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The Economics Of Sustainable Development: Hits And Misses

Herman Daly, a prominent advocate of the required shift in economic thinking required for sustainable development has critiqued growth-centric models of economics and defined biophysical limits to growth in his book, ‘Beyond Growth: The Economics of Sustainable Development’

There can be various examples used to critique existing economic theories of development, and the shortcomings of economics in addressing issues related to sustainable development. Herman Daly, a prominent advocate of the required shift in economic thinking required for sustainable development has critiqued growth-centric models of economics and defined biophysical limits to growth in his book, ‘Beyond Growth: The Economics of Sustainable Development’. By using economic models and defining the carrying capacity of various ecosystems with various assumptions made about the future trajectory of these ecosystems, and through the use of econometric models, he too has tried to quantify thresholds and environmental limits on various regional levels (Such as the Paraguyan Chaco and the Amazon).

While he too has succumbed to a single dimensional approach, using purely statistical methods mainly from the discipline of economics to calculate biophysical limits of ecosystems, coined as ‘carrying capacity’ (beyond which the ecological resilience of that ecosystem is broken), he has self-admittedly made assumptions about living standards, degree of equality of distribution, technology and extent of trade about the various areas he determines the carrying capacity for. Naturally, future variations of any of the mentioned variables can greatly alter the carrying capacity of different ecosystems.

Understanding trajectories of technology or extent of trade definitely needs multidisciplinary probing in geopolitical relations and perhaps mechanical engineering and environmental anthropology, but Daly’s single dimensional, pure economic methods to calculate carrying capacity, limits its potential to frame policies for sustainable development. Perhaps the very fundamental assumption of ceteris parabus taught from basic economic classes to using complex statistical tools for building econometric models using just a few variables (to determine their relationship), is detrimental in quantifying for the effect of exogenous shocks (from variables like climate change or war or financial crises or Brexit or other changes in socio-political relations) on the calculated econometric models to predict future trajectories.

To put it in simple terms, Daly despite providing us with a legitimate, quantified backing to warn us of the limited carrying capacity of the entire earth (for which the planetary thresholds and Raworth’s doughnut provide an improved framework), still fails to provide tools to policy makers for building incentive frameworks aimed towards sustainable development, due to its non-multidisciplinary approach.

In ‘The Limits to Growth’, Meadows and her colleagues have hoped to quantify the predicament of mankind by extrapolating various economic trends and growth figures, and demographic changes to make a ‘world model’. They did this in order to investigate industrialization, population growth, environmental degradation, malnutrition and depletion of non-renewable resources to come up with various estimates of years (under different assumptions) till which the planet can sustain these trends, and this approach has the same drawbacks as Daly. This estimation was also done by technically defining the carrying capacity of the Earth by using figures and trends and extrapolations from past, historical data.

Meadows’ and their colleagues have again instilled the sense of urgency required in shifting the way we approach development, and our interaction with the environment by slightly hyperbolic calculations with many assumptions, but however, it is again these assumptions which limit its potential for making on-ground policy changes towards the radical shift required towards sustainable development. The assumptions made to construct this world model, are again lacking the understanding that the complex inter-linkages between different systems cannot be approached by a single-dimensional, pure economic thinking. The ‘natural limit to growth’ thus defined is still extremely presumptuous about a lot of factors about planetary thresholds and the areas of social foundation, and does not offer the multidisciplinary insight required to even come to the proximity of quantifying such a ‘natural limit’ (which is arbitrarily taken to be sometime within the next century, depending on the limited five variables chosen). Again, an assumption of ceteris parabus limits the scientific inquiry into what Meadows had intended to quantify. Even papers written for Policy Forum by Arrow which try to go into the depths, complexities, and intricacies of the relationship between economic growth and environmental quality and the link between economic activity, carrying capacity and environmental/ecological resilience, fail to take the holistic approach required while addressing issues of sustainable development.

As mentioned numerous times before, an amalgamation of disciplines (ecological economics, system dynamics, and sustainability science) is required to understand the complex systems which govern our planetary thresholds itself to determine environmental carrying capacity or ecological resilience. Even with small models acknowledged by Arrow such as the U shaped inverted curve assumption can have troublesome implications due to this limited understanding.

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