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Friday, April 30, 2010

A Third Blog Post on an Agenda for a New America

A Tax Shift, Social Capital, and Sustainability

In economic terms, a tax shift would take taxes off labor and capital and put them on the third factor of production--resources, the gifts of nature.
Labor refers to people working. Capital means physical objects created by people, such as buildings, tools, and machinery. The gifts of nature are resources not made by people, such as air, forests, fossil fuels, land, metals, water, a stable climate, and rivers and other habitats. Taxing labor and capital tells businesses and households to scrimp on workers and tools--in other words, to practice underemployment and under-investment. Taxing the gifts of nature (or, more precisely, taxing actions that degrade the gifts of nature) tells people to conserve these gifts.

Taxes on resources correct one of the most glaring flaws of market economies: blindness to environmental costs. Failure to charge for the use of the atmosphere as a receptacle for poisonous gases, for example, results in too much air pollution. Failure to charge for the disruption of watersheds results in too many floods. Yet for individual firms, there is no place in the ledger for the environmental costs of production that fall on others—externalities or costs such as damage of a worker's DNA that causes disease decades later, the draining of a wetland that offers wildlife habitat, or the release of toxic substances so mobile they eventually permeate the breast milk of women. Environmental taxes put these costs--or at least crude monetary approximations of them--on the books. The prospect of aiding both economy and environment has sparked modest tax shifts in the Netherlands, Spain, the United Kingdom, and three Scandinavian countries since 1991.

Compared with the rest of the world, European countries have very well-developed "green" fiscal policies. While most of the these are applied to transportation (motor vehicles, gas and diesel), "green taxes" are used to address various other issues such as waste management, packaging, air emissions, fertilizer use, and extend to other market-based incentives such as trading "credits," take-back programs for manufactured goods, deposit-refund schemes, rebates, the removal of perverse subsidies (and introduction of others) and various other programs. While many of these measures were originally used to target certain environmental issues, there has been a trend towards more comprehensive tax reform to shape environmentally responsible practices across the board.

Scandinavia, the Netherlands, Western European countries and Japan have set up commissions to explore the opportunities for and issues surrounding introducing broader green tax shifts. In the three decades up to the Rio Earth Summit in 1992, there was growing awareness in Sweden of carbon dioxide emissions and global warming, and the signing of the Rio Declaration pushed them towards more clear commitments. The government had been trying to find the best way to reduce all types of emissions, but the economy had slowed down. Their dilemma was how to do this and still raise employment and also survive in a transforming global system that put increasing pressure on national industries to become more "efficient" by externalizing costs.

Knowing that environmental regulation was unpopular, especially among industry, the government decided to introduce several taxes in 1991. One of these was the carbon tax, levied on a two-tiered basis for two classes of users, household and industrial. They were able to introduce them to households (who depended on this mainly for home heating and transport) because there was broad popular support. Introducing these taxes began to have an effect on heating infrastructure, where the use of biomass increased in local heating districts. It also created new demand for biomass and led to innovations in the field, as well as improvements in other technologies in home heating efficiency.

For industry, which was opposed to the taxes, there were initial exemptions and incremental expansion of taxes. Sweden was among the first countries to initiate the "feebate" system, which was a way to get support from business. The revenue collected from these various taxes was returned to any businesses who increased efficiency of their plants, proportionate to the increase; in other words, the bigger the improvement, the bigger the refund. This would help businesses offset the costs of investing in improved efficiency. Under this feebate system, NOx emissions fell by 35% in the first year alone, and investment in abatement technologies went up accordingly. (This is a situation where heavier polluters are transferring resources to, or subsidizing, lighter polluters--instead of the case where government and public typically subsidize heavy polluters with elevated health care costs and reduced quality of life).

The taxes have influenced emissions even more dramatically on carbon and sulfur than on nitrogen. The tax on sulfur led to a reduction in sulfur content on fuels 50% below the legal requirement and halved SO2 emissions in the last eight years. The total decrease in emissions since 1970 has been over 70%, and Sweden has led the 30% club, in a pledge to reduce SO2 emissions by 1993-95, and other countries such as France, Canada, Norway, Denmark, the Netherlands and West Germany followed suit, pledging reductions of 40-50% by the mid-nineties.

