Equity or Efficiency
Sharon Beder
Citation: Sharon Beder, 'Equity or Efficiency', Engineers Australia, May 2001, p. 39.
This is a final version submitted for publication. Minor editorial changes may have subsequently been made.
During the 1980s we saw the rise of sustainable development as a concept which was embraced, at least nominally, by almost all nations of the world. In the same decade we saw the rise of neoliberalism in English speaking countries. Neoliberalism is also known as economic rationalism in Australia. These two trends have become intertwined but they seem to have quite contradictory goals.
The sustainable development literature stresses the priority and importance of equity both within and between generations. Equity implies a need for fairness in the distribution of resources, and the entitlement of everyone to an acceptable quality and standard of living. The Brundtland Commission, which played such a prominent part in popularising the notion of sustainable development defined it in terms of equity: "development that meets the needs of the present without compromising the ability of future generations to meet their own needs."
Economic rationalism, on the other hand, stresses economic efficiency as the goal rather than equity. It involves a basic policy formula of cutting government spending, privatising government services and assets, and deregulating business activities all in the name of free markets, competitiveness, efficiency and economic growth.
Such policy prescriptions, although they are clearly in the interests of big-business, were presented as being in everyone’s interest as they would reinvigorate economies and ensure global competitiveness, creating greater wealth and more jobs. In practice they have led to greater inequities.
In New Zealand, which was praised internationally as a model for economic reform, inequities increased whilst the promised economic growth did not materialise. By 1993 one in six New Zealanders were living below the poverty line. According to Jane Kelsey, who analysed the 'New Zealand Experiment' in her book Economic Fundamentalism: "Between 1985 and 1992 total growth across OECD economies averaged 20 percent; New Zealand's economy shrank by 1 percent over the same period" despite an increasing population. At the same time productivity was static, unemployment skyrocketed, inflation soared (around 9 % per year), investment halved, overseas debt quadrupled and interest rates remained high. People left NZ in droves.
The reinvigoration of the Australian manufacturing sector that was supposed to result from economic restructuring never occurred either. The extra money generated in the 1980s by lower corporate taxes, voluntary union wage restraint, higher profits and deregulation was supposed to provide incentives for investment in manufacturing. Instead the extra profits were squandered on executive salaries, takeover bids and speculative rather than productive investment. Few ordinary workers benefited and the gap between rich and poor grew. The reputation of Australia for egalitarianism and equitable distribution of income was destroyed as inequities in Australia rivalled other countries.
The decline of equity should be no surprise since it was never a concern of economic rationalists. The problem is that despite its disregard for and impact on equity, economic rationalist policies are now being advocated and used to achieve sustainable development. The policy prescriptions of deregulation and privatisation are being applied to environmental problems in the form of economic instruments and the establishment of property rights in pollution, water and fisheries. Voluntary measures are being used instead of legislative measures, for example to deal with greenhouse gas emissions in Australia.
Economic instruments are supposed to be a way of ensuring that the costs of environmental degradation are incorporated into economic decisions. Although environmental laws can also force polluters to take notice of these external costs, by prescribing limits to what can be discharged or emitted, economic rationalists are ideologically opposed to the use of laws. However, economic instruments can be environmentally ineffective and also highly inequitable. For example tradeable pollution rights can concentrate pollution in particular local areas. Even with pollution charges, it is the polluting company that decides whether to reduce its pollution or pay to go on polluting. Neighbours don't have any say.
The irony is that the concept of sustainable development was introduced to deal with growing environmental degradation caused in many respects by a lack of equity. The wealthy were using unsustainable amounts of resources and the poor were overexploiting local environments in an effort to scratch a living. Now governments are incorporating economic rationalism into sustainable development, thus reinforcing equity and the environmental degradation that follows.