SUSTAINABLE

INTRODUCTION
OVERVIEW OF SUSTAINABLE DEVELOPMENT

 “Economic development that is conducted without depletion of natural resources.”

 “Sustainable development is the organizing principle for meeting human development

goals while at the same time sustaining the ability of natural systems to provide the
natural resources and ecosystem services upon which the economy and society depend.”
(“Sustainable Environmental Management,” Turner, R. Kerry (1988)
 SUSTAINABLE
INTRODUCTION
 The first decade of the twenty-first century witnessed the strong impression that the
global economy had become a sphere of extreme uncertainty and risk.

 Considering the dimension of the crisis, which started in 2007, this was not very
surprising. The crisis didn't look like another business cycle setback, a temporary
overheating or a sectorial bubble such as the previous ‘dot-coms crash’ of 2000.
 SUSTAINABLE
INTRODUCTION
SYMPTOMS WERE NUMEROUS
 Apart from collapsing financial markets there were rising unemployment, deeper
inequalities, a shrinking middle class, extreme indebtedness, and inability of governments
to force through reforms

 Increasing challenges of climate change and availability of resources, which are necessary

to develop new technologies and keep economies growing.
 SUSTAINABLE
INTRODUCTION
 This essay asserts that the main reason for the current problems has been the inability
of modern societies to produce enough stability and sustainability. These two elements
have been produced so far in a rather fragmented way and not always efficiently.

 The first part of the chapter is devoted to previous developments and approaches to

stability and sustainability until the last crisis started.

 The second part focuses on analysis of areas, which are crucial for reforms and the
emergence of a new, less risky and more responsible art of capitalism
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from
SUSTAINABILI
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STABILITY
STABILITY

GENERAL ASSOCIATIONS CONNECTED

WITH THE TERM ‘STABILITY’

Permanence and resistance to

Firmness in position change, especially in a disruptive
(innovative) way
STABILITY
STABILITY

 The International Monetary Fund (IMF) describes it as ‘avoiding large

swings in economic activity, high inflation, and excessive

volatility in exchange rates and financial markets’.
 
 Indexes – describes the economy in short-term categories.
STABILITY
STABILITY
‘ECONOMY IS STABLE’
• Actually means that the system is in one of the clam phases of the business cycle,
neither heading towards boom not towards depression.

French Economist Jean Charles Leonard de Sismondi in 1819 and also the
works of Joseph Schumpeter analysis of its overall pattern: “It says that

within a few years every economy moves through periods of

rapid growth with rising demand, higher inflation and
dropping unemployment, followed by depression with
reversal phenomena (Knoop, 2009).
STABILITY
STABILITY

THE CHALLENGE

• Excessive highs and lows should be avoided.

• Extreme bubbles of economic activity must be calmed down before they
burst.
• Fluctuations are unavoidable – like the business cycle.
STABILITY
STABILITY

 Clever stabilization policy could flatten and shorten them without

changing significantly long-term trends of growth.

 The idea of an anti-cyclical policy sounds very modern, but is in fact very
old. Tomas Sedlacek, the Czech author of an influential book on the history
of economics, reminds us in this context of the bible parable about
pharaoh's bad dream.
STABILITY
STABILITY
THE GREAT DEPRESSION OF 1929
 The economy collapsed in a dramatic
way after long years of post-war
prosperity and overproduction.
 Disaster governments did not feel that it
was their place to intervene.
 Classical economists of this
epoch believed in the self-regulation
ability of
economic systems and, in their view, an
unrestricted price mechanism should be
enough to restore stability – at least in the
long term.
 John Maynard Keynes commented on
this approach in with his famous,
sardonic sentence, that ‘in a long
term we all will be dead’
STABILITY
STABILITY

THE GENERAL THEORY OF EMPLOYMENT, INTEREST AND MONEY

 A decade later Keynes published this seminal work, in which he designed a

theoretical framework proving why it makes sense to raise government spending
in harsh times in order to prevent long-lasting depressions.

 In the next half-century, the capitalist world followed Keynes' hints, and

economists refined them by developing sophisticated models of fiscal and
monetary policy.
STABILITY
STABILITY

THE GLOBAL CRISIS IN THE 1970’s

 The time of surprising stagflation (rise in inflation and unemployment), opened

the gates for new economic ideas.

