The Essential Function of the Government In Our Pursuit of Sustainability

Submitted by John Ikerd

The recent global financial crisis has raised widespread concern for the sustainability of the global economy and much has been written concerning the negative impacts of economic development on natural ecosystems and civil societies. Unfortunately, few viable alternatives to the prevailing economic paradigms have been suggested for consideration. Those that have been are typically little more than suggestions for fine tuning capitalist or socialist economies.

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. In part nine, he outlines the essential upside of government regulation for sustainability.

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Preserving The Common Good, Autonomy, & Equity

Government is essential for economic sustainability. Regardless of the form of government, the essential function is to ensure both economic and social autonomy and equity. The needs of individuals for autonomy or liberty must be balanced with the needs of societies for equity or justice. An efficient economy can serve the collective economic interests of individuals within society but an effective government is essential to ensure the common interests of the society as a whole. In addition, while both are necessary, the common good of society must be given priority over the economic good of individuals.

Economically competitive markets functioning within the constraints of an equitable and just society can ensure economic autonomy. Buyers and sellers in such markets have the freedom to act independently, as long as their behavior meets the standards established by their society. Economic equity requires that market participants be rewarded in relation to their ability to contribute economic value to the economy.

Economic equity depends on the efficiency of markets, specifically the allocative efficiency of markets, which depends on the competitiveness of markets, as explained in The Essentials of Economic Sustainability. Thus, an essential function of government in market economies is to maintain competitive markets in order to ensure efficient allocation of economic resources.

Keeping Markets Competitive

As is evident from the history of market economies, the only way governments can ensure both operational and coordinative efficiency is to maintain a competitive market structure – meaning large numbers of small economic enterprises.

If firms are large enough or few enough to have significant individual impacts on market prices or other conditions of trade, history has shown they will find ways to use their market power to retain excess profits by exploiting their customers and/or suppliers.

If economies of scale are sufficiently large as to make a small number of large economic organizations necessary to serve the public interest, such organizations should be owned and operated by governments, or as public utilities under strict government regulation and control. Governments cannot allow operational efficiency to take precedent over allocative efficiency if they are to perform their essential function of maintaining economic competition.

Governments Preserve Society, Communities, & Cultures

In general, governments serve the same functions for communities and societies that cultures serve for families and friendships. Cultures place restrictions on and provide incentives for individual behaviors that have proven over time to be necessary for the common good of families, friendships, and communities. Different cultures are defined by standards of normal and acceptable behavior that have passed down from generation to generation within different social or cultural groups. 

Cultures evolve to reflect the kinds of relationships they have found necessary to survive and thrive in particular geographic locations or regions. Thus, cultures define acceptable ecological relationships between people and nature as well as social relationships among people.

Within families, friendships, and small cohesive communities, cultural standards of behavior are defined and enforced through various social pressures and sanctions. Within larger and less cohesive communities and societies, cultural standards must be defined and enforced through government.

Social Equity, Economic Equity & Human Relationships

Cultures and governments are necessary because social equity is fundamentally different from economic equity. An economy is indifferent to the culture within which it exists because markets place no economic value on relationships that are purely social or ethical in nature.

Economic equity requires only that people be rewarded in relation to their contributions of value to the economy. By their human nature, different people have different aptitudes and abilities and thus have different capacities to produce things of economic value. The social value of a person will be always different from his or her economic value, and thus social equity will be different from economic equity.

In general, the greater part of the total value of human relationships is not economic value but instead is purely social and ethical value. Great philosophers throughout human history have generally agreed: the most important benefits of human relationships arise from fulfillment of the basic needs of humans to be accepted, respected, and esteemed by people whom they in turn accept, respect, and esteem.

People also must be free to relate to other people in socially responsible ways if they are to meet this basic human need. Social autonomy and equity are essential prerequisites or necessary conditions for sustaining the integrity of societies within which sustainable economies must function.

Government Regulation

Neither families nor communities nor governments can ensure that a society will realize its full potential benefits of positive social relationships. However, the absence of social autonomy and equity precludes the possibility of the social benefits essential for sustainability. The possibility of social and ethical rewards and the certainty of societal or government penalties motivate individuals to join in the non-economic decisions necessary to sustain the productivity of nature and society.

Real people may or may not respond willingly to such motivations. Organizations that are purely economic, such as large publicly traded corporations, cannot be motivated by social or ethical values; they are not human. Legal regulations or restraints are absolutely necessary to restrain their economic exploitation.

That being said, such regulations and restraints must be supported by a societal consensus. Governments can only ensure that the many people who would voluntarily conform to the standards of their society don’t have to compete with the few who would not.

Governments cannot ensure sustainability but can only provide the social and ecological environment within which autonomous individuals can choose to work individually and together to ensure sustainability.

Governments cannot endow people with the courage to be trustworthy and kind but can ensure social autonomy and the institutional means necessary for people to ensure social equity and justice for all.

Governments cannot endow people with an ecological conscience but can allow people to reflect the ecological principles of holism, diversity, and interdependence in establishing laws and administering regulations. 

The economy must not be allowed to degrade the integrity or deplete the productivity of either society or nature. Only people working together through government can perform this essential function for economic sustainability.

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Part 8: Markets, Competition & The Collective Good: The Essential Characteristics of Markets

Part 7: Economic Sustainability: Ultimately about Energy

Part 6: The Essential Characteristics of Economies -- And How They [Could] Drive Sustainability

Part 5: The Three Economic Principles of Sustainability

Part 4: From Utilitarianism To Ethics: The Social Principles of Economic Sustainability

Part 3: The Three Ecological Principles of Economic Sustainability

Part 2: The Hierarchy of Economic Sustainability: Getting The Principles Right

Part 1: Ethics & The Challenge of Economic Sustainability