Environmental Values 6 (1997): 213-33

1997 The White Horse Press, Cambridge, UK.

Environmental Economics, Ecological Economics,
and the Concept of Sustainable Development
GIUSEPPE MUNDA
Universitat Autonoma de Barcelona
Dept of Economics and Economic History
08193 Bellaterra (Barcelona), Spain
Email: [email protected]
ABSTRACT: This paper presents a systematic discussion, mainly for non-
economists, on economic approaches to the concept of sustainable develop-
ment. As a frst step, the concept of sustainability is extensively discussed. As
a second step, the argument that it is not possible to consider sustainability
only from an economic or ecological point of view is defended; issues such
as economic-ecological integration, inter-generational and intra-generational
equity are con sid ered of fun da men tal importance. Two different economic ap-
proaches to environmental issues, i.e. neo-classical environmental economics
and ec o log i cal eco nom ics, are compared. Some key differences such as weak
versus strong sustainability, commensurability versus incommensurability and
ethical neu tral i ty versus different values acceptance are pointed out.
KEYWORDS: ecological economics, post-normal science, co-evolution, in sti -
tu tion al economics, sustainability, incommensurability
1. INTRODUCTION
The growth of world population and the rapid growth of economic activity
have caused environmental stress in all socio-economic systems. There is a
wide scientifc consensus that problems such as the greenhouse effect (and
climate change), ozone depletion, acid rain, loss of biodiversity, toxic pollution
and renewable and non-renewable resource depletion are clear symptoms of
en vi ron men tal unsustainability.
Traditional neo-classical economics analyses the process of price for ma tion
by considering the economy as a closed system: frms sell goods and services,
and then they remunerate the production factors (land, labour and capital). It
is interesting to note that while classical economists such as Malthus (1798),
Ricardo (1817), Mill (1857) and Marx (1867) had clear in their minds that
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214
economic activity is bounded by the environment, neo-classical economics
completely forgot this important characteristic of real world economies up till
the seventies when the debate was started on social and environmental limits to
economic growth.
1
The real economy started to be seen as an open system that
in order to function must extract resources from the environment and dispose
of large amounts of waste back into the environment (Ayres and Kneese, 1969;
Kneese et al., 1970).
The life support function of ecosystems (de Groot, 1992) is connected to
their physical, chemical, and biological role in the overall system. Ecosystems
can be divided into three categories (Odum, 1989):
natural environments or natural solar-powered ecosystems (open oceans,
wetlands, rain forests, etc.);
domesticated environments or man-subsidised solar-powered ecosystems
(agriculture lands, aquaculture, woodlands, etc.); and
fabricated environments or fuel-powered urban-industrial systems (cities,
industrial areas, airports, etc.).
It is evident that fabricated environments are not self-supporting or self-main-
taining. To be sustained they are dependent on the solar-powered natural and
domesticated environments (life-supporting ecosystems). Stress caused by the
disposal of wastes and pollutants negatively affects recycling, feed-back loops
and control mechanisms in the life-supporting ecosystem and thereby the pro-
duction and maintenance of environmental goods and services. In the eighties,
the awareness of actual and potential conficts between economic growth and
the environment led to the concept of sustainable de vel op ment the environment led to the concept of the environment led to the concept of .
2. THE CONCEPT OF SUSTAINABLE DEVELOPMENT
Traditionally, Gross National Product (GNP) has been considered as the best per-
formance indicator for measuring national economy and welfare. But if resource
depletion and degradation are factored into economic trends, what emerges is
a radically different picture from that depicted by conventional methods (Daly
and Cobb,1990). In environmental terms, the GNP measure is plainly defective
because (Faucheux and OConnor, 1997):
no account is taken of environmental destruction or degradation;
natural resources as such are valued at zero; and
repair and remedial expenditure such as pollution abatement measures,
health care, etc., are counted as positive contribution to GNP inasmuch as
they involve expenditures of economic goods and services.
ENVIRONMENTAL ECONOMICS
215
Let us try to clarify some fundamental points of the concept of sustainable
development. In economics by development is meant the set of changes in the
economical, social, institutional and political structure needed to implement the
transition from a pre-capitalistic economy based on agriculture, to an industrial
capitalistic economy (Bresso, 1993). Such a defnition of de vel op ment presents
two main characteristics:
the changes needed are not only quantitative (GNP growth), but qualitative
too (social, institutional and political); and
the only possible model of development is that of western industrialised
countries. This implies that the concept of development is viewed as a proc-
ess of cultural fusion toward the best knowledge, the best set of values, the
best organisation and the best set of technologies.
