Matching incentives
for economic transformation
to the psychology of firms.
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Philip Sutton
Director, Policy and Strategy
Green Innovations Inc.
Tel & fax: +61 3 9486 4799

6th August 1998 - Version 1.a/w:i

Paper marked up in HTML format
by Philip Sutton.

Our aim is to shift the economy and put it on a new trajectory. So what we need are tools for economic management that can get the best out the entrepreneurial vigour of the markets. To get a better insight into the entrepreneurial dynamics of the market I find it useful to divide economic agents into pioneers and the rest. While research and development organisations and pioneering companies and governments (referred to collectively as the pioneer group) can respond to ideas, concepts, models, shadow prices and cost/benefit analyses that reflect inferred community or long term need, most companies are focussed on short term maximisation of shareholder value and consumer demand. They respond to tangible possibilities here and now, actual prices in the market place and expressed market demand. Any program for economy shifting has to provide incentives that match the characteristics of both groups.

The non-pioneer group will respond to infrastructure investments and improved capital supply that make things practically possible now, to taxes and subsidies that change real market prices and hence incentives now, and community education programs that actually change consumption patterns now. The pioneering group, on the other hand, will respond to investment in research & development, education and related support programs and they will respond to expectations about long run patterns of factor prices, investments and cultural change.

Non-pioneers outnumber pioneers ten-to-one.

The environmental impact of the economy will not change much in absolute terms until the non-pioneers transform what they do. And that will not happen until ecotaxes are in place and green investment funds are mainstream. But this won't happen until the pioneers can imagine a realistic prospect of future wealth through a green economy and they spread this message through the community.

Last modified: 6 August 1998

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