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Ecological Economics
Taking ecology into the economy
Four ‘conditions of an imperilled environment’
Kirkpatrick Sale
Drawdown: the process by which the dominant species in
an ecosystem uses up the surrounding resources faster
than they can be replaced.
Overshoot: when the use of resources in an ecosystem
exceeds its carrying capacity and there is no way to
recover or replace what is lost.
Crash: a precipitate decline in species numbers.
Die-off: the extinction of species that cannot reorganize
their ecological functioning following a crash.
Ecological concepts applied to the economy
Assimilative capacity: the capacity of the natural
environment to absorb wastes
Regenerative capacity: the ability of the ecosystem to
replace resources that we use in our production
Renewable resources, such as wood or wind energy, are
in continuous supply, although the rate at which they
can be replenished will vary from resource to resource
Non-renewable resources, such as iron ore or fossil
fuels, are in limited supply within the earth’s crust, and
thus once they are used up they cannot be replaced.
Problems Ecological Economists seek to resolve
First, establish the ecological limits of sustainable scale
and establish policies that assure that the throughput
of the economy stays within these limits.
Second, establish a fair and just distribution of
resources using systems of property rights and
transfers. . ………
Third, once the scale and distribution problems are
solved, market-based mechanisms can be used to
allocate resources efficiently.
Introduction to Ecological Economics Costanza et al. (1997: 83)
Watershed topics
The concept of human behaviour that each embodies:
whether the economic actor is a ‘rational economic man’
or a person who lives in balance with the environment;
The way in which nature itself is valued, whether in
monetary or biophysical terms;
Judgements about the relationship between sustainable
development and growth;
The extent to which economics should be considered as a
scientific study;
Differing emphasis on issues of distribution and justice.
The birth of a discipline
Founded in the late 1980s
Launch of the journal Ecological Economics in
US and European have different emphasis
Scathing about neoclassical economics:
"The individualism of current economic theory is manifest
in the purely self-interested behavior it generally assumes.
It has no real place for fairness, malevolence, and
benevolence, nor for the preservation of human life or any
other moral concern.“
Herman Daly
Herman Daly
"The economy is a wholly
owned subsidiary of the
environment, not the reverse."
Professor at the University of Maryland
Senior Economist in the Environment Department of the World Bank
Developed the concept of ‘sustainable development’ and also that of
‘uneconomic growth’
cf. John
Most neoclassical economists assume that
technological advance will outpace resource scarcity
over the long run and that ecological services can
also be replaced by new technologies.
Ecological economists, on the other hand, assume that
resource and ecological limits are critically important
and are much less confident that technological
advances will arise in response to higher prices
generated by scarcities.
This difference in worldview, however, does not prevent
neoclassical and ecological economists from sharing
the same pattern of reasoning.
(Costanza et al., 1997: 69).
The Vision of Ecological Economics
The earth as a closed system: limits to material and
energy throughputs and wastes
A future of material well-being with ourselves and
other species while respecting the first point
Systems are complex and causal pathways
uncertain, hence the need for a precautionary
Institutions should be proactive and should respond
in spite of scientific uncertainties
A different definition of sustainability
Neoclassical environmental economists favour a goal of
weak sustainability (technology will lead to physical capital
substituting for natural capital) and sought to adopt an
objective stance.
Ecological economists favour a goal of strong sustainability
(physical capital cannot substitute for natural capital) and
are less concerned to prevent their personal viewpoint from
impinging on their analysis.
Sustainabilitas Kuat vs. Lemah
1. Weak sustainability: environmental sustainability
should be balanced with the need to continue
economic growth
2. Weak sustainability assumes that different forms
of capital are substitutable with one another,
therefore sustainability is achieved even if all
natural capital is replaced with man-made capital
3. Strong sustainability considers natural capital to
be primary and sacrosanct
Kerangka Lima Kapital
Behind the notion of capitalism lies the notion of capital – which
economists use to describe a stock of anything (physical or virtual)
from which anyone can extract a revenue or yield. . . . (as in any
stock capable of generating a flow). . .
The Five Capitals Framework requires a more holistic understanding
of all the different stocks of capital on which our wealth depends . .
Sustainability can only be achieved if these stocks of capital are kept
intact or increased over time.
(Porritt, 2009: 30-1).
Kerangka Lima Kapital
We are facing a sustainability crisis because we're consuming our
stocks of natural, human and social capital faster than they are
being produced. Unless we control the rate of this consumption, we
can't sustain these vital stocks in the long-term.
Modal Alam
1. Any stock or flow of energy and material
that produces goods and services. It
2. Resources - renewable and non-renewable
3. Sinks - that absorb, neutralise or recycle
4. Processes - such as climate regulation
5. Natural capital is the basis not only of
production but of life itself!
Human and social capital
Human Capital consists of people's health,
knowledge, skills and motivation. All these things
are needed for productive work.
Enhancing human capital through education and
training is central to a flourishing economy.
Social Capital concerns the institutions that help us
maintain and develop human capital in partnership
with others; e.g. families, communities,
businesses, trade unions, schools, and voluntary
Manufactured and financial capital
Manufactured Capital comprises material goods or fixed
assets which contribute to the production process
rather than being the output itself – e.g. tools,
machines and buildings.
Financial Capital plays an important role in our
economy, enabling the other types of Capital to be
owned and traded. But unlike the other types, it has
no real value itself but is representative of natural,
human, social or manufactured capital; e.g. shares,
bonds or banknotes.
Problems . . .
Once capital is allowed to exist as a real entity in the
economy, rather than as what Marx called an
‘epiphenomenon’, i.e. something that is superficial to
the real machinery of the economy, it becomes
possible to argue both that we can substitute one
form of capital for another, and that we can
substitute consumption in one time-period for
consumption in another
A Post-Normal Science?
Does economics rely on the methods of science or
are norms, values and morals automatically
1. Popper’s falsifiability criterion
2. Impossibility of experimental method
3. Difficulties with measurement
4. Importance of assumptions
Rational Manusia Economis?
1. Individualist motivation
2. Rational decision-making
3. Clear definition of ‘utility’
4. Biologically determined, or
culturally relative?
5. Is there a gender
“Natural resources originate from the
mind, not the ground, and therefore are
not depletable.”
Robert L. Bradley, Jr., 2002
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Perfect Storm in Political Economy
1. Henry George
2. Progress and Poverty, 1879
3. George vs. land barons
4. Incipient tax code at stake
5. Establishment of American economics
6. The Corruption of Economics (Gaffney, 1994)
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Y =  (K, L)
Czech, B. 2009. The neoclassical production function as a relic of
anti-George politics: implications for ecological economics.
Ecological Economics 68:2193-2197.
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1. Solow model
2. Lucas model
3. Romer model
Y =  (K, L)
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Herman Daly
1. Ecological economics movement
2. Laws of thermodynamics
3. Principles of ecology
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Daly, H. E., and J. Farley. 2003.
Ecological economics: principles
and applications. Island Press,
Washington, DC. 450pp.
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Natural capital
allocated to
economy of
Natural capital
allocated to
human economy
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To conserve
fish and
...maintain steady state
economy sufficiently
below K.
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X natural capital allocable
Natural capital allocated
to economy of
Natural capital allocated
to human economy
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X natural capital (still) allocable
Capital-free growth zone
Natural capital allocated
to economy of
Natural capital allocated
to human economy
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