The Flawed Paradigms of Economics and Sustainable Development

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Please cite the paper as:
Richard Sanders, (2012), The Flawed Paradigms of Economics and Sustainable Development, World Economics Association (WEA) Conferences, No. 2 2012, Sustainability – Missing Points in the Development Dialogue, 24th September to 21st October, 2012

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Abstract

The sustainable development paradigm has failed. Ecological overshoot is accelerating and breaching the intergenerational equity criterion which requires humanity to live within safe planetary ecological limits. The equity gap between rich and poor also continues to grow wider breaching the intra-generational equity criterion.

This paper argues that the failure of the sustainable development paradigm is due to it being subsumed into the economic paradigm – a paradigm so disconnected from reality that it simply cannot address the sustainability problem. This is grounded in a failure to understand the fundamental contradiction between ecological imperatives and economic imperatives.

An overview of the way the world works ecologically followed by a brief presentation of the human evolutionary journey provides the context for the discussion. Based on this, economics is generically defined as ‘the way an animal species organises itself to obtain the necessary low entropy from it environment for it wellbeing’.

This is followed by an evaluation of the sustainable development construct and how it is addressed through the lenses of environmental and ecological economics. This leads to the conclusion that the economic system as currently designed is simply unable to deal with the sustainability problem.

An analysis of the financial system and its role in the problem is then presented and leads to the conclusion it is the inevitable structural driver of ecological overshoot and increasing inequity. An examination of the origins of economic thought and the assumptions it is based on throws some light on why the economic system fails humanity.

The final section considers how humanity might allocate the absolutely scarce resources of the planet so as to maximise the welfare of humanity while ensuring the very long term sustainability of the human enterprise.


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18 responses

  • Aart Heesterman says:

    There is a perfecrtly logical and coherent definition of sustainability within the remit of market economics. It is a price structure, including prices of scarce natural resources, which keeps the demand of any resource within the available / sustainable supply. However, as I argue in my own paper (Where neoclassical economics fails the environment), deciding who owns the resource, or at least to whom any payment for its use should be made, is a political decision, which the world ha so far been unable to make.

    • Regarding your first point:

      “There is a perfecrtly logical and coherent definition of sustainability within the remit of market economics. It is a price structure, including prices of scarce natural resources, which keeps the demand of any resource within the available / sustainable supply.”

      I have to argue otherwise. If the price structure used within market economics were effective in keeping demand for resources within the available/sustainable supply then we would not be seeing the overshoot of our carrying capacity that we are at present. The market does not behave “rationally”, contrary to popular belief, and with the concept of “demand” being more realistically related to purchasing power than to actual needs or desires, any increase of purchasing power/decrease in price will result in overshoot.

      The reality is that any market economy requires growth in order to compete and survive. Pricing fluctuations are manipulations of resource access rather than genuine reflections of what is technically available or necessary. In any market economy products must adhere to a tradition of planned obsolescence in order that they break down or cease to function optimally, thus fuelling the necessary cyclical consumption – as without such obsolescence and consumption the market cannot function at a rate that sustains its own existence. The very existence of a market economy renders unsustainable material throughput a necessity.

      It may seem radical, but a move away from a market-oriented system will be necessary in order for us to escape the trap of ever-increased material throughput and ecological destruction.

      In response to your second point:

      “…deciding who owns the resource, or at least to whom any payment for its use should be made, is a political decision, which the world ha so far been unable to make.”

      This is an interesting point to raise, and could be interpreted in a number of ways. I would broaden the scope to “governance”, rather than “political”, as there are many different forms of governance that may be able to address the concept of ownership.

      One form of governance I favour is a shift toward a system in which land and natural resources are not “owned”, per se, by any entity, but are considered to be the natural “commons”. Governance regarding what to do with these commons really needs to adhere strictly to what science informs us is sustainable – i.e. that which does not overshoot the carrying capacity of any given landbase. In a truly sustainable economic system there is no room for vested interests and political power-play. The only logical conclusions are those presented via the scientific method of inquiry.

