economics

Behavioral Economics and Corporate Sustainability

By John Byrd, PhD and Kent Hickman, PhD The likelihood of meaningful legislation supporting a shift towards more sustainable practices by business and individuals seems miniscule. Without government policies or incentives the move to sustainability depends largely on the voluntary actions of companies. Companies choose the types of products they produce–the materials they are made of, their recyclability, their energy consumption, their durability–and how the products are manufactured–production efficiency, working conditions and so on. In theory individuals, through their consumption choices, can send a message to companies about the types of products they want. But if the range of choices doesn't include price competitive green alternatives this message never gets back to corporate decision makers.

Some companies include sustainability in their strategic planning, but the adoption rates appear well below those required to address the most urgent problems related to climate change, biodiversity loss, fisheries depletion and water availability. Abrupt changes in climate and increasingly expensive raw materials and energy threaten the ability of companies to continue to create value for stakeholders. So, why aren’t companies doing more?

We think that behavioral economics provides some insight into this lack of corporate initiative toward sustainability, and also offers some suggestions on how to overcome these impediments. Behavioral economics enriches the neoclassical economic model of rational profit maximization by recognizing that social and psychological factors play a role in decision making. This evolving discipline has uncovered systematic differences between the results predicted by models based on rational agents and what people actually do. This more nuanced view of decision making can be a valuable tool to help managers and policy makers shift organizations and individuals toward sustainability.

Heuristics: People use ‘rules of thumb’ to sort through complex problems. For the most part this is an efficient and effective approach to making decisions. Over time, the rules of thumb, or heuristics, evolve to be efficient and become embedded into the Standard Operating Procedures of organizations, such as simple rules about when to offer a new customer credit.

Some researchers argue that the use of heuristics leads to better decisions than those based on extensive data collection and formal modeling. Dr. Gerd Gigerenzer, the director of the Max Planck Institute for Human Development in Berlin, claims that relying on intuition produces quicker and better decisions because too much information prevents decision makers from focusing on the most important aspects of a problem (1). This is similar to the ‘thin-slicing’ approach to decision making made popular by Malcolm Gladwell in his book Blink (2). There he has a chapter titled, "The Theory of Thin Slices: How a Little Bit of Knowledge Goes a Long Way." But he admits that gut-feelings can lead to poor decisions as well as good ones. In his book he discusses the Warren Harding effect, in which a tall, handsome man is elected President mainly because people intuited that his good looks implied good leadership. This bias persists, as Gladwell documents, with Fortune 500 CEOs being on average nearly 3 inches taller than average American men. Moreover, Gladwell says the greatest likelihood for thin-slicing errors is found among overconfident decision makers, a trait well documented among CEOs.

Heuristics, rules of thumb, and thin slicing work because people have acquired some expertise in recognizing patterns or traits within the decision framework. However, if the external environment changes–resources become scarcer, legislation about climate change occurs, consumers become concerned about the long-term impact of products, the life-cycle impact of a product begins to matter–then existing rules of thumb may not be appropriate. In fact, relying on old rules will almost guarantee that companies are not prepared for shifts to new ways of thinking.

Framing: The behavioral economics literature argues that the outcome of the decision process depends on how a decision is framed or articulated. Much of the conversation about sustainability centers on what companies should do and the extra costs they should bear. Framing sustainability as a cost center creates a natural aversion to examining sustainability initiatives carefully. Decision makers know that there are costs involved.  Therefore, it is easier for them to defer analysis than to promote a costly solution to the problem. Examples of companies that have begun to embrace sustainability show that they have changed the framing of their initiatives. General Electric’s "eco-imagination" was created as a revenue center. Wal-Mart embraces sustainability, and avoids framing their action as costly to the firm by pushing these costs onto its supply chain. Framing can also impact the acceptance of sustainable products, helping to create market driven demand for progress. For example, studies of consumer behavior have found that green products sell better when advertising focuses on the product’s benefits to individuals rather than their benefits for the overall environment (3).

Status Quo Bias and Groupthink: Behavioral economists have found that decision makers exhibit a bias toward established regimes or ways of doing things. Significant or disruptive change only occurs if there are strong reasons to change. Reinforcing this bias is the structure of corporate boards and management teams. Corporate directors and high-level executives tend to have very similar backgrounds and worldviews (c.f., 4 5). For example, Chhaochharia and Grinstein (6) show that the vast majority–well over 60 percent–of directors of US companies are employed in industry. If those categorized as being in financial fields or retired are added to this group the proportion approaches 80 percent. O’Hagan and M. Rice (7), looking at companies in the northeastern US, find that high-level managers have a long personal history in the region, which may limit their ability to respond or adapt to new circumstances. This can lead to a ‘groupthink’ mentality in which there is a reluctance to pursue alternatives, especially alternatives that vary from the established perspective. Robert Shiller, an economist at Yale, explained how groupthink played a role in the US housing crisis that contributed to the current recession (8).

Groupthink is related to herd behavior. Herd behavior is common in business and has implications for the adoption of sustainability activities. In essence, people can hide in herds. If a decision is similar to those made in other companies (i.e., acting like the herd) then poor decisions are justified as conforming to what everyone else was doing. An unusual initiative (i.e., different than the herd) that fails risks being blamed on an individual’s incompetence leading to potentially serious repercussions. The herd mentality is strong. In 1997 John Browne, then Group CEO of British Petroleum, gave a speech at Stanford University acknowledging the potential seriousness of climate change. BP was the first major corporation, other than reinsurance companies, to take a position on reducing greenhouse gas emissions. This anti-herd behavior was so surprising, especially from an oil company, that his speech has been hailed as ‘groundbreaking,’ and became the subject of several academic articles (c.f., 9, 10, 11).

Loss aversion: The concept of risk aversion that underlies much of economics says that people assign a larger value to a loss than they assign a benefit of an equivalent size. This lop-sided valuation effect produces the risk aversion that explains the existence of the insurance industry. Conversely, behavioral economists have found that risk aversion is largely limited to uncertainty at a given level of positive wealth changes, and in cases of negative wealth changes, individuals may systematically turn to risk-seeking behavior (12). Thus, if environmentalists pose a picture of dire hopelessness, the average citizen and consumer may opt for increased consumption with less attention to its environmental consequence. The effect is aptly portrayed in the well-known Gary Larson cartoon depicting two fishermen in a boat with a mushroom cloud in the background…one fisherman says to the other, "I'll tell you what this means, Norm.  No size restrictions and screw the limit!"

How To Overcome Behavior Impediments

We have argued that several aspects of behavioral economics create impediments for companies to become more sustainable. The shift to sustainability asks companies to think and operate differently, but psychological and organizational bias slow this process.  What can employees, shareholders and consumers do to overcome these impediments?

Within The Firm

Employees and sustainability advocates need to frame sustainable initiatives in both a positive and a personal light. Avoid doomsday forecasts as the motivation for action. An advocate can make the business case for sustainable initiative by explaining why they are profitable opportunities or will reduce risk. Value is created by increasing revenue and/or by reducing risk. By enabling the firm or organization to avoid shocks that negatively affect its cost structure or the integrity and authenticity of its brand name, sustainability helps create durable and profitable organizations. Moreover, individual motivation is likely greatest when benefits are seen as having a personal impact. It is critical, therefore, to link benefits first to the individual and family, next to the firm or organization, and finally to society and the environment in general.

