Internalizing economics: sustainability between matter and meaning.

Revising the economic framework

Sustainability has become fashionable. Everyone, from politicians to corporate executives to local development boards, is for sustainable economic development, the common context in which this term is used. What exactly is meant by sustainable economic development, however, is by no means clear or agreed on. The term sustainability has, in fact, taken on such vague denotations that it has become meaningless; so much so that, as McKibben (1996) argues, a new word is needed to express the challenging relationship between economic and environmental sustainability[1].

According to Tisdell the notion of sustainable development can be viewed as a compromise informed by prudent realism. He writes:

In adopting the goal of sustainable (economic) development, conservationists avoid direct confrontation with interests favouring economic growth. In the past, conservationists, on the whole, obtained a reputation for being opposed to all economic change and development. So cast in a negative role, they had little chance to influence economic growth and development decisions in a way more sensitive to environmental needs (1991, p. 195).

Given this tension between conservation and economic development as well as the overwhelming influence of economics in public policy, economics has also shaped much of the sustainability debate. Two conceptual frameworks are particularly relevant:

(1) the welfare tradition of economics; and

(2) the notion of market failure.

Welfare in modern mainstream economics is associated with the social administration of scarce resources to satisfy the maximum possible amount of human material desires (Robbins, 1937). According to this definition, the ability to increase the availability of goods and services leads to an increase in human welfare. Distributional issues are also part of society's welfare considerations as overall welfare can be improved by redistributing goods and services between individual members of society (Pareto, Caldor, Hicks). The question of sustainability has added yet another dimension. Welfare is not simply determined by the availability of resources now but also by the limits to expanding material needs now and in the future. These limits are posed by the biological, chemical and physical parameters which characterize the environment and its ability to provide resources and absorb waste[2]. In order to more accurately reflect these environmental constraints, their consideration needs to be brought into the allocation and distribution framework of economics.

This brings up the second set of sustainability considerations: the problem of market failure. Its focus is generally on the public good character of environmental goods and services or on the problem of negative externalities. Central to both is the valuation of environmental goods and services, both use and non-use values, by way of methods such as contingent valuation, hedonic pricing, travel cost methods or expanded cost-benefit analysis. Both welfare and market failure considerations of sustainability remain firmly rooted in an economically defined conception of value with scarcity as the indisputable basis of economic decision making and rational choice as the relevant framework for allocation and distribution decisions[3].

Increasingly, however, the basic direction of this conceptual notion of internalizing sustainability considerations into the framework of economics has been called into question. Safe minimum standards, for example, leave the framework of economics and seek to set standards based on ecological criteria (Bishop, 1978, 1979; Ciriacy-Wantrup, 1968). As pointed out by Abram Bergson in 1938, a socially optimal mix of goods and services would also need to embody social welfare judgments of fairness, or distributional justice, which cannot be made within the framework of economics alone. The call for a different kind of economics that is influenced by criteria and events outside its common conceptual framework resonates in a recent commencement address given by Junichi Semitsu (1996), an honors graduate in economics from UC Berkeley:

In our models, the costs of job dislocation, health care insecurities, rising family violence, environmental damage and cultural collapse are all deemed "external". External to what?... We need to change the rules. If we did, we'd see that our country's overall well-being has not improved in 15 years. We need to use these walls along the Mexican border - not to stop migrant workers but to stop corporate flight. We need to raise the minimum wage and then we need to start talking about a maximum wage. There is something foul in this country when wealthy CEOs, such as Robert Allen of AT&T, can fire 40,000 workers and stockholders reward him with a $15 million bonus... Let's toss some moral ideas into our complex economic equations.

Semitsu's vision connotes an economics which does not seek to place concerns of environmental, social or personal impacts into the framework of economics, but one of internalizing economics into the real world of people's lives. Sustainability thus defined does not imply an expansion of economic welfare to include intergenerational or ecological considerations but it implies instead the redefinition of economic welfare based on real world relationships of human and ecological interaction. Sustainability thus means economic activity which sustains the social and biophysical context within which it takes place (see also O'Hara, 1996). Only that kind of economics is sustainable in the long term and only that kind of economics can form the basis for meeting the needs of future generations and other species.

Implementing this vision of a sustainable economics requires at least two aspects of internalization:

(1) internalizing economics into the material world;

(2) internalizing economics into an ethical framework of sustainability[4].

It is argued that both dimensions are essential since not only the material constraints confronting economic activity but also the underlying ethical framework shaping economic analysis and valuation are essential to the definition and implementation of a sustainable economics.

Internalizing economics into the material world

The material connections of economics are numerous. Most obvious are the connections of economic activity to the physical, biological and chemical processes which define the natural environment. The environment provides natural resources necessary for production and consumption and it is recipient of the emissions and wastes generated in the process. The material connections of economic activity, however, extend also to the human community. Individuals provide labor as productive inputs and individual needs and desires are met by the goods and services produced. Social groups of family, tribe, neighbor or community also influence individuals lives with nurture, emotional support and social participation as well as with the demands of social structure and organization. Social relationships thus impact on labor and labor skills, communication, organization, networking and decision making. The material demands of housing, transportation, the provision of goods and services in markets versus households or informal communal structures and humans' familiarity (or alienation) and perception of nature are affected by the social relationships and structures shaping human societies.

Sustainability thus requires that at least three types of material constraints be considered:

(1) sustaining individual physical needs;

(2) sustaining social relationships;

(3) sustaining biological and ecological services.

The provision for basic physical needs, the support of social relationships and the preservation of ecological functions all place constraints on economic activity, yet at the same time they provide the very basis for economic activity. If these constraints are violated so that it becomes more and more costly, if not impossible, to maintain individual physical needs, or the services provided by social or ecological systems, economic activity must be considered unsustainable. In each of these three dimensions, sustainability is defined as economic activity which sustains the material world and the biological, ecological and social processes which describe it. This definition is not to be misinterpreted as neglecting other species or as assuming that the biosphere needs to be preserved simply for human purposes. Yet as Cairns (1995) has argued, given the complex nature of ecosystems, the distinction between ecosystem services and functions may be based more on "cultural environmental literacy and perception" (p. 534) than on a clear distinction between human life support services and those necessary for the protection of other species (see also Cairns, 1996)[5]. A summary of criteria characterizing the different links between economic activity and social and environmental context are summarized in Table I.

[TABULAR DATA FOR TABLE I OMITTED]

Each of these three areas of sustainability requires at least three types of services: technological services, relational services and ecosystem services. The challenge is that their provision is not mutually compatible but in tension. Consideration of the material context of economic activity thus requires seeking a balance between the technological, relational and ecosystems services which can both support and undermine it.

Sustaining human physical needs

The primary strategy in seeking to meet human physical needs has been to increase technological services. Technology is to increase efficiency and thus can either reduce or replace the inputs necessary to produce goods and services. Technology thus makes it possible to either exceed the material limits of natural resources or labor productivity, or to substitute inputs should resources be depleted or productivity limits be reached. The optimist notion of technological change leading to unlimited economic growth is supported by many mainline economists (see for example Beckerman, 1973, 1995; Simon, 1981). Technology, and its support of continued economic growth, will generate enough surplus value to …