    • Jon Mulberg says:

      “There is a perfecrtly logical and coherent definition of sustainability within the remit of market economics. It is a price structure, including prices of scarce natural resources, which keeps the demand of any resource within the available / sustainable supply. “

      Comment by Aart Heesterman at 19:05 on Sep 26, 2012

      Actually, I would suggest this is not the case. All branches of orthodox economics are concerned with substitutability, and are not applicable under conditions of absolute scarcity where there are no substitutes. This is actually said explicitly by Robbins, and is a point made by Galbraith and Hirsch. I deal with this in more depth in my own paper. What is required under conditions of absolute scarcity where there are no substitutes is a process of allocation, of which price is only one method. This analysis leads us on anentirely different path, into a Green Political Economy with an emphasis on institutional analysis, and also philosophy and sociology.

      Jon Mulberg

      • The reference to absolute scarcity is a half-truth. There is a concept of ‘backstop technology’, i.e. as we must stop to use fossil fuel, we need other methods of generating energy. However, that technology is as yet, under the prevailing false price structure more costly than burning fossil fuel. And even worse, the scarcity of fossil fuel with a low carbon footprint is driving current commercial activities towards tchnologies such as catalytic cracking of tar and exploration of shale gas, which have higher carbon footprints. The reality of energy becoming more costly than it used to be, will have to be faced. What is not in reality possible, is to restrict the demand of energy, as currently produced by burning fossil fuels, to a sustainable level. There is no such level: the carbon dioxide content of the atmosphere is already too high and technological means to reduce it will have to found.

        Aart Heesterman

        • Kees Hulsman says:

          I find the statement “What is not in reality possible, is to restrict the demand of energy, as currently produced by burning fossil fuels, to a sustainable level.” amazing. Did I miss something or is one of the premises of the statement that limits to growth are not relevant? We are already using 1.5 planets to maintain and grow the current global economy. As far as I am aware there is not another planet available at this time to sustain this level of economic activity. So as Richard Sanders wrote in his paper, we are treating the Earth as business in liquidation. The point is that if we ourselves do not limit our use of energy to a sustainable level, then the Nature will impose it. I would prefer it for us to impose the limits on ourselves in ways that we can cope with rather than have Nature impose its limits in ways that are much harder for us to deal with.

          We do not have much of a choice, we are going to have to produce energy from sources other than fossil fuels, renewable sources as far as possible so that the economy that we build on it is sustainable.

          • As far as the particular issue of energy is concerned, it is still the case that the energy arriving on the earth from the sun, is an order of maqgnitute more than we so far appear to need. (Houghton: Global Warming, Cambridge University Press, 2004, pp, 289-290). We ‘only’ need to take the trouble to harvest some of it, and my judgment is that this is quite doable. The fact that such a course of acion may, under the prevailing false price structure, appear to be more costly than carrying on with overstressing an unpriced common resource, is, of course the crucial point about the backstop technology.Nevertheless, I agree that we should look beyond this particualr issue.

            Aart Heesterman

        • Jon Mulberg says:

          One of the underlying problems is that the ‘commodity’ of economic analysis is never defined, so that there is an appearence of endless possible substitution. So, for example, the analysis constantly switches between, say, coal in my local High Street shop to “energy” on a global scale (the unit of analysis is never defined either). In addition, as the institutionalists said years ago, the institutional parameters are not specified either, such as technology and legal framework. Economists are really not qualified to make predictions as to technological developments.

          What is actually happening is that new forms of fossil fuel extraction expose us to ever increasing risks, which (as Ulrich Beck suggested) are now so large that they fall outside of traditional legal institutions. Suing people in Japan or Chenobyl, (or Monsato for that matter) doesn’t really deal with the risks adequately.

          With respect, there do seem to be a plethora of issues around the use of markets. I’m not sure economics is as coherent or logical as you suggest.