Employees and sustainability advocates need to learn the skills of being effective change agents. An employee who wants to implement green changes in an organization needs a well-stocked toolkit. First, they need to be knowledgeable about the particular sustainability issues they want to advocate.  This could be technical knowledge about a process, product or material that can be improved, or more general information about broader programs like re-cycling or flexible scheduling. They also need to develop communication skills so they can quickly and clearly explain the benefits of adopting the changes. They need to be politically aware of how changes occur in their company, and generous about sharing credit. Finally, they need to be willing to persevere: change rarely happens on the first try.

Outside The Firm

Shareholders have a role to play in moving companies toward more sustainable practices.  They can use their proxy power to elect a more diverse board. The first step might be to raise the issue of more diversity among director nominees. Groups such as Catalyst.org actively push for board diversity, so following that group’s activities would be a good starting place for modeling diversity advocacy. The SEC (US Securities and Exchange Commission) has been modifying rules regarding director nominations (13).  The new rules allow investors or groups of shareholders who have owned three percent of a company for at least three years to include a director candidate(s) on proxy statements for shareholder vote. The ownership threshold is substantial, but it is a first step toward more shareholder democracy.

A second route that shareholders have to changing companies is through shareholder proposals. The ownership threshold to submit a proposal is about $2,000 (or alternatively 1% of the company’s stock) held for at least a year. Proposals that satisfy the SEC’s requirements are included in company proxy statements and voted on at annual meetings.  These proposals make it very clear to directors what shareholders are concerned about.  While votes on shareholder proposals are non-binding (the board can ignore even a majority vote) they do have an effect. Byrd and Cooperman (14) found that in response to shareholder proposals about climate change reporting, about 20 percent of the companies took action despite the non-binding nature of the vote. Often, companies facing a shareholder proposal negotiate with the initiator to find an acceptable solution and have the proposal withdrawn. Byrd and Cooperman also found that over 50 percent of withdrawn proposals resulted in the companies taking action regarding the proposal topic within two years.

Just as internal change agents need to make the business case for sustainability, shareholder proposals must show how the company benefits from making the proposed change. Shareholders must also be willing to negotiate and withdraw a potentially embarrassing proposal, if it helps a company become more sustainable.

Conclusion

Behavioral economics offers important insights into why companies may be reluctant to embrace sustainability. Advocates for corporate sustainability, both within and outside of the corporation, may be more successful if they recognize the behavioral bias decision makers have, and recast their efforts to reduce the effect of those behavioral habits.

References

1. Worstall, T. (2011, December 26) Why Rules of Thumb, Intuition, Gut Feelings, Work in Business Decisions. Forbes. Retrieved March 27, 2012 from http://www.forbes.com/sites/timworstall/2011/12/26/why-rules-of-thumb-intuition-gut-feelings-work-in-business-decisions/

2. Gladwell, M. (2005). Blink: the power of thinking without thinking. Boston: Little, Brown, 2005.

3. Okada, E. & Mais E. (2010) Framing the "Green" alternative for environmentally conscious consumers. Sustainability Accounting, Management & Policy Journal, Vol. 1 (2), 222 – 234.

4. Davis, G., Yoo M. & Baker W. (2003) The Small World of the American Corporate Elite, 1982-2001. Strategic Organization, Vol. 1 (3), 301-326.

5. Nguyen, B. (forthcoming) Does the Rolodex Matter? Corporate Elite's Small World & the Effectiveness of Boards of Directors, Management Science.

6. Chhaochharia, V., & Grinstein Y. (2007) The Changing Structure of US Corporate Boards: 1997-2003. Corporate Governance: An International Review, Vol. 15, (6), 1215-1223.

7. O’Hagan, S., & Rice, M. (forthcoming) The Geography of Corporate Directors: Personal Backgrounds, Firm & Regional Success, The Professional Geographer. DOI:10.1080/00330124.2011.614567

8. Shiller, R. (2008, November 2) Economic View: Challenging the Crowd in Whispers, Not Shouts. The New York Times,  (Page BU5).

9. Lowe, E., & Harris, R. (1998) Taking Climate Change Seriously: British Petroleum’s Business Strategy. Corporate Environmental Strategy, Vol. 5 (2), 22-31.

10. Rowlands, I. (2000) Beauty & the beast? BP’s & Exxon’s positions on global climate change. Environment & Planning C: Government & Policy, Vol. 18 (3), 339 – 354.

11. van den Hove, S., Le Menestrel M. & de Bettignies, H.-C. (2011) The oil industry & climate change: strategies & ethical dilemmas. Climate Policy, Vol. 2, (1), 3-18.

12. Kahneman, D., & Tversky, A. (1979) Prospect Theory: An Analysis of Decision under Risk. Econometrica, Vol. 47 (2), 263-291.

13. US SEC (2011, Septemebr 15) Facilitating Shareholder Director Nominations. 17 CFR PARTS 200, 232, 240 & 249 [Release Nos. 33-9259; 34-65343; IC-29788; File No. S7-10-09]

14. Byrd, J., & Cooperman B. (2011) Do Shareholder Proposals Affect Corporate Climate Change Reporting and Policies? University of Colorado Denver working paper.

Contributor Biographies

John Byrd is Senior Instructor in the Finance and Managing for Sustainability MBA programs at the University of Colorado at Denver.  He has been involved in population, environmental and sustainability issues since attending the UN Conference on Population and Development in Cairo, Egypt, in 1994.  His teaches courses in corporate governance and business and climate change. He is on the board of The dZi Foundation, which does development work in rural Nepal. With his family, he lives in Durango, Colorado.

Kent Hickman is Professor of Finance at Gonzaga University, where he initiated the school's first course in sustainable business.   Dr Hickman has published in the area of behavioral economics in Journal of Economic Behavior an Organization.  He and Dr. Byrd have co=authored a textbook in Corporate Finance, and they team-teach sustainable business courses at the Rouen Business School, in Rouen, France.

Manufacturing: The Key to Sustainable Business Innovation in the U.S.

By Daniel Riley and Jacob Park When President Barack Obama gave his State of the Union Address (1) last month, he made the case that U.S. economic revival is tied to a healthy manufacturing sector. Of course, he is not the first to triumph the importance of manufacturing to the economy. The key question, however, is what type of manufacturing the U.S. should have in the future. The answer, for the economy and for sustainable business innovation, may lie in advanced 3D printing technologies (2) or what some technology analysts refer to as, "additive manufacturing whereby machines based on advances in electronics and laser technology build complex materials from granules of plastics or metal" (3).

While not usually touted as a traditional sustainable technology, additive manufacturing processes can dramatically reduce the amount of waste created in the production of items from furniture to packaging. As compared to traditional manufacturing technologies, 3D printing technologies have relatively small capital requirements. MakerBot Industries (4), for instance, sells 3D kits designed for hobbyists for around $1,000.