The effects of these changes are apparent on ordinary lifestyles. Emissions controls are used on cars, appliances are energy efficient, homes are energy conserving, and household and industrial materials are recycled. One of the cleanest garbage-to-fuel plants in Karlstad separates and recycles most of its input and burns the rest for energy. Co-generated steam from the plant provides hot water and heating for 60,000 of the area's residents, and an adjoining landfill feeds a biogas system for additional energy. There is a "solar" village above 58 degrees latitude where households have managed to meet their heat and hot water needs by solar alone for five months of the year, which shows the potential for northern regions to take advantage of the longer days of summer. Taxes on nuclear energy have also been part of a plan to phase out nuclear power by 2010, while retaining limits on hydroelectric power. Over the years these programs have evolved and extended to nitrogen fertilizers, pesticides, scrapping cars, gravel extraction and others.
In 2000, a broad tax "shift" created revenue and raised employment levels through job skill training. The word "shift" is important because while the goal may be have been aimed at raising revenue, it has also redirected the flow of money through the Swedish economy where the tax burden is heaviest on those who exact the greater costs on society. For example, some of the taxes on home heating and electricity have been combined with offsetting tax cuts, which include lower income taxes and social security contributions.

Social capital:

Social capital is a concept in business, economics, organizational behavior, political science, public health, sociology and natural resources management that refers to connections within and between social networks. Though there are a variety of related definitions, which have been described as "something of a cure-all" for the problems of modern society, they tend to share the core idea "that social networks have value. Just as a screwdriver (physical capital) or a college education (human capital) can increase productivity (both individual and collective), so too social contacts affect the productivity of individuals and groups"

Triple bottom line or People, Planet, Profit:

The process by which we meet our national needs is called “economic development. “There are significant differences between economic growth and economic development. The term "economic growth" refers to the increase (or growth) of a specific measure such as real national income, gross domestic product, or per capita income. National income or product is commonly expressed in terms of a measure of the aggregate value-added output of the domestic economy called gross domestic product (GDP). When the GDP of a nation rises economists refer to it as economic growth. The term economic development on the other hand, implies much more. It typically refers to improvements in a variety of indicators such as literacy rates, life expectancy, and poverty rates. GDP is a specific measure of economic welfare that does not take into account important aspects such as leisure time, environmental quality, freedom, or social justice. Economic growth of any specific measure is not a sufficient definition of economic development.” A critical examination must include not just economic processes and institutions, but also the theology of “growth,” and ecological, cultural, social, and political processes.

"Society must cease to look upon "progress" as something desirable. `Eternal Progress’ is a nonsensical myth. What must be implemented is not a `steadily expanding economy,’ but a zero growth economy, a stable economy. Economic growth is not only unnecessary but ruinous. Alexander I. Solzhenitsyn


Sustainability provides a framework for the integration of environmental, economic policies, and development strategies. It recognizes that economic development is essential to satisfy human needs and improve the quality of human life. But economic development must be based on the efficient and environmentally responsible use of all of society’s scarce resources – our natural, human, and economic resources.

“Sustained growth” is a cruel falsehood if it just means increasing production and consumption: on a finite planet, ultimately such growth is a physical impossibility. Talking about growth with no context is meaningless: growth can be good or bad or irrelevant; it must be judged in terms of its effects on people and nature, not in terms of the cash value of goods and services. Increased spending on nuclear weapons and increased spending on preventive health care services both contribute to the Gross National Product (GPN), but only one is of any value in a society concerned with human welfare.”

In the new American Agenda – government, entrepreneurs, environmentalists, and consumers must cooperate to find ways to finance the inevitable transition from sunset industries (an industry in decline or one that has passed its peak) to the sectors of a “conservation economy” that promotes economic relationships which maintain ecological integrity while advancing social equity. In a conservation economy, economic arrangements of all kinds are gradually redesigned so that they restore, rather than deplete, natural capital and social capital. The fundamental needs of people - and the ecosystem services that sustain them - are the starting point for a different kind of economic prosperity that can endure.

A conservation economy can be imagined as a healthy mosaic of bioregional economies forged within coherent units. Even in a globalizing economy, diverse bioregional economies that are more self-sufficient in meeting their own needs will be more competitive and less vulnerable.

Sunset industries are those most tied to carbon while the conservation economy is one that embodies the nurturing of diversity and productivity in natural systems; that uses renewable resources and eliminates waste in built systems; that fulfills social and environmental goals to create market opportunities in economic systems; and helps citizens to understand the whole in order to improve social systems.