          Jon Mulberg

  • David Oldroyd says:

    I found the “diagnosis” section to be pretty good, and the author rightly exposes the myth of “sustainable development”. The policy prescription (page 17 onwards), however, is completely implausible. It’s hard to see any version of this global governance being taken seriously. Top-down resource allocation was tried, albeit on a vastly smaller and less ecologically minded way, by the former communist regimes, and without exception they were a total disaster. The paper perpetuates the myth that people can know enough to control infinitely complex systems; this is the socialist equivalent of the neoclassical “invisible hand”, except that the latter does not assume anyone has perfect knowledge. The current EZ crisis also illustrates how difficult it is to achieve any kind of international agreement that has to impose significant loss on people; decision making is irrational, disorderly and undemocratic, and of course it’s the weak and vulnerable who are suffering the most.

    This paper, in common with almost everything I’ve read on the subject, ignores human psychology, which is what really drives the system (not “the rich” etc). Whenever human desires are frustrated, people try to find a way round them (hence the black market, the informal economy, drug running, counterfeiting etc). The utopian myths propagated here and elsewhere imply that human nature can be remade, but we already know that doesn’t work.

    That is not to say that we should simply accept the current arrangements. The ecological constraint is clearly real and pressing, and the problems with the financial system are not going away. The decoupling of financial assets from real assets is startling, and this IS what’s perpetuating the current economic crisis. It should be immediately obvious that these financial claims on wealth cannot be redeemed: most of the apparent wealth locked in stock market valuations, house prices, government and private sector debt, is illusory and will have to be written off. The key issue is how this will take place.

    • Richard Sanders says:

      David, thanks for your comments.

      Your response heightens my sense of how powerful and overwhelming our preconceptions and pre-existing assumptions about the world can be.

      Nowhere do I describe a top down ‘ism’ of any kind. I am suggesting a participatory democratic approach where humanity consciously deliberates and grows to understand the resource emergency confronting us.

      The resource scarcity I see in the context of 7 billion or more people is so tight that there is probably only sufficient to meet food, shelter and maintain some of the most important infrastructure (at least for the next century until humanity can get itself back within safe planetary limits).

      Regarding human nature/psychology I totally reject the prevailing and erroneous myth about the selfishness, greed, etc of the human animal. I am in good company with both Adam Smith and Charles Darwin on that one.

      It is widely believed that Adam Smith saw human nature as being selfish and competitive as suggested in the well known quotation:

      “It is not from the benevolence of the butcher the brewer, or the baker that we expect our dinner, but from their regard to their own interest (Smith, 2002).

      However, like many ideas that have become unquestioned beliefs of our culture, this is taken out of context. The chapter seeks to explain the division of labour and just five sentences earlier Smith says of man: “In civilized society he stands at all times in need of the cooperation and assistance of great multitudes”.

      Similarly, it is commonly believed that Charles Darwin saw the origin of the species as the struggle of the “survival of the fittest”. In fact, Herbert Spencer coined the term after reading Darwin. The reality is that cooperation was the key theme in On the Origin of Species and it is often made clear in his writing that he sees human nature in this light. For example, in his first edition of Origin at the beginning of his chapter on ‘The Struggle for
      Existence’ he says: “I should premise that I use the term Struggle for Existence in a large and metaphorical sense, including dependence of one being on another”.

      Darwin’s view of human nature is perhaps most concisely conveyed in the following quote from The Descent of Man:

      “In however complex a manner this feeling [of sympathy] may have originated, as it is one of high importance to all those animals which aid and defend one another, it will have been increased through natural selection; for those communities who included the greatest number of the most sympathetic members, would flourish best, and rear the greatest number of offspring”.

      If you are interested in what the scientific research has to say about this question read Alfie Kohn’s book based on peer reviewed papers called ‘The Brighter Side of Human Nature’.

      Herbert Spencer and the Social Darwinists have a lot to answer for in perpetuating this erroneous myth.