According to the UN Environmental Program, the typical car wastes about 10,000 kg of raw materials during production (5). For example much of the bulk of a fender, because of uniform thickness requirements of typical manufacturing processes like welding and molding, is completely unnecessary. To Jim Kor of KOR EcoLogic who wanted to create the most efficient car possible, that unnecessary material increased drag and decreased fuel economy. "If you look at a cross section of a bird bone, you'll see that there is bone only where the bird needs strength," Kor explained. "The bone looks like chaotic webbing. [3D printing] is the only process that can replicate a bird bone." This logic led to the creation of the Urbee, the world’s first 3D printed car (6).

Like stacking bricks to build a house, 3D printing creates objects in layers, from the base up, without the limiting constraints of molding requirements or human error in welding. The result maximizes material usage, ensuring that no material needlessly goes from welder’s torch to junkyard. Even in smaller 3D printing projects, material use efficiency is an automatic consideration. The small scale of production typical of most 3D printing efforts means that, unlike with large-run manufacturing the cost of wasted material does not have to be ameliorated through economies of scale.

Shapeways, a company that allows customers to design custom products like furniture and household objects that might be hard to replace otherwise, actively encourages customers to save money by using less material (7). By prompting their customers to actively think about the materials that go into the production of their products, 3D-printing businesses like Shapeways foster consumer awareness of cost and material wastes involved production. This transparency is increasingly relevant as consumers demand that products be not only cost competitive (obviously an important factor in our current economic times) but also designed and produced with environmental sustainability in mind (8).

In addition, the U.S. is still dominated by the business model of making as many products as cheaply as possible, which often means outsourcing the actual manufacturing.A truly innovative feature of the additive manufacturing model is that it brings the possibility of scale to the emerging "hyperlocal" trend that can be seen from Northern California to Vermont. There are many emerging sustainable business enterprises that attempt to build on the growing consumer interest in all things local (e.g. food, energy, economic development, etc) and additive manufacturing provides a market template from which to scale a local business model to greater competitive advantage.

Case in point: what if a small community-oriented bookstore like Northshire Bookstore in Manchester, Vermont, had a machine that allowed consumers to print books that were in the Public Domain (i.e. do not have copyright protection)? All you would have to do is search and find the book of your choice and, if it were in the Public Domain, order the number of copies you want at a fraction of the cost of going through traditional book retailers. Through what Northshire Bookstore refers to as "print on demand technology"(10), this small but innovative business can now more effectively compete with large e-retailers like Amazon.com and chain book retailers like Barnes & Noble.

The argument that the future of the US economy lies in sustainable business has been made before, and additive manufacturing cannot substitute for well-designed tax and other policy incentives for green energy technologies. Rather, there is a strong case for building a well-articulated U.S. additive manufacturing strategy to complement current green technology research and development efforts, such as solar and wind energy. This could have a major impact on the entire American business system By using 3D printing technologies to promote local production and advances in material sustainability, U.S. manufacturing has a real opportunity to be reborn as a hub of 21st century sustainable business innovation (11).

As Cory Doctorow, author of Makers, suggests in an influential 2010 Wired magazine article (12): "The days of companies with names like ‘General Electric’ and ‘General Mills’ and ‘General Motors’ are over. The money on the table is like krill: a billion little entrepreneurial opportunities that can be discovered and exploited by smart, creative people."

References

(1) President Barack Obama State of the Union Address (January 24, 2012)

http://www.nytimes.com/interactive/2012/01/24/us/politics/state-of-the-union-2012-video-transcript.html

(2) "The Fundamentals of 3D Printing," The Future of Open Fabrication, n.d., http://www.openfabrication.org/?page_id=29

(3) March. P. (2011) "Production Processes: A Lightbulb Moment", Financial Times, December 29, p. 5.

(4) http://www.makerbot.com/

(5)  "Waste and car production - Maps and Graphics at UNEP/GRID-Arendal," Maps & Graphics, n.d., http://maps.grida.no/go/graphic/waste_and_car_production

(6) "URBEE car - 3D Printed Body," Resources: Case Studies, n.d., http://www.stratasys.com/Resources/Case-Studies/Automotive-FDM-Technology-Case-Studies/Urbee.aspx

(7) "Shapeways | creating hollow objects," Creating Hollow Objects, n.d., http://www.shapeways.com/tutorials/creating-hollow-objects

(8) OgilvyEarth research is one important source http://www.ogilvyearth.com/thought-leadership/latest-research

(9) Alexa Clay and Jon Carnfield, "5 Big Ideas for a New Economy", Co.Exist Blog http://www.fastcoexist.com/1679221/5-big-ideas-for-a-new-economy

(10) http://www.northshire.com/books_on_demand.php

(11) 3-D printer is featured in Fortune Magazine’s "Brave New Work: The Office of Tomorrow" photo essay (pg. 49-55) in its January 16, 2012 "The Future Issue"

http://money.cnn.com/magazines/fortune/fortune_archive/2012/01/16/toc.html

(12) http://www.wired.com/magazine/2010/01/ff_newrevolution/all/1

Contributor Biographies

Daniel Riley (email: rileyd@greenmtn.edu) is a senior studying Environmental Management at Green Mountain College. After graduation he plans to start a business using 3D printing as a way to solve current environmental issues of resource use and material efficiency.

Jacob Park (email:parkj@greenmtn.edu), Associate Professor of Business Strategy and Sustainability at Green Mountain College, specializes in the business of social and environmental innovation and entrepreneurship in emerging economies.

On Listening and Being Heard at Occupy Wall Street

By Allain Barnett It was a Saturday night, and I was glued to my computer screen, watching closely as a large line of police officers closed in on a group of citizens occupying a public park in Chicago. Many were sitting at the perimeter of their camp. They refused to move, but they did not fight. Instead they chanted, "We love you," as the police began pulling people from the line and arresting them. This feed was streaming live from a participant with a Wi-Fi connected laptop or smartphone. In a chat window next to the video stream, people sent supporting messages or advice like, "Don't fight back! Stay non-violent!"

A few hours before watching the drama unfold in Chicago, I was one of a group of people occupying Margeret T. Hance Park in downtown Phoenix. Protestors were taking turns suggesting how the crowd should deal with the possibility of a police arrest. The crowd listened to suggestions and responded with hand signals to indicate whether they agreed, did not agree or wished to block the suggestion and make an alteration. These hand signals seemed a little silly at first, but then I realized the importance of the process. One individual, for example, argued that passively resisting the police (which would inevitably result in arrests) could have disproportionate effects on marginalized people within the crowd, such as ethnic minorities and the disabled. I lifted my hands into the air to gesture support for this statement, and it was agreed that passive resistance by some protestors should not put marginalized people at risk.

For the first time I was witnessing a form of participatory democracy in action; decisions were made by consensus from nearly all of the people at the park. Not only that, I was actually participating in this process. Such participatory processes are featured heavily in literature on common property resources, vulnerability, environmental justice, resilience, political ecology and ecological economics when considering questions of sustainability, which emphasize the equity between the current generation and future generations, and between social groups within the current generation. This body of literature highlights case studies of existing successes, as well as critiques demonstrating the pervasiveness of power and hierarchy. Similarly, the process I witnessed in the park certainly wasn’t perfect. It was messy, sometimes frustrating, but when a decision was made, most people complied. Maybe this is because people are more likely to follow rules they themselves have participated in developing, or maybe it was because they believed in working together to send their message to the American public, Wall Street and Washington.

