Economics and the environment What are social systems (hệ thống xã hội)? Social systems A social system is composed of persons or groups of persons who interact and influence each others behaviour Social systems Can you think of examples of social systems? It sounds complicated, but, in fact, you all know many examples of social systems. Any ideas? Social systems Families Organizations Communities Companies Schools The social system we will focus on today: The economy (Nền kinh tế) The economy a social system Its main purpose is to convert resources into Goods: manufactured materials that are bought, and Services: work done for others as a form of business There are different kinds of economic systems Vietnam’s economic system is different to that of America’s or Canada’s Globalization (Toàn cầu hóa) The world is more connected than ever before Connects countries together International trade and the global economy Every social system is based on certain ideas Those ideas shape the roles people have within a social system, and define the relationships between them This sounds complicated. But it isn’t. Let’s start with the family What are the main ideas we have about the family? Think about the different roles family members’ have And the relationships between each family member What about schools or universities? What are the main ideas we have about kinds of social systems, and the role they have in people’s lives? Social systems Religions are communities and are also examples of social systems. What are the main ideas of religions? Such as Buddhism, or Christianity? Social systems What about the global economic system? Global economic system: main ideas Economic growth (Tăng trưởng kinh tế) International Trade (Thương mại quốc tế) Free markets (Thị trường tự do) Science and technological development Global economic system Economic development Growth Countries have been lifted out of poverty Economic growth: World GDP map Global economic system How do we measure if a student is doing well? Good grades! Global economic system What about a country? A country is doing well when it’s economy is Strong Growing International economic system Progress is measured (Tiến độ được đo lường) Economic development and growth The growth paradigm “More and bigger is better” Social systems Countries are getting wealthier People are getting richer than ever before This economic model is not perfect Climate Change Deforestation Global economic system Climate change Deforestation Global economic system Loss of biodiversity Resource-depletion Global economic system How is this possible? Global economic system How do we get growth? People need to consume (buy things) High consumption (Tiêu thụ cao) High production (Sản xuất cao) Industrialization Neoclassical economic theory Economics is also an academic discipline The global economic model Neoclassical economic theory Neoclassical economics Main ideas – • Wealth and jobs creation (Sự giàu có và tạo việc làm) • Resources are infinite (Tài nguyên là vô hạn) • Costs and benefits are internal (Chi phí và lợi ích là nội bộ) Global economic system Climate change Global economic system Deforestation Loss of biodiversity Resource-depletion So, what needs to be done? In your groups Research question: How has the global economic model, and the main ideas of neoclassical economics, contributed to - Deforestation In your groups International economic model: Critical Thinking In your groups – 1. What are the assumptions (giả định) behind the international economic model? 2. Think critically about them. What problems are there with them? International economic model: Critical Thinking In your groups – 1. What role has the international economic model played in deforestation? International economic model: Critical Thinking 1. I will give a brief overview, so that you have enough information to understand this subject 2. In your groups, talk and think about it so you understand it properly International economic model: Critical Thinking 3. Give a short presentation Describe some problems with the international economic model Say why it has contributed to things like deforestation Neoclassical economics Assumption 1: neoclassical economic theory Resources are infinite (Tài nguyên là vô hạn) Goods Goods are bought and sold Where do goods come from? Resources are infinite Earth’s resources are limited - Nonrenewable resources can be depleted - Renewable resources can also be depleted Neoclassical economics Assumption 2: neoclassical economic theory Costs and benefits are internal (Chi phí và lợi ích là nội bộ) Costs and benefits Costs and benefits are between the buyer and seller I buy some breed from you. I get some bread. You earn some money. Costs and benefits Mike buys a Big Mac from McDonalds Costs and benefits According to neoclassical economic theory Costs and benefits are between buyer and seller Mike and McDonalds Costs and benefits Do not affect other members of the society Pricing ignores social, environmental or economic costs How do you assign monetary value to illness? Costs and benefits Costs and benefits are internal Buyer and seller What about external costs? Externalities = costs or benefits involving people other than the buyer or seller Costs and