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Environment-Economy Integration: An Ecological Economics Perspective

Achieving ecologically sustainable development (ESD) is contingent on an alignment of policy values.

In practice this means aligning economic, social, and political values to sustain the ecological base of life on which all economic, social and political activity depends.

The policy alignment that is required cannot be based on the principles of neoclassical economics. This is because neoclassical economists make consumer preferences sovereign in decision making, an approach that cannot but otherwise promote the needs and wants of consumers over environmental considerations that are neither part of, nor ever can be, part a market system.

Market exchange has a pivotal role to play in ESD but it is essential to argue unequivocally that the market system is not normative with regard to ecology: there is no built in ecological bias. The literature on market failure is full of relevant examples. This means that for the market to work ecologically the institutions of capitalism have to be placed on an "ecologically sustainable" footing. This is where government planning through legislation and regulations becomes critical. The interventionist role of 20th century governments in the economy was largely directed at regional and sectoral industrial and trade strategies. While the growth of welfare state governments in the 1960s collapsed in favour of economic rationalism in the 1990s, in both instances the alignment between business and government on key economic development values proceeded independently of ecological sustainability (even in those instances where ESD is professed as a key value).

The form of government intervention is changing and will have to change significantly more in the 21st century. Rather than viewing unecological development as a necessary corollary to progress, governments will have to actively protect domestic and global natural capital. New mechanisms for representing ecological issues in a world dominated by trade, finance and capital flows are essential to ensure that ecological ideas are present and enacted at all decision centres.

To achieve sustainability outcomes, the approach to policy analysis and problem solving will have to shift from neoclassical economics to ecological economics. Here are some of the key differences and challenges:

  1. Ecological economists argue that the economy is a subsystem of the environment. In contrast, neoclassical economists argue either overtly or by implication that the environment is a subsystem of the economy. Ecological economics thus offers a different economic paradigm for solving problems than that provided by the consumer preference approach of neoclassical economists.

  2. Ecological economics is about how ecological sustainability can be achieved in a corporation through triple bottom line economic, environmental and social reasoning. In the neoclassical perspective sustainability is about "sustaining the business" not the ecology/environment. One cannot arrive at an ESD outcome through an economics of consumer preferences alone.

  3. Ecological economists are interested in the broad question of valuation arguing the case that there are incommensurate monetary and biophysical values. This means that assigning a value to nature cannot be reduced to a single metric. Ecological economists are wary of neoclassical valuation tools such as contingent valuation. They favour scientific tools that do not preference consumer valuations over biophysical and ecological relationships. They also promote the maintenance and enhancement of stocks of natural capital, and economies based on restoration, regeneration, and adding value to natural resources.