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The Economy We Could Have

24 September 2026

Building the economy we could have: Failure Demand

This article was originally posted on The Point, an initiative of the Australia Institute.

For this installment of ‘Building the economy we could have’, our Economic Change lead Dr Katherine Trebeck explains the concept of ‘Failure Demand’ and how with the rising costs of climate change, loneliness, homelessness and poverty, we must instead redesign the economy for people and planet.

Every disaster season, Australia pays another bill for an economy that isn’t built to work for people, places or the planet. And the bill keeps growing.

This month, the Insurance Council of Australia (ICA) added another figure to the growing financial cost of pushing the planet beyond what she can handle. The ICA have been tallying up the costs of climate-related disasters for several years, and this year highlighted the growing cost of ‘rebuilding and repairing homes damaged by extreme weather [that’s also] diverting the materials, trades, and construction capacity needed to increase housing supply’.

Such spending is an example of the massive fiscal price tag associated with an economy that is not designed to serve people, place, or planet, but instead is wreaking damage on communities, ecosystems, and, as the ICA explain, infrastructure.

Splitting the bill

There are certain terms folks studying these patterns use to describe the price tag of what are largely Band-Aid solutions. Once you know them, you will see examples everywhere.

Defensive expenditure

The first, as the ICA’s statistics show, is ‘defensive expenditure’. This refers to the money spent repairing, rebuilding, and recovering after events such as extreme weather or other harm to the environment.

For example:

  • According to The McKell Institute, Commonwealth expenditure on disaster relief and recovery between 2005 and 2022 came to nearly $24 billion.
  • Australian governments spend over a hundred million dollars every year in efforts to recover threatened species (much less than what experts say is needed).
  • According to the Make Big Polluters Pay Alliance, climate disasters cost the wider economy $38 billion each year, equivalent to $3,800 per household on average.

Failure demand

‘Failure demand’ describes the demand placed on governments when people aren’t properly supported to create the lives they want to lead. In responding to these demands, governments spend on what are essentially avoidable costs: a reflection of not meeting people’s needs properly the first time.

Failure demand was first coined by John Seddon in the context of company call centres and councils, but it has much wider applicability when you think of all the government budget lines that exist because of poverty and inequality: debt, stress, illness, stigma, and so on. They all risk generating downstream demand on schools, courts, emergency departments, homeless shelters, food banks, and child protection. Here are some examples of that spending:

Consolation goods

Finally, there’s even a term that describes the spending undertaken by those of us fortunate enough to be able to treat ourselves after a heavy week or stressful day at work: consolation goods. These are peddled by advertisers, who tell us that retail therapy or a fancy spa week is an antidote to the rat race of modern life.

Economically inefficient

Today’s economic system is one that rewards those at the top and kicks too many environmental costs onto everyone else: a lot of things are artificially cheap because they don’t pay for much of the harm they cause. It’s an economy that treats people as ‘just in time inventory’ and assumes that producing more and more is the solution to all our problems. It creates divisions and ecological breakdown.

Governments are compelled to spend financial resources (often on inadequate responses), instead of addressing the root causes. In fact, while the human and ecological cost is all too clear, the potential benefit to government budgets in building an economy that serves people and planet underscores the economic inefficiency of today’s economic system, even in its own terms.

The extent of spending on defensive expenditure, failure demand and even consolation goods means that when people talk about the cost of changing our economic system – usually in a tone that implies it is too high and things should simply stay as they are – we can point to these numbers as the possibility of a substantial fiscal benefit of upstream economic change.

The point: working upstream

Fiscal savings might be the possibility, but they aren’t the point.

The point is, of course, to work upstream, creating an economy designed and delivered to meet the needs of people, place and planet, the first time around. The point is to attend to the social determinants of health such as income security, housing, work, connection, which far outstrip the contribution of hospitals and clinics.

That means investing in the sort of lives people deserve by building an economy which creates good jobs, where ownership is shared, where people can afford the basics, and where the environment is regenerated and protected, rather than treated simply as a costless input and a fee-free waste dump.

In that way, an economy that works better for people and planet can inoculate against the harm that drives failure demand and defensive expenditure. That’s the goal of the wellbeing economy agenda: to do better than just paying the bill for the damage caused by the current system and instead redesign the economy that keeps creating it.

Check out our series, ‘Building the economy we could have’ for more case studies, explainers and interviews that show what is possible in Australia.

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