Neoclassic Economics and the Core Concepts of Sustainability - Literature review Example

Neoclassic economics and the core concepts of sustainability Student’s Name: Instructor’s Name: Course Code & Name: Date of Submission In their basic concepts, how does mainstream (neo-classical) economics agree and how does it disagree with the core concepts of sustainability? Abstract It is an apparent fact that the meaning of sustainability has been subjected to immense discourses in the economics realm, most notably among the resource and environmental economists. This debate revolves around sustainability between the environment and the economy, or in from a generic perspective, between the ‘manufactured capital’ and the ‘natural capital’. This fact is supported by Ayres, Bergh and Gowdy (1999, 1) who determined that perhaps there is no other issue that has separated the traditional economic perspective of the natural world from the viewpoint of majority of the natural scientists like the issue of sustainability. Against this backdrop, this paper is therefore a profound effort to explore how neo-classical economics agree and the extent to which it disagrees on the primary concepts of sustainability. Keywords: Sustainability, Mainstream economics Introduction Vivien (2008, 2) cited that in the recent decades, issues whose origin is from environmental considerations and the unequal distribution of wealth at the global scale have elicited questions in regard to the goal of continued growth. This issue has been subjected to diverse, more often antagonistic debates in the economics realm with the more new concept of sustainability which is supposed to be at the core of reconciling the dynamics in the ecological, social and economics tenets being at the center of these discussions. Thus, it is apparent that this concept is a source of robust divergent interpretations in the wider realm of neo-classical economic analysis. This fact is supported by Mensar and Castro (2004, 2) who determined that there are two antagonistic schools of thought in relation to sustainability-the optimists, who mostly constitute the economists, and are strongly convinced that with market incentives, new technology, recycling, appropriate public policies and material substitution, the earth is endowed with the capacity to satisfy the needs and enhance the extent of welfare among the humans, both in the contemporary and future generations. On the contrary, there is the pessimistic group- which mostly encompasses the ecologists among other scientists who have a strong belief that the earth is not incapacitated with the ability to forever support the global demands of both the non-renewable and the renewable resources, mostly based on future projections (2). Nonetheless, there are points of convergence between these two perspectives which will be analyzed in a latter section of this paper. However, it is worth noting that there are principally more points of disagreement than there are of agreement between them. The points of disagreement are explored in the subsequent section. Disagreement between neo-classical economics and the core concept of sustainability Williams and McNeill (2005, 10) determined that there is a general assumption in the neo-classic economic model that considerable ‘dematerialization’ or ‘decoupling’ of the gross domestic product from natural resources will be achieved through technical advancements-not slightly because there is meaningful capacity in resources conservation where old modes of production and habits have neglected that actual scarcity of a given resource. Against this background, industrialized countries are making successful efforts in the conservation of resources (OECD, 2002, 6; OECD, 2004, 5). Nonetheless, from sustainability point of view, while advancement is imposing when decoupling it is measured on the basis of per unit or per capita economic output, this progress is less evident when absolute terms are used in the measurement of waste flows and resource use. This is founded on the fact that in majority of the instances, the expansion rate as the economic grows significantly outweighs the progress being achieved at any given time (Williams and McNeill, 2005, 10). The other point of divergence is founded on the ethical context. This is based on the ‘infinite growth’model of neo-classical economists whereby there is scarcely any recognition of the fact that an ethical judgment is being considered in the implication that the future generations will have the capacity to enjoy more depleted natural resources and at the same time be grateful for the man-made capital that has substituted these resources. This fact is supported by Solow (1992, 265) who inferred that there is a gradual exchange which takes place overtime whereby the contemporary generation engages in the consumption of the ‘natural capital’ and in turn transmits increased output capacity to the future