Principles for Economic Sustainability: SummaryJeremy SolinThis is a summary of John Ikerd’s Principles of Economic Sustainability. It wasdeveloped based on attendance a 5-day workshop taught by John and John’s Essentials ofEconomic Sustainability book.The purpose of an economy is “to meet the impersonal and instrumental needs of peopleas individuals” (Ikerd, 2012, p. 51). These needs include physical necessities of food, shelter,clothing, health care. Humans also have emotional, spiritual and social needs which are differentfrom economic needs, even though they may be affected by economic relationships. Economicsustainability is the meeting the economic needs of the present without diminishing the economicneeds of the future.Our current economic system is not sustainable. It does not effectively provide for theeconomic needs of most people. Not only does it not work for those of the present, it isexploiting and destroying the ecological and social assets and relationships upon which we (andthe economy ultimately) depend and must depend in the future.Economic relationships are different from social or ethical relationships. They areindividual, instrumental (they are a means of acquiring something of value to a particularindividual) and impersonal (they can be transferred – a shirt can be sold or traded to someoneelse). Real people do not make entirely economic decisions. Most decisions made by realpeople are social, ethical and economic. However, corporations do make purely economicdecisions because corporations are not real people. Ultimately, all economic value comes from
nature by means of society. Therefore to sustain economies, we have to protect the productivecapacity of nature and society.Economic value alone is inadequate to ensure economic sustainability. There is a need tobring in ecological and social values to make effective decisions. Because of its individual andinstrumental nature, economic value prioritizes the present and heavily discounts future value.So, some relationships necessary for economic sustainability (again, going back to all economicvalue ultimately comes from nature through people) are not economic, but ecological, social andethical. The ecological, social and ethical relationships are necessary for us to be able to projectand to protect the productivity and value of social and ecological resources past the short termand to maintain those things that keep us happy – e.g., social relationships – but do not haveeconomic value. Some social and ethical values have economic value as well and thus can beinternalized into economy. However, there are many things that are non-economic and thuscannot and should not be assigned economic value – such as personal relationships, stewardshipof clean water, and photosynthesis. Again, social values are inherently personal, and thus noteconomic, and ethical values are non-instrumental, and thus non-economic. Therefore, effortslike Natural Capitalism and Ecological Economics are necessary, but not sufficient to capture thefull range of human values and needs. We need to re-place economy in relation to the rest ofnature and society. Economic value cannot be the primary decision-making item as economicvalue cannot represent the full range of human values.An ecological (or real-world) view of the economyplaces the economy in a hierarchy in which the economy isset within society and society is set within the rest of nature.Within such a nested hierarchy, the purpose is derived at nextFigure 1: Hierarchical, nestedrelationship between nature,society and economy. Nature isthe highest scale containingsociety, in which economy isset.NatureEconomySociety
highest level of organization, lower levels define possibilities. For example, if we think of thehuman being as a nested system, the purpose for the heart is defined in relation to the body as awhole, and the heart affects the potential of the body (beating fast provides the potential to exertextra energy, quitting stops the function of the body). So, the purpose of society is derived fromnature and the purpose of the economy is derived from society. The possibilities of society areaffected by the economy and possibilities of nature are affected by society. Ikerd asserts that theessential mission of sustainable economy is to enhance the quality of life. The sustainableeconomy must be managed and regulated in ways that creates and regenerates the resourcesnecessary to enhance the social and ecological qualities essential to sustaining the economy aswell as a desirable quality of human life.A sustainable economy is guided and constrained by ecological, social, and economicprinciples. Ikerd includes holism, diversity and interdependence as core ecological principles.Though essential, these not meant to be an exhaustive set of principles. He proposes the socialprinciples of trust, kindness and courage as being essential for social sustainability. He explainshow the economic principles of scarcity, efficiency, and sovereignty are essential for economicsustainability. Since the economy is a subset of nature and society a subset of nature, the mostfundamental economic and social principles also are principles or laws on nature. Sinceeverything is interconnected within the global ecosystem of which societies and economies arepart, the core principles of economics are also principles of social and ecological relationships,the core social principles are also principles of economies and ecosystems, and core ecologicalprinciple are also principles of sustainable economies and societies.
