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
 1st decade of the 21st century

Collapsing Financial Markets Rising Unemployment Rate

Shrinking Middle Class Deeper Inequalities

1st decade of the 21st century

Extreme Indebtedness Inability of Governments to force through

reforms

Scarcity (Challenges to
Climate Change Problems Availability of Resources
 Risk Society
 Coined by Beck (1986)
 This essay asserts that the main reason for the current
problems has been the inability of modern societies to
produce enough stability and sustainability.
Stability
 Firmness in position, permanence, and resistance to change
especially in a disruptive way
 Avoiding large swings in economic activity, high inflation, and
excessive volatility in exchange rates and financial markets
(IMF, 2012)

“Economy is Stable”
 It just means that the system is in one of the calm phases of
the business cycle.
 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
 Challenge: Excessive highs and lows should be
avoided
 Fluctuations are unavoidable – but a clever
stabilization policy could flatten and shorten them
without changing significantly long-term trends of
growth
 Anti-cyclical policy
 Government should interfere and raise spending –
John Maynard Keynes
 Monetarism – Milton Friedman
 Sustainability
 Considers the long term capacities of a system to exist.
 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)
 Economics devotes more attention to the problem of what
combination of resources could induce growth.
 Escape from Sustainability dilemma:
Technology Human Capital Education
 Sustainability
 Capitalists of yesterday had only to reach the resources before
other competitors
 “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:
 Formal concept of markets which dominates modern
economics
 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

 Rapid expansion of neo-liberal ideology – problems:

 Increased exposition of the world economic systems
on crisis and contagion effects
 Efficiency
 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

R
E
S
O
U
R
C
E
FIRMS S
Most important
actors for welfare
creation
 Pluralism Development Models
Theoretical Models
(2 Outermost)

Liberal Market Coordinated Market

Economy Economy

 Transactions are more

 Dynamic Access to
stable and long term
Resources
oriented
 Capital from stock
 Capital – from banks
markets
 Labor – long term
 Labor – hire & fire
contracts
 Skills – Workers’ own
 Skills – produced in
investment
companies
 Approaches to Growth

Domination of GDP index in measurements of

The Roll-over effect performance of national economies.

The more goods produced, the better for

More Growth economies.

GDP is just one important index. There are many

Amended Growth more indexes such as HDI (Human Development
Index).

“There are no ‘low hanging fruits’ anymore.”

End of Growth – 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