 Monetarism and its premise that stabilization could be produced control of

amount of money in circulation.
STABILITY
STABILITY

o Is a set of views based on the belief that

the total amount of money in an economy
mon· e· ta· rism
is the primary determinant of economic
/ˈmänidəˌrizəm/
noun growth.
noun: monetarism o Is an economic school of thought that
states that the supply of money in an
economy is the primary driver of economic
growth.
STABILITY
STABILITY
o As the availability of money in the system
increases, aggregate demand for goods and
services goes up. An increase in aggregate
demand encourages job creation which reduces
mon· e· ta· rism the rate of unemployment and stimulates
/ˈmänidəˌrizəm/ economic growth. However, in the long-term, the
noun increasing demand will eventually be greater
noun: monetarism than supply, causing a disequilibrium in the
markets. The shortage caused by a greater
demand than supply will force prices to go up,
leading to inflation.
STABILITY
STABILITY
THE GLOBAL CRISIS IN THE 1970’s
 The approach started to dominate global capitalism which fitted well with
neoliberalism and which expanded with the free market reforms.

 After two decades of quite successful application of this policy, the self-

confidence of economists and politicians became resolute.

 ‘Great Moderation’ - in which sophisticated stabilization policy measures could

guarantee high growth without upsetting volatilities known from the past
(Bernanke, 2004).
STABILITY
STABILITY

STABILITY IN THE 90’s

 The 1990’s still saw many collapses in the world economy.

• Asian Financial Crisis in 1997
• The Russian Crisis
• Disaster in Argentina, began in 1999
STABILITY
STABILITY

STABILITY IN THE 90’s

 Caused by major political mistakes.
• Contagion effects: The global interconnectedness showed its ‘less
appealing face’.
• New technologies made economic process faster and less predictable.
 Financial markets, which got boosted by the speed and complexity of
internet backed transactions.
 Many dangers of this process for stability could have been identified first
by the so-called internet bubble with its climax in 2000.
STABILITY
STABILITY

 The reaction based on belief in the Great Moderation led governments to adopt a

lax stabilization policy driven by an overly optimistic trust in rationale of
markets.

 Since 2007 many countries had been trying to restore stabilization

with expensive spending programmers and generous monetary policy.
• Effects were ambiguous
• Imbalances in the world economy and complex interdependencies made
it difficult to target precisely.
STABILITY
STABILITY

• The try-and-try-again desperate attempts to revive economic growth

contributed to the persistence of extreme public debt in many countries
and the zero-bound trap by the monetary policy.

 Production of stability is now jammed and this, together with grim prospects for

the world economy in the coming decade, is perhaps the most severe symptom
of the crisis
SUSTAINABILITY
SUSTAINABILITY

WHAT IS SUSTAINABILITY?

 Should be seen as different from  ‘Development that meets the needs of

stability.
 It considers the long term capacities
of a system to exist, not its short-term
resistance to change.
the present without compromising the
ability of future generations to meet
their own needs’
 it is about responsible use of resources
SUSTAINABILITY
SUSTAINABILITY

CHALLENGES IN SUSTAINABILITY

 Economics had had a certain problem with sustainability, analyzing mainly

the questions of long-term growth.

 It was hard to discern the issue of possible depletion of resources in economic

theories, because price mechanisms in market economies would

translate scarcity into higher costs and reduced consumption of

the good.
SUSTAINABILITY
SUSTAINABILITY

CHALLENGES IN SUSTAINABILITY

 This is why the branch devoted more attention to the problem of what

combination of resources could induce growth. 

SUSTAINABILITY
SUSTAINABILITY

DEVELOPMENT OF ECONOMIC THEORIES

 Technology became a fantastic escape from the sustainability dilemma.

 New techniques of production help to expand size of output without raising

necessary input.
SUSTAINABILITY
SUSTAINABILITY

DEVELOPMENT OF ECONOMIC THEORIES

• Solow-Swan model (1950’s)

A sheer increase of the amount of resources added to input could lead to
diminishing marginal returns only. New ideas in technology and
organization made it possible to overtake the steady state of zero growth and
induce development without increasing resources.
SUSTAINABILITY
SUSTAINABILITY

DEVELOPMENT OF ECONOMIC THEORIES

• New Growth Theory (1980’s)

- Paul Romer and Robert Lucas 
- The endogenous factors, like human capital and education, were recognized
as crucial for growth and their application was free from the steady state
problem of classical resources.
- From this perspective sustainability played a marginal role, because it was
better to think primarily about new technologies making a better use of
resources instead of literally saving resources.
SUSTAINABILITY
SUSTAINABILITY

MODERN DEBATE ON SUSTAINABILITY

 Focused mainly on environmental questions.

