
sense, in that context, to think of the economy as etary Fund, organizations that had their begin-
nings at the Bretton Woods conference near the
ROBERT COSTANZA is a professor at the University of Vermont end of World War II, were chartered to speed
and director of its Gund Institute for Ecological Economics. economic development, stabilize the world econ-

30
 Stewardship for a “Full” World • 31

omy, and end poverty. But these institutions and The economist Richard Easterlin has shown that
the World Trade Organization, relying largely on well-being tends to correlate well with health, level
the Washington Consensus, have been unable of education, and marital status, and not very well
to achieve their original goals of improving peo- with income beyond a certain fairly low thresh-
ple’s lives in the developing world and stabiliz- old. In a recent paper in the Proceedings of the
ing the global economy. The policies they have National Academy of Sciences, he noted that people
demanded include removing barriers that check make decisions assuming that more income, com-
corporate access to a country’s resources, and fort, and goods will make them happier. But then
have often included the removal of social and “hedonic adaptation” (humans’ tendency to rap-
environmental regulations. idly adapt to improvements in their lives, prompt-
Such policies are antithetical to the goal of ing them to want still more) kicks in, along with
developing in a sustainable and equitable way. continuing social comparisons (with others who
These policies are in no sense a global “consensus,” are also buying more goods). The effect is to raise
but rather the dictate of a few powerful nations people’s aspirations “about the same extent as
and their attendant organizations. With lending their actual gains, and leave them feeling no hap-
countries and their economists making most of pier than before.” Most individuals, wrote East-
the decisions, borrowing nations have had little erlin, “spend a disproportionate amount of their
say in policies attached lives working to make
to loans—cuts to gov- money, and sacrifice
ernment salaries, for Our entire modern global civilization is family life and health,
instance, and privatiza- domains in which aspi-
tion of social services. addicted to fossil fuels, overconsumption, rations remain fairly
In fact, the execution of and the conventional development model. constant as actual cir-
this model of develop- cumstances change,
ment has led to unem- and where the attain-
ployment, falling worker wages, biodiversity loss, ment of one’s goals has a more lasting impact
environmental degradation, and disintegration of on happiness.”
the social fabric. The British economist Richard Layard, in his
A coherent and viable alternative is sorely 2005 book Happiness: Lessons from a New Science,
needed. Fortunately, a better development model concluded that current economic policies are
can be derived from the principles of ecological not improving happiness. He argued that “hap-
economics. These include the idea that growth piness should become the goal of policy, and the
and development are not always linked and that progress of national happiness should be mea-
true development should be defined in terms of sured and analyzed as closely as the growth of
the improvement of sustainable quality of life, not GNP.” Similarly, the economist Robert Frank, in
merely improvement in material consumption. his 2001 book Luxury Fever, asserted that some
nations would be better off—overall national
THE SCIENCE OF HAPPINESS well-being would be higher—if their inhabitants
A substantial body of new research has emerged consumed less and spent more time with family
on what actually contributes to human well-being and friends, maintaining their physical and men-
and quality of life. This new “science of happiness” tal health, striving to improve their communities,
clearly demonstrates the limits of conventional and enjoying nature.
economic income and consumption in contribut- On this last point, there is substantial and
ing to well-being. The psychologist Tim Kasser in growing evidence that natural systems contribute
his 2002 book The High Price of Materialism points heavily to human well-being. Ecosystem services,
out, for instance, that people who focus on mate- as they are called, include food and water, flood
rial consumption as a path to happiness are actu- and disease control, spiritual and recreational
ally less happy and even suffer higher rates of both benefits, and the nutrient cycling that main-
physical and mental illness than those who do not. tains conditions for life on the earth. In a paper
Material consumption beyond real need is a form published in 1997 in the journal Nature, my co-
of psychological “junk food” that only satisfies for authors and I estimated the annual, non-market
the moment and ultimately leads to depression, value of the earth’s ecosystem services at $33 tril-
Kasser says. lion, substantially larger than global GDP.
32 •  CURRENT HISTORY  •  January 2008

