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Helpful prior knowledge and learning objectives
Helpful prior knowledge and learning objectives
Helpful prior learning:
Section 1.1.1 The economy and you, which explains what an economy is and how it is relevant to students’ lives
Section 1.1.2 The embedded economy, which explains the relationship between the economy and society and Earth’s systems
Section 1.1.4 Regenerative economies, which explains how circular, distributive and caring, needs-based and sufficient economies can meet human needs within planetary boundaries
Section 1.3.4 Doughnut Economics model, which explains a model for considering meeting human needs within planetary boundaries
Section 1.4.1 Biomimicry for economic design, which explains how Nature’s Unifying Patterns provide principles for regenerative economic design
Section 3.2.3 Law and markets, which discusses the role of laws in supporting market interactions and the abuse of market power
Section 3.2.4 Market power, which discusses what market power is, how businesses gain more market power and its various social and ecological consequences
Section S.1 What are systems?, which explains what a system is, the importance of systems boundaries, the difference between open and closed systems and the importance of systems thinking
Section S.2 Systems thinking patterns, which outlines the core components of systems thinking: distinctions (thing/other), systems (part/whole), relationships (action/reaction), and perspectives (point/view)
Learning objectives:
explain how the state can reduce extractive business behaviour through laws and regulations, taxes and balancing power between economic actors in markets
explain how the state can support transition to regenerative business practices through financial support and assuming risk, research and development, infrastructure, and setting ‘north stars’ for business activities
explain how the state can ensure a just transition to regenerative business practices through inclusive decision-making and financial, technical and training support for those who are negatively affected
What comes to mind when you think about innovation in the economy? Most people picture the tech startups of Silicon Valley or Bengaluru or the venture capitalists that fund them, not governments. Media often portrays businesses as the drivers of progress, while states are seen as bureaucratic and slow.
But economist Mariana Mazzucato argues that the state is a major force in innovation. She highlights how governments don’t just regulate business activity. Government “investments (yes governments invest, not only ‘spend’) have proved transformative, creating entirely new markets and sectors including the internet, nanotechnology, biotechnology, and clean energy.” For example, Mazzucato points out that many technologies that make smartphones smart, like global positioning systems (GPS), were funded by the state long before they had commercial value.
We must recognise and support the state’s role in shaping business activities and innovation if we want to address the huge social and ecological challenges of the 21st century.
This section will outline the role of the state in shaping business activity, with more detail on the state in Topic 5.
Figure 1. Many of the technologies that make your smartphone smart where actually developed by states or through state financing
(Credit: Jennifer Brandsberg-Engelmann, CC BY-SA 4.0)
How can the state reduce extractive business behaviours?
How can the state reduce extractive business behaviours?
Profit maximising businesses can undermine social and ecological systems (Section 3.2.2). States use a number of tools to limit harmful business behaviour.
Laws, regulations and penalties
Laws, regulations and penalties
States can pass laws and make regulations to limit activities that harm human or ecological wellbeing. For example, Rwanda banned single-use plastic bags and bottles already in 2008 to reduce pollution and India bans child labour below the age of 14, and dangerous work for youth under 18. Businesses employing children face fines and prison for owners or managers. These regulations guide responsible business behaviour and protect people from harm.
Figure 2. Kigali, Rwanda. Rwanda was one of the first countries to ban single use plastic bags and bottles
(Credit: Dushime rw, CC BY-SA 4.0)
Figure 3. Since the Industrial Revolution, countries started to pass laws banning or restricting child labour.
(Credit: Library of Congress from National Child Labor Committee, Lewis Hine photographs)
To balance power in markets, states often aim to limit businesses’ market power through antitrust laws. These laws ban certain practices like price fixing that harm consumers and competitors (Section 3.2.4). For example, both the United States and the European Union are using antitrust laws to challenge the market power of large, powerful tech firms like Google, Meta and Amazon.
Worker and consumer rights laws can also balance power in markets. For instance, laws ensure minimum wages, safe working conditions, and the right of workers to form unions to negotiate as a group for protection against exploitative practices (Figure 4). Similarly, states have laws requiring that products are safe and that consumers have the right to return defective goods or get refunds.
Some states grant legal personhood to nature to balance power in markets. Legal personhood gives legal rights to non-human things like rivers or forests, inspired by indigenous communities who see no distinction between humans and the rest of nature (Section 1.2.1). For example, the Whanganui River in New Zealand has been granted legal personhood (Figure 5), allowing people to go to court to defend the river from harm.
Figure 4. Starbucks workers have gone on strike to protest anti-union efforts of the company
(Credit: Elliot Stoller, CC BY SA 2.0)
Figure 5. The Whanganui River in New Zealand, the first river to be granted legal personhood
(Credit: James Shook CC BY 2.5)
Taxes
Taxes
Taxing harmful products or activities can discourage their use. Many countries tax tobacco and are considering taxes on unhealthy ultraprocessed foods. Similarly, carbon taxes like those in Canada encourage companies to reduce CO2 emissions by making pollution more costly. States can use the money collected from these taxes to fund health programs or environmental programmes.
