The Hierarchy of Economic Sustainability: Getting The Principles Right

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 two, he lays out the basic principles of sustainability.

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Many economists claim that the problems of sustainability can be solved by assigning economic value to environmental and social costs through public policies. Most economists understand that economic activities can have negative impacts on natural ecosystems and human social systems that are not reflected in market prices. These so-called “external costs,” such as environmental pollution, are borne by someone outside of the market, someone other than the one who carries out the economic activity.

If we “internalize the externalities,” decisions makers will have to consider external as well as internal costs of their market-based economic decisions. If we simply “get the prices right,” they claim, markets will be capable of ensuring economic sustainability. This economic worldview limits concerns for sustainability to some small subset of economic decisions that overlap or intersect with nature and society. The worldview necessary for economic sustainability is very different from the worldview of contemporary economics.

All Economic Actions Impact Nature & Society

To achieve economic sustainability, concerns cannot be limited to some small part of the economy. The whole of the economy exists within the realm of society, and the whole of human society is contained within the realm of nature. Thus, the whole of the economy is within the realm of nature as well as society. The whole of the economy intersects and overlaps with both society and nature. 

All economic actions impact both society and nature. There is no place to get anything of economic value other than from nature by way of society. There is no place to dispose of wastes from economic activity other than in nature by way of society. Every economic decision has social and ecological “externalities,” not just some small subset or type of decisions.

Nature Tops The Economy

Furthermore, the relationships among nature, society, and the economy are hierarchal. Nature represents a higher organizational level or plane than society, and society represents a higher level of organization than the economy.

This ordinal ranking or hierarchy is derived from a distinction between purpose and possibilities. The purposes of lower levels of organization are always derived from higher levels and the possibilities of higher levels are always dependent on lower levels of organization. Purpose gives meaning to possibilities, and possibilities allow purpose to evolve into reality. 

The organizational structure of the human body can be thought of as complex systems of nested hierarchies. The whole of the body is analogous to nature, the blood circulatory system is analogous to society, and the heart is analogous to the economy. The purpose of the heart is to pump blood through the circulatory system, which in turn provides oxygen and nutrients to the rest of the body. The heart has a distinct function but it has no purpose apart from the circulatory system, whose purpose is derived from the body as a whole. Thus, the ultimate purpose of the heart is to help the circulatory system keep the whole body alive and healthy. Apart from sustaining the life of the body, the heart and circulatory system have no purpose.

What’s Nature For? What’s The Economy For? 

Likewise, the purpose of the economy is to sustain a vibrant, healthy society that is capable of sustaining a healthy, vibrant natural ecosystem. Nature in return provides the essential means or resources necessary to sustain the economy, society, and humanity – indefinitely into the future. The purpose of nature is not simply to support an ever-expanding global society and the purpose of society is not to support an ever-growing global economy. If we continue to extract and exploit the resources of nature and society in the pursuit of economic growth, we inevitably will deplete the only possible sources of economic value.

That being said, a healthy, vibrant economy is essential in transforming the potentials for ecological and social sustainability into reality. Returning to the previous analogy, if the heart fails to perform its function, the circulatory system will be unable to keep the body alive. If the heart muscle grows weak with age, the health and possibilities of the whole body are diminished. The possibilities of the body depend on the functioning of the organs in all of the lower levels in the body’s organizational hierarchy. The possibilities of an economy have no relevance or meaning apart from its social and ecological purpose but abilities of society and nature to realize their potentials are dependent on the economy.

Holism, Diversity, And Interdependence

Equally important, higher levels within nested hierarchies define the principles or laws by which all lower levels function. Nature defines the essential principles by which both societies and economies function, such as the laws of gravity and thermodynamics. As with other laws of nature, laws of gravity and entropy can be ignored or denied but their consequences cannot be avoided.  

Living systems, including societies and economies, function according to the basic laws or principles of natural ecosystems, including holism, diversity, and interdependence. Perhaps less obvious are the natural principles of human relationships, which include trust, kindness, and courage. The most basic principles of economics are natural principles of individual human behavior, including scarcity, efficiency, and sovereignty.

The essential ecological, social, and economic principles of sustainability are discussed in detail in The Essentials of Economic Sustainability and will be the subject of subsequent blog posts.

Since economies are created by societies they may be required to function according to additional values defined by the societies that create them. Such values may be evaluated periodically, renegotiated, and redefined. The principles of nature, however, are unchanging.

Unlike other species, we humans make intentional decisions that affect and are affected by all of the other elements of nature, including other humans. To achieve economic sustainability, human intentions and actions must be in harmony with the essential ecological, social, and economic principles of sustainability.

We cannot avoid the ultimate consequences of our actions.

Simply getting the prices right or internalizing externalities is necessary but not sufficient. We have to “get the principles right.” We must give priority to the laws of nature if we are to sustain our economy.

Respect for the hierarchy of sustainability is essential for economic sustainability.

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Part 1: Ethics & The Challenge of Economic Sustainability