Oiconomy is a sustainable economy
The common economy should be sustainable, but fails to be, because some major types of costs are not included in economical considerations or because groups succeed in evading these costs. Major costs that are currently not paid for, at the expense of nature, the weak or future generations, are:
- The costs of damage to the environment and the future well being of mankind.
- The costs of social irresponsibility and the consequent poverty.
- The costs for others caused by criminal activities or corruption.
Since the mechanism of the free market and competition forces companies to cost minimization, nature, environment, raw material availability and social conditions are now under great pressure.
We may not expect that the average consumer will voluntarily pay a premium for sustainable products. In the current econimic system we may not blame individual companies not to take their responsibility. Consumers, companies and politicians make rational decisions in their own interest which means to purchase at lowest possible prices. The processes of economical growth, population boom and environmental damage, inevitably leading to war, disasters and loss of biodiversity and nature, will proceed autonomously until these costs are included in the economy and products have a real price.
Many sustainability labels appear, but none include all sustainability aspects and are applicable to all types of products. Consumers have a hard time to understand and trust these labels and surely to value and compare and weigh the very different issues that these labels are about.
The Oiconomy Foundation believes that the most effective way to a sustainable economy is to add the hidden costs of damage to the environment and social conditions, to the price of products. A first step to realize this goal is to make these costs of unsustainability visible by the measurement and expression in a monetary unit, of the damage that products cause during their total life cycle.
Experience has been built with the measurement of these hidden costs, for instance by methods developed for investment projects (shadow price method), or methods for national accounts (Hueting). All these methods are based on costs of recovery or compensation or in the intrinsic value of ecosystems, that are indirectly derived from human preferences.
However these methods are not suitable to determine the hidden costs of a specific product, especially because the measurement of the damage is insufficiently exact and objective and because these methods are too generic to be able to distinguish differences at individual product level.
For measuring product sustainability LCA was developed and currently the most used system. However LCA is currently limited to environmental issues, is damage based and therefore based on many value choices and does not present a means to transfer normalized sustainability data through the supply chain of a product.
Hidden price determination is possible with the herewith presented pilot version of the Oiconomy Standard, developed by Pim Croes. This standard presents a verifiable and normalized method to collect all relevant data on social, economical and environmental damage that a product causes during its total life cycle, objectively weigh these data and express the damage in a monetary price, which is transfered through the supply chain just like normal costs.
The method of the Oiconomy Standard may be used to:
- Measure, demonstrate, compare and communicate the sustainability of products
- Enable governments to promote a sustainable economy by fiscal compensation of the price of products with their hidden unpaid costs. Currently materials and space are heavily favored over labor which is heavily taxed, where on world scale there is a surplus of labor and as shortage of space and raw materials. The Oiconomy Standard strives to enable the fiscal system to base itself on a balance of all sustainability aspects.
This Oiconomy Standard is based on a number of innovative principles:
- It provides a quantitative assessment on the sustainability of a product (including both environmental, social and economical aspects), expressed in a monetary unit (money).
- Contrary to most standards, is applicable to all levels of sustainability and all types of products and services, because it has no requirements on sustainability aspects but only to the correct execution of the measurements according to the methods of the standard.
- The measurements are executed by the companies in the supply chain of a product and the correct use of the method may be verified by certification bodies.
- The method leads companies systematically along all aspects of sustainability and through all stages of the life cycle of the product.
- All types of damage are consequently reduced to a limited amount of fundamental types of damage. This way each type of damage, or solution for the damage, is systematically reduced to its fundamental causes and is the complexity limited.
- The weighting of the damage is based on the costs of prevention, an objective and exact method well known to businesses and discriminating at product level.
- The data are transferred through the supply chain by means of the “Eco Social Cost Unit” (ESCU) in a similar way prices are transferred.
- Typical costs of prevention for all primary types of damage will be scientifically determined by the foundation and universities.
- In due time, companies will transfer ESCU’s through the supply chain together with the price of a product without the need for everybody to investigate the complete supply chain. However, until sufficient ESCU’s are available in the market, the supply chain will have to be investigated. This seems complicated, however:
- Usually the supply chain starts with raw materials. Though the world knows millions of products, all of these only consist of a limited amount of raw materials. By the determination of typical ESCU scores for these commodities, the Oiconomy Foundation will establish the start of most product chains.
- The Oiconomy Standard frequently uses the 80- 20 rule, which means that usually less than 20% of the materials cause more than 80% of the sustainability damage. Preliminarily the standard limits itself to this 80% of the damage.
- At their measurements companies must use the typical ESCU scores, unless they can demonstrate a better score themselves.
The costs of unsustainability may be measured based on the damage, the costs of recovery, of compensation or of prevention. The standard uses the costs of prevention because this is:
- An objective and exact method, discriminating at product level.
- A way to express the very different types of sustainability damage in a single unit.
- A dynamic system that is self adapting to the changing market prices.
- Based on the principle of cost calculations, the basics of all businesses.
- A method which teaches the costs of prevention, the costs that business needs to spend to avoid damage, presenting sustainability in standard business language.
- A source of information on the costs and benefits of developments and solutions for types of damage.