So, if we want to assess the “real” economy—all able, well-being–enhancing activity from undesir-
the things that contribute to real, sustainable well- able, well-being–reducing activity. For example,
being—as opposed to only the “market” economy, an oil spill increases GDP because someone has to
we have to measure and include the non-marketed clean it up, but it obviously detracts from society’s
contributions to human well-being from nature; well-being. From the perspective of GDP, more
from family, friends and other social relationships; crime, more sickness, more war, more pollution,
and from health and education. One convenient more fires, storms, and pestilence are all poten-
way to summarize these contributions is to group tially beneficial, because they can increase mar-
them into four basic types of capital that are nec- keted activity in the economy.
essary to support the real, well-being–producing GDP also leaves out many things that do enhance
economy: built capital, human capital, social capi- well-being but are outside the market. For exam-
tal, and natural capital. ple, the unpaid work of parents caring for their
Human capital includes the health, knowledge, own children at home does not show up, but if
and other attributes of individuals that allow them these same parents decide to work outside the
to function in a complex society. Social capital home to pay for child care, GDP increases. The
includes the formal and informal networks among non-marketed work of natural capital in providing
people: family, friends, and neighbors; social insti- clean air and water, food, natural resources, and
tutions at all levels, such as churches and clubs; other ecosystem services does not adequately show
as well as nongov- up in GDP, either. But
ernmental groups, if these services are
international organiza- Limits on the availability of natural damaged and we have
tions, and local, state, to pay to fix or replace
and national govern-
resources now constrain real progress them, GDP increases.
ments. Natural capital more than limits on capital infrastructure do. Finally, GDP takes no
includes the world’s account of the dis-
ecosystems and all the tribution of income
services they provide. Ecosystem services occur at among individuals. Yet it is well known that an
many scales, from climate regulation at the global additional $1 worth of income produces more
scale, to flood protection, soil formation, nutrient well-being if one is poor rather than rich. It is also
cycling, recreation, and aesthetic services at the local clear that a highly skewed income distribution has
and regional scales. The market economy takes into negative effects on a nation’s social capital.
account mainly built capital (factories, offices, and The GPI addresses these problems by separat-
other built infrastructure and their products) and ing the positive from the negative components of
part of human capital (spending on labor, health, marketed economic activity; adding in estimates of
and education), with some limited spillover into the value of non-marketed goods and services pro-
social and natural capital. vided by natural, human, and social capital; and
adjusting for income-distribution effects. While it
WHERE IS THE PROGRESS? is by no means a perfect representation of the real
Given this definition of the real economy, are we well-being of nations, GPI is a much better approx-
really making progress? Is the mainstream develop- imation than GDP. As the Nobel Prize–winning
ment model truly working, even in the “developed” economist Amartya Sen and others have noted, it
countries? One way to tell is through surveys of is much better to be approximately right in these
people’s life satisfaction, which has been relatively measures than precisely wrong.
flat in the United States and many other developed Comparing GDP and GPI for the United States
countries since about 1975. A second approach is shows that, while GDP has steadily increased since
an aggregate measure of the real economy that has 1950, with the occasional dip or recession, GPI
been developed as an alternative to GDP, called the peaked in about 1975 and has been flat or gradually
Genuine Progress Indicator, or GPI. decreasing ever since. From the perspective of the
Let us first take a quick look at the problems real economy, as opposed to just the market econ-
with GDP as a measure of true human well-being. omy, the United States has been in recession since
GDP is not only limited—measuring only marketed 1975. As already mentioned, this picture is also
economic activity or gross income—it also counts consistent with survey-based research on people’s
all activity as positive. It does not separate desir- stated life-satisfaction. The United States and several
 Stewardship for a “Full” World • 33

A New Development Model

Primary policy goal More: Economic growth in the Better: Focus shifts from mere growth to
conventional sense, as measured “development” in the sense of improvement
by GDP. The assumption is that in quality of life, recognizing that growth
growth will ultimately allow the has negative by-products and more is not
solution of all other problems. always better.
More is always better.
Primary measure GDP. GPI (or something similar).
of progress
Scale/carrying capacity Not an issue because it is assumed A primary concern as a determinant of
that markets can overcome any ecological sustainability. Natural capital
resource limits via new technology, and ecosystem services are not infinitely
and substitutes for resources are substitutable, and real limits exist.
always available.

Distribution/poverty Lip service, but relegated to A primary concern since it directly affects
“politics” and a “trickle down” quality of life and social capital and in some
policy: A rising tide lifts all boats. real ways is often exacerbated by growth.

