Today’s post is by Maroussia Klep of the OECD Environment Directorate
Let’s be honest, waste reduction doesn’t have much of a ring to it. To many, it’s a complex policy issue without much hope if consumers keep throwing their cans away in the street. Yet, designers are taking a different view, looking at reducing waste from a business angle.
The amount of material being extracted and wasted today is scary. In recent decades, the high consumption levels in developed countries, combined with rapid industrialisation in emerging economies, have led to unprecedented levels of demand for raw materials. In just thirty years, the quantity of materials extracted for consumption has increased by 60%. Even more worrying is that a fifth of these materials end up as waste. This represents over 12 billion tonnes of waste per year; the equivalent in weight of more than 21,000 Airbus A380s. Considering that the global economy is expected to quadruple by 2050, and that the world population keeps increasing, one might wonder how, and for how long our planet will be able to keep providing supplies.
In this context, one solution to avoid a collapse of natural resources is to break the link between economic growth and material extraction. A number of OECD countries have already demonstrated that this works: they manage to increase production, while at the same time reducing resource exploitation. These efforts are conducive to a “circular economy” approach. This new model aims to move away from the traditional, linear economic model, under which materials are extracted, consumed, and finally thrown away. With a circular economy, old products are re-used and remanufactured into new ones for as long as possible in order to preserve existing resources and to minimise extraction. When products finally reach their end of life, material is recovered and fed back into the economy, instead of being discarded. If this approach is handled efficiently, the notion of waste could one day become obsolete!
Designers have an important role to play in supporting a circular economy. In addition to studying the aesthetic and practicality of a product, they now have to cope with the threat of resource scarcity, and to somehow create an opportunity from it. In order to encourage re-use and recycling of a product or parts of it, designers can make used products easy to disassemble for example. Think of the quantity of valuable material lost in your old phone abandoned in the cupboard! Designers can also promote the use of recyclable materials in production. In Japan, a green tea company changed the design of its bottles to make them thinner and transparent instead of green-coloured, which facilitated recycling, and reduced costs. The global fashion retailer H&M also jumped on board recently: a few months ago, they launched their first trousers and skirts made out of textiles fibres recycled from used clothing collected from consumers.
These examples show that good design can be good for business – by reducing the quantity of materials purchased and used in production – and, at the same time, diminish pressure on the environment.
Policy makers can encourage and support firms and designers in many ways. First, in order to make the most efficient use of materials, designers need data and guidance on the availability and recyclability of resources. OECD work on Sustainable Materials Management and on Material Flow Analysis support these efforts, by promulgating measures aimed at preventing and reducing waste generation and managing residues in an environmentally sound manner. In addition, policy makers can promote the use of certain materials by setting requirements for green public procurement and product standards. Instruments such as taxes and standards can also be used to encourage recycling and material recovery. Finally, policy makers should ensure the good functioning of recycling markets, and encourage the entry of efficient recycling operators in order to make it a profitable business.
Of course, recycling and re-use efforts are undermined if consumers treat nature like a big garbage dump. Not only continents but even our oceans are starting to resemble giant dustbins. Awareness campaigns and communication efforts towards consumers are thus essential for closing the loop, and require joint efforts by corporations and municipalities. Those are but a few examples whereby public bodies can stimulate efforts by the private sector on the preservation of resources.
We live in interesting times. The planet is being exploited as never before, and there is no sign that global consumption will stop rising. On the other hand, some new trends provide hope. Businesses are starting to worry about the shortage of critical resources and are joining efforts by policy makers to move towards a circular economy. Amidst this paradox, a new, unexpected actor comes on stage: designers. By connecting financial and environmental interests from the point of production, design has indeed the potential to help reduce much damaging waste.
Today’s post is by Tobias Vogt and Fanny Kluge from the Laboratory of Survival and Longevity at the Max Planck Institute for Demographic Research, Rostock, Germany
Ageing populations are a threat to the sustainability of modern societies. This is a dominant line of thought in the political, public and scientific discussion that warns us about the consequences of demographic change. It refers to the concern that the needs of an increasing share of older people have to be met by a decreasing number of younger members of our societies. These warnings must be taken seriously if current conditions prevail. The changes in the age structure will bring major challenges to public finances and the demand for an adjustment of current social policies, in particular, in countries with large public welfare programs for the elderly. Yet, the demographic future may not look as bleak as we generally think. The greying of a population may even embrace certain advantages simply because of the natural transformation of the age structure. This thought was the starting point for a, so far rare, project that focused on the potentials and chances of demographic change. In this case study (downloadable from PLoS One) we focused on Germany as the second oldest country worldwide in terms of its population’s median age of 44.3 years and identified five different areas that may benefit if observed trends of the past continue into the future.