The concept of sustainable development has wide appeal, partly because,
in contrast with the zero growth idea of Daly (1977; 1991a), it does not set
economic growth and environmental preservation in sharp opposition. Rather,
sustainable development carries the ideal of a harmonisation or simultaneous
realisation of economic growth and environmental concerns. For example,
Barbier (1987, p. 103) writes that sustainable development implies:
to maximise simultaneously the biological system goals (genetic diversity, resilience,
bi o log i cal productivity), economic system goals (satisfaction of basic needs, en-
hance ment of equity, increasing useful goods and services), and social system goals
(cultural diversity, institutional sustainability, social justice, par tic i pa tion).
This defnition correctly points out that sustainable development is a mul ti di -
men sion al concept, but as multicriteria decision analysis teaches us (see Munda men sion al men sion al
1995) it is impossible to maximise different objectives at the same time.
For example, according to actual social values in western countries, having
a car per two or three persons could be considered a reasonable objective in
less developed countries. This would imply a number of cars ten times greater
than at present, with enormous consequences for global warming, exhaustion
of petroleum, loss of agricultural land, noise, production of CO
2
and NO
x
. Let
us consider a study by the United Nations cited in Bresso (1993). In 1980, the
total world energy consumption was 10 terawatt-hours (TW-h). With no increase
in consumption in less developed countries, by 2025 the whole world popula-
tion would need 14 TW-h. If the consumption of the whole world population
were at the level of western countries, then by 2025 it would be 55 TW-h. It is
clear that while the frst hypothesis is socially unsustainable (zero growth in
less de vel oped countries), the second one is environmentally unsustainable (in
terms of exhaustion of natural resources and global pollution).
It is evident how diffcult it is to implement the idea of sustainable de vel -
op ment. From an economic point of view, the costs and benefts of economic
growth are incommensurable. Furthermore, ecology alone cannot explain
GIUSEPPE MUNDA
216
(e.g. by using the concept of carrying capacity) an important characteristic
of human beings: the enormous differences in the use of materials and energy
among different people and territories. Geographical distribution is determined
his tor i cal ly, not biologically (Martinez-Alier, 1987, 1994; Martinez-Alier and
OConnor, 1996).
We can synthesise the main features of sustainable development as follows.
First, an important characteristic is the issue of distributional equity, both within
the same generation (intra-generational equity, e.g. the North-South divide)
and between different generations (inter-generational equity). Second, an eco-
nomic-ecological integration is needed, above all in terms of resource use and
pollution emissions.
We could put the question, sustainable development of whom? Norgaard
(1994, p.11) writes, consumers want consumption sustained, workers want jobs
sustained. Capitalists and socialists have their isms, while aristocrats and tech-
nocrats have their cracies. We can conclude that environmental man age ment
is effectively confict analysis characterised by technical, socio-economic, envi-
ronmental and political value judgments. The concept of ecological dis tri bu tion
refers to the social, spatial, and temporal asymmetries or inequalities in the use
by humans of environmental resources and services. Thus, the territorial asym-
metries between SO
2
emissions and the burdens of acid rain is an example of
spatial ecological distribution; the inter-generational inequalities between the
enjoyment of nuclear energy and the burdens of radioactive waste is an example
of temporal ecological distribution. In the USA, environmental racism is a
term used to describe the location of polluting industries or toxic waste disposal
sites in areas where poor people live. This is an example of social ecological
distribution (Martinez-Alier and OConnor,1996).
In the following sections we will examine how traditional neo-classical en-
vironmental economics and ecological economics differ in tackling the issue of
sustainable development. In particular, the difference between weak and weak weak strong
sustainability will be stressed.
3. NEO-CLASSICAL ENVIRONMENTAL ECONOMICS
3.1. Basic Principles
Environmental economics can be considered as a particular specialisation of
neo-classical economics studying two fundamental questions:
(i) the problem of environmental externalities; and
(ii) the correct management of natural resources (in particular, the optimal inter-
generational allocation of non-renewable resources).
From an epistemological point of view, economists belonging to the Neo-
ENVIRONMENTAL ECONOMICS
217
classical school take inspiration from Newtons mechanics. They tend to believe
in value neutrality and objectivity and regard their arguments as scientifc.
Rational decisions are connected with the existence of optimal solutions based
on calculations in monetary or other unidimensional terms (the assumption of
complete commensurability). It has to be noted that to put a precise monetary
value to an environmental externality implies the solution of very important
problems, e.g., uncertainty connected to the environmental impact, correct time
horizon and correct discount rate.
Neo-classical economists have a quite optimistic view of technological
progress and economic growth. They generally recognise that even if the pro-
duction technologies of an economy can potentially yield increases in output
commensurate with increases in inputs, overall output will be constrained by
limited supplies of resources (growth theory with exhaustible resources). But these
limits can be overcome by technological progress: if the rate of tech no log i cal
progress is high enough to offset the decline in the per capita quantity of natural
resource services available, output per worker can rise indefnitely. A stronger
statement is the following: even in the absence of any technological progress
exhaustible resources do not pose a fundamental problem if re pro duc i ble man-
made capital is suffciently substitutable for natural resources (Dasgupta and
Heal, 1979; Hartwick, 1977, 1978; Solow, 1974a and 1974b; Stiglitz, 1979).