generations in terms of knowledge and skills stock and amenities. In this regard, sustainability is perceived by the neo-classical economists as a difficulty in the management of a nation’s portfolio of capital in the efforts to maintain it at a level which is constant, either in toto or per capita. This in principle entails the natural capital but it also permits unlimited substitution between the natural capital and the man-made capital, mostly when the future generations are being put into substantive consideration (Ayres, Bergh and Gowdy, 1999, 2). In addition, Daly (1996, 36) noted that still on the issue of ethics, is can also be discerned from the neo-classical economics that other ethical tenets, for instance, a right to a ‘place in the sun’ for other diverse species is not given any considerable weight in the mainstream economics paradigm. Nonetheless, at the core of robust sustainability (for instance, as supported by the Deep Ecology Movement), there is a firm belief in the right-to-life of every species. This insinuates that every subsystem which constitutes the wider natural environment, every physical stock and every species ought to be preserved (Pearce and Atkinson, 1995, 16). On the other hand, central to the concept of sustainability is the perception that the natural capital ought to be maintained and preserved at a constant level so that the future generations are presented with a favorable chance to enjoy it in a similar magnitude as with the contemporary generation (Carpenter, 1995, 1). This forms a major point of departure between these two schools of thought. However, Ayres, Bergh and Gowdy (1999, 4) has identified several problems associated with the sustainability presumptions to this end. Firstly, the ecosystems and species are under a constant subjection of continuous processes of natural change, and while the human activity hastens some of these processes and constrains others, the human beings are at the end of the day a part of the same nature. The second problem is perhaps satisfactory, based on the dependence on the primary resources by the contemporary industrial economy. The last problem is both philosophical and legal-if other species as argued by some proponents of sustainability possess absolute rights, there is an absolute probability that those rights must controvert other rights, most notably the rights to property which are clearly embedded in diverse legal frameworks and customs around the world (Ayres, Bergh and Gowdy, 1999, 5). Similarly, it has been observed that the theoretical framework in neo-classical economics was developed in a time when the discourses in the 1970s on the ‘limits of growth’ recognized ‘sources’ of raw materials as the primary probable constraints of growth in the future. In this regard, limited attention was given to the ‘sinks’ or else the capacity of the earth’s mechanism to absorb the wastes that emanate from the production processes. Therefore, it was conceived at that particular time that time that the shortages of fundamental resources such as copper, oil, coal among other natural resources would become the primary limiting factors to growth (Williams and McNeill, 2005, 10). Dillon (2010, 5) also noted that even with the entrenchment of the earth’s system waste absorption capacity in the economics debates, there is still a prevalent presumption that wastes can easily be absorbed by the earth’s system. However, it has been pointed out by sustainability proponents that some wastes have already exceeded the absorption capacity of the earth’s system which is best epitomized by the fact that barely half of the CO2 emissions are currently absorbed by the earth’s system. Against this background, Williams and McNeill (2005, 10) supported the inference by sustainability proponents, most notably the ecologists, by determining that its only extreme weather conditions in the environment, fish kills in the oceans, groundwater salinity, crop failure and such indicators can be the viable signal threats to the sinks in the earth’s systems-not the market prices as viewed in the neo-classical economics perception. On the other hand, there is a presumption in the neo-classical economic theory that free trade is key to overcoming the scarcity of resources. Nonetheless, the exponents of sustainability have pointed to the fact that free trade can pose detrimental impacts through the depletion of natural capital from other regions at a rate which is unsustainable. Similarly, neo-classical economics argue that economic growth is a chief necessity in the efforts aimed at poverty alleviation and wealth generation for the clean-up of the environment. On the contrary, the core tenet in sustainability depicts that economic growth which does not take redistribution into consideration usually aggravates inequality while at the same time, qualitative enhancements in the well-being is usually possible event in the