To understand the anticipated challenges as well as the opportunities of demographic change one has to keep in mind that they only result from a change in the age structure of a population. If we depict the current age composition in Germany or in most industrialized countries, it looks rather more like a tree than the usual population pyramid. Yet, this illustration will also only be a snapshot as the over-represented older age groups will become smaller and eventually disappear in the coming decades. Despite ongoing low fertility and a general population decline, this will result in a more stable age structure after 2040 than in the decades when the large baby boom cohorts reach retirement age. In the last decades the share of Germans above age 65 rose by 2 to 3 percentage points. Between 2020 and 2040 this share of Germans will increase by 10 percentage points from 23% to 33%. In the following two decades it will remain stable at this high level and go up slightly.
One major concern of this population structure is that fewer and older individuals are expected to be less productive. This assumption ignores the fact that certain productivity determinants among older individuals like education and health will not remain constant but change over time.
During the last decades participation rates in higher education have increased from cohort to cohort which is reflected in the share of individuals in the labor force with tertiary education. In 2008, every fifth individual in the age groups 25-29 and over age 50 attained tertiary education. These shares will rise considerably. After 2050, every third individual in the respective age groups will have a tertiary education. If current labor force participation rates among these groups remain as they are, this would mean that 46% of the German labor force will hold a higher education degree compared to 28% today.
These changes in educational levels are accompanied by an improvement in individual health. Over the last 30 years, the age at which Germans report worsening subjective health has become later and later. If we forecast this trend into the future we find that not only average life expectancy as such will increase but also the number of years we live in good health. Already today Germans can expect to spend up to 60% of their life in good health. By 2050, this share will increase to 80%, which suggests that most of the years of gained life expectancy may not necessarily be years of bad health. Of course, this scenario is based on past developments and neglects potential future health threats like the consequences of increasing obesity levels and rising cognitive impairments at older ages. Nevertheless, fears of productivity losses may be partially absorbed by the improvements in individual health and education.
A smaller and older population may not only be more productive than expected but even cause less environmental pollution. When we observe individual consumption patterns and their ecological consequences, we find that over the life course younger individuals travel and consume more and, thus, cause higher CO2 emissions than individuals at retirement age. This implies that if today’s consumption behavior prevails, older and smaller populations may generate substantial CO2 reductions. We found that the change in population size and consumption preferences led to a 30% increase in emissions between 1950 and 2020. In the following decades, emissions could decline even to pre-1950s levels.
Apart from the challenges and opportunities on the population level, demographic change will certainly influence our individual lives and our family relationships. On average, we will live longer in good health and need care later, but there will be fewer younger individuals in our family network to support their elderly parents or other relatives. Whether changes in time use can make up for these missing individuals is questionable. We find that if the current work and leisure patterns prevail, individuals will spend slightly more time on leisure and housework and the share of work time drops from 14.5% to 11.9%. Whether the young really spend the additional time they have with the elderly remains to be seen. One important question in this respect is also how valuable the elderly will be in terms of resources they can provide. The wealth they pass on to the next generation will have to be shared with a smaller number of siblings and thus younger family members might be better off.
Certainly this study does not solve the challenges we face in the future, but it sheds some light on potential opportunities that aging populations create. During the coming decades societal frameworks will change and individuals will adapt their behavior to new expectations. The magnitude of the future effects is thus unknown, but we should start to discuss this potential, and favorable adaptations in our society. The future is not too bright, but also not as dark as sometimes argued and we do have the potential to change it.