This concept of substitution of more productive man-made capital for natural
capital can be criticised from many sides.
(i) If capital depreciates by a constant proportion, the exhaustible resources
are essential, since consumption should eventually fall to zero (assuming
no technical change).
(ii) Man-made capital is not independent of natural capital; since resources are
required to manufacture capital goods the success of any attempt to substi-
tute capital for resources will be limited by the extent to which the increase
in capital requires an input of resources. The idea of substitution might be
rescued if we can demonstrate that the extra productivity in K
M
(man-made
capital) outweighs the extra natural resources that get used up in the produc-
tion of K
M
. At this stage all we can say is that this is not obvious (Pearce
and Turner, 1990, p. 49).
(iii) A limit to the substitutability between man-made capital and natural
capital is that natural capital has the feature of multifunctionality (all the life
support functions), such a feature is not shared by man-made capital (Pearce
and Turner, 1990).
The so called weak sustainability concept (Pearce and Atkinson, 1993) states that
an economy can be considered sustainable if it saves more than the combined
depreciation of natural and man-made capital. We can pass on less environment
so long as we offset this loss by increasing the stock of roads and machinery, or
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other man-made (physical) capital. Alternatively, we can have fewer roads and
factories so long as we compensate by having more wetlands or mixed wood lands
or more education (Turner et al., 1994, p. 56). Weak sustainability is based on
a very strong assumption, perfect substitutability between the different forms
of capital, so all the criticism presented above also applies in this case.
Under weak sustainability conditions, sustainability is equivalent to leav-
ing future generations with a total stock of capital not smaller than the one
enjoyed by the present generation. Cabeza (1996) notes that the concept of
weak sustainability is nothing but a by-product of growth theory with exhaust-
ible resources when:
(i) the defnition of inter-generational equity is restricted to a non-declining
level of consumption per capita; and
(ii) the environment-economy relationship is restricted to the introduction of an
aggregate input called natural capital into the production function.
Indeed, weak sustainability is simply a different statement of the so called
Hartwick-Solow rule (Hartwick, 1977, 1978; Solow, 1974b, 1986), stating that
in order to have a stream of constant level of consumption per capita to infnity,
society should invest all current returns from the utilisation of the fows from
the stock of exhaustible resources. Criticism of the empirical results of Pearce
and Atkinsons calculations can be found in Martinez-Alier (1995).
3.2. The Pearce-Turner Constant Natural Capital Rule
Pearce and Turner (1990) although they are inside the framework of con ven tion al
economics,
2
have a different position in approaching environmental problems.
They devote their attention to the desirability and meaning of maintaining the
natural capital stock as a condition for sustainable development. Maintaining
the natural capital stock is considered desirable mainly because the role which
natural environments play in supporting and sustaining economic systems is
covered by scientifc uncertainty. Since uncertainty exists about the way in which
environments function, either internally or in terms of their interactions with
the economy, a trade-off of the benefts of substituting man-made capital for
natural capital is not a realistic one. Moreover, most en vi ron men tal decisions
are characterised by irreversibility: if a mistake is made, it is not possible to
correct it afterwards (it is quite diffcult to create a tropical forest again). Thus
the presence of uncertainty and irreversibility together should make human
beings more circumspect about giving up natural capital.
But what does a constant natural capital stock mean? Pearce and Turner
(1990, p. 53) give four possibilities:
the physical quantity of natural resource stocks should remain unchanged;
ENVIRONMENTAL ECONOMICS
219
the total value of the natural resource stocks should remain constant in real
terms (standard economic approach);
the unit value of the services of the natural resources, as measured by the
prices of natural resources, should remain constant in real terms; and
the value of the resource which fows from the natural resource stock should
remain constant in real terms. Where resource fow is the product of price
and quantity used, it is possible to allow quantity to decline but the price to
rise, keeping value constant.
Pearce and Turner recognise some of the shortcomings of each of these defnitions
of a constant stock of natural capital, and other weak points have been indicated
by Victor (1991). Measurements of natural capital stock made ex clu sive ly in
physical terms are problematic, according to these authors, because of the dif-
fculty in adding up different physical quantities expressed in different units. For
this reason the second interpretation is offered. By valuing each resource stock
in money terms, the total value of natural capital can be measured. One obvious
problem here is that many natural resources (e.g., air, water, wilderness) do not
have observable prices. Thus one would need to fnd implicit or shadow prices
in some way. Even those prices that do exist may not be useful; they may be
affected by market imperfections and taxes, and they may exclude externalities
involved with the production and use of the resource.