Figure 6. Many states are considering high taxes on ultraprocessed foods to reduce consumption and improve human health
(Credit: Caleb Minear, Pexels licence)
How can the state support regenerative businesses?
How can the state support regenerative businesses?
Mariana Mazzucato highlights that to achieve large goals, like the moon landing in the 1960s or the Sustainable Development Goals (SDGs) today, states must take the lead to set the purpose and direction of business activity. Some business activities are not useful while others are vital. Societies and their states should take a strong position to shape business activities in directions that contribute to strengthening social and ecological systems (Section 3.3.2).
Figure 7. The U.S. government had a lead role in shaping the business activities that supported the goal of landing on the moon in the 1960s
(Credit: NASA, public domain)
Figure 8. Today, the large-scale Sustainable Development Goals (SDGs) require similar direction from states
(Credit: United Nations)
Aside from this overall focus on business purpose, states have specific strategies they can use to support businesses working for positive social and ecological impact:
supporting research and development (R&D): Governments can fund R&D projects that are too risky or expensive for private companies. Such investments have helped create innovations like renewable energy technologies and vaccines.
financial support: States can offer grants, low-interest loans, or lower taxes to help businesses transition to regenerative practices. For example, Bhutan provides financial help to farmers to move to organic farming through financial and technical assistance.
infrastructure: state investments in infrastructure like rail networks, public transport and effective waste management create conditions that help regenerative businesses grow and succeed, speeding up the transitions we need.
Figure 9. Bhutan supports farmers to transition to organic farming.
(Credit: GRID-Arendal, CC BY-NC-SA 2.0)
How can the state ensure a just transition?
How can the state ensure a just transition?
As our economies shift towards more sustainable practices and products, we need to ensure that there is a just transition, fair and inclusive. States have a key role.
Certain businesses and industries will decline as we move to regenerative economies. For example, as we use less fossil fuel, the coal mining businesses will close and people will lose their jobs. States can provide worker retraining, invest in renewable energies to create new jobs, and provide financial and social support for workers making a new start. For example, South Africa’s just transition plan helps coal industry workers move into new sectors. The Dutch government recently decided to pay livestock farmers in the Netherlands to encourage them to shut down their operations to reduce nitrogen pollution.
Figure 10. Coal miners (here in Brazil) will lose their jobs in the transition to renewable energy production. The state must ensure that people are supported in these transitions.
(Credit: United Nations, CC BY-NC-ND 2.0)
The state should also involve a wide range of stakeholders in decision-making - business, state officials, workers, local communities and non-governmental organisations. Inclusive decision-making can help build agreement about society’s goals and how they will be achieved, promoting fairness and sharing the burdens of change.
Activity 3.4.5
Activity 3.4.5
Concept: Power and regeneration
Skills: Thinking skills (transfer)
Time: 40 minutes
Type: Individual, pairs, group
Option 1: Yellow Jacket protests in France
In 2018, there were widespread protests in France about petrol tax rises. Do some internet research about these protests. What were they about? What do they have to do with a just transition and the role of government?
Option 2: Taxes to shape business behaviour in your country
Do some research about how the state uses taxes to shape business behaviour in your country. Is the state taxing: petrol, cigarettes, carbon, ultraprocessed food, sugary drinks or other products that we need less of in our economies? What is the reaction in your country to these taxes?
You can divide up into groups to search for information about particular products and then share out what you found in the class.
Option 3: Evidence of pro-business, anti-government narratives in the media
Mariana Mazzucato points out that many popular narratives portray private businesses as innovators and the state as incompetent, getting in the way of innovation. Have a look through media websites in your country. What evidence do you see of this narrative?
Case studies of state action to shape regenerative business activity?
Option 4 - Legal personhood for nature
Some countries and regions are giving legal personhood to abiotic parts of nature, like rivers, to increase their protection under the law. Alone or with some partners, do some quick research on legal personhood to find answers to these questions or others that come up:
What is legal personhood and why is it important?
For whom is it typically used in economic law?
How are countries and regions using legal personhood to protect nature? Are there examples of nature being protected this way in your region?
What are the barriers to using legal personhood to protect nature?
Discuss what you found out with a few other students or as a whole class.
