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Book of the Day: The Essentials of Economic Sustainability

photo of Michel Bauwens

Michel Bauwens
12th July 2013


* Book: John Ikerd. The Essentials of Economic Sustainability.

“In his new book The Essentials of Economic Sustainability, John Ikerd addresses the basic principles and concepts essential to economic sustainability. Some of these concepts are capitalist, some are socialistic, and others are general principles validated by philosophy or common sense. What results is a synthesis: something that is neither capitalist nor socialist but fundamentally different.”

Excerpt 1: The Three Ecological Principles that should rule the economy

John Ickerd:

* Holism – and The Perils of Ignoring It

“The first principle of ecological sustainability is holism – meaning everything is interconnected.

The principle of holism can be summarized by the simple statement, “a whole is more than the sum of its parts.” The essence of the whole of living systems – biological or social – is not fully embodied in their individual parts or members. Wholes have properties that emerge only when the parts come together to form a coherent organism, organization, or whole. Parts have properties when they are connected within the whole that disappear when they are separated or isolated from the whole. The relationships among the parts of wholes matter; when the relationships change, the whole is changed.

Where interconnections are weak or simple – as in mechanical, chemical, and electrical systems – ignoring holism doesn’t appear to be a critical concern. Mechanistic paradigms seem to work very well in matters related to physics, chemistry, engineering, and the industrial arts. The greatest advances during the modern era of science and industry have been in these areas.

Where relationships are strong and systems are complex – as in ecological, social, or economic systems – ignoring holism has critical consequences. In these areas of application, mechanical paradigms have often created more problems than they have solved. The most important challenges of economic sustainability are not mechanical or industrial, but instead are ecological, social, and economic, where relationships matter.

* Diversity: Foundation of Resilience

A second essential principle of ecological sustainability is diversity. The whole of a thing is said to be diverse if it has a variety of different or dissimilar elements or parts.

Nature is inherently diverse, as can be readily observable.

If nature were not diverse, it would not be capable of sustaining life. Entropy can be defined as the process of degrading or using up the usefulness of energy and matter. The ultimate state of entropy is characterized by inert uniformity of component elements; the absence of form, pattern, structure, or differentiation. Barren deserts receive an abundance of solar energy but are capable of supporting relatively little life because they are lacking in ecological diversity. Ecosystems completely lacking in diversity are incapable of supporting life.

Diversity gives living systems their capacities to renew and regenerate – to live, grow, mature, produce, reproduce, and evolve. Diversity provides the resilience needed to endure and recover from unexpected threats to health or life, such as physical attacks and diseases. Diversity allows living systems to adapt and evolve to accommodate their ever changing environment. Even if the specific nature of a threat is not fully understood, people can readily understand that loss of diversity in general represents a growing threat to the future of human life on earth.

* Interdependence: The Win-Win Principle

A third essential ecological principle of sustainability is interdependence. Dependent relationships are exploitative, independence is limiting, but interdependent relationships are mutually beneficial; there are no losers.

Interdependence is the reward or payoff for respecting the principles of holism and diversity.

Within interdependent systems, the output of one process becomes input for others. The wastes of one species provide resources for other species. For example, each species in a diverse natural ecosystem provides the food or energy needed by other species. Interdependence allows the control of natural ecosystems to be decentralized or dispersed rather than centralized or consolidated.

The mutually-beneficial nature of interdependent relationships makes the whole of diverse living systems something more than the sums of their parts, rather than something less.

Interdependent relationships involving humans are matters of choice rather than necessity. People have a choice between continuing to exploit and extract from nature or instead renewing and regenerating nature – working in harmony with nature.

Throughout most of human history, humans were far more dependent on nature than was nature on humans. Nature often seemed to deny humans their basic necessities of life. The dominant society of today – the modern industrial society – has been very “successful” in winning its battles with nature. We have dammed streams, irrigated fields, poisoned pests, and vaccinated against plagues. But nature has always fought back with bigger floods, longer droughts, more resistant pests, and more complex plagues.

