One of the most depressing conclusions that can be drawn from watching the debate about sustainable development conducted at the international level, starting with the "Earth Summit" at Rio in 1992, is that there are world leaders who believe that securing a sustainable environment conflicts with economic interests. It seems hard to understand how anyone can think that there can be economic benefits from allowing our environment to deteriorate. The only rational explanation is that their understanding of economics is at fault. Perhaps the problem is that for over two hundred years anyone seeking to understand the global economy has had only partial and limited economic models to use as a guide.

The one bequeathed to us by Adam Smith (and those who have built on his work) has mainly been concerned with the role of the Private Sector. It has been opposed by a Marxist view that concentrated on the role of the Public Sector. Now that the limitations of the latter have been totally exposed, the shortcomings of the former have come into sharper focus. The one good thing that should have come out of the "collapse of communism" is that the quest to improve our understanding of the workings of economics can now be considered to be back within the realm of rational enquiry. Instead of being hampered and obscured by the fight between rival political dogmas, new models should be judged by the way that they give new meaning to existing knowledge and lead to beneficial new solutions to our problems.

If we look anew at the global economy of the late twentieth century, it is possible to spot some glaring flaws in both the old models, which should, perhaps, have been noted in the past. To start with, it is possible to argue that there are actually three key sectors within an economy: private, public and personal. Also, there are three facilitators (or forces) that create the flow of goods and services: money, power and love. The goods and services are made up of resources available within the environment.

Because the science of physics has demonstrated that matter and energy, which are the building block of all resources, are neither created nor destroyed but just change their state, the term "consumption" in economics is somewhat illusory. One collection of resources are combined to produce another and, at some time in the future, they will either become available for further reuse or the component parts will be used within other combinations of resources. Problems can occur when resources become "locked up" in some unbeneficial way and this applies as much to pollution, as to the human behaviour that leads to a recession.

The original concept of economics, which is to find ways to enable scarce resources to meet needs, is a good basis for working towards the creation of a sustainable environment. Moreover, we now know that there is a mathematical model (Blackman's Law) that can help determine the theoretical minimum amount of resources needed to create any desired good or service. Thus we should have all the ingredients to enable us to up-date the science of economics and make it relevant to the ecology of the twenty first century.

Most people have a fairly good idea of what economists mean by the private and public sectors. The private sector includes all types of business organisation and the self-employed and the public sector is made up of bodies - including contractors - acting for Government at all levels within a Nation State and all Supra National organisations. However, it is surprising that there is not a collective term to describe individuals, families, clubs, societies and friendship groups. The economic significance of all of these is sufficiently great that they can reasonably be described as the ultimate source of demand and the public and private sectors only exist to serve what can be called, in this context, the "personal sector" and not the other way round.

Economics has always been about the ways in which finite resources are distributed to meet demand and the strength of an economy is usually measured in some way that relates to the number of transactions that take place in any given period of time. Most frequently this is expressed in monetary terms, which is easiest to do when money has been used as the medium of exchange. Attempts to put a monetary value on transactions where money is not involved, such as evaluating the work of carers, on the positive side, or the cost of crime, on the negative, have been recognised to have limitations. However, there is plenty of common-sense evidence to show that love and power have also motivated the movement of goods throughout history. Their effects can be very significant to the goods and services that an individual actually has access to, which can often give a better indication of perceived personal wealth than a bank balance.

Money can best be visualised as a lubricant used to free resources so that they can be made available for use elsewhere. If units of a currency are devalued by inflation it is as if the lubricant has been made thinner and more has to be used to achieve the same effect. Money flows in one direction to encourage the flow of goods and services in the other. Although it does not work sometimes, because the currency is not accepted or the potential provider does not want to release the goods or services, money is what makes the impersonal transactions of the private sector more effective. If we had to rely of finding someone to swap with, every time we wanted something that was not already in our possession, there would be much less scope for the interchange of resources and the growth of perceived wealth. In most developed parts of the global economy, the personal and public sectors make use of a private sector to supply goods and services, which they can have access to by the exchange of money

Perhaps it is because love and power rely on the person with the resources choosing to initiate the transfer, they are seen as having limited usefulness and this may explain the relative importance accorded to money. However, we must not forget that power has been the effective "currency" within public sector organisations for a very long time, because the extent of an individual's delegated power defines their potential access to the resources needed to carry out their work. Moreover, throughout history religious movements have provided an example that if a person receives freely they can be moved to give in the same way to others. Thus, under both of these circumstances, a form of exchange has been set up that creates the movement of resources, due to power and love.