Table 1. Ikerd’s Principles for Economic ourageSovereigntySustainable economies must be understood and managed as living systems. As such theyare holistic, dynamic, individualistic, and purposeful. They must be guided by principles ofresourcefulness, resilience and regeneration which characterize healthy, living ecosystems.Markets and governments play essential roles in sustainable economies. Governmentsare the means by which we reflect our ethical and social principles in making collectivedecisions that affect and protect the common good, including the long-run economy. Markets arethe means by which we express our instrumental, impersonal values in meeting our individualneeds and preferences. Markets facilitate individual choices that collectively ration, reward andallocate resources; facilitate trade; provide incentives for innovation; and provide opportunitiesfor profits. In sustainable economies, markets can be an efficient means of ensuring mutuallybeneficial trade. For sustainable economies, governments must ensure individual and socialautonomy and equity, maintain competitive markets, and create and maintain stable values ofcurrency. Government is an expression of culture in that it reflects the ethical or moral values ofthe society which forms it. The ethical values of a society, as reflected through government,must be used to restrain economic exploitation of nature and society and to invest economicsurplus created by individuals in maintaining and building ecological and social assets andcapacity necessary to sustain an economy over the long run.
Ultimately, economic growth is not sustainable. As Ikerd identifies, the usefulness ofnature and society in creating things of economic value is ultimately a matter of energy.Everything of economic value requires energy to make and energy to use – our houses, cars,clothes, food. The human capital embodied in labor, creativity, and entrepreneurship requirebiological energy to use and social energy to create. According to the laws on thermodynamics,energy can neither be created nor destroyed, but each time energy is used or reused, it loses someof its usefulness and thus loses some of its potential economic value. Whenever energy is used,it becomes less concentrated and less organized and as a consequence becomes less useful. Thisis the physical law of entropy. Growth during the industrial era was supported by cheap fossilenergy and a pool of readily available resources. However, remaining energy and resources willbe less abundance and more expensive. The only sustainable source of energy is the daily inflowof solar energy. Ultimately, a sustainable economy relies wholly on incoming solar energy.Solar energy is abundant but is less concentrated and organized than fossil energy and thus hasless economic value.Moving forward, a sustainable economy will be in a steady state, in which the economicthroughput of materials is in balance with the capacity of nature (extraction is less than or equalto growth of renewable resources and waste can be assimilated and used productively). Within asteady state economy there is still economic development through increasing efficiency ofresource use and increasing quality of life. There will always be those gaining and those losingin a steady state economy, so there is opportunity for individual economic advancement. Theoverall level of economic activity –meaning growth or decline –will be limited to the level ofsustainable throughput of useful solar energy.
The choice of a sustainable economy for the future over the unsustainable economy oftoday depends on an understanding that economic growth is not necessary to sustain thecontinuing improvements in the overall quality of life within a given society or the quality ofhuman life on earth. Humans are individual, social, and ethical beings. We need the materialthings of life that economies can provide. And, we need social relationships that have noeconomic value to meet our needs as members of families, communities, and societies. We alsoneed ethical relationships to give our lives purpose and meaning. And, we need to be inrelationship to the rest of nature which physically, emotionally, spiritually (and ultimatelyeconomically) sustains us as fully human beings. The economic, social, ecological and ethicalprinciples of economic sustainability are identical to the essential principles of a desirable qualityof life. Economic growth is not essential for growth in quality of life. The challenge to create asustainable economy is a challenge to create a desirable quality of life – without growth.ReferencesIkerd, J. (2012). The essentials of economic sustainability. Sterling, VA: Kumerian Press.
Principles for Economic Sustainability: Summary Jeremy Solin This is a summary of John Ikerd’s Principles of Economic Sustainability.It was developed based on attendance a 5-day workshop taught by John and John’s Essentials of Economic Sustainability book.