 In 1968 Garret Hardin wrote his famous work ‘Tragedy of the commons’, in

which he analyzed how public goods got exhausted by actors in

a free market economy (Hardin, 1968).

SUSTAINABILITY
SUSTAINABILITY

MODERN DEBATE ON SUSTAINABILITY

• His arguments helped to explain why, for example, non-regulated access to

fishery can quickly lead to empty seas and collapse of the fishery industry in
many countries.

 In 1972, the Club of Rome published ‘The limits to growth’ a groundbreaking

study which dealt precisely with the connection between economic
growth and scarcity of resources
SUSTAINABILITY
SUSTAINABILITY

MODERN DEBATE ON SUSTAINABILITY

 Rising awareness of the sustainability problem in environmental issues

and resources translated also into international cooperation.
• There have been many conferences on climate change and framework
agreements (e.g. the Kyoto Protocol on reduction of greenhouse gases), but
their effectiveness is not very high.
• Many countries see such global actions against climate change as
endangering their vital economic interests, among them
particularly developing economies.
 SUSTAINABLE
Models
GLOBAL SUSTAINABLE
of
DEVELOPMENT
Complexity Approach to
Markets
Market
o An actual or nominal place where forces of demand and supply operate
Complexity Approach to
Markets
Difficulties:

1. Formal Concepts of Market

• Based on strong assumptions
• Individual actors in such models are generally driven dimensional motivation of
profit

2. Market tend always to state of equilibrium set out by forces of demand

supply
• “rocking horse” metaphor of the Swedish economist Knut Wicksell: no
matter the reason, a horse with blinkers will move in an expected way
Complexity Approach to
Markets

“Black Swan”
o Expression introduced by Nassim Nocolas Taleb
o an unexpected event with dramatic consequences

Central term: COMPLEXITY

Complexity Approach to
Markets
What Should Be Done?

1. Integration of interdisciplinary approaches into the mainstream

2. Attention on empirical studies ( even in a manner of “freaknomics”)
Complexity Approach to
Markets
 Economic policy and regulation must draw consequences from the newest
developments- public agencies try to collect more specific data about markets in
order to deal with complexity challenge.
 
“Imposing new rules”- fragmented regulation of national markets
Ex: policy against tax evasion
Pluralism of Development
Models
How Convergence Failed

Convergence
o coming together of distinct and separate factors or phenomenon such as
technologies
Pluralism of Development
Models
How Convergence Failed

The years after 1980 put into the economic debate

Issue: convergence of national economic models

Source: rapid expansion of neo liberal ideology
Pluralism of Development
Models
How Convergence Failed

Expansion of the globalization process + economic reforms in the USA, UK and Latin
America + collapse of communism combined with shock therapies of state led
economies = ‘end of history” atmosphere
 
Solution : economic policies on liberal agenda
Example: Economic Index of Freedom by The Heritage Foundation which can be
measured through its:
Pluralism of Development
Models
How Convergence Failed

1. Rule of Law (property rights, government integrity, judicial effectiveness)

2. Government Size (government spending, tax burden, fiscal health)

3. Regulatory Efficiency (business freedom, labor freedom, monetary freedom)

4. Open Markets (trade freedom, investment freedom, financial freedom)

Pluralism of Development
Models
How Convergence Failed

DRAWBACKS
1. Increased exposition of the world economic systems on crisis and
contagion effects
• IMF & World Bank were conditioning their aid measure even deeper
deregulation of crisis-ridden economies
2. Efficiency
a. Short-termism
b. High volatility
c. Inability to deal with externalities
d. Social inequalities
Pluralism of Development
Models
How Convergence Failed

DRAWBACKS

3. Legitimacy of market based solutions

• the market itself is not able to produce legitimacy, but it needs
acceptance of all actors
Pluralism of Development
Models
How Convergence Failed

Social Justice
o a market economy endangers its political sustainability by making
alternatives more attractive
Pluralism of Development
Models
How Convergence Failed