      As to the implausibility of achieving this I agree its a long bow to draw. However, I approach this problem on the basis of science and biophysical possibility. All I am saying is that if we wish the human experiment to continue indefinitely then this is what we must do. In particular we must abandon the current design of financial system and understand that the market can’t solve the resource allocation problem because thats not what markets do. (I wish they could, believe me!) But lets not be seduced into thinking they can – that is plain dangerous when it comes to the survival of humanity.

      If I was without hope I wouldn’t have bothered writing this paper. The window of opportunity I see lies in the possibility of a planetary ‘Arab Spring’ in which the peoples of Earth awaken from the spell cast by the prevailing myths and realise that the current economic system is antithical to what they deeply value in their lives – their children, their homes and communities, and their freedom to flourish and truly realise their humanity.

      Such a ‘Planetary Spring’ would involve community reclaiming power by abandoning the economic system of power that takes much more than it gives and claiming true participatory democracy where representatives in governance are either community selected servant leaders or possibly even randomly selected as with jury service where their interest (as servants) is that of their community, humanity and the web of life and not themselves. Clearly, existing structures of power will need to be abandoned.

      Dreams sometimes become liberating realities – witness slavery, suffrage, civil rights, the Berlin Wall, apartheid.

      My dream is that humanity chooses to survive, abandons (liberates itself from) the pathological structures of a bygone era, and a global people’s movement emerges to co-create a new planetary civilisation of material sufficiency oriented to the full flowering of the human potential.

      • David Oldroyd says:

        Your dream that ‘humanity liberates itself’ by means of a ‘global peoples’ movement’ is one that I share as an educator campaigning for the injection of global consciousness and a planetary ethic of sufficiency into our curricula at all levels. But the Great Transformation (‘Planetary Spring’ – a fine metaphor) required for species and support system survival on Space Station Earth (I like also your powerful simile of the Sun-powered factory) is, as you say, ‘a long bow to draw’. The forces of inertia in the education system are currently overwhelming and recent reforms dubbed by Sahlberg the Global Education Reform Movement (GERM) distract from, rather than address, the great issue of our time – the subject of this conference. If marketing sustainable development has been problematic (‘Making unwelcome changes now to avoid possible consequences in an uncertain future is a difficult proposition to sell to anyone’ as Tickell puts it) managed de-growth comprises an even more impossible marketing problem! The several dreams that you list that did become liberated realities involved changes several levels of scale and complexity below those required for a Planetary Spring.

        The Arab Spring is demonstrating the complexities and ‘black swan’ unpredictability of change at a regional level. The sheer problem of human ‘management’ of system complexity geared up to global level and fuelled by exponential growth seems beyond the range of human ingenuity to handle. Just one example is the 40 years of UN efforts and fine words about sustainable development that led to the recent disappointments of the Rio +20 gathering. And now you offer persuasive arguments that the concept of sustainable development itself is not sustainable!

        Our preconceptions and assumptions about the world are indeed ‘powerful and overwhelming’ and the cultural ubiquity of the ‘consumerist growth ethic’ and what Ronald Wright (A Short History of Progress) or John Gray (False Dawn) see as the ‘myth of progress’ are formidable barriers to any large-scale ‘reprogramming’ of assumptions. Exposing the consequences of this ethic and this myth is both an educational and psychological challenge. I share your desire to facilitate ‘the brighter side of human nature’ which is why I chose a career in education, but am probably less sanguine that it can prevail over ‘the darker side’ notwithstanding your points about Smith and Darwin’s work. The now all-powerful corporate world, as Gilding proposes, may eventually see the market benefits of ‘greening for profit’ but it is the very engine of capital accumulation that has led us to the Ponzi-like dysfunctions of apparent rather than ‘real’ wealth. And of course, opinion formation in democratic as well as non-democratic societies rests firmly with the corporate-controlled media.