Working better with age OECD review of policies to improve labour market prospects for older workers
Last week, the media reported on the questions Oxford University asked candidates as part of their entrance interview. The questions aren’t designed to test knowledge of facts, but to give students a chance to show how they think about solving problems, whether they can see links between one subject taught at school and another, and so on. One of the questions in history was “How much of the past can you count?”. The idea, as interviewer Stephen Tuck told the Daily Mail, is to provoke a discussion about “all sorts of issues relating to historical evidence. For which periods and places and aspects of the past is data readily available?”. It’s a question you could ask in economics too: how much of a country can you count? And one that the newly updated Understanding National Accounts from the OECD answers.
Governments have always wanted to have data on who and what they govern – a population census is part of the Christmas story for instance – and, as we mentioned in this post, the origins of the modern system of counting a country can be traced back to the 17th century and William Petty’s Political Arithmetick. Petty developed and applied his techniques in England’s first colony, surveying land in Ireland that was to be given to Oliver Cromwell’s troops. His statistical methods were rudimentary, often involving estimation based on exports, deaths and the number 30: a 30% increase in exports means the population increased by 30%; multiply the number of deaths by 30 to find out the size of the population. His components of national accounts though contain much that is still familiar – land, real estate and other personal property, ships…
How though do you count all this? Samuel Beckett, one of the Anglo-Irish descendants of Cromwell’s invaders, tackles this problem in Malone Dies, when the eponymous hero decides, on his deathbed, to make a list of everything he possesses. He’s overwhelmed by the complexity of the task and can’t figure out what to include and how. (Is a pair of shoes one or two items? And what about the laces?). In fact he doesn’t get much further than the pencil and notebook he was going to use to make his inventory and gives up.
OECD statisticians are made of sterner stuff, and know exactly what they’re including and why. Petty would recognise our colleagues’ claim to provide “information on the economic interactions taking place between different sectors of the economy (households, corporations, government, non-profit institutions and the rest of the world) to allow for macroeconomic analysis and evidence-based decision making”.
Given the military origins of his Arithmetick, he’d also be pleased to see the main change in the new system of calculations introduced in 2008: “…expenditure on research and development and weapons systems (warships, submarines, military aircraft, tanks, etc.) are now included in gross fixed capital formation, i.e. investment. This is recognition that expenditure on these items provides long-lasting services to businesses, non-profit institutions, and the governments who use them. This increases the level of GDP across time, but the impact on GDP growth rates will generally be minor.”
Understanding National Accounts was first published in 2006 to give experts and non-experts a practical summary of how to calculate the accounts, but also an understanding of the principles and data sources behind them. Most countries have now adopted the 2008 methodology, but the new edition reflects three other developments too.
First, the financial crisis highlighted the need to better explain how strong movements in economic activity are actually reflected in national accounts. Second, national accounts can be a source for tracking households’ material well-being in line with the emphasis on “better lives”, beyond the traditional objective of economic growth and GDP, exemplified by the OECD Better Lives Initiative,. Finally, the data on trade in value added now being compiled in parallel to core national accounts shed a new light on the interconnectedness of economies.
Obviously somebody reading about national accounts already has some interest in economics, but one of the strengths of the book is that it takes nothing for granted, and explains every technical term clearly and simply, even familiar ones like “the bizarre title “Gross Domestic Product”, or GDP”. Likewise, to explain the difference between GDP and gross national income (GNI), it uses a simple example: “The earnings of workers living in Germany but working in neighbouring parts of Switzerland or Luxembourg have to be added to the German GDP to obtain its GNI. Conversely, the earnings of the seasonal or regular workers living in France or Poland and working across the border in Germany have to be deducted from the German GDP to obtain the German GNI.”
Once you’ve read the main text, you can test your knowledge using a series of exercises (the answers are provided). It’s true that “Calculate the GDP of this economy” is for the bold and the brave, but maybe all national accountants recognise themselves in the Petty’s birth horoscope: “Jupiter in Cancer makes him fat at heart” even if they’d prefer to avoid a second opinion that “vomits would be excellent good for him”.
Is GDP a satisfactory measure of growth? François Lequiller, co-author of Understanding National Accounts talks to the OECD Observer
Today’s posting is published on international Blog Action Day, which this year is focusing on income inequality.
A time-traveller from 200 years ago would find our world almost unrecognisable. Our technologies and lifestyles would seem almost magical – motorcars, air travel, our obsession with smartphones. The visitor from the past would also notice enormous social shifts: Today, we live longer; most of us can read; many of us have a say in who governs us; and, in much of the world, women and men are treated pretty much equally.
