Just Sustainabilities And Market Failure: Why Economic Theories Fail To Capture Environmental Issues
While a growth in human welfare or progress towards a just social foundation should ideally be accompanied by a growth in the earth’s biophysical capacity, the planetary thresholds framework has enlightened us about the limits of the planet and the complex inter-linkages between the thresholds and negative spill-overs of crossing any of the boundaries, which itself is dependent on many interlinked factors related to our resource use and development dynamics. While there have been attempts to quantify environmental stress as a result of growth such as the IPAT equation, the variables chosen for such equations too explain the limitations of this equation. Environmental Impact or I in the equation is taken to be a product of population, affluence, and technology, where affluence = GDP/population and technology = impact/GDP. Not only are most terms loosely defined, but many other factors which may result in environmental impact are again ignored with the unrealistic assumption of ceteris parabus.
Even with recent policy shifts in India towards the achievement of the INDC targets of the 2015 Paris Agreements terms like ‘carbon intensity of production’ become integral statistical tools for policy-makers and executors to assess the progress of their policy achievements. While ‘carbon intensity of production’ is simply CO2 levels divided by the GDP, an achievement in reducing this variable may satisfy INDC target requirements, but certainly may not account for actual progress in sustainable development, if not done in an all-encompassing, holistic approach.
Other than the drawbacks of ecological economics and environmental economics in providing market-based environmental and social solutions for sustainable development, there are other flaws in mainstream economic thought in addressing various other issues. Quantifying environmental factors, biodiversity, ecological footprint, research into carrying capacities of different ecosystems with an intangible economic value which were all compartmentalized into various unsatisfying theories of market failure, using tools such as Contingent Valuation Method to assign monetary values to ‘non-market goods’. Inquiry into non-market goods and its value certainly may aid a thought culture and policy environment geared towards ‘just sustainabilities’. With single dimensional models advocating rapid economic growth, increasing unfettered consumption and rapid environmental degradation, we are ultimately leading to the most catastrophic “tragedy of the commons”.
As we come to terms with the deep environmental and social implications of an over-consumerist society which is fuelled by rapid economic growth and unfettered consumption, many economic indicators such as consumption and the latent effects of our consumption choices make it one of the biggest reasons for market failure, even though consumption is looked upon positively in mainstream, classical and Keynesian economics.
With this consumerist approach to consumption (which does not account for the marginal social cost of consumption like the latent effects on the environment in the supply chain of the product), we reach a stage where true environmental costs of consumption are hidden under the pretense of promoting consumption, and society is unaware of the true costs of their choices and actions. While one may attempt to save water by reducing their direct water consumption, he remains fully unaware of the indirect water footprint of his food consumption, or the materials he otherwise uses or consumes during the day (in terms of the water used during the irrigation, manufacturing or processing of that item).
While this may not have direct environmental implications (if the water is recharged, reused, recycled), another example of indirect negative consequences can be the supply chain of Palm Oil products. Malaysian and Indonesian rainforests form the source of 99% of Palm Oil imports. Therefore every Indian consumer by his toothpaste or shampoo choice, may be oblivious to his part in destroying the homes of thousands of orangutans and causing large-scale biodiversity loss, due to this lack of knowledge dispersion regarding indirect effects of the supply chain of Palm Oil. While in economic terms, at every level in the supply chain, some income is earned, the intangible value of rainforests and biodiversity lost in the process is masked due to this widespread market failure due to our consumption and production choices. Therefore with such unfettered consumption choices in an increasingly consumerist society, a dystopian future showcasing the extrapolated rendition of the Tragedy of the Commons isn’t that far if we don’t take a radical shift in our thought.
