Our Environmental Performance and Competitiveness

by Terence Jeyaretnam


Australians are self-conscious about our level competitiveness, particularly now, as we find ourselves in the midst of a global downturn.  It manifests in political debates around issues such as local manufacturing, the strong Australian dollar and rising labour costs as a result of a two-speed economy.

National competitiveness, in my view, relates primarily to three factors – productivity, innovation and natural capital.  Of the three, natural capital is the one that receives the least attention politically, because traditional view of economics has runaway believing that the concept of Gross Domestic Product (GDP), which is blind to natural capital, is a proxy for wealth.

GDP was a product of the great depression.  In an attempt to disentangle the ‘why’, the US National Bureau of Economic Research proposed the National Income and Product Accounts, which led to the overall measure of GDP.  While enormous weight is given to GDP, little or no attention is received by other measures of value creation, such as environmental condition, health, education, happiness, crime and well-being.  For example, few would know that the King of Bhutan proclaimed in 1972 that gross national happiness to be more important than gross national product, resulting in a measure that constitutes such non-financial aspects as living standard, education, health, governance and psychological wellbeing.

The global financial crisis has re-focused our attention on whether capitalism, aided by Adam Smith’s Invisible Hand, is the right market force to continue to nurture.  The question for us is whether decades of policy mis-guided by such measures as GDP have wrongly directed the invisible hand, so eloquently described by Smith as "[E]very individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it...[but is] led by an invisible hand to promote an end which was no part of his intention”, in An Inquiry into the Nature and Causes of the Wealth of Nations, first published in 1776.  I would argue that it has – if we are unable to attend dutifully to such fundamental matters as protecting our own climate.

The recent Australian State of the Environment Report is damning of our environmental performance sighting declines in land, water and air quality management along with biodiversity.  ‘Australians cannot afford to see themselves as separate from the environment’, headlines the report.  It is no surprise that Australia features a miserable 48th in Yale and Columbia Universities’ assessment and ranking of countries’ environmental performance, with our ecosystem viability letting us down. Notably, New Zealand ranks 14th, with the index being led by Switzerland.  Australia must re-think our road to long-term prosperity using our natural capital as a core pillar.


Terence Jeyaretnam is a Director of Net Balance (terence@netbalance.com), 
one of the world’s leading sustainability advisory firms.
Terence is based in Melbourne.