While media outlets have not given much recognition to Occupy Wall Street’s (OWS) method of imagining different democratic processes, they have criticized the lack of demands coming from OWS protestors. But the protestors are not without desire or vision: members of OWS in New York City have developed a list of grievances emphasizing the power of unregulated or under-regulated corporations to seek profit at the expensive of environmental degradation and inequality, and have encouraged American and global citizens to occupy public spaces and begin to address these problems through a truly participatory democratic process.

To some this may sound vague and, importantly, it will make it difficult to determine when and if the movement has succeeded. Yet this vagueness is vital to the success of the movement. The transformative potential of OWS is based on its recognition that there are no cure-all solutions and its devotion to a decision-making process that engages the public to participate, which can lead to a family of solutions for a wide range of problems. Since my participation in Occupy Phoenix I have been catching glimpses of what success might look like. More frequently than before October 15th, the day OWS went global, I now find myself involved in conversations with friends and strangers about our current economic, social, environmental and political problems. The continuing success of the movement depends on expanding the discussion to workplaces, universities, classrooms and public spaces, and on people from all over the political spectrum beginning to talk about the future they want and how they can achieve it. These conversations may be messy and frustrating, but they can also bring a sense of empowerment and innovation that can put more pressure on those who have been elected to represent us, and lead to outcomes that are both sustainable and fair.

While I am highly doubtful that OWS protesters would adopt sustainability as their unifying objective, I am certain that students of sustainability and occupiers have many shared visions of the future for our environment and human well-being. Of course, I am not an official spokesperson for OWS: we are the spokespeople for our future, and now is the perfect time to speak up.

Contributor’s Biography

Allain Barnett is pursuing his PhD in Environmental Social Science at Arizona State University. His research focuses on fisheries management in Nova Scotia, Canada, and the livelihoods and practices of fishing households under conditions of environmental and economic change.

Occupy Sustainability: Is This a Special Moment?

By Charles L. Redman, PhD About a month ago I sent out an email to School of Sustainability (SOS) students and colleagues posing the question of whether key elements of the Occupy Wall Street movement share important similarities with our own quest to encourage and implement a sustainability transformation in society. I received a dozen replies that supported further dialogue. My goal here is to stimulate discussion of these issues with the hope that we can learn from what is happening and, if you choose to do so, encourage you to contribute to the success of this movement.

Some of the most frequent criticisms of the movement, especially by pundits in the media, are that a diversity of issues are being championed and that there is not a "clear message." At one level, I agree with the observation that many seemingly separate issues are being cited as reasons for joining the demonstrations. Most commonly cited is anger over the concentration of wealth and influence in a very small percentage of the population, "the 1%," and the fact that they are not adequately taxed or held accountable for their mistakes—mistakes that have been costly. These issues relate closely to unemployment, undue corporate influence, etc. However, while issues such as a public education system that is failing, a health care system that is not available to all and a natural resource stewardship regime that is lacking do not seem to be closely related to the core, for me this diversity of grievances is the strength of the movement. At a fundamental level all of these issues are related to unequal access to resources, power, education, amenities and government protection.

For me, the growing inequality of access is the central issue of our time and at the core of a sustainability transformation. I believe the Occupy Wall Street movement and the many newer Occupy movements (in Phoenix, other U.S. cities, and cities around the world) reflect an emergent process of people coming together—with different initial motivations—and finding like-minded individuals, even if their primary objectives seem disparate.

The question that is often asked is whether the movement must focus on an easy to understand, compelling set of demands in order to succeed. I am tempted to agree, but at the same time I believe that the disparate goals are not contradictory and that perhaps we are better served by maintaining a diversity of grievances. The aspect of this that troubles me is that being open to everyone’s personal views means that individuals with more radical views, such as "down with capitalism" or "do away with all corporations," become part of the scene and disproportionally attract media attention.

A second common concern raised about the effectiveness of this movement is that it seems to have no leaders. This is intentional on the part of the demonstrators, who are attempting to maintain a ‘horizontal’ organization with open and democratic mechanisms for discussion and decision making. In this situation as well I have a tendency to think having identifiable, charismatic leaders espousing a unified, clear message would help the movement; but is this an unintentional surrender on my part to the status quo?

Although the number of cities with Occupy movements continues to grow, I am worried about whether this movement will be embraced by enough people and succeed in setting society on a new course. I do believe that most of the basic complaints and demands are well-founded, that the majority of Americans are sympathetic with the message that extreme inequality in access to resources is leading America in the wrong direction, and that some moderate actions could at least set society on a better course and build momentum for further change. Nevertheless, the actual number of people involved in these demonstrations is relatively small compared to the number of people who share these beliefs. This brings me to three final questions: First, why have so few city leaders allowed demonstrators to have a place and a forum for discussing issues? Second, why have these leaders responded to what is, in virtually all cases, a peaceful and non-threatening movement with ‘overwhelming force’? Finally, why aren’t you and I and more Americans joining this movement or at least putting these issues at center stage? This final question worries me the most and I see it as symptomatic of the system we have built for ourselves: we are too busy leading over-committed lives, and are too fearful of uncharted waters.

I believe this may be a special moment for those of us who want to see a transition to sustainability. Can we afford to let it pass?

Contributor's Biography Charles L. Redman (PhD in Anthropology) is the Virginia Ullman Professor of Natural History and the Environment and is the founding director of the School of Sustainability, Arizona State University.  His research focuses on the integration of social and ecological perspectives, the dynamics underlying rapid urbanization, the long-term aspects of human impacts on the environment and the application of resilience theory.  He has conducted archaeological research in the Near East, North Africa, and the American Southwest as well as co-directing contemporary interdisciplinary projects in Central Arizona and working in collaboration with UNAM in Mexico.

Coral Reefs in Crisis: Finding Nemo May Become a lot Tougher

By Tara Haelle If your food sources vanished tomorrow, how long would it take you to starve to death?

What if your diet until this sudden starvation already lacked the nutrients to keep your bones strong and healthy? What if you were already suffering from the flu, or a more serious disease? It's impossible to say definitively how long your starving, weakened, diseased body would hold out, but death would be knocking.

Such is the state of our coral reefs today. The triple threat of coral bleaching (which causes starvation), higher prevalence of disease and more acid in the ocean (inhibiting corals' skeletal growth) calls into question how long our reefs can continue to survive. Or, at least how long they’ll look as we envision them in our Jacques Cousteau-inspired imaginations: gorgeous orange and yellow fans waving beside barrels of purple and bowls of blue, with Nemo and friends darting throughout the nooks and crannies that house the crustaceans we order at Red Lobster.

We must remember the brooding fact that this ecosystem’s decline contributes to ours as well—unless we act. The public needs better media reporting and guidance to address the problem; we lack both at the moment, but both can be remedied.