There are additional problems in using market prices to value the aggregate stock of
natural capital. Resource prices or net prices refect conditions at the margin and to
use these to value entire stocks can give perverse results. For example, it is possible
for the real price or net price of a resource to rise over time at the same rate as (or
faster than) the rate of decrease in the physical stock of the resource..... This possibil-
ity is of more than theoretical interest. If price or net price rises as resource quantity
is declining, the value of resource stocks as an indicator of sustainability can give
precisely the wrong policy signal to government. As long as the value of the stock
remains constant or rises, the government, through this indicator, will not perceive
a problem even though the fow of resource is becoming increasingly valuable (as
measured by price) and the physical stock is declining. (Victor, 1991, p. 204)
Pearce and Turners third and fourth in ter pre ta tions of a constant stock of natu-
ral capital also utilise market prices and so similar criticisms made in relation
to keeping the value of the capital stock constant apply. Although the idea of
a constant natural capital stock is quite important and desirable (maintaining
natural capital is an important prerequisite for sustainability), one has to admit
that the above considerations demonstrate that the development of relevant
indicators of sustainable development connected to this idea is quite diffcult.
This is mainly because it is based on the assumption of complete monetary
commensurability.
GIUSEPPE MUNDA
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4. ECOLOGICAL ECONOMICS
The linkages between ecosystems and economic systems are the focus of eco-
logical economics. A good defnition of what is meant by Ecological Economics
is the following.
Increasing awareness that our global ecological life support system is endangered,
is forcing us to realise that decisions made on the basis of local, narrow, short-term
criteria can produce disastrous results globally and in the long run. We are also be-
ginning to realise that traditional economic and ecological models and concepts fall
short in their ability to deal with global ecological problems. Ecological economics
is a new trans-dis ci pli nary feld of study that addresses the relationships between
ecosystems and economic sys tems in the broadest sense..... Ecological economics
(EE) differs from both conventional economics and conventional ecology in terms
of breadth of its perception of the problem, and the importance it attaches to en vi -
ron ment-economy interactions. (Costanza et al., 1991, pp. 2-3)
A simplifed scheme of the possible scientifc approaches to environment-
economy interactions can be found in Figure 1. The left half concerns those ap-
proaches using several evaluation criteria for analysing the interactions between
ecological and economic systems, and the right half those using a common
denominator for this evaluation, such as money or energy. Ecological economics
explicitly refuses the complete commensurability paradigm and recognises the
existence of incommensurability between economic and en vi ron men tal aspects.
Thus a new scientifc paradigm is needed.
FIGURE 1. A simplifed conceptual model of ecological and economic per-
spec tives and approaches to environmental issues (from Folke and Kaberger
1991, p. 275)
SYSTEMS
ECOLOGICAL
BIOPHYSICAL
ECOLOGY
AND
ECONOMY
NEO-CLASSICAL
INSTITUTIONAL
AND OTHER
ECONOMIC
PERSPECTIVES
MULTIPLE
DENOMINATOR
EVALUATION
SINGLE
DENOMINATOR
EVALUATION
NATURAL
SCIENCES
SOCIAL
SCIENCES
Figure 1 A Simplified Conceptual Model of Ecologi
Perspectives and Approaches to Environmental Issues
(from Folke & Kaberger, 1991, p. 275)
(
ENVIRONMENTAL ECONOMICS
221
4.1. Epistemological Foundations of Ecological Economics
4.1.1. Post-normal science and institutional economics
In any science a paradigm or pre-analytic vision exists; research has to start
somewhere, thus something is given by a pre-analytic cognitive act. Everybody
starts his own research from the work of his predecessors. According to Kuhn
(1962), scientists normally are just ordinary people (so neither the impeccable
truth-gathers of the positivist tradition, nor the heroic conjecturalists of Popper)
concerned only in solving research puzzles within an unquestioned framework
of concepts and methods.
Global environmental issues present new tasks for science: scientists now
tackle problems introduced through policy issues where typically, facts are
uncertain, values in dispute, stakes high, and decisions urgent (Funtowicz and
Ravetz, 1990, 1991, 1994). Thus Funtowicz and Ravetz have developed a new
epistemological framework called post-normal science, where it is possible
to make use of two crucial aspects of science in the policy domain: uncertainty
and value confict. The name post-normal indicates that the puzzle-solving
ex er cis es of normal science, in the Kuhnian sense, which were so successfully
extended from the laboratory of core science to the conquest of nature through
applied science, are no longer appropriate for the solution of environmental
problems.
Neo-classical economics has traditionally been able to maintain its cred i bil i ty
by relegating uncertainties in knowledge and complexities in ethics frmly to the
sidelines. But, uncertainties in input information produce irreducible un cer tain ty
in conclusions; the relevant question of quality is the degree to which the recom-
mended policy choices are robust against those underlying un cer tain ties. As a
post-normal science, ecological economics recognises the presence, im por tance
and legitimacy of different value-commitments for the appropriate man age ment
of uncertainty. It does not claim ethical neutrality, nor an in dif fer ence to the
policy consequences of its arguments.
