Download Mainstream Economics and Sustainable Development: Are they

MAINSTREAM ECONOMICS AND
SUSTAINABLE DEVELOPMENT: ARE
THEY COMPATIBLE?
Dr. Stefanos Fotiou
United Nations Environment Programme
Outline
• What is Mainstream Economics? (Assumptions, Models)
• How Economics as a “science” affect policy making?
• The implications for sustainable development
• What can we do to address the limitations and
implications?
Mainstream (modern, neo-classical)
Economics
• Based on an “artificially” sophisticated theory;
mathematical arguments are used as the driver of the
theory and not as a tool
Mainstream Economics
• “Common Knowledge” in Mainstream Economics
• The invisible hand that fixes everything in the markets
• The concept of comparative advantage
• Marginal utility
• General Equilibrium
• ……….
• ALL of them are at least 150 years old
• The only new things on Mainstream Economics in the 20 th
century:
• Game Theory
• Asymmetric information
Mainstream Economics
• Overall approach
• Economic systems are self-determined systems that are in an
equilibrium state on the basis of “best” planning/distributing
mechanisms
• Main assumptions
• Rationality
• Profit / Utility Maximasation
• Perfect competition
• Result
• Mainstream Economics are not ideology-free
• Support one specific ideology of policy making
What Mainstream Economics can not see?
• The concept of physical capacity
• As soon as a “market” can be constructed then “the sky is the limit”
• Neoclassical growth model little more than numerology,
irrelevant to actual issues of growth and development
(Keens)
• Variety. For mainstream economics the world is
“homogenous”
• Environmental resources as assets
Impacts to policy making
• Policy advice is always for market-oriented solutions
• Deregulate, privatise, remove subsidies
• Long-run efficiency gain worth temporary transition pain
• Welfare is not part of the development discussion
• Development has been substituted by “GDP Growth”
• The behavioral dimension of economic systems,
producers and consumers is completely ignored
• Mainstream economic models are used to construct
sophisticated financial instruments that ignore the real
economy; for many scholars these instruments are illegal
and immoral
Implications for sustainable development
• Current macro and micro-economic models care ONLY
about economic growth
• No other dimension of development matters
• The role of natural resources is systematically under
valuated
• Even the concept of environmental externalities can not
correct these problems
Example: consumption
• Are we utility maximisers?
• What about habitual choices?
• I consume therefore I exist
• Consumption as an act of identity
• Is fuel-wood part of the utility-set of the rich?
• Does “looking at a lake” consumes the water of the lake?
Mainstream Economics and Sustainable
Development: Are they compatible?
No they are not!
What needs to be change?
• The concepts
• Economics is about studying behaviors and decisions and not
about creating markets
• The theory
• Evolutional approach
• Welfare
• The models
• General Equilibrium models should be abandoned
• Dynamic non-linear models are needed
• The education
• Heterodox economics are gaining ground
What can wee do?
• Focus on people and not on markets
• Respect capacity (biological, environmental, physical,
social)
• Promote diversity
• Treat collective behavior as emergent, not necessarily
consistent with individual behavior (Keen)
• Challenge mainstream arguments like:
• “Free trade is always better than protection”
• “Market prices are always better than subsidised ones”
• “Private is always better than public”