Ideas for longer activities and projects are listed in Subtopic 3.5 Taking action
Checking for understanding
Checking for understanding
Further exploration
Further exploration
Public policies for regenerative business - a set of slides and information from the Doughnut Economics Action Lab to help governments develop policies that can support regenerative businesses. The slides at the bottom of the page are very useful, including a table of strategies and which level of government they are suited for. Difficulty level: medium
The toughest plastic bag ban is failing: A tale of smugglers, dumps and dying goats - a news article that discusses Kenya’s ban on plastic bags (mentioned in the section text) and the difficulties of enforcing the ban. Difficulty level: easy
New Zealand’s Maori Won Personhood for This River - a 17-minute video documentary about how New Zealand’s Maori people got legal personhood for the Whanganui: Difficulty level: easy
Saving the Whanganui: can personhood rescue a river? - an article from The Guardian that explores whether legal personhood can protect the Whanganui River in New Zealand. Difficulty level: medium
Child Labour: Global estimates 2020, trends and the road forward - a report by the International Labour Organization (ILO) and Unicef about progress on eliminating the worst forms of child labour. Difficulty level: medium
Bhutan's challenges and prospects in becoming a 100% organic country - this report from the Heinrich Böll Stiftung discusses the drivers and restraints of Bhutan’s aim to move its farming industry to 100% organic practices. Difficulty level: medium
Why Climate Advocates Demand a ‘Just Transition’ Away From Fossil Fuels - a Bloomberg article about the importance of a just transition as states redesign their economies to ensure that businesses meet human needs within planetary boundaries. Difficulty level: medium
More countries using health taxes and laws to protect health - an article from the World Health Organisation about taxes and other laws used by countries to reduce the negative impacts of harmful products on consumers. Difficulty level: medium
Can the state drive innovation? A short video that discusses how the state can bring about new ideas and products. Difficulty level: medium
Conversation with Mariana Mazzucato: Mission economy - Economist Jeffry Sachs interviews economist Mariana Mazzucato about the vital role that the state plays in shaping businesses and the entire economic landscape to address the biggest challenges we face. Difficulty level: high
Sources
Sources
Blink, J., & Dornton, I. (2020). Economics: Course Companion. Oxford: Oxford University Press.
Kognity (2022). IB DP Economics HL FE2024. Stockholm: Kognity.
Mazzucato, M. (2018). The Entrepreneurial State. London: Penguin Random House.
Raworth, K. (2017). Doughnut economics: seven ways to think like a 21st century economist. London: Penguin Random House
Sahan, E. and Schneider, N. (2023). Regenerative business rising: How policy can create an economy led by a different kind of company. Doughnut Economics Action Lab. https://doughnuteconomics.org/tools/public-policies-to-foster-regenerative-businesses
Stevens, M. Bowles, S, and Carlin. (2024). “7.12 Influencing market power, and competition policy.” The Economy 2.0. https://www.core-econ.org/the-economy/microeconomics/07-firm-and-customers-08-price-setting-competition-market.html.
Terminology
Terminology
Link to Quizlet interactive flashcards and terminology games for Section 3.4.5 The role of the state - in order of appearance
venture capitalist: a person who makes financial investments in companies in exchange for a share of ownership, usually with other investors
state: a system that provides essential public services, and also governs and regulates other economic institutions
regulation: a rule that guides individual or group behaviour and enforced by an authority
investment: money spent for the enhancement of human or physical capabilities
profit maximisation: the strategy where a business tries to achieve the highest profit possible
system: a set of interdependent parts that organise to create a functional whole
labour: work to achieve some goal
fine: a punishment in which a person is ordered to pay a sum of money because they have done something illegal or broken a rule
market power: the ability of a firm to influence the price of their product in a market, as well as other market conditions
antitrust law: a law that encourages competition by limiting the market power of any particular firm
price fix: an agreement between competitors to set prices (usually higher than they would be otherwise)
minimum wage: the lowest wage permitted by law or other agreement
union: an association formed by people with a common interest or purpose
exploitation: using and benefiting from resources; the term is often used negatively to imply using power to take advantage of a situation
legal personhood: the ability to have legal rights or responsibilities, like a person
indigenous community: the original settlers of an area (pre-invasion/colonialism) who have retained their culture apart from colonisers
tax: payment from individuals or organisations to the government, used to provide public infrastructure and services
carbon tax: a tax on fossil fuels or high CO2 emitting practices
pollution: the presence of a substance that has harmful effects on the environment
Sustainable Development Goals (SDGs): 17 social and environmental goals established by the United Nations in 2015
investment: money spent for the enhancement of human or physical capabilities
renewable energy: energy from sources that are continuously available or regenerate quickly
grant: a sum of money given by a government or other organisation for a particular purpose
interest: the price a borrower pays to borrow a sum of money
organic farming: food grown and processed using no synthetic fertilizers or pesticides
sustainability: meeting people’s needs within the means of the planet
just transition: ensuring that no one is left behind or pushed behind in the transition to regenerative economies
fossil fuel: a non renewable energy source including coal, oil, and natural gas, formed over millions of years in the Earth's crust from decomposed plants and animals
stakeholder: a person who has an interest in or is impacted by some activity
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