This is why markets need to be propped up by other means of coordination: state,

family, associations, which are able to
 
American economist Dani Rodrik: ‘Markets are the essence of a market economy
in the same sense that lemons are the essence of lemonade”
Pluralism of Development
Models
How Convergence Failed

QUESTION: WHAT SHOULD BE THE PROPORTION OF THIS

MIX?
Pluralism of Development
Models
Varieties of Capitalism

Capitalism
o An economic system in which capital goods are owned by private
individuals or businesses
Pluralism of Development
Models
Varieties of Capitalism
Basic assumptions
• Firms as the most important actors for welfare creation of national economies

How?
• Need access to resources, to mention the most fundamental ones (capital, labor
and skills)
 

Institutional comparative advantage – referring to the

traditional Ricardo’s theory
Pluralism of Development
Models
Varieties of Capitalism

THEORETICAL METHODS
1. Liberal Market Economy
(USA, Canada, UK, Austria and other English speaking countries)
• dynamic access to resources
• labor market is shaped by dynamic relations
• individuals and potential workers invest their knowledge and then sell it to
firms
Pluralism of Development
Models
Varieties of Capitalism

THEORETICAL METHODS
2. Coordinated Market Economy
• transactions are more stable
• long term oriented
• capital is provided by banks
• labor market is characterized by long term contracts and low differences in wage
levels
• they do not compete with low costs, but rather high quality
• Germany, Japan, Scandinavian economies, Netherlands, Austria, Switzerland
Pluralism of Development
Models
Varieties of Capitalism
ARGUMENTS
LMes and CMEs are in the world like pedal in bicycles
 
At t h e b e g i n n i n g o f t h e i n n o v a t i o n c y c l e . .
 
LME’s drive the global system and CMEs lag behind LME’s offer higher salaries calm
wave of innovation CMEs make their own job by integrating the latest technologies
LMEs shift resources to new experiments and prepare a new wave of innovations
Pluralism of Development
Models
Varieties of Capitalism
ARGUMENTS

Similar to the coexistence of USA and Europe in the global economy

 
“ the coexistence is definitely not disadvantageous for stability of development for a
bicycle with only one pedal is not a safe machine”
Approaches to Growth

The Roll-Over Effect

Let’s quote situations!

A dinner prepared at home by family members and friends is worse for the economy
than a dinner ordered in a restaurant. If there is no transaction, there is simply no
growth measured.
Approaches to Growth

The Roll-Over Effect

Let’s quote situations!

On the other hand, a heavy smoker of cigarettes is a true GDP driver
Approaches to Growth

The Roll-Over Effect

What is THE ROLL-OVER EFFECT?

-The more products we are able to deliver, the better for everybody
-Cost of current growth considered as GDP rising can be rolled over to less visible long
term
Approaches to Growth

More Growth

 GDP remains the most important point of reference

• Adjustments of economies to market forces
• Does not only refer to natural resources

 Strong belief in technological progress

• Increase productivity and save resources
• Should contribute to faster, simultaneously, better quality of growth
Approaches to Growth

More Growth

This idea deserves, if necessary, some interventionism

There is much more acceptance for regulation and the government intervening,
but the logic of growth remains the same:
the more goods, the better
Approaches to Growth

Amended Growth

 Human Development Index (HDI)

• Its idea is to combine income, life expectancy and education
• Criticized particularly for lack of ecological perspective and focusing on formal
aspects of education

 Gross National Happiness

• Supplemented by a new generation of happiness measurements (‘well-being”)
• Interest in the issue of happiness has been rising
Approaches to Growth

Amended Growth

 Canadian Index of Wellbeing

• Includes arts, culture and recreation, community vitality, democratic engagement,
healthy populations, living standards and time use

 Progress Index
Approaches to Growth

End of Growth

 There are no ‘low hanging fruits’ anymore

• Adjustments of economies to market forces
• Does not only refer to natural resources

 A new concept of growth and development/sustainability and stability

• Increase productivity and save resources
• Should contribute to faster, simultaneously, better quality of growth
 SUSTAINABLE
CONCLUSION
Firstly,
the issue of sustainability will expand to all fields of economic life and merge with
stability.

Secondly,
we are moving towards a new economic model.

Thirdly,
the pluralism of institutional arrangements which can create unique competitive
profiles of national economies and a more stable global system

Lastly,
a corrected goal and measure of development