Thousands of miles of coral reefs are starving; many will recover, but in their weakened state, they’ll become more susceptible to the diseases proliferating as sea surface temperatures rise. Since coral is, literally, the bedrock of marine ecosystems, this situation signals trouble for oceanic life and people.

Coral reef degradation is the proverbial canary in the coalmine. Not because reefs themselves will vanish one day but because the ways global warming, pollution and habitat destruction are affecting the reefs forewarn of the changes that will eventually reach our backyards—literally. Yet the complexity of these problems makes it a struggle for scientists to pinpoint what will happen first, when, where and how. It's like playing Whack-a-Mole on a football field littered with land mines.

"As you remove certain portions of the coral reef environment, the rippling effect starts occurring and before long some species, whether we like them on our dinner table or in our aquarium, will start disappearing," said Billy Causey, Southeast Regional Director of NOAA Office of Marine Sanctuaries. "In 50 years, we're going to be in serious trouble if we don't make some changes. We're going to see losses in coastal and marine environments, perhaps, even failures in fisheries stocks and so on."

Those losses translate into economic casualties as well. Ross Hill, a marine biologist at the University of Technology in Sydney, Australia, quoted one study that puts the number of people worldwide directly or indirectly relying on coral reefs at 500 million. That's half a billion people who could lose their livelihoods. While dying coral reefs might feel remote in the dead of a Minnesota winter, the worldwide financial collapse of 2007 painfully revealed how interconnected the economies of our world now are. The ripple effects of an economic crisis in a nation like Fiji—surrounded by coral reefs—matter to us in the U.S.

"You don't want the millions of people who live in low-lying areas of the tropics to end up as ecological refugees as the coral reefs die and the income from tourism and their food disappears," said Judy Lang, the Scientific Coordinator of the Atlantic and Gulf Rapid Reef Assessment Project.

Yet potentially irrevocable changes in coral reefs could lead to these consequences if we don't address the causes of coral bleaching, disease and ocean acidification. With the situation so dire, why isn't the message getting across? And what can we, many of us far from a coastline much less a reef, do about it?

The first answer is twofold: one, the media does a poor job of explaining what's really going on and what to do about it; two, it's hard to motivate people about issues so seemingly remote, in both miles and years. Reporters must clearly explain what's causing the degradation of our coral reefs and why it matters.

Let's start with causes: 99 percent of marine and climate scientists agree the number one cause of all three attacks on coral reefs is climate change from increased levels of carbon dioxide in the atmosphere. But as Ray Hayes, a member of the Global Coral Reef Alliance Executive Board and Professor Emeritus of Howard University College of Medicine, points out, "To look at elevated temperature as a sole causative agent [of bleaching] would be a mistake." Additional stresses on coral include land-based sources of pollution, habitat loss and overfishing.

Meanwhile, the ocean has been absorbing more carbon dioxide from the atmosphere and converting it into carbonic acid, weakening the ability of corals, crustaceans and mollusks to build their skeletons and shells. The cumulative effect on the reef resembles our own bodies' reaction to excessive stress: "The corals are overly stressed and diseases start breaking out," Causey explained. Indeed, diseases have proliferated in the past forty years, according to Lang.

"Bleaching," so named because the coral turns bright white, occurs when stressed coral expels the food-producing algae that contribute to its vibrant colors. Increased water temperature can trigger bleaching: coral-algae symbiosis flourishes in 78 to 86 degrees Fahrenheit; even a few degrees higher can spark a bleaching event. Sustained bleaching is essentially starvation, during which coral halts all inessential biological processes, including reproduction and skeleton-building, to conserve energy. Too often, bleached coral dies, and within hours brown, green and red algae grow over its skeleton, potentially preventing coral re-growth and, irrevocably, altering the reef environment.

"Coral reefs are nurseries for a number of economically significant seafood sources, such as lobsters and crabs and shrimp," Hayes said. "All those organisms we think of as being nutritionally supportive to a human population could be at risk as the reefs change."

In 1998, during the worst worldwide bleaching event on record, sixteen percent of the world's shallow-water reefs died. During another bad bleaching event in 2005, 80 percent of Caribbean coral bleached and as much as 40 percent died in the eastern Caribbean. According to Tom Goreau, president of the Global Coral Reef Alliance, 2010 was the hottest year in history—and one of the worst coral bleaching years ever. Goreau said he watched almost all the corals in Thailand die over the course of a few weeks.

Again, where are the screaming headlines to wake people up?

First, it's hard to personalize something like bleaching that’s only visible underwater at certain times of the year. Ocean acidification, Causey points out, presents a tougher hurdle: "We're not going to see ocean chemistry changes; we're just going to see the results after it's almost too late."

Kris Wilson, an environmental journalism professor at the University of Texas at Austin, said reporters must "transcend the journalism of proximity," a major factor in what gets reported. "A journalist has to take something abstract and bring it to a level to feel it's a part of their readers' lives," he said.

For example, telling readers about drugs like Ziconotide—a cone shell product recently approved as a non-addictive painkiller and used to treat Alzheimer's disease, Parkinson's disease and epilepsy—emphasizes the value of oceanic ecosystems. "A whole heap of medicines come out of animals that live on reefs," said Hill.

Yet, said Lang, we exacerbate the hazards reefs face with our high-energy consumption and with waste ranging from pharmaceuticals and fertilizers to household products and caffeine.

Another flaw in coral reef reportage arises from fundamental differences between scientific thinking and journalistic storytelling. The scientific method requires scientists to accept uncertainty in much of what they do; even gravity is still a theory.

"Science is long-term, incremental, always evolving," Wilson said. "Scientists are very cautious about their findings." But reporters and readers often want certainty and immediacy—rarely compatible with an issue like climate change. "We have to become comfortable with a certain level of uncertainty and still be willing to act," Wilson said.

According to Causey, this culture clash even affects how scientists talk to reporters. "It makes them reluctant sometimes because they think it's going to taint their scientific credentials if they go beyond what is or is not certain," he said. "We can't remain in stalemate because people are afraid of speaking beyond what they're certain of."

Most regrettably, however, reporters often leave readers feeling powerless: artificial he-said-she-said stories belie scientific consensus on the issue, or reporters sound doomsday trumpets without informing readers how to take action.

A reliance on "objectivity" over "balance" can distort how readers understand an issue. "Objectivity," the classic "he-said-and-she-disagreed" model Wilson describes, only presents two opposing points of view on a topic. "Balance" puts those views in context, quantifying and qualifying the voices on both sides.

Wilson adds that context is essential. "If a person is an outlier," he said, "you're obligated to tell readers the weight of his opinions." Wilson points out that prominent global warming skeptic Patrick Michaels receives funding from Western Fuels Association—this doesn't invalidate his opinions but it's essential to disclose.

"The more information people have, the more they realize these stories impact them, the more they'll hopefully become involved," he said. "Good environmental reporting has the potential to improve public policy and get people to understand their role in the environment and that they can really make a difference."

Of course, people must want to make a difference. "Most people are very myopic," Hayes said. "They see what's right in front of them and respond to the immediate situation and not to something that might be in the distance or somebody else's problem as they see it."