It can be argued that the public sector grew up as a legitimate expression of the use of power to mobilise resources and to carry out projects that were beyond the scope of individuals, families and other small groups. Even in the recent past there have been examples of Governments requisitioning men and equipment in time of national crisis (such as war). Of course, it is more normal, in Western society, for the public sector to take money (via some kind of tax) from the population and release resources in a way more akin to the ways of the private sector. Where power is employed illegitimately it is usually referred to as crime (or terrorism) and has a negative affect, as it reduces the perceived wealth of the victim, immediately, and the wider economy due to increased provision for insurance and the reduction of resources available for legitimate transaction.

Love (which can also be known by the name "charity" or "altruism") has good claim to be seen as the mainspring of transactions within the personal sector. It is well known that people will go to great lengths to secure resources for their loved ones, those they feel responsible for and even the causes that they espouse. This has proved important to the economic wellbeing of some nations. For example Yemen and the Philippines have benefited from money sent home by expatriates and Israel from donations from Jewish communities abroad. As well as receiving money donations, Charities are often the recipients of the freely given labour and expertise of some of their supporters, which makes them, in this respect, almost a part of the personal sector. However, gifts of money enable them to operate more like a private sector organisation.

It is probably unhelpful for any economic model to get too prescriptive about which human activity falls within any particular sector because individual people can and do play a role in all three sectors. What people do and give for love creates one form of movement within the economy and they may also be associated with the use of power, to get things done, at some stage in their lives and also play the roles of consumer and supplier within the private sector. Nonetheless, we probably do need to know more about the effects of the movement of resources caused by love and power. In particular, because the needs and wants of people create economic activity, we need to develop our knowledge of the personal sector. We also need to recognise that personal wealth should be measured in terms of access to resources, not just disposable income or the apparent sale value of assets. The reason for following such a path is that it could lead to a global economy that has less impact on the environment because it delivers resources more effectively to where they are demanded.

Accurate measurement is needed to achieve precise control over the use of resources. However, when Adam Smith first suggested his ideas in the eighteenth century it was hard for commercial organisations, or even the military, to accurately measure their inputs and outputs. It is easy to see why money provided the only readily available unifying measure for early economics. Nowadays, modern measurement tools and computing power makes it possible to monitor the flow and interaction of "quanta" of quite disparate resources. Large companies have become very good at using the data they collect and, as a result, have been able to introduce such techniques as "just in time" stock management to achieve practical benefits from their understanding of specific elements of the flow of resources. The application of improvements in measurement and control brings us closer to the original "dream" of economics and it should be possible to extend existing concepts and techniques to all fields of private and public sector management. It is not inconceivable that they can be of use even within the personal sector.

The problem of discovering how to use the least amount of resources to produce any given result is not exclusive to economics and a solution has been proposed in at least two other academic disciplines concerned with the workings of systems. In both Biology and Process Engineering it has been observed that the output of systems is strictly limited by the least plentiful resource. Thus, in the early years of this century, "Blackman's Law" was formulated to explain why a plant with a more than adequate supply of most of the elements it needs (e.g. light, air, water and minerals) can be stunted or killed by an inadequate supply of just one essential resource. Furthermore, in the last couple of decades, the new science of process integration learnt, from the observation of heating and cooling flows, that there is a "pinch point", which defines the lowest limit to the amount of energy that an industrial process needs. The application of this insight in both disciplines has meant that it is possible to calculate the minimum amount of each resource needed to achieve desired levels of growth or output. There seems no reason why this principle should not be applied more widely to all resources used within the global economy and contribute to a reduction in our impact on the environment. It is a similar concept to the one that encourages many people to see energy efficiency as both economically sound and good for the environment.

There is already an influential body of opinion that believes that the science of economics is overdue for change. 'The Economist' newspaper, looking at the problem from a 'conservative' standpoint produced a feature describing the case for change at the end of 1994, called "Rational Economic Man" (pages 96-98 in the edition dated 24.12.94 – 6.1. 95.). In 1998 The Schumacher Society published an excellent briefing, by James Robertson, entitled "Transforming Economic Life - A Millennial Challenge", which suggests how this might be achieved by following a more radical, 'green' agenda. Whatever the method adopted, economics must become a tool that can help us create a sustainable environment, not hinder that goal.

Paul Newman

(Revised) December 1999

Please do not hesitate to email the author with comments or questions.

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