Economic efficiency/ The primary concern, but generally A primary concern, but including both
allocation including only marketed goods and market and non-market goods and services
services (GDP) and institutions. and effects. Emphasizes the need to incorpo-
rate the value of natural and social capital to
achieve true allocative efficiency.

Property rights Emphasis on private property and Emphasis on a balance of property rights
conventional markets. regimes appropriate to the nature and scale
of the system, and a linking of rights with
responsibilities. A larger role for common
property institutions in addition to private
and state property.

Role of government To be minimized and replaced A central role, including new functions as
where possible with private and referee, facilitator, and broker in a new suite
market institutions. of common-asset institutions.

Principles of governance Laissez-faire market capitalism. Lisbon principles of sustainable governance.

Basic characteristics of the current development model and an emerging model based on sustainable “ecological economics.”

other developed countries are now in a period of would use measures of progress that explicitly
what ecological economist Herman Daly has called acknowledge this goal (for example, GPI instead of
“uneconomic growth,” in which further growth in GDP). And it would acknowledge the importance
marketed economic activity (GDP) is actually reduc- of ecological sustainability, social fairness, and real
ing well-being on balance rather than enhancing it. economic efficiency.
In terms of the four kinds of capital, built capital Ecological sustainability implies recognition
has grown but human, social, and natural capital that natural and social capital are not infinitely
have declined or remained constant and have more substitutable by built and human capital, and that
than canceled out the gains in built capital. Is this there are real biophysical limits to the expansion
really the model of development that developing of the market economy. Climate change is perhaps
countries should aspire to emulate? the most obvious and compelling of these limits.
Social fairness implies recognition that the
THE WORLD’S NEXT MODEL? distribution of wealth is an important determi-
A better model of development, consistent with nant of social capital and quality of life. The con-
our new full-world context, would be based clearly ventional development model, while ostensibly
on the goal of sustainable human well-being. It aimed at reducing poverty, has bought into the
34 •  CURRENT HISTORY  •  January 2008

assumption that the best way to do this is through assets. It also has a major role as a facilitator in
growth in GDP. This has not proved to be the case society’s development of a shared vision of what a
and explicit attention to distribution issues is sustainable and desirable future would look like.
needed badly. As Robert Frank has argued in his As Tom Prugh, Herman Daly, and I argued in our
book Falling Behind: How Rising Inequality Harms 1999 book The Local Politics of Global Sustain-
the Middle Class, economic growth beyond a cer- ability, strong democracy based on developing a
tain point sets up a “positional arms race” that shared vision is an essential prerequisite to build-
changes the context for consumption. It essen- ing a sustainable and desirable future. This new
tially forces everyone to consume too much of vision also implies a core set of principles for sus-
positional goods (like houses and cars) at the tainable governance.
expense of non-marketed, non-positional goods
and services from natural and social capital. THE LISBON PRINCIPLES
Increasing inequality of income actually reduces The key to achieving sustainable governance
overall societal well-being, not just for the poor, in the new full-world context is an integrated
but across the income spectrum. approach (across disciplines, stakeholder groups,
Real economic efficiency implies the inclusion and generations) based on the paradigm of “adap-
of all resources that affect sustainable human well- tive management,” whereby policy making is an
being in the allocation system, not just marketed iterative experiment acknowledging uncertainty,
goods and services. Our current market allocation rather than a static “answer.” My colleagues and I, in
system excludes most non-marketed natural and a paper published in Science in 1998, identified six
social capital assets core principles (now
and services, which referred to as the “Lis-
are huge contributors bon principles”) that
A better development model can be derived
to human well-being. embody the essential
The current develop- from the principles of ecological economics. criteria for sustainable
ment model ignores governance. Together
this fact and therefore they form an indivis-
does not achieve real economic efficiency. A new, ible collection of basic guidelines for administering
ecologically sustainable development model would the use of common natural and social resources.
measure and include the contributions of natural Responsibility. Access to common asset
and social capital and could better approximate resources carries attendant responsibilities to use
real economic efficiency. them in an ecologically sustainable, economically
The new development model would also efficient, and socially fair manner. Individual and
acknowledge that a complex range of property corporate responsibilities and incentives should
rights regimes is necessary to adequately man- be aligned with each other and with broad social
age the full range of resources that contribute to and ecological goals.
human well-being. For example, most natural Scale-matching. Problems of managing natural
and social capital assets are public goods. Mak- and social capital assets are rarely confined to a sin-
ing them private property does not work well. gle scale. Decision-making should (a) be assigned
On the other hand, leaving them as open-access to institutional levels that maximize input, (b)
resources (with no property rights) does not ensure the flow of information between institu-
work well either. What is needed is a third way tional levels, (c) take ownership and actors into
to propertize these resources without privatizing account, and (d) internalize costs and benefits.
them. Several new (and old) common property Appropriate scales of governance will be those that
rights systems have been proposed to achieve have the most relevant information, can respond
this goal, including various forms of common quickly and efficiently, and are able to integrate
property trusts. across scale boundaries.
The role of government also needs to be rein- Precaution. In the face of uncertainty about
vented. In addition to its role in regulating and potentially irreversible impacts to natural and
policing the private market economy, govern- social capital assets, decisions concerning their use
ment has a significant role to play in expanding should err on the side of caution. The burden of
the “commons sector” in ways that propertize and proof should shift to those whose activities poten-
manage non-marketed natural and social capital tially damage natural and social capital.
 Stewardship for a “Full” World • 35