But time for them to notice is running out.

"What's happening to coral reefs is a preview of what's going to happen on a much larger scale," said Causey. "People need to recognize that although this may be happening in the tropics right now, it's not long before it's going to happen here. The coral reefs are symptomatic of the bigger climate change problems."

Hill adds that we must understand our place in the world. "We need to realize that humans are part of the global ecosystem, not above it and not immune to the effects we have on it," he said. He quoted Jacques Cousteau: "For most of history, man has had to fight nature to survive; in this century he is beginning to realize that, in order to survive, he must protect it."

Contributor’s Biography Tara Haelle is a photojournalism graduate student at the University of Texas at Austin and a high school journalism teacher at Texas Virtual Academy. A freelance writer and photographer in over two dozen publications, she primarily reports on health and environmental issues. As an avid scuba diver, she has a special place in her heart for sharks and coral reefs.

Electric Utilities Could Determine the Success of the Renewable Energy Industry

The renewable energy industry, through its innovation, enthusiasm, and ingenuity, has the potential to transform the nation’s energy landscape from a carbon dioxide-emitting giant to a climate impact mitigating, efficient, and modern generator of electricity. However, without engaging electric utilities, the industry may have difficulty expanding and thriving in a market dominated by fossil fuel generation. The renewable energy industry should form a mutually beneficial partnership with electric utility companies in order to increase its presence and share within the energy market. The importance of creating and maintaining this collaboration not only impacts the energy industry and market, but the living standards of future generations as well.

Do Workers with Disabilities Help Sustain the Economy Through a Downturn?

By Kristen Faye Bean, MSW Although many sustainability concerns concentrate on environmental issues, the United States’ (U.S.) economic downturn that began in December 2007 highlights issues of economic sustainability. The entire U.S. economy is struggling to sustain the power that it has upheld in the world economy. Businesses worry about maintaining profits with minimal costs, and employees are concerned about job sustainability. Employers have begun to focus on aspects of their business that are more robust to economic downturn. The layoffs since December 2007 have been distributed among many different industries; the third quarter of 2009 showed that manufacturing firms, construction, professional and technical services, and management of companies and enterprises had experienced mass layoffs (Bureau of Labor Statistics, 2009). Because of the relatively equal distribution of layoffs, it is unclear what types of employees businesses are relying on to sustain profits with minimal costs.  This paper explores whether employees with disabilities are an integral labor market for businesses during weak economic periods.

The economic theory of inferior goods explains that in order to save money, consumers purchase cheaper goods more often, and businesses employ cheaper labor with fewer benefits (Krugman & Wells, 2005). This theory predicts that low wage workers provide sustainable labor sources for businesses during an economic downturn.

People with disabilities tend to be stable, low- wage workers in the U.S. These people usually have income from supplemental security income (SSI) payments and health insurance from Medicaid. Therefore, they often work low-wage jobs that are temporary contracts, piece rate, and without other benefits such as health insurance. In order to maintain their SSI payments and Medicaid, people with disabilities must not earn more than the Substantial Gainful Activity—a federal cap on monthly income for those enrolled in the SSI program. The Substantial Gainful Activity in 2010 for a blind, disabled person is $1640 USD and for a non-blind, disabled person it is $1000 USD. (Social Security Administration, 2009). People with disabilities provide a stable, low- wage worker population due to their desire to maintain their federal disability benefits.

Little is known about how changes in the U.S. economy impact the labor market for people with disabilities. People with disabilities have increasingly joined the labor market in the last few decades since the deinstitutionalization in the 1970s of many people with physical and mental disabilities. The most recent financial depression has been the first significant economic crisis testing this labor market since the deinstitutionalization movement, thus providing an opportunity to analyze the stability and economic impacts of this particular labor market during an economic downturn.

The one-year estimates from the American Community Survey (ACS) of 2007 and 2008 were used to evaluate whether or not people with disabilities sustained employment after the economic downturn hit in December 2007. The ACS is an annual government-funded survey of a random sample of the U.S. population. Among other information, the ACS collects data on the incomes of people with and without disabilities. As previously noted, the theory of inferior goods predicts that people with disabilities would be employed more during a weak economy. The following research questions were statistically tested to assess the levels of employment of people with disabilities during the current economic downturn:

  • Was the income of people with disabilities in 2007 less than the income of people with disabilities in 2008?
  • Does the income gap between people with and without disabilities decrease between 2007 and 2008?

The ACS data was collected and combined between January and December of each year. The ACS defines disability as "the restriction in participation that results from a lack of fit between the individual’s functional limitations and the characteristics of the physical and social environment." The 2007 survey asked participants if they experienced the following disabilities: sensory, physical, cognitive, or self-care disabilities. The 2008 survey asked participants if they experienced hearing, vision, cognitive, ambulatory, and self-care disabilities. The measure used in this study separated participants into groups of people experiencing any disability and people not experiencing a disability. Income status was defined equally in the 2007 and 2008 ACS surveys. Income was defined by wage income, which was "total money earnings received for work performed as an employee during the past 12 months." The wage income is separate from other sources of income, such as SSI payments. A change in wage income would reflect a change in income based on employment.

All participants were divided into one of two categories: disability or no disability. Participants self-reported income as the amount of money that they made by work in the past 12 months. The total sample of 123,060 participants in 2007 and 2008 were aged 15 and older. The sample did not include institutionalized people with and without disabilities in the U.S.

Data Analysis

Data were analyzed using the statistical software, SPSS 18.0 (SPSS, 2009). Independent samples t-tests, which are used to analyze whether or not the average of two different groups are different, were conducted to test the hypotheses. Raw data were used to assess the equivalency of average income among people with and without disabilities. The wage gap between people with and without disabilities in 2007 and 2008 was calculated by finding the difference between the income of each person with and without a disability. Because of many missing data points on income, the missing data of wage gaps were imputed statistically using series mean, which replaces the missing values with the wage gap sample mean. The equivalency of means of the two new samples of wage gap in 2007 and wage gap in 2008 were used to perform an independent samples t-test.

Results

The mean wage of people with disabilities was $7,510 in 2007 and $8,340 in 2008. The independent samples t-test determined that there was a significant difference between the wage of people with disabilities in 2007 and 2008. On average, incomes of people with disabilities increased by $830 between 2007 and 2008. Even though an $830 wage raise might seem like a minute increase, it would be a substantial increase for a person that might be working a part-time, temporary, or piece rate job. An independent samples t-test was conducted on the mean wage of people without disabilities in 2007 and 2008 in order to see if this increase in income in 2008 was unique to people with disabilities. The mean wage of people without disabilities was $27,073 in 2007 and $27,412 in 2008. There was a significant difference between the income of people without disabilities between 2007 and 2008. On average, incomes of people without disabilities increased by $339 between 2007 and 2008.  On average, the ACS data shows that people with disabilities’ income increased by $500 more than that of people without disabilities between 2007 and 2008.

The data on income of people with and without disabilities shows that the income of people with disabilities increased significantly more in 2008 than people without disabilities’ income. The independent samples t-test determined that there was a significant decrease in the income gap of people with and without disabilities between 2007 and 2008.

