Achieving Economic Sustainability Through Innovation

Posted in Finance Articles, Total Reads: 2617 , Published on 17 April 2012
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The current economic instability is the result of under regulated markets built on an ideology of free market capitalism and unlimited economic growth. Since the onset of industrialization and conceptualization of economic theories various externalities are not considered as a part of economy. They were assumed to be relatively small and solvable. The consequences that declare an economic model unsustainable always follow with a lag and unpredictably. Gradually the planning and decision making on various economic fronts has always considered an incomplete picture.


But considering various economic failures in the new context, we have to remember that the goal of the economy is to sustainably improve human well-being and quality of life. Ultimately we have to follow innovative approaches while designing new models of economy that consider various outcomes in entirety.

The indisputable truth is that for economic growth we have to juggle among various scarce resources, but final aim is to reach for new models which help us to conceptualize sustainable economic scenarios.

According to Brundtland Report sustainable economic development means “meeting the needs of the present without undermining the ability of future generations to meet their needs”. For such a sustainable economic model to exist various financial practices, human cost factors, and existing economic models need to be considered collectively. The economic practices that are useful today may become sustainable by supplementing them with new innovations.

VARIOUS SECTIONS OF ECONOMY THAT CAN TURN SUSTAINABLE THROUGH INNOVATION

An Indicator based improved approach to monitor progress towards sustainable economy is required. United Nations CSD (Commission on Sustainable Development) indicators of sustainable development can be used to understand scope of innovations.

Economic development

Economic Indicator - Macroeconomic Performance

Factor - Gross Domestic Product per capita

Scope for innovation - Developing models that can balance the impact of social and environment cost of production and consumption

Impediments to the Reform of National Economic Indicators

Innovative and holistic approach to internalize environment cost in National Accounts is required. It will apply environmentally adjusted economic indicators to the decision making processes.

Doing so would mean a major reduction in the level of GNP, which few governments would want as it will present a poor grade report. Also, the lack of international coordination hampers the development of a universally comparable framework for internalization, which prompts many governments to take a wait and see attitude. So to internalized environmental cost into existing system of economic indicators innovative rollouts require systematic implementation at supranational government level. This will provide an appropriate valuation of natural resources and will make economic considerations more comprehensive.

Even when the existing SNA (System of National Accounts) remains in place, efforts to internalize environment costs in economic indicators can at least provide information on the real costs of economic growth which is not available now.

Japan’s experience at reforming SNA

Net National welfare was calculated as an adjusted GNP. Actual pollution abatement costs were identified and deducted from GNP, so were the potential costs of meeting environmental standards for specific pollution problems. The value of non-market activities was added to GNP. This approach helped in determining the level of sustainability of the economy.

Governance

Economic Indicator - Effectiveness and Technological Provisions

Factor: Higher Teledensity, Internet connectivity, and Resilient Cyber Security

Scope for Innovation: Innovative technological implementations provide critical support for sustained economic development.

Innovating network security models ensures controlling any vulnerability and maintains sustainability of e-commerce. Absence of secure systems leads to undetected risks for economy,and improper decision making.

In today’s globalized market, defences at the physical borders are not enough to achieve sustainability. The flow of transactions and critical information needs high level of defence settings. This calls for continuous innovation in technology so as to guard off any threat on cyber frontiers (Refer Figure-1)


Figure-1: Growth in the number of financial institutions whose clients were targeted using malicious programs to steal data.

Environmental health

Economic Indicator - Research & development

Factor: Efficiency levels of energy consumption

Scope for Innovation: Expanding knowledge base and developing new and improved products.

Environment provides various resources required for economic development. Unsustainable economic growth results out of improper planning and forecasting due to ignorance of certain factors that are not directly related to production. Hence scope for innovation lies while designing the simulation models which can bring together various departments to act in unison to gauge the impact of any economic change. This can uncover a huge scope to reduce load on resources and to promote long term sustainability.

Industrial society must invent better production processes that are energy and material efficient. This approach must avoid wasteful consumption and consumerism. The supply chain of goods must include parallel running reverse salvation chain to collect the discarded material. This can be done by innovating and organizing the model for scrap industry.

How innovation can solve economic issues at micro level.

New product innovations can reduce the burden on economy by decreasing the demand for energy. This is explained in the below cases:

Case 1: Innovating efficient lighting systems

(Refer Table-1)

Case 2: Innovating Architecture designs for self sustained cities.

Centralized development model has led to rise of mega cities at the expense of rural areas. This resulted in high levels of unemployment and poor quality of life in rural India and large scale migration of the population to big cities. This migration is a result of lack of sustainable agriculture in rural area. Hence we need to look for decentralized model of development.

Table 1

A sustainable city can feed itself with minimal reliance on the surrounding countryside, and power itself with renewable sources of energy. It involves a city designed with consideration of environmental impact, inhabited by people dedicated to minimization of required inputs of energy, water and food, and waste output of heat, air pollution - CO2, methane, and water pollution.

Examples from around the globe

  • United States: Coyote Springs Nevada largest planned city in the United States.
  • Denmark: The industrial park in Kalundborg is often cited as a model for industrial ecology.
  • India: Manimekala is Hightec Eco city projected in Karaikal. It will be first of its kind in South India.