As science became used in policy, it was discovered that lay-persons (e.g.
judges, journalists, scientists from another feld, or just citizens) could master
enough of the methodology to become effective participants in the dialogue. A
basic principle of post-normal science is that these new participants are in dis -
pen sa ble. This extension of the peer community is essential for maintaining the
quality of the process of resolution of complex systems. Thus the appropriate
management of quality is enriched to include this multiplicity of participants
and perspectives. The criteria of quality in this new context will, as in traditional
science, presuppose ethical principles. But in this case, the principles will be
explicit and will become part of the dialogue.
According to Funtowicz and Ravetz (1994), the traditional analytical
ap proach, implicitly or explicitly reducing all goods to commodities, can be
recognised as one perspective among several, legitimate as a point of view and
GIUSEPPE MUNDA
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as a refection of real power structures, but not the whole story. To choose any
particular operational defnition for value involves making a decision about
what is important and real; other defnitions will refect the commitments of
other stakeholders.
One should note that the view that, concerning environmental issues, con-
ficts between interests and interested parties are the normal state of affairs is
also shared by institutional economics (Bromley, 1989, Myrdal, 1973, 1978).
In sti tu tion al economics focuses on actors, their world views, habits, etc., and on
institutional arrangements. The latter term refers to organisation, rules of game,
power relationships, entitlements and other types of control over resources
(Sderbaum, 1992, p. 131).
Some relationships between ecological economics and institutional eco nom ics
have been investigated by Aguilera-Klink (1994; 1996), Klaassen and Opschoor
(1991), Opschoor and van der Straaten (1993) and Sderbaum (1992). The main
common points are recognition of the impossibility of a value free science,
emphasis on the importance of the distribution of property rights, and strong
criticism of monetary reductionism. How much is a songbird worth? To answer
this question represents a new problem of valuation, one where meas ure ments
cannot pretend to be independent of methodology and ethics.
The issue is not whether it is only the marketplace that can determine value, for
economists have long debated other means of valuation; our concern is with the as-
sumption that in any dialogue, all valuations or numeraires should be reducible to
a single one-dimension standard. (Funtowicz and Ravetz, 1994, p. 198)
William Kapp, probably the frst institutional economist with environmental
interests, wrote in 1970:
To place a monetary value on and apply a discount rate (which?) to future utilities or
disutilities in order to express their present capitalised value may give us a precise
monetary calculation, but it does not get us out of the dilemma of a choice and the
fact that we take a risk with human health and survival. For this reason, I am inclined
to consider the attempt at measuring social costs and social benefts simply in terms
of monetary or market values as doomed to failure. Social costs and social benefts
have to be considered as extra-market phenomena; they are borne and accrue to
society as a whole; they are heterogeneous and cannot be compared quantitatively
among themselves and with each other, not even in principle.
From a philosophical perspective, it is possible to distinguish between the
concepts of strong commensurability (common measure of the different con-
se quenc es of an action based on a cardinal scale of measurement), weak com-
men su ra bil i ty (common measure based on an ordinal scale of measurement),
strong comparability (there exist a single comparative term by which all different
actions can be ranked) and weak comparability (one has to accept the existence
of conficts between all different consequences of an action) (ONeill, 1993).
ENVIRONMENTAL ECONOMICS
223
Clearly, traditional cost-beneft analysis is based on the assumption of strong
comparability, whereas weak comparability can be considered the philosophical
foundation of multicriteria evaluation (Martinez-Alier et al., 1996; Munda et
al., 1994; Munda, 1995).
The methods used in multicriteria evaluation are based on (necessarily re-
strictive) mathematical assumptions as well as on information gathered from
the decision-maker. Thus the concept of decision process has an essential
importance. According to Simon (1972, 1978, 1983), a distinction must be made
between the general notion of rationality as an adaptation of available means to
ends, and the various theories and models based on a rationality which is either
substantive or procedural. This terminology can be used to distinguish between
the rationality of a decision considered independently of the manner in which
it is made (in the case of substantive rationality, the rationality of evaluation
refers exclusively to the results of the choice) and the rationality of a decision
in terms of the manner in which it is made (in the case of procedural rational-
ity, the rationality of evaluation refers to the decision-making process itself)
(Froger and Munda, 1997).
To be sure, the analyst can greatly infuence the results of a decision analysis,
but the advantage of multicriteria evaluation is that the black-box effects are
reduced to a minimum level: thus in principle it is always possible to justify or
defend the decisions taken. Of course a defensible decision is not the same as
the best possible decision, but at least it is a transparent decision. The analyst
is generally subject to pressures of politicians or stake holders who want to
infuence the outcome of the evaluation process.