absence of economic growth (Dillon, 2010, 5). Moreover, central to the neo-classic economic theory is the assumption that for the repayment of debts to be manifest, there is a necessity of economic growth. However, the sustainability doctrine disputes this this assumption by inferring that it is impossible to pay some debts, and in actual sense they should not be paid in based on the wider ecological debts that the people from the north owe to the people of the south (Dillon, 2010, 5). In regard to technology, mainstream economics presume that advances in technology will be paramount in finding ideal substitutes for the diminishing natural resources. On the contrary, the sustainability exponents argue that technology can be principle in enhancing the level of efficiency but cannot be prudent in finding substitutes for majority of the natural resources which are depleting (Dillon, 2010, 5). Lastly, neo-classical economics postulate that the progress of any given nation or society can be measured in monetary terms while growth in the gross domestic product is put into utility. However, sustainability contradicts this by inferring that there is a necessity for more holistic indicators, for instance, gross national happiness and genuine progress indicators (Dillon, 2010, 5). Agreement between neo-classical economics and the core concept of sustainability Despite the above diverse points of divergence between these two poles, Hayes (2005, 11) noted that there are several points of convergence between them. Firstly, technology has been recognized as a robust mechanism of creating sustainability and to some extent, substituting the diminishing natural resources. This is best epitomized by a paradigm shift from the overreliance on the non-renewable sources of energy to more renewable sources. Hayes (2005, 11) exemplified this by citing the utility of wind energy to turbines, thus becoming a prudent replacement to the mining of coal in Europe and also opening up economic opportunities on the Kansas’ marginal lands. Secondly, Holt (2010, 1) determined that based on the fact that the neo-classical economics has a strong reliance on market forces of demand and supply in the process of determining the relative prices of natural resources and goods as a chief way of addressing environmental problems now and in the future has brought some sense of convergence between mainstream economics and sustainability. Lastly, Holt (2010, 8) cited that many neo-classical economists would concur with much of what ecological economists are saying regarding the issues of sustainability but also points out that the market system is the most ideal way in the achievement of sustainable economic growth. Conclusion The primary objective of this paper was to explore the points of disagreement as well as agreement between the neo-classical economics and the core concept of sustainability. From the above discourse, it is apparent that there are diverse points of disagreements between neo-classical economics and the core concept of sustainability. Nonetheless, there are several points of agreement between them and future analysis and discourses ought to be focused on bringing a sought of harmony or convergence between them. References Ayres, R., Bergh, J and Gowdy, J. 1999. Viewpoint: Weak Versus Strong Sustainability. http://salises.mona.uwi.edu/sem1_11_12/SALI6020/M4sustainability_strongvsweak_6020_11.pdf (Accessed June 20th, 2012). Carpenter, S. 1995. Society for Philosophy and Technology. Georgia Institute of Technology 1 (1-2). Daly, H. 1996. Beyond growth. Boston: Beacon Press. Dillon, J. 2010. The Economics of Sustainability. Toronto: Kairos. Hayes, W. 2005. Economic Strategies for Sustainability. Forthcoming. Holt R. 2010. Traditional Economic Development vs. Sustainable Economic Development. http://www.richolt.net/Ric_Holt/Links_to_my_Writings_files/Environmental%20Chapter_1.pdf(Accessed June 20th, 2012). Mensar, A and Castro L. 2004. Sustainable Resource Use and Sustainable Development: A Contradiction?. Bonn: University of Bonn. OECD, 2002. Implementing domestic tradeable permits: Recent developments and future Challenges. Paris: OECD. OECD 2004. Tradeable permits: Policy evaluation, design and reform. Paris: OECD. Pearce, D. and G. Atkinson. 1995. Measuring sustainable development. In The Handbook of Environmental Economics, ed. D. W. Bromley,Oxford: Blackwell. Solow R.M. 1992. An Almost Practical Step Towards Sustainability. In The RRF Reader in Environmental and Resource Management, 263-272, Washington D.C: Resource for the Future. Vivien F. 2008. Sustainable Development: An Overview of Economic proposal. Sapience1(2). Williams, J and McNeill J 2005. Presentation to the 4th Global Conference on Business and Economics, June 26-28, 2005: The Current Crisis in Neoclassical Economics and the Case for an Economic Analysis based on Sustainable Development. Oxford, UK: Oxford University. Read More