IAN McAULEY. Reframing public ideas Part 4: Economy and environment

Arguments around climate change and other environmental matters tend to assume some tradeoff between “economic” and “environmental” objectives. But the overriding principle is about making the best use of scarce resources.

Commenting on the Paris climate agreement, Foreign Minister Julie Bishop said: “We have to get that balance right between environmental and economic outcomes.”

I’m not singling out Julie Bishop: many politicians and journalists talk about the supposed need for a “balance” between the economy and the environment.

But it’s a deeply flawed way of thinking about our choices, because economics is concerned with the best use of scarce resources, and what we categorize as “environmental” resources are indeed scarce. These include most notably the capacity of our atmosphere to regulate our climate, and other life-support resources including fresh water, soils and biodiverse ecosystems.

A full explanation of the flaw is expressed by the Argentinian philosopher Jorge Mario Bergoglio (emphasis mine):

The principle of the maximization of profits, frequently isolated from other considerations, reflects a misunderstanding of the very concept of the economy. As long as production is increased, little concern is given to whether it is at the cost of future resources or the health of the environment; as long as the clearing of a forest increases production, no one calculates the losses entailed in the desertification of the land, the harm done to biodiversity or the increased pollution. In a word, businesses profit by calculating and paying only a fraction of the costs involved.

The name Jorge Mario Bergoglio may not ring a bell with readers: his other name is Pope Francis, and the quote is from his Encyclical Letter Laudato Si’, On Care for our Common Home. It’s an economically rigorous statement, referring to what economists call the need to account for environmental “externalities”.

The idea that there is some tradeoff between “the economy” and “the environment”, implied in statements about “balance”, ignores the fact that economics is (or should be) about all scarce resources. Separating out environmental resources, as if they are subject to different rules, or are somehow less important than those resources that appear in corporate financial statements, is really a way of hiding subsidies to industries that are wrecking our “common home”.

For example, spokespeople for the coal industry complain about “subsidies” paid to the renewable energy industry, but they fail to acknowledge the subsidy the coal industry enjoys in not having to pay for the industry’s contribution to damaging climate change. If a factory was polluting the Yarra, Swan, Parramatta or Torrens Rivers, leaving it to downstream parties to pay for cleaning up the mess, it would be clear that the factory was enjoying an unjustified subsidy. The coal industry’s situation is no different – it’s just that the costs are spread more widely in time and space.

It’s not just the coal industry that uses the frame of a tradeoff. Many companies and governments engage in “triple bottom line” reporting, providing separate reports on their “economic”, “social”, and “environmental” performance, as if these are all separate domains. But the “triple bottom line” is a meaningless construction, because it puts the “economy” and “society” on the same plane, a misrepresentation covered in my third essay, and does the same with the “environment”.  (In response to me third essay Colin Cook points out that the Productivity Commission uses the same triple bottom line division.)

As my colleague Miriam Lyons points out “the economy is a fully-owned subsidiary of the environment”.

To put the economy and the environment on the same plane is what philosophers call a “category error”, in this case a confusion between the general and the specific. It’s akin to talking about “Aborigines and Australians”, or “British and Europeans”.

As with many false beliefs, flawed categorisation serves vested interests. The idea that effective action on climate change threatens our economy and therefore our living standards is convenient for those who benefit from government policies that impede change and freeze present industrial structures.

Resolute action on climate change would impose some costs in the short term, particularly because it would inevitably involve an accelerated closure of coal-fired power stations and strong action in other areas such as a carbon tax on energy-intensive industries and high taxes on gasoline. But the longer the pain is deferred, the more intense will it be in the future.

The costs of not coping with climate change, already certainly manifest in phenomena as diverse as days of extreme heat, coral bleaching, more intense cyclones and more frequent bushfires, can be very high. A few people may not be concerned about the future, but most people are concerned. Also, just as World Trade Organization rules allow for countervailing duties on nations that unfairly subsidise their industries, it is possible that in time there will be similar sanctions imposed on recalcitrant countries such as the USA and Australia that are free riding off other countries’ efforts to combat climate change.

Those same vested interests seeking to thwart the transition to a low or zero-carbon economy are adept at reminding us of the short-term costs of strong action on climate change – unemployment in certain industries and higher household bills – but they never mention the costs of opportunities forgone. These are the clean energy firms that don’t get established, the new transport systems that don’t get past the concept stage, and the loss of trade opportunities as other countries develop markets around new low-carbon products and processes.

We need to get away from the supposed tradeoff between the “economy” and the “environment”. It’s a false distinction, because without care of our scarce natural resources there is no economy. The only parties to benefit from the distinction are those who stand to make short-term but unsustainable profits from trashing our “common home”, while impeding opportunities for economic adjustment.


This is the fourth in a series of eight articles on re-framing public ideas, being published over January 2018. Others so far have been:

  1. Leadership, posted on 3 January.
  2. The role of government, posted on 5 January.
  3. Economy and society, posted on 9 January.

Ian McAuley is a retired lecturer in public finance at the University of Canberra and a Fellow of the Centre for Policy Development.

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2 Responses to IAN McAULEY. Reframing public ideas Part 4: Economy and environment

  1. Avatar Mary Tehan says:

    Thanks Chris Sanderson .. I really appreciated your suggestion to check out Jeremy Rifkin’s video. Really good stuff! I’d like your permission to refer this on to others if you would be so kind.

  2. Avatar Chris Sanderson says:

    The frustrating thing about this Govt is that half of it it knows perfectly well that this suggested re-framing should be done because it’s right and in Australia’s interests as well as the rest of the world’s.

    But it’s not in the interests of our ultra-right elite who, thanks to Howard’s work over several decades, now control their policies.

    Until we remove (hopefully forever) this corrupted elite pretending to be a genuine political party (please God at the next election), nothing will actually change.

    I’m speaking, along with many other voters, as a small ‘l’ liberal, who is no longer represented by any Australian political party.

    We look forward to a day when we can catch up with Europe, whose system of many smaller parties provide the electorate with enough policy choices that provides everyone with a party that represents their world view.

    Europe has eliminated the divisive ‘left/right’, two party Westminster system that we inherited from the UK. It’s time we moved in Europe’s direction instead.

    Politicians in Europe are required to ‘collaborate’ rather than ‘compete’ with each other. And that’s the only way we are ever, as a civilization, going to successfully deal with the ‘wicked’ problem of climate change. Which explains why in that regard, Europe is now probably 15 years further ahead than we are.

    For those interested, it’s worth checking out on YouTube.com the latest Jeremy Rifkin video’s. He has been helping Merkel get the job done since Germany started that long ago – particularly this recent one: ( ‘A History of the Future – the World in 2025’: https://www.youtube.com/watch?v=TUVeg-x9Za4 ) where he’s now explaining to the EU bankers what their role and opportunities are in the transformation process.

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