Case 3: Alliance to Save Energy (India Watergy-Program)

This innovative approach led to the creation of an Alliance to Save Energy, in partnership with the U.S. Agency for International Development. The alliance is designing sustainable Watergy solutions for municipalities to take advantage of opportunities that reduce energy use, water waste and costs, while at the same time improving water services.  The approach is to enter into partnerships with state-level urban development agencies, in parallel with interventions on the municipal level. (Refer Table-2)


Table 2: Alliance to save energy(India Fact Sheet)

Global Trade partnership :Demand and supply patterns

Huge scope of innovation in Supply Chains is feasible to optimize the transportation of goods and to collect & salvage the scrap. Efficient trade partnerships do contribute to economy and make it sustainable by reducing inflation and fluctuation in prices by ensuring timely supply of commodities.

Example: ITC’s e-Choupal agri-business model for rural communities

ITC’s Agri-Business Division, has conceived e-Choupal as an innovative and efficient supply chain aimed at delivering value to its customers around the world on a sustainable basis. It leverages an innovative IT model to virtually cluster all the value chain participants. It unshackles the potential of Indian farmer who has been trapped in a vicious cycle of low risk taking ability - low investment - low productivity - weak market orientation. Such a market-led business model can enhance the competitiveness of Indian agriculture and trigger a virtuous cycle of higher productivity, higher incomes, and enlarged capacity for farmer risk management, larger investments and higher quality and productivity. This sustainable trade model has led to a growth in rural incomes and will also unleash the latent demand for industrial. This will propel the economy into a higher growth trajectory.

Education and Human Resource Development

Education for Sustainable economic Development (ESD) is the practice of teaching for sustainability. UN’s Agenda-21 was the first international document that identified education as an essential tool for achieving sustainable development. On similar guideline a country can invent its education system as per the changing social and economic needs. Few methods that have undergone strategic innovations are:

  • Liberalize and deregulate the education system to encourage promotion of new schools, colleges, vocational and other institutions of higher education.
  • Central and state government should change their roles within the education system, reinventing themselves as facilitating and supervisory organizations.
  • Devising a common schooling system and updating teacher training curriculums.
  • Using computers and technology - India’s Rs. 3 K tablet, is such an innovative concept.

Innovation in education

For capacity building (i.e. creating awareness) in the young generation, MOEF has started a National Green Corps (NGC) program. This program provides opportunities to children to understand the environmental issues through school eco-clubs. During the tenth plan, 50,000 schools are expected to participate in NGC related activities. Moreover, 3000 eco-clubs have been set-up in schools in MOEF assistance.

Tourism

Economic IndicatorTourism

Factor- Number of domestic and international tourists

Scope for Innovation - Relevant contributor in an economy. Tourism model can be innovated to increase the revenue out of this sector by developing the requisite infrastructure and organising the sector’s model.

Example: French Agency for Tourism Engineering (AFIT)

The French tourist industry has followed an innovative approach by redesigning the model and developing the infrastructure to support this sector. The AFIT undertakes several dozen new initiatives a year.

These initiatives are organised according to several main lines of approach:

  • Understanding of customer bases and activities.
  • Public management of tourism.
  • Development of tourism projects.
  • Marketing of tourism supply.

 General perspective

Economic Indicator - Sustainable Public Finance

Factor - Inflation rate

Scope for Innovation - Creating provisions for cushioning high and unanticipated inflation. This includes innovating warehousing and cold storage infrastructure

Economic Indicator - Employment

Factor - Debt to GNI ratio,

Labour productivity and unit labour costs

Scope for Innovation - High debt ratio is an indication of unsustainable public finance and a rise in labour cost decreases international competitiveness. Innovation can be done in the manufacturing processes to reduce the production cost and hence achieving sustenance.

Lopsided progress in industrialization has created significant challenges for managing pressures on resources. An example of unsustainable factor of economic development is the green revolution, which made a beginning in 1966 and by 1985 it had reached saturation level and has been seeking a new direction. Water depletion in the tube well irrigated lands and water logging in the canal irrigated ones have emerged as serious problems. Later this was followed by providing free electricity to farm sector. It was expected that it would increase the development of the agriculture sector, but this unsustainable model disrupted the entire economy at the state level and the consequences have spilled over to other sectors.

Recognizing these challenges the government of India has articulated the National Environmental Policy (2006) which calls for a fundamental shift in the priority given to the environment and the regulatory approach to environmental management.

Sustainable agricultural models have led to the innovation of practices under the organic farming. Various innovations in this sector are:

  • Breakthroughs in Irrigation Technology (Sprinklers, Drip, Microdrip methods)
  • Breakthroughs in Food Processing and Handling industry.

CONCLUSION

The long term solution to the unsustainable economic growth is therefore to move beyond the "growth at all costs" model to a model that recognizes the real costs and benefits of growth. Hence innovation on various fronts to develop sustainable economic models is the way ahead. This ensures to the degree possible that present and future generations can attain a high degree of economic security and achieve democracy while maintaining the integrity of the ecological systems upon which all life and production depends.

This article has been authored by Gurkirat Singh from NITIE.

Image: Salvatore Vuono / FreeDigitalPhotos.net


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