Still, there’s one thing that mightn’t surprise our visitor too much: Even though poverty is not what it once was, humanity is still divided between haves and the have-nots.
But is the world today really more unequal than in 1820, a time when emperors still sat on the throne in China, when monarchs ruled much of Europe and when mass industrialisation was still in its infancy? If you’re hoping for a simple yes or no, prepare to be disappointed. As the OECD’s recently released How Was Life? report shows, the world today is both more unequal and about as unequal as it was back in 1820. It all depends on how you look at it.
People typically think of inequality in the context of where they live – a rich guy passes in his Lamborghini, reminding you that you’ll probably never be able to afford one yourself. Economists call this “within-country inequality,” and it actually hasn’t changed very much since 1820.
But, from a global perspective there are at least a couple of other ways to think about inequality. One is in terms of “between-country” inequality – in other words, the gap between rich and poor countries. The other is to treat the entire planet as a single country – in other words, to look at the gap between rich and poor people worldwide, regardless of where they live.
Over the course of the past couple of centuries, probably the most striking change in inequality has been the emergence of rich and poor nations. As Angus Maddison discussed in The World Economy: A Millennial Perspective, back in 1820 countries in North America, Western Europe and Australasia, as well as Japan, had only about double the income of the rest of the world.
But then, in the 19th century, the world experienced what’s sometimes called “the great divergence,” when Western Europe and North America, in particular, began dramatically to pull away. As The Economist noted recently, in 1820, Britain was only about five times richer than the world’s poorest nation; today, the United States is about 25 times richer than the world’s poorest nation.
This divergence is sharply reflected in the How was Life? figures for between-country inequality. Back in 1820, the Gini figure for inequality between countries was just 16, which is extremely low. (Remember, 0 equals absolute equality on the Gini scale*, where everyone has the same income, and 100 equals absolute inequality, where one person bags all the income.) Today, by contrast, between-country inequality stands at 54.
What about if we treat the entire world as a single country? Here, it’s clear that inequality has risen, but more slowly than between countries: For 1820, it’s estimated that world inequality was 49 on the Gini scale; today it’s put at around 66.
What explains these trends? It’s hard to distil two centuries of history, but one factor looks to have played a significant and recurring role – globalisation. Throughout much of the 19th century, the world economy became increasingly globalised, but that process halted with the outbreak of the World War I and receded further with the split between the capitalist and communist zones before re-emerging in the 1980s.
There are reasons to think that the long period of de-globalisation in the 20th century was reflected in global income inequality, and, in particular, in an unusual pattern in global income distribution. Typically, we’d expect to see a “bell curve” – lots of people with incomes around the average and, at either end of the curve, some people with extremely low incomes and a few with extremely high incomes. But in the mid-20th century, we see the emergence of a curve with two “bumps”.
Source: How Was Life? (OECD, 2014)
It seems likely that these two bumps reflect the divisions of the post-World War II economy: On one side is the “rest of the world,” which included many communist states that actively pursued narrow income gaps; on the other is the “wealthy West,” which enjoyed increasing prosperity while also pursuing policies to narrow inequality.
Beginning in the 1980s, the bumps begin to fade. In a globalising economy, the wealth gap between countries began to narrow as places like China entered the global economy. By contrast, the wealth gap within countries began to rise. In part, that was a result of the collapse of the Soviet Union and the Eastern bloc. But it also reflects rising inequality in OECD countries. Since the 1980s, they, like many other countries, have faced tough choices over how to prosper in an increasingly global economy. In some cases, policies that have been good for competitiveness have not been all that great for equality.
* At the risk of upsetting statisticians, we’re using what the World Bank’s Branko Milanovic calls “Gini points” (a scale of 0 to 100), rather than the more traditional Gini coefficient scale of 0 to 1.
“Income inequality since 1820,” by Michail Moatsos, Joery Baten, Peter Foldvari, Bas van Leeuwen and Jan Luiten van Zanden (from How Was Life?, OECD 2014)
Mapping the history of wellbeing – Sue Kendall introduces How Was Life?
OECD work on inequality