benefits are internal External costs = borne by someone not involved in a transaction • Human health problems • Resource depletion Costs and benefits are internal The market approach results in externalities, such as environmental pollution. Since the “costs” of such things as air pollution, groundwater contamination and depletion, soil erosion, and nuclear waste disposal are typically borne by parties “external” to the economic exchange (e.g., people downwind, neighbors, future generations), free market exchanges cannot guarantee optimal results. Costs and benefits What are the external costs? Deforestation Deforestation Forests cover 30% of the earth's land It is estimated that within 100 years, there will be no rainforests Agriculture is the leading cause of deforestation Economic growth through industrialisation, production and consumption Is constant, unlimited, economic growth sustainable (bền vững)? Deforestation International economic model Market values (how the market values things) Natural world Seen as a resource International economic model A second type of market failure occurs when no markets exist to create a price for important social goods. Endangered species, scenic vistas, rare plants and animals, and biodiversity are just some environmental goods that typically are not traded on open markets. With no established exchange value, the market approach cannot even pretend to achieve its own goals of efficiently meeting consumer demand. Markets alone fail to guarantee that such important public goods are preserved and protected. International economic model Important ethical and policy questions can be missed if we leave policy decisions solely to the outcome of individual decisions. Because many important ethical questions may remain unasked from within market transactions, we must conclude that markets are incomplete (at best) in their approach to the overall social good. In other words, what is good and rational for a collection of individuals is not necessarily what is good and rational for a society. Amazon forest The Amazon Rainforest is responsible for producing than 20% of the world's oxygen It is home to 40,000 plant species, 1,300 bird species, 3,000 types of fish, 430 mammals and a whopping 2.5 million different insects The Amazon Rainforest plays an important role in limiting climate change It takes carbon dioxide (a greenhouse gas) out of the air and releases oxygen International economic model Non-market values: Other, non-economic, ways of valuing something Neo-classical model does not recognize non-market values Non-market values of the Amazon rainforest Biodiversity Generates 20% of the world's oxygen How the market values things Natural resources/natural environment Resource extraction Goods that can be bought or sold The way we perceive the world Values: what is important Our decisions and actions Businesses/ corporations Make a profit Natural world Resource Economic growth/profit Natural world/natural resources Resource extraction Production/consumption How the market values things Natural resources/natural environment Resource extraction Goods that can be bought or sold In your groups - Analyse the flow chart in your hand outs. What is wrong about the current economic model? How could it be improved? In your groups - Create a new economic model What are the main ideas? Economic growth model Industrialisation Production Consumption Is this sustainable (bền vững)? What effect is it having on the natural world? The environment? Assumptions: Long-term effects are discounted and growth is good A future event counts less than a present one Discounting = short-term costs and benefits are more important than long-term costs and benefits Policymakers ignore long term consequences of our actions Discourages attention to resource depletion and pollution •Economies are measured in various ways •Gross Domestic Product (GDP) = total monetary value of final goods and services produced •Does not account for nonmarket values GPI: An alternative to the GDP Genuine Progress Indicator (GPI) = differentiates between desirable and undesirable economic activity Positive contributions (i.e. volunteer work) not paid for with money are added to economic activity Negative impacts (crime, pollution) are subtracted Net Economic Welfare (NEW) = adjusts GDP by adding the value of leisure time, while deducting environmental degradation Sustainable Economic Welfare (ISEW) = based on income, wealth distribution, resource depletion These indicators give a more accurate indication of a nation’s welfare ‘Ecolabeling’ Ecolabeling = tells consumers which brands use sustainable processes A powerful incentive for businesses to switch to better processes “Dolphin safe” tuna Traditional view of economics • What do you think the traditional view of economics focuses on? Conventional economics focuses on production and consumption • Ignores the environment • The environment is an external “factor of production” Environmental view of economics •Human economies exist within, and depend on, the environment •Without natural resources, there would be no economies At the same time, managers have had to integrate traditional economic and financial considerations with ethical and social considerations.
