May 2012

Economic growth in the sustainable community: can we or can’t we?

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In this next foray into capitalism I want to explore the question of growth. Note that I still have not defined what capitalism is. Instead, I have taken the idea of capital and explored how the concept of capital  works together with sustainability and resilience.

This time I want to consider economic growth.We hear different ideas: economic growth can continue indefinitely as it is just a mirror of human genius and innovativeness. On the other hand, some say economic cannot continue on a finite planet.

Let us look first, then at how nature grows and see if we can find some insights into how capital can grow, and what economic growth would look like through the eyes of sustainability.

Growth = ecological maturity increase

Ecologists describe how all eco-systems strive to become mature.  You probably have the idea somewhere in the back of your mind, how smaller animals give way to large predators, small plants become forests, rushing water becomes a swamp, etc.

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How can the world owe more than the total value of its assets?

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Last time I went through the different types of capital and the two types of financial capital: own capital, called equity, for example the money put in by owners as shares, and foreign capital, money  the organization has borrowed.

Before I get any further on my understanding of Capitalism, I need to take one more step with understanding financial capital. Bear with me as I find this bit rather spooky.When companies (or even countries as we saw in the last post) draw up a balance sheet they put the money they have borrowed in as a liability, and accountants put a minus sign in front of that number.When a lender lends the money to, say, a company, the accountant put a plus sign in front of that figure to show that it represents and asset. For a bank to lend the money it does not need to actually have the money in its own account. It merely has to have a licence to lend money.

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