        I offered the example of communism’s past failures to illustrate point that it fared worse than capitalism’s ‘invisible hand’ in managing the allocation of resources for human well-being, but also to make the broader point about humanity’s dismal performance in managing complexity. Any form of global governance of the sort implied by your suggested ‘Planetary Spring’ by means of a ‘global peoples’ movement’ (‘humanity liberating itself’) is hard to envisage. Is it some sort of UN-ism? Can democracy operate at the global level? Or is it a post-collapse localised scenario? Current supra-national organisations seem to suffer from a democratic deficit, the EU being a case in point. The paper by Martinez-Iglesias and Garcia in this conference is a little more specific about the routes by which the inevitable future de-growth may come about. They overtly refer, following Redclift, to utopian thought as ‘a search for “complete societies”, a search free from the “heavy load of immediate politics and practices of the really-existing world”’. Unfortunately the record of even small-scale utopias rather supports the view that ‘a new planetary civilisation of material sufficiency oriented to the full flowering of the human potential’ might be an elusive search.

        But I thank you for an excellent and important analysis of two flawed paradigms. Your conclusion is an example of the ‘active hope’ that still guides my own conduct as an educator although, like Schweitzer, ‘on the question of whether I am an optimist or a pessimist, I answer that my knowledge is pessimistic, but my longing and hope are optimistic’. Dreams, realisable or not, still need to be dreamed! Please continue to develop and share your important critique as well as your dreams!

      • T.E.Manning says:

        In his dated 28th September to David Oldroyd Richard Sanders writes:

        “Dreams sometimes become liberating realities – witness slavery, suffrage, civil rights, the Berlin Wall, apartheid.”

        Since it unlikely the author means that slavery is a “liberating reality”, are we to assume that slavery no longer exists in the modern world, that suffrage (for example in the United States, not to mention that in many other countries)is universal, that civil rights are actually respected ?

        • malgorzatadereniowska says:

          I think I would agree with Richard’s point that dreaming of better things or situations can play a significant role in achieving those better things or situations. This general claims seems not susceptible to the object that slavery has not been fully eradicated, or that the civil rights struggle continues not fully realized. Rather, moral, social, and political progress is advanced in part by dreaming that things can be made better. It is hard for me to see why the lack of complete success would suggest that an ingredient for (so far, partial) success should be rejected.

          Your comment may suggest a claim that the only legitimate “liberating reality” is that of an absolute panacea to the problem in question (e.g., slavery) that brings ultimate closure. As such it may imply an assumption that reality is static and that there is no pluralism of values, worldviews, etc., and that people always act according to single-minded ideas in some over-arching consensus without their personal ideologies, not to mention the unequal distribution of power and interests. However, both the ecological and social world is very dynamic, changing, and in constant evolution. Recognition and acknowledgement of the dynamic and uncertain reality brings us to a different understanding of the meaning of a dream that becomes a liberating reality — not as achieving the next threshold that is above historical, social, and economic conditions, but rather of a universally shared and respected aspiration that is broadly pursued and legitimized by the legal, moral, discursive, etc., norms of society. Changing and dynamic reality may mean that our dream at some point encounters new circumstances that require revising what slavery, for example, can mean today and perhaps broadening our definition of it, as a different mode of expression arises – one, perhaps, that was unknown until a certain step has been reached. As the history of humanity proves, there are very strong reasons to believe that the best we can do is work in progress that constantly verifies the meaning we ascribe to the world and requires constant tackling between more universal ideals, concrete situations or circumstances, and more particular attitudes.

          I appreciate Richard’s dream and I think that speaking out on ideals does not imply blindness to constraints or the human condition, or a naïve belief that the perfection of a dream’s realization will be ever achieved.

  • I’m very pleased to see such a refreshingly honest paper regarding what needs to be done to steer humanity back onto a course of sustainability. It is imperative that we leave behind our fears of being overly confrontational when we invoke scientific reality and Mother Nature as a dictator, as the unwillingness of the many to believe fails to render such realities false.

    I have passed this paper onto everyone working at the national and global coordination level in my organization, and am hoping for some meaningful dialogue to follow up.

