Understanding economics & new economics

empty shops

We know that learning about economics isn’t everyone’s cup of tea, but if we are going to make changes in our local economies it can really help to have an understanding of the territory in which we’re working. This section provides some basic info about our current economic system, and what’s different about new economics, with links for further reading.

This should help you have more confidence when discussing these topics with others, for example:

  • Is economic growth really essential?
  • Does the ‘trickle down effect’ actually work?
  • Where does money come from?
  • Is this kind of free market global capitalist economy the only viable option?

Our current economic system and its problems

An economic system is the system of producing and distributing of goods and services and allocating resources in a society. It includes the combination of the various institutions, agencies, entities and consumers that comprise the economic structure of a given community.

The type of economic system determines what’s produced, how, and who gets it – today the dominant form of economic organization at the global level is based on capitalist market-oriented mixed economies.  This is characterised by promotion of high consumption rates, aided by short product lifetimes, built-in obsolescence (so you need to buy new versions/models), fast-changing fashions and throw-away culture. It assumes the earth has unlimited resources as inputs, and an unlimited ‘sink’ for receiving waste outputs.

Great resources to help deepen your understanding

A Crash Course in Economics (UK) by Chris Martenson linking issues with the economy, energy and the environment. Also see this chapter from Mark Braud’s book discussing issues of ‘economic rent’. More new economics thinking at Molly Scott Cato’s website (spokesperson for the Green Party on economic issues, and part of Transition Stroud).

You can find out more about money and debt in this short video from Positive Money – where it comes from, the problems with money today and how we might fix them. More detail on their website.

The Earth’s resources are finite and economic growth cannot therefore go on forever. This is simply explained by Richard Heinberg in this Post Carbon Institute’s short video.

As The Equality Trust reports, the very rich are becoming richer and the very poor poorer – the current model has failed to distribute wealth through trickle-down. A recent nef article further confirms this.

Is GDP really the most useful measure of success of our economies? See this short video which introduces nef’s Happy Planet Index and how its use could be transformational for all of our well-being.

What might be the features of a better economic model?

If we firstly look at the kinds of enterprises emerging within our new local economy, we suggest that a Transition-oriented Enterprise can be defined as “a financially viable trading entity that fulfils a real community need, delivers social benefits and has beneficial, or at least neutral, environmental impacts”, and we propose five desired characteristics.

Next we can look at the desired ‘systemic’ features of our new local economy, the aspects which are more sensibly discussed at the system level – a local currency for example, needs a significant number of local businesses to use it, and a closed loop system only works if local businesses can make use of the waste of others.


Here follows a very short introduction to some desirable features of a new economic system, with links to other free resources for more detail.


People engaged in Transition see localisation as a key tool in building resilience, and we think it’s inevitable; we either localise voluntarily or will be forced to do so through fuel price hikes and shortages, and through supply chain interruptions. It’s not the same as self-sufficiency (having nothing from outside the area), nationalism (turning our back on international responsibilities) or promoting inward thinking, small, isolated village-type communities – more background  here and here. And it’s not the same as Localism, a government term. It’s a key concept that underpins Transition and REconomy, as laid out in Rob Hopkins phD thesis and in this Green Party article, and nef’s Clone town Britain highlights the loss of ‘local’ in our high streets. The economic benefits of localisation are quantified in our Economic Evaluation work.

Respecting natural resource limits (cradle to cradle etc.)

There’s a number of terms including cradle to cradle, circular economy, close loop and industrial symbiosis which all point to essentially the same thing: that resource use is currently linear – we take things from the earth, use them, then dispose of them as waste; but we need to mirror natural systems where the waste products of one thing become the inputs for another. So we need to change the straight lines into circles as explained in this short video from the Ellen MacArthur Foundation – who provide many more useful resources. The Story of Stuff videos are also really good. And there’s an EU supported group sharing best practice. Meanwhile we can ensure Transition-oriented enterprises integrate these ideas from the start.

Valuing natural capital

Our new economy would better respect natural resource limits if they were taken into account in business practices, balance sheets and prices. The commonly held view is that this is an expensive distraction from making money – will this ever change? Here’s a good 3 minute introduction to the issues from Dr. Pavan Sukhdev, Head of UNEP’s Green Economy Initiative. The Economics of Ecosystems & Biodiversity (TEEB) for Business report by the UN in 2010 found the economic invisibility of nature’s flows into the economy is a significant contributor to the degradation of ecosystems and the loss of biodiversity, leading to serious human and economics costs that are already being felt. A number of countries are undertaking TEEB assessments. The UK National Ecosystem Assessment published findings about the value of the UK’s parks, lakes, forests and wildlife to the economy in June 2011.  How do we get proceed? See a Road Map for Natural Capitalism from the Harvard Business Review.

Steady state or zero growth economy

“The dilemma of growth: to resist growth is to risk economic and social collapse. To pursue it is to endanger the ecosystems on which we depend for long term survival” from Prosperity without Growth which first laid out a way forward in 2009. The Center for the Advancement of a Steady State Economy (CASSE) suggests a steady state economy aims to maintain a stable level of resource consumption and a stable population, where energy and resource use are reduced to levels that are within ecological limits, and where the goal of maximising economic output is replaced by the goal of maximising quality of life. It requires a reform of the monetary system, as the current debt-based system depends on economic growth. nef lays out why Growth isn’t Possible, and suggests a way forward in the Great Transition.

Alternative means of exchange

What are the alternatives to money and markets as conventionally understood?  This topic has its own section and resources on this website which looks at new forms of money that a community can create for itself, and at the ‘gift economy’ where ongoing relationships enable people to exchange without using money at all. This includes complementary currencies, LETS, TimeBanks, community exchanges and so on. It also offers some suggestions for what an integrated REconomy Exchange System might look like.