Discussion

People with disabilities have increased their income from employment after the economic downturn occurred. The decrease in the income gap between people with and without disabilities showed that people without disabilities did not experience a significant income gain from employment, while people with disabilities did experience a significant income gain from employment during the weak economy. This study shows that people with disabilities have had more stable employment in an economic downturn than people without disabilities.

The increase in wage income of people with disabilities implies that they have received new employment opportunities to increase their income. People with disabilities benefit employers during an economic downturn by contributing to the labor market as stable, low-income employees who do not need additional benefits. People with disabilities can provide sustained low-wage employment during a weak economy, but the future will show if employers will maintain the increased employment opportunities for people with disabilities during a strong economy. Future research should explore where people with disabilities are employed in the economic downturn in order to find out which industries are benefitting from the employment of people with disabilities.

References

Bureau of Labor Statistics. (2009). Extended mass layoffs- third quarter summary.  Economic News Release. Retrieved on January 12, 2009 at: http://www.bls.gov/news.release/mslo.nr0.htm

Krugman, P. & Wells, R. (2005). Microeconomics. New York, NY: Worth Publishers.

Nichols, M. (2008). People with disabilities in the U.S. labor market. Citizen Economists. Retrieved on November 15, 2009 at: http://www.citizeneconomists.com/blogs/2008/09/03/people-with-disabilities-in-the-us-labor-market/

Pagan, R. (2006). Is part-time work a good or bad opportunity for people with disabilities? A European analysis. Disability and Rehabilitation, 29(24), 1910-1919.

Rigg, J. (2005). Labour market disadvantage amongst disabled people: a longitudinal perspective. Centre for Analysis of Exclusion, LSE, CASE Papers.

Social Security Administration. (2009). Substantial Gainful Activity. Automatic Increases. Retrieved on January 12, 2009 at: http://www.ssa.gov/OACT/COLA/sga.html

SPSS, Inc. (2009). SPSS 18.0 [computer software]. Chicago: Author.

Contributor's Biography:

Kristen Bean is a PhD student at the School of Social Work at Arizona State University. She received her Masters of Social Service Administration and Certification of Health Administration and Policy from University of Chicago. Kristen Bean researches physical, developmental, and mental disabilities. Kristen Bean is currently a research assistant at the Southwest Interdisciplinary Research Center.

Too Much of a Good Thing: The Relationship between Money and Happiness in a Post-Industrial Society

By Alison Dalton Smith Happiness is considered a universal human aspiration, but the means to achieving happiness has become inexorably entangled with gaining material possessions.  In common paradigms of economic development, Gross Domestic Product is used as a proxy for measuring the well-being of a nation’s citizens.  While this is often true in impoverished nations where basic needs are not met, there is a threshold point past which increasing economic gains no longer necessarily deliver increases in human well-being.  Beyond this threshold, economic measures are no longer adequate for accurate measurement of a nation’s human well-being. In fact, this myopic focus on economic growth has created an unsustainable way of life that is increasingly unfulfilling for those that are engaged in the cycles of consumption.  In this paper, I will address both recent patterns in human well-being in industrialized nations and more comprehensive indexes that quantify human well-being.

Sustainability is the interaction of three aspects of life: environmental, economic, and social. Citizens and researchers alike accept there are causal effects of increasing economic activity and resulting environmental degradation. The link between the social aspect of life and economic activity was long thought to be a positive one;  I contend that this assumption only holds up to a certain point.  I will not try to pinpoint the threshold in this paper, but will only bring together different sources of information to show that increasing economic growth does not bring positive social returns in all cases.  The growth of literature on this topic began with psychology and has recently been developed by economists.  I will explain the terminology used and data sources in the first part of the paper, examine the data trends in the next part, and finally make recommendations for how we can address the issues presented in the paper.

The concepts of happiness, well-being, and life satisfaction have been used interchangeably in the literature addressing connections between economic growth and social returns, although recent studies show that there are significant differences between happiness and life satisfaction (Veenhoven, 1991; Diener & Biswas-Diener, 2002). Peggy Schyns (1998) found the correlation between life satisfaction and happiness to be .90, which supports this interchangeable use.  However, as quality of life studies have progressed, some researchers have begun to separate the two.  Happiness has been defined as affective (influenced or resulting from emotion), and life satisfaction as cognitive (the process of thought) (Diener, 2004).  Happiness research has generally been based on surveys that ask just one question.  Subjective well-being (SWB) is a term often used to indicate a more comprehensive approach to life satisfaction that incorporates happiness and other judgments of the overall quality of life (Hoorn & André, 2007).

The national accounts of well-being, created by the New Economic Foundation, is a completely different approach to well-being assessment.  People are asked not one, but 50 questions about well-being from personal and social aspects of their lives.  This approach is especially important because it can be used across socio-political scales, from tribal to national levels. (New Economics Foundation, 2009).

Amartya Sen’s capabilities approach is another atypical approach to human well-being assessment.  This approach, developed in the 1980s, is different from the data analysis approach. The freedoms of individuals are the building blocks and, "attention is thus paid particularly to the expansion of the ‘capabilities’ of persons to lead the kind of lives they value and have reason to value," (Sen, 1999, p. 18).  The benefit of using this paradigm is that it can be applied across values systems, cultures, languages, and scales because it allows the user to define the values intrinsic to the evaluation (Sen, 1999).

Richard Easterlin challenged the perception that economic growth would lead to increases in happiness in his seminal paper, Does Economic Growth Improve the Human Lot? (1974). The findings of his paper are known as the Easterlin Paradox.  He made three conclusions that led to debate and research for the next thirty years.  The first was that people with higher incomes are happier than those with lower incomes within the same country. He claims causality from these findings from income to happiness (Easterlin, 1974).

Second, he concludes that his findings for individuals does not hold up for countries; "…if there is a positive association among countries between income and happiness it is not very clear," Easterlin, 108, 1974).  His third conclusion is that as a country’s GNP increases, its population does not get happier.  He only has data from the United States, as there were no other countries with time-series data on this issue.  These last two findings have not held up over time. In-depth analysis on this topic can be found in Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox (Stevensen & Wolfers, 2008) and Subjective Well-Being: Three Decades of Progress (Diener, Suh, Lucas, & Smith, 1999).

Easterlin’s first finding that rich people tend to be much happier than poor people was corroborated by subsequent research (Diener & Biswas-Diener, 2002).  While rich people tend to be happier, this is only part of the picture.  Rich people do not get any happier with more money (Scitovsky, 1992). In fact, from 1946- 1970, per capita real income rose by 62 per cent in the US, but reported happiness did not change substantially (Scitovsky, 1992).  In the rest of the paper, I will address this occurrence.

