SUSTAINABLE ECONOMIC SYSTEMS
(SAGE Chapter 48)
Dr. Elizabeth M. Remedio
Outline
• Introduction
• Previous developments and approaches to
stability and sustainability until the last crisis
started
• Analysis of areas-crucial for reforms• Emergence of a new, less risky, and more
responsible art of Capitalism
st
1
decade of the
Collapsing Financial Markets
Shrinking Middle Class
st
21
century
Rising Unemployment Rate
Deeper Inequalities
st
1
decade of the
Extreme Indebtedness
Climate Change Problems
st
21
century
Inability of Governments to force through
reforms
Scarcity (Challenges to
Availability of Resources
vCoined by Beck (1986)
vThis essay asserts that the main reason for the current
problems has been the inability of modern societies to
produce enough stability and sustainability.
Stability
Ø Firmness in position, permanence, and resistance to change
especially in a disruptive way
Ø Avoiding large swings in economic activity, high inflation, and
excessive volatility in exchange rates and financial markets
(IMF, 2012)
“Economy is Stable”
Ø It just means that the system is in one of the calm phases of
the business cycle.
Ø Within a few years, every economy moves through periods of
rapid growth with rising demand, higher inflation, and
dropping unemployment with reversal phenomena (Knoop,
2009).
Before the 21st Century
Ø Challenge: Excessive highs and lows should be
avoided
Ø Fluctuations are unavoidable – but a clever
stabilization policy could flatten and shorten them
without changing significantly long-term trends of
growth
Ø Anti-cyclical policy
Ø Government should interfere and raise spending –
John Maynard Keynes
Ø Monetarism – Milton Friedman
Sustainability
Ø Considers the long term capacities of a system to exist.
Ø Development that meets the needs of the present without
compromising the ability of future generations to meet their
own needs (World Commission on Environment and
Development, 1987)
Ø Economics devotes more attention to the problem of what
combination of resources could induce growth.
Ø Escape from Sustainability dilemma:
Technology
Human Capital
Education
Sustainability
Ø Capitalists of yesterday had only to reach the resources before
other competitors
Ø “Tragedy of the Commons” – Garret Hardin
Sustainability Problems in Environmental
Issues and Resources
Towards a Sustainable (and More Stable)
Economic Model
Areas of Economic Models that should be Re-thought and
Redesigned:
1. New clarification on what an efficient market is.
2. There are many different institutional ways to efficient
economic systems.
3. What is economic growth and what kind of growth is
compatible with the idea of sustainability?
Complexity Approach to Markets
Difficulties with efficient economic policy and providing stability
and sustainability:
Ø Formal concept of markets which dominates modern
economics
Ø Market Assumptions – Like a Rocking Horse: no matter
the reason, a horse with blinkers will move in an expected
way. Knut Wicksell
Herd of Wild Horses
Pluralism Development Models
How convergence failed: Convergence of National Economic
Models
Ø Rapid expansion of neo-liberal ideology – problems:
Ø Increased exposition of the world economic systems
on crisis and contagion effects
Ø Efficiency
Ø Legitimacy of market based solutions
“Markets are the essence of a market economy in
the same sense that lemons are the essence of a
lemonade pure lemon juice is barely drinkable to
make a good lemonade, you need to mix it with
water and sugar.”
- Dani Rodrik -
Pluralism Development Models
Varieties of Capitalism
FIRMS
Most important
actors for welfare
creation
R
E
S
O
U
R
C
E
S
Pluralism Development Models
Theoretical Models
(2 Outermost)
Liberal Market
Economy
ü Dynamic Access to
Resources
ü Capital from stock
markets
ü Labor – hire & fire
ü Skills – Workers’ own
investment
Coordinated Market
Economy
ü Transactions are more
stable and long term
oriented
ü Capital – from banks
ü Labor – long term
contracts
ü Skills – produced in
companies
Approaches to Growth
The Roll-over effect
Domination of GDP index in measurements of
performance of national economies.
More Growth
The more goods produced, the better for
economies.
Amended Growth
GDP is just one important index. There are many
more indexes such as HDI (Human Development
Index).
End of Growth
“There are no ‘low hanging fruits’ anymore.”
– Tyler Cowen
Slower pace of innovation
Conclusion
1. The issue of sustainability will expand to all fields of economic
life and merge with stability.
2. Moving towards a new economic model
3. Pluralism of institutional arrangements
4. Corrected goal and measure of development