Adaptive management. Given that some level of We can power our economies with renewable
uncertainty always exists in common asset man- energy, and we can be happier with lower levels of
agement, decision-makers should continuously consumption, but we must first find a way to break
gather and integrate appropriate ecological, social, deeply ingrained self-destructive habits. It is gen-
and economic information with the goal of adap- erally understood that to break any addiction, one
tive improvement. must first clearly see the benefits of breaking the
Full cost allocation. All of the internal and exter- habit and the costs of remaining addicted. Fortu-
nal costs and benefits (including social and ecolog- nately, this information is accumulating every day
ical ones) of alternative decisions concerning the in studies such as those prepared by the Intergov-
use of natural and social capital should be iden- ernmental Panel on Climate Change and the Stern
tified and allocated. When appropriate, markets Review on the economics of global warming.
should be adjusted to reflect full costs. What else can we do to help break our addic-
Participation. All stakeholders should be tions? Among other steps, communities could cre-
engaged in the formulation and implementation ate and share a vision of a future with zero fossil
of decisions concerning natural and social capital fuel use and a quality of life higher than today’s.
assets. Full stakeholder awareness and participa- The international community could convene a
tion contribute to credible, accepted rules that Bretton Woods–style conference to establish new
identify and assign the corresponding responsibili- measures to replace GDP, and new institutions to
ties appropriately. replace the World Bank, the IMF, and the World
Trade Organization. These new institutions would
BREAKING THE HABIT promote a shift of primary national policy goals
These principles of sustainable governance pro- away from increasing marketed economic activity
vide a sharp contrast to the conventional develop- (GDP) toward maximizing national well-being (GPI
ment model. And the latter model is not working, or something similar). This would help us see the
for either the developed or the developing world. interconnections among built, human, social, and
It is not sustainable. It is not desirable. It is based natural capital and help us build well-being in a
on a now-obsolete empty-world vision, and it is balanced and sustainable way.
leading us to possible disaster. Nations could reform their tax systems to help
A highly interconnected set of global problems, create the right incentives by taxing negatives
including climate change, peak oil supplies, water (pollution, depletion of natural capital, overcon-
shortages, financial instability, and international sumption) rather than positives (labor, savings,
terrorism, increasingly threatens our globalized investment). They could expand the commons
civilization. We can achieve a much higher quality sector and improve its management by develop-
of life, and one that would be ecologically sustain- ing new institutions that can propertize commons
able, socially fair, and economically efficient, if we without privatizing them. Examples include vari-
shift to a new sustainable development paradigm. ous forms of common asset trusts, like the atmo-
The problem is that our entire modern global spheric (or sky) trust proposed by Peter Barnes,
civilization is addicted to fossil fuels, overconsump- the founder of Working Assets. Payments could be
tion, and the conventional development model. required for depletion of natural and social capital
Even President George W. Bush has acknowledged and rewards granted for protection of these assets.
that we are “addicted to oil.” An addictive sub- As any addict knows, breaking a habit is never
stance is something to which one has developed easy. But it would not involve a sacrifice in quality
a dependence, but which is either unnecessary or of life to give up our addictions to oil, overcon-
harmful to one’s long-term well-being. Fossil fuels sumption, and an outmoded development model.
and excessive material consumption in general fit Quite the contrary, it would be a sacrifice not to
the bill. give them up. ■