Between 1946 and 1996, per-capita real income rose by a factor of 2.5, but average happiness has remained the same (Frey & Stutzer, 2002). Figure 1 shows a perplexing trend that has occurred in the United States.  Since the mid-1960s, the percentage of very happy people in the United States has actually decreased slightly while GDP per capita has skyrocketed. Figure 2 shows that a similar trend has occurred in Japan.

income_and_happiness

satisfaction

Figure 3 shows cross-national data of a nation’s GDP per capita and SWB Index.  From the graph, we can see that GDP is not the most significant determinant of a country’s SWB.  Countries with similar cultural patterns and political states tend to cluster together.  While high SWB does not rely solely on high per capita GDP (there are both rich and poor countries with high SWB), it does appear true that low SWB does not occur in countries with high per capita GDP. In countries where large numbers of the population are extremely poor, people have too little to eat, or are homeless, happiness measures do increase when everyone’s income rises (Frank, 2007).

"]Figure 3: GDP per capita vs. Subjective Well-Being for the Different Societies (Inglehart, R. Foa, C. Peterson & C. Welzel (2008).)[A1]In developed countries, Richard Layard found a peculiar occurrence: as people gained more income, their perceived income requirement rose.  People base their satisfaction on their current income based on what they have and what they want to have.  As the gap between their wants and needs widen, their current incomes become insufficient.  Because of this phenomenon, Layard concludes, it is difficult for economic growth to improve happiness (Layard, 2005).

Ruut Veenhoven suggests that wealth is subject to the law of diminishing returns after a country surpasses industrialization (Veenhoven, 1991).  This finding was repeated in Ed Denier’s international study.  He showed that happiness rose sharply as GDP per capita increased when GDP was at a basic subsistence level, but after a nation industrialized, happiness rose at a slower rate (Diener & Biswas-Diener, 2002).

In addition to the diminishing returns on income, people tend to adapt to their circumstances, thereby negating the gains in happiness that they initially experienced (Myers, 2000). Figure 4 shows how people adapt to an increase in income and form new aspirations based on their income level.  An increase in income brings about a downward shift in the aspiration curve, which neutralizes increases in happiness (Frey & Stutzer, 2002). This may lead one to believe that any policy aimed to improved people’s happiness is futile. However, Brickman and Campbell contrarily show that after people experience an initial uptick in their happiness due to life circumstances, they do not go all the way back to a point of neutrality, but to a point slightly higher than they were before (Brickman & Campbell, 1971).

Figure 4: Happiness and Aspiration Shifts (Frey & Stutzer, 2002)

The following explains the scenario above:

"Initially, people have a certain aspiration level A1 so that income Y1 produces happiness H1. Raising income, say from Y1 to Y2, raises happiness from H1 to H2… However, over time, aspiration adjusts to the higher income level.  The aspiration level curve A1 shifts downward to Am. Ex post, the rise in income from Y1 to Y2 does not produce any increase in happiness…" (Frey & Stutzer, 2002).

Income inequality within a society can lead to unhappiness through failure to meet aspirations.  Juliet Schor noted that in the late 1980’s income inequality grew and people were feeling deprived in comparison to those at the top.  Even people who made $100,000 a year felt poor because they were comparing themselves to the nuevo riche of the day (Schor J. , 1998).

Other factors have also contributed to stagnation or decrease in overall happiness in developed countries.  Both men and women have increased their working hours since the 1950s.  From 1969 - 1987 women have increased their hours yearly by 305 hours and men's hours have increased by 98.  In addition, Americans are working more overtime, and paid time off has been decreasing since the 1980s (Schor J. B., 1991).  The time spent to get to these jobs has also increased.  Commuting is often a solitary and stress-inducing activity (Baker, 2004).

Perhaps the strongest explanation to the paradox of money and happiness lies in how GDP is calculated. GDP analysis shows that the United States has gotten much wealthier as a whole over the past thirty years.  However, by aggregating incomes across classes, GDP masks income distribution.  At the same time that happiness began to stagnate in the US, so did real household wages among the working classes.  Figures 5 and 6 show that prior to 1979 all income brackets were growing relativly equally, but since the 1980s incomes at the top have increased incredibly, while the bottom and middle classes have seen much lower growth rates.   So, while GDP steadily increased, most Americans were not getting significantly richer.

Figure 5: Changes in before-tax household incomes, 1949-1979 (Frank, 2007)

Figure 6: Changes in before-tax incomes, 1979-2003 (Frank, 2007)

Indexes other than GDP may be more suited to capturing life as most humans experience it. Below I will briefly describe a few alternative indicators: the General Progress Indicator, the Happy Planet Index, and the National Accounts of Well-Being.  I have intentionally left out the much-cited Human Development Index.  While the index does indeed provide another perspective on development progress, it uses GDP as an indicator, which does not get us to a new paradigm of progress or development.

Each of these indicators has been accused of being biased towards one policy agenda or another--that they each incorporate value judgments.  Cobb, Halstead, and Rowe point out in If the GDP is up, Why is America so Down? that GDP is also not value-free; in fact, it values the social and environmental aspects of life at zero. It also fails to differentiate between money spent on negative circumstances--such as the revenue from a divorce and the cleanup and restoration efforts after a natural disaster--and money spent positive events (Cobb, Halstead, & Rowe, 1995).

The General Progress Indicator begins with personal consumption expenditures, weighted by an index of inequality in the distribution of income.  Additions to production are made for non-market benefits associated with volunteer work, housework, parenting, and other socially productive efforts as well as services from both household capital and public infrastructure (Talberth, Cobb, & Slattery, 2007).

The Happy Planet Index (HPI) is another more comprehensive index.  It focuses more on the ecological cost of development.  The indicators used are ecological footprint, life-satisfaction and life expectancy (New Economics Foundation, 2009).  The HPI was created by the same organization responsible for the National Accounts of Well-Being and can be used a policy tools in tandem with them.

Development directly affects human well-being. Studies have shown that increasing wealth, whether measured in income growth, GDP, or GDP per capita, does lead to increases in well-being when basic needs are not met.  However, that link has led our policy makers, politicians, and academics to ignore an equally obvious occurrence that after a threshold point in industrial development, that relationship no longer holds up; increasing wealth then has diminishing returns to human well-being.

An increasing awareness of a growing global environmental crisis has prompted worldwide movements to change destructive behaviors. However, the idea of "cutting back" is often falsely associated with reducing one’s happiness or well-being.   Human well-being is at the forefront of development policy and incredibly important to governments around the world, as shown by the Millennium Development Goals.   Development policies need to expand to address the whole spectrum of development—both in developed and developing nations.  By recognizing that increased consumption may not increase human well-being in developed nations, policies may be designed that not only benefit people, but reduce their impact on the planet that sustains them.

References

Baker, D. (2004). Reassessing the consumer price index. In E. N. Wolff, What Has Happened to the Quality of Life in the Advanced Industrialized Nations? (pp. 81-120). Northhampton : Edward Elgar Publishing Limited.

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Contributor's Biography:

Alison Dalton Smith works in international higher education development at the University Design Consortium at ASU.  Her interest in international development results from having lived in Latin America, Asia, and Europe.  She is particularly interested in the link between consumption and standards of living.

Bus Rapid Transit as a Sustainable Public Transit Alternative

In order to investigate the potential growth of public transit for the creation of a more sustainable transit paradigm, this paper seeks to explore the features of a Bus Rapid Transit (BRT) system, and compare them to the costs and benefits of other public transit options.