If our society and economy are to be sustainable, we must choose interdependent relationships with nature.” (www.csrwire.com/blog/posts/713-the-three-ecological-principles-of-economic-sustainability)

Excerpt 2: The Three Economic Principles of Sustainability

John Ickerd:

“The essence of economics can be reduced to three basic principles: scarcity, efficiency, and sovereignty. These principles were not created by economists. They are basic principles of human behavior. These principles exist regardless of whether individuals live in market economies or planned economies. They define the functions people need to carry out to meet their impersonal, instrumental, individual needs, including the need to work or earn an economic livelihood. Few things are more real or relevant to the day-to-day lives of people.

* Scarcity

Scarcity is an essential principle of economic sustainability. Things have economic value only if they are scarce – meaning there is not enough for everyone to have all they want. The economic or exchange value of something is different from its intrinsic or use value. Intrinsic value is determined by necessity; economic value is determined by scarcity.

For example, air most certainly is valuable to human life but it has no economic value. Air only becomes economically valuable when it becomes sufficiently restricted, polluted, or degraded to make good, clean air scarce. People then are forced to pay the costs of keeping clean air available. Air then has economic value. This may sound simple, but many people don’t seem to understand that the economy doesn’t necessarily value things that are important to society and humanity.

As something becomes less scarce, it has less economic value: the “law of diminishing returns.” The economic laws of supply and demand are derived directly from this basic economic principle.

Supply, Demand And Market Price: The first serving of food at a given meal may taste very good, if a person is hungry. The second serving might taste okay, but by the third or fourth serving most people would have had more than enough. As a result, the quantities or amounts of something consumers are willing to buy vary inversely with its price: The law of demand.

As people expend more time and energy producing things, they require more pay to offset the increasing scarcity of their time and energy left for other uses. So the amount of labor they are willing to supply varies directly with their wages or salaries. As a result, producers who hire workers are willing to produce larger amounts of things only if they can get higher prices to cover their increasing costs of production. Quantities supplied by producers or sellers vary directly in relation to prices: the law of supply. The laws of supply and demand are reflections of our humanness.

In market economies, prices are determined by the laws of supply and demand. As more of something is sold, the costs of producing it goes up but its value to buyers goes down, until buyers are willing to pay just enough to cover the added costs of production. At this point, buyers would buy more only if prices were lower but sellers would sell more only if prices were higher.

They have arrived at a market price.

The most powerful economic concepts are these simple ideas of supply, demand, and market price. Certainly, the real world in which buyers and sellers operate is far more complex than this simple explanation, but the underlying principles are the same. The global economy has been brought to the verge of collapse by people who failed to understand or respect both the power and the limitation of the economic principle of scarcity.

* Efficiency

The principle of efficiency is also essential to economic sustainability. Economic efficiency refers to economic value relative to economic cost. The greater the value relative to costs, the greater the efficiency.

The natural and human resources used to produce things of economic value often have a variety of alternative uses. Wood, coal, oil, and natural gas, for example, can be used by a variety of means in manufacturing, generation of electricity, transportation, and home heating. Many laborers and managers have a wide variety of employable skills and talents and thus a variety of employment opportunities. Economic efficiency is achieved by putting natural and human resources to their highest or best economic use – meaning their greatest economic value relative to their economic costs.

* Sovereignty: First Principle Of Economic Sustainability

Sovereignty or “freedom to choose” is the first principle of economic sustainability. If people are not free to make economic choices the concepts of scarcity and efficiency are of little consequence, at least not to them individually. People must be free to determine or discover their needs and wants for themselves, without persuasion or coercion from others. They must have accurate information so they can know the ultimate value of things before they choose to buy them, to avoid regret for the choices they have made.

Most economists assume that people are sovereign without questioning whether they actually are free to choose. After all, no one is forcing people to buy things. Perhaps people aren’t forced to buy anything, but billions of dollars are spent each year on advertising designed to persuade, coerce, and create social pressures to convince people to buy things they don’t need or even want.

In addition, many people have sacrificed their economic sovereignty through excessive borrowing which limits their economic opportunities for the future. Economic sovereignty is essential for economic sustainability.

To live and make a living in a sustainable society, people must respect the economic principles scarcity, efficiency, and sovereignty”

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