4.1.2. The coevolutionary paradigm
There is a constant and active interaction of the organisms with their en vi -
ron ment; organisms are not simply the results but they are also the causes of
their own environments: this is the main thesis of the coevolutionary paradigm
(Norgaard, 1994; Gowdy, 1994). Economic development can be viewed as a
process of adaptation to a changing environment while itself being a source
of environmental change. However, coevolution does not imply change in a
particular direction (i.e., progress).
In biology, coevolution refers to the pattern of evolutionary change of two
closely interacting species where the ftness of the genetic traits within each
species is largely governed by the dominant genetic traits of the other. So-called
coevolutionary biology was started with a study on the reciprocal adaptation
of butterfies and plants (Ehrlich and Raven, 1964).
In real world societies,
people survive to a large extent as members of groups. Group success depends on
culture: the system of values, beliefs, artifacts, and art forms which sustain social
GIUSEPPE MUNDA
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organisation and rationalise action. Values and beliefs which ft the ecosystem survive
and multiply; less ft ones eventually disappear. And thus cultural traits are selected
much like genetic traits. At the same time, cultural values and beliefs infuence how
people interact with their ecosystem and apply selective pressure on species. Not only
have people and their environment coevolved, but social systems and environmental
systems have coevolved. (Norgaard, 1994, p.41)
Agriculture began between fve and ten thousand years ago when there
were approximately fve million people in the world. The incredible increasing
of population was only possible through an increase in the effectiveness with
which people interacted with their environment through changes in knowledge,
tech nol o gy and social organisation. According to Norgaard, the increase in
material well-being and in the rate of population during the past century can be
understood as a process of coevolution. With industrialisation, social systems
evolved to facilitate development through the exploitation of coal and petro-
leum.
3
Social systems no longer coevolved to interact more effectively with
environmental systems.
Hydrocarbons freed societies from immediate environmental con straints but not from
ultimate environmental constraints the limits of the hydrocarbons themselves and
of the atmosphere and oceans to absorb carbon dioxide and other greenhouse gases
associated with fossil fuel economies. (Norgaard, 1994, p.44)
From the coevolutionary paradigm the following lessons can be learned:
(i) A priori, different models of coevolution are possible, then no unique optimal
development path exists. The spatial dimension is a key feature of sustain-
able development.
(ii) The respect of cultural diversity is of a fundamental importance. In en vi -
ron men tal management local knowledge and expertise (being the result of
a long coevolutionary process) sometimes are more useful than experts
opinions.
(iii) Coevolving systems have parts and relations which change in un fore -
see a ble ways. At any point in time, they can be described like an ecosystem,
but over time they are as unpredictable as the evolution of life itself.
It has to be noted that the principles of the coevolutionary paradigm, institutional
economics and post-normal science reinforce one another. They share the issues
of value conficts, democratisation of science and uncertainty. Post-normal sci-
ence and institutional economics emphasise the importance of in com men su r-
a bil i ty and decision making processes; coevolution underlines the importance
of economy-environment interactions.
ENVIRONMENTAL ECONOMICS
225
4.2. Economy-Environment Interactions
4.2.1. The issue of scale
Systemic approaches to environmental issues consider the relationships between
three systems: the economic system, the human system and the natural system
(Passet, 1979). The economic system includes the economic activities of man,
such as production, exchange and consumption. Given the scarcity phe nom e non,
such a system is effciency oriented. The human system comprises all activities
of human beings on our planet. It includes the spheres of biological human ele-
ments, of inspiration, of aesthetics, and of morality which constitute the frame
of human life. Since it is clear that the economic system does not constitute the
entire human system, one may assume that the economic system is a subsystem
of the human system. Finally, the natural system includes both the human system
and the economic system (Nijkamp and Bithas, 1995).
From the ecological economic perspective, the expansion of the economic
subsystem is limited by the size of the overall fnite global ecosystem, by its
dependence on the life support sustained by intricate ecological connections
which are more easily disrupted as the scale of the economic subsystem grows
relative to the overall system. Since the human expansion, with the associated
exploitation and disposal of waste and pollutants, not only affects the natural
environment as such, but also the level and composition of environmentally
produced goods and services required to sustain society, the economic sub sys tem
will be limited by the impacts of its own actions on the environment (Folke,
1991). A central issue then is: does any optimal scale exist for the economy?
This point has especially been tackled by Daly.
The term scale is shorthand for the physical scale or size of the human
presence in the ecosystem, as measured by population times per capita resource
use (Daly, 1991b, p. 35). The standard economics point of view about economic
growth seems quite optimistic. But as an economy grows, it increases in scale.