  • Dawit says:

    It is a good job to re-initiate a dialogue on concepts of sustainability and its dynamism within the broader context of Economics thought. However, the term ‘sustainability’ referred now days by many practitioners and academicians mostly in every dialogue at local, national and international level. This paper has tried to see the concept of sustainability within the realm of “economic paradigm”. However, what I believe is that the such concepts like sustainability, must be seen and evaluated in their own historical context.

    Meaning, in the 1950’s international communities(Europeans and USA) prescribed a policy of ‘rapid industrialization’ for developing nations. Later in the 1960’s, the policy prescription for rapid economic growth laid on the idea of ‘Structural functionalism’. In the 1970’s the policy prescription was revolved around human development and basic need, in 1980’s revolved around structural adjustment, in 1990’s laid around good governance, in 2000’s focused on sustainability and now days it seems like international communities are focused on equity.

    Firstly, all these policy prescriptions including the issue of sustainability to register rapid economic growth and development should be and must be seen within the broader context of global capitalism, more specifically neo-liberalism.

    Secondly, all these ideas as to how eradicate poverty and assure development come from outside. As history teaches us, development, in its all forms, should come from within. As long as developing countries are capable to eradicate poverty by themselves and participate adequately in the global system to defend their own interest and force the developed countries to act responsibly-the issue of sustainability will be an ideal one.

    Thus, the concept of sustainability must be seen not only in the realm of economic paradigm but also in the context of its own history and capitalism, since once we attached it as an adjective for the term ‘development’.

  • Peter McManners says:

    Richard

    I agree with much in this paper. It is a very effective explanation of the failure of sustainable development with lots of good examples. I suggest this quote from the paper is perhaps key:

    ‘The fatal flaw with the sustainable development paradigm is the failure to understand the fundamental contradiction between ecological imperatives and economic imperatives.’

    Policy makers are reluctant to accept this fundamental truth and adjust policy accordingly.

    If possible, I would like to see your judgement in the paper whether the term ‘sustainable Development’ has a future or whether we need to abandon it.

    Peter

  • T.E.Manning says:

    May I suggest conference participants who have not already done so subscribe to the Earth Charter ?

    The text is at

    http://www.earthcharterinaction.org/content/pages/Read-the-Charter.html

    I think the Charter’s principles reflect the requirements expressed by Richard Sanders in his paper. The principles present a practical basis for action subscribers are expected to apply at all times.

    The “haves” (let’s say a part of the Occupy Movement’s 1%) are unlikely to sign the Charter soon.

    So what are we going to do about that?

  • In response to Sanders’ reply, it is important to state the time dimension. I am certainly not arguing that all environmental problems are suitably dealt with by assiging a price to everything that is scarce. Nevertheless, in the particular and urgent issue of climate change, the issue is political will to deal with a now urgent problem, not the limitations of the conventional economic analysis framework. I quite agree that we should look beyond that point. Assigning a price to every species threatened with extinction is clearly absurd.

  • Kees Hulsman says:

    I found the paper by Richard Sanders to be seminal. Clearly it is making significant inroads into our thinking because it has stimulated so much discussion. The paper has precipitated our grappling with the concepts and ideas that need to be agreed upon before we can move further forward. It is an opportunity for us to reexamine critically our cherished beliefs and assumptions which underpin our arguments. Also, it is an opportunity for us to discard as much of the baggage that interferes with our understanding the arguments of others and enable us to evaluate them.

    Finally, it is great to see that someone is finally setting the record straight as to what Adam Smith and Charles Darwin thought about the roles of cooperation and competition in economics and evolution respectively. they both realised that competition occurs within the larger context of cooperation. These two processes are examples of simple rules that apply to each level of the hierarchical system in which we find ourselves and their application give rise to emergent properties that characterise the system. Change the mindset and then one can change the behaviour and ultimately the outcomes. That is what we are currently grappling with, changing our respective mindsets.