Scale has a maximum limit defned either by the regenerative or absorptive
capacity of the ecosystem, therefore until the surface of the earth begins to grow
at a rate equal to the rate of interest (Daly, 1991b, p. 40), one should not take
this optimistic attitude too seriously. Thus the concept of strong sustainability
is needed. Such a defnition is based on the assumption that certain sorts of
natural capital are deemed critical, and not readily substitutable by man-made
capital (Barbier and Markandya, 1990). In particular, the characterisation of
sus tain a bil i ty in terms of the strong criterion of non-negative change over time
in stocks of specifed natural capital provides a strong justifcation for de vel -
op ment of non-monetary indicators of ecological sustainability based on direct
physical measurement of important stocks and fows (Faucheux and OConnor, physical measurement physical measurement
1997; Faucheux and Nol, 1995).
GIUSEPPE MUNDA
226
By means of this concept, we are left with bio-physical indicators, or satel-
lite accounts of variations in natural patrimony, not integrated in money terms
within national income accounting. However, behind a list of indicators there
would always be a history of scientifc research and political controversy. Moreo-
ver, one should note that a list of indicators is far from being a list of targets or
limits for those indicators. Also, a question arises, how could such indicators
be aggregated? Often, some indicators improve while others deteriorate. It has
to be noted that this is the classical confictual situation studied in multicriteria
evaluation theory, in particular noncompensatory methods are quite relevant,
since compensability implies substitutability between different types of capital
(Faucheux et al. 1994; Munda, 1996).
4.2.2. The entropy law and the economic process
Energy analysis is very important for studying the relationships between economy
and environment. Energy-based valuation may appear to be a new com er in the
feld of economics: some people would fnd its origins in the 1973 energy crisis;
others identify it with Georgescu-Roegens The entropy law and the economic
process. Yet in actual fact, attempts to base theories of economic measurement
or value on various concepts of energy have a long history behind them. Mar-
tinez-Alier (1987) shows that there is a tradition of cross-fertilisation between
economics, thermodynamics and ecology, due to the work of scientists such as
Jevons, Clausius, Podolinski, Geddes, Soddy and others. However, energy is
not a substitute for money in order to reach a new concept of commensurability,
as it was theorised by the energy theories of value in the seventies and in the
eighties (on this point see Faucheux and Pilet (1994); Mirowski (1989)).
Since the meaning of the entropy law for the economic process is a much
discussed subject, here we will follow closely Georgescu-Roegens ter mi nol o gy.
Classical thermodynamics deals with energy but only with energy in bulk. No
thermodynamic concept makes any sense if applied to a microscopic element. An
electron has no heat, no temperature, no pressure, and no entropy. The entropy
concept can be defned as follows: in an isolated thermodynamic system the
available energy continuously and irrevocably degrades into an equal quantity
of unavailable energy, so that the total energy remains constant while the una-
vailable energy tends to a maximum (Georgescu-Roegen, 1993, p. 187), where
available energy is the one that humans could use for their purposes; unavailable
energy is energy that humans cannot use in any way; and an isolated system is
the one that can exchange neither energy nor matter with its en vi ron ment. The
entropy law can be applied neither to a closed system that can exchange only
energy with the environment nor to an open system that can exchange both
energy and matter with its surroundings.
As matter exists, like energy, in two states: available and non-available, and
since matter-energy enters the economic process in a state of low entropy and
ENVIRONMENTAL ECONOMICS
227
comes out of it in a state of high entropy, Roegen states his controversial fourth
law as follows: in a closed system (as the Earth practically is) mechanical work
cannot proceed at a constant rate forever (Georgescu-Roegen, 1993, p. 198),
or more simply, matter cannot be completely recycled. A consequence of this
law is that a programme based on the substitution of terrestrial energy by solar
energy such as Dalys steady state, cannot work. Interesting discussions of the
meaning and consequences of the so-called fourth law can be found in Mayumi
(1991, 1992, 1993).
Regarding technological progress, Georgescu-Roegen is quite pessimistic.
He defnes Promethean techniques as those that allow obtaining a surplus of
accessible energy (getting more accessible energy than that used in the op er a tion).
A new technology requires a new Promethean technique, not just one already
familiar alternative. The Promethean technique that saved the wood crisis was
the steam engine, but nowadays neither controlled fusion nor direct harmessed
solar energy have the characteristics of a Promethean tech nique.
According to Georgescu-Roegen (1984), a technology is viable if and only if
it can maintain the corresponding material structure which supports its resource
and sink functions, and consequently the human species.
A technology that draws down irreplaceable stocks, or generates irreducuble pol-
lu tion, or violates the ability of funds to provide assimilative and restorative services,
is not viable. The relevance of all this to weak sustainability is that all production
processes are characterised by infows fron Nature and outfows of waste to Nature
which are limitational. (Gowdy and OHara, 1996)
Figure 2 illustrates the ecological economics conception of the economic
system as a part of the overall ecosystem.
FIGURE 2. The economy embedded in social institutions and in the
ecosystem (Source: discussions with J. Martinez-Alier)
solar
energy
and income
distribution
solar &
industrial
energy
natural
resources
degraded
resources
degraded
energy
recycling
thermal
energy
Figure 2 The Economy embedded in Social
Institutions and in the Ecosystem
property
rights, power
economic
system
GIUSEPPE MUNDA
228
5. CONCLUSIONS
From the above discussion, the following conclusions may be drawn:
(i) Natural life-supporting ecosystems are negatively affected by the disposal of
wastes from the economic system. If the economy-environment interactions
are taken into account, immediately a broad question about the capability
of the natural environments to sustain the economy arises.
(ii) Substitution of more productive man-made capital for natural capital is not
an acceptable answer to environmental problems.
(iii) The idea of maintaining the natural capital stock is important and de-
sirable; unfortunately it is very diffcult to operationalise. Its main problem
is connected with the possibility of valuing environmental goods in money
terms (strong commensurability).
(iv) Environmental problems are very complex and characterised by sci en tifc
uncertainty. Any method trying to operationalise the concept of sus tain a ble
development is necessarily a second best approach.
(v) In economic theory, three main confictual values can be identifed: al lo -
ca tion, distribution and scale. In an operational framework, this means that an
exhaustive analysis has to take into consideration effciency criteria, ethical
criteria and ecological criteria, so a multidimensional paradigm is needed.
(vi) Ecological economics recognises that ecological and economical ra-
tion al i ty are not suffcient to lead to correct decisions, thus environmental
decisions must be taken by using a democratic scientifc-political decision
process.
We can identify the main differences between conventional environmental
economics and ecological economics in relation to the concept of sustainable
development as follows:
ENVIRONMENTAL ECO NOM ICS
pretends to be value free
there is a precise world-wide meaning of
economic de vel op ment
strong comparability based on weak
or strong commensurability is a key
principle
weak sustainability is the only pos si ble
operationalisation of the concept of
sustainable de vel op ment
ECOLOGICAL ECONOMICS
values are always inherent
interdisciplinarity and transdisciplinarity
are key principles
co-evolution and diversity are the key
issues of sustainability
incommensurability, multidimensionality
and weak com pa ra bil i ty are key guid ing
principles
strong sustainability operationalised by
means of bio-physical indicators
ENVIRONMENTAL ECONOMICS
229
Traditional monetary evaluation methods such as cost-beneft analysis are
based on phenomena such as consumers surpluses, market failures, demand
curves which are just a partial point of view, since connected with one institution
only: markets. From an ecological economics point of view, issues connected
with actions outside of markets and behaviour of people different from the class
of consumers should be taken into account. (Duchin and Lange, 1994)
In a post-normal science framework, any recommendations which emerge
should be defensible to the technical expert, but also to politicians, the media
and the various stakeholders. This does not imply that a consensus will be
reached. Indeed, the possibility of irreconcilable differences is recognised and
catered for by promoting a plurality of approaches. Ecological economics may
be un der stood as cross-disciplinary in the horizontal axis, integrating disciplinary
per spec tives on the issue at stake, and as pluri-participatory on the vertical axis,
integrating the evenly legitimate perspectives of the different stake-holders and
social actors concerned by the issue (see Figure 3).
FIGURE 3. Vertical and Horizontal Integration in Ecological Economics
(Source: Castells and Munda, 1996)
One should note that the issue of value-free science is important in real-
world environmental policy. For example, David Pearce claims that his work for
the intergovernmental Panel on Climate Change (IPCC), where lives of people
in rich nations are valued up to ffteen times higher than those in poor countries,
is a matter of scientifc correcteness versus political correctness! (New Scientist,
19 August, 1995). Is it really a matter of value-free scientifc correctness to use
valuations based on assessments of a communitys will ing ness and ability to
pay to avoid risks of death? The impossibility of eliminating value conficts in
environmental policy and the call for a plurality of approaches creates a clear
need for environmental philosophers and ethicists to play an important role in
ecological economics.
Social
Actors
(policy-makers, NGOs, citizens, etc.)
Disciplines
(economics, ecology, physical sciences,
philosophy, etc.)
GIUSEPPE MUNDA
230
NOTES
Comments by Joan Martinez-Alier and two anonymous referees are gratefuly ac knowl -
edged.
1
Here we do not enter in details regarding the so called growth debate. The interested
reader can refer to: Galbraith, 1959; Hirsch, 1977; Hueting, 1980; Meadows et al., 1972;
Mishan, 1967 and 1976; Nordhaus and Tobin, 1972; Scitovsky, 1976.
2
In this textbook we show how we can use the main body of economic thought to derive
important propositions about the linkages between the economy and the environment.
Rather than looking for some different economics, we are seeking to expand the ho-
rizons of economic thought (Pearce and Turner, 1990, p. 30).
3
Martinez-Alier (1987) shows that the increase in productivity of modern agriculture
depends on the underestimation of energetic inputs from fossil fuels, the low value given
to the contamination caused by pesticides and the loss of biodiversity.
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