Economic Framing: Environmental Governance and Teaching Pluralist Economics
In political discussions, many of the environmental problems expounded in the Anthropocene debate are framed in economic terms. In order to develop a broader understanding of possible solutions, we need to recognize that there are different economic approaches based on diverging perspectives: on human‒nature relationships, the markets, and sustainable development. However, due to the bias in economics education at present, there is a risk that future decision-makers will adopt the narrow worldview of mainstream economics, making them insusceptible to alternative solutions. Therefore, the teaching of economics needs to become more pluralist and incorporate the ecological foundations of economies at its core.
Introduction
Economic theories matter: they dominate how various societal problems are framed in political discussions and which political actions are considered feasible. One could even say that economics is one of the academic disciplines in which science and politics—understood as the art of governance—are most entangled. Furthermore, economics provides arguments for proponents of an economic system that incorporates increasingly more aspects of the lives of more and more people.
Capitalist production patterns and Western lifestyles are spreading around the globe. Commodity markets and financial markets are growing together, enabling access to ever increasing possibilities but also causing unprecedented changes in the environment and threatening human well-being and survival. This implies far-reaching challenges for environmental governance to secure the livelihoods of the current generation as well as those of future generations.
These strong feedback loops, between humans and their technology—as, for instance, conceptualized in the notions of the anthroposphere or the technosphere on the one hand, and other biophysical spheres of the Earth system on the other—are one of the main themes of the Anthropocene discourse. Taking up the notion from geology, the concept of the Anthropocene is now also discussed within the humanities and social sciences. This discussion takes the observations of ever-increasing anthropogenic changes to the Earth as a starting point to reflect on both human‒nature relationships and the underlying epistemological frameworks.
In this essay, I argue that these frameworks are especially important with regard to economic questions. In the economics literature, there are ongoing debates about the framing of environmental issues, particularly between environmental and ecological economists. However, these debates are hardly reflected in economics teaching as economists tend to be trained in very specific theories, which strongly influence the way they frame societal problems. Through implementation of new markets and policies to solve these problems, this thinking increasingly influences the organization of many societies. I argue that a rethinking of economics education in line with pluralist accounts is necessary, in order to allow future economists to solve ecological problems characteristic of the Anthropocene.
Framing Economics
Defining economics is a difficult task: some economists define it as a discipline concerned with the allocation of scarce resources, while others define it with respect to its method (optimization under constraints) or its objects (markets). Whatever the definition, it is important to point out that economics is not a homogeneous academic discipline with canonical assumptions shared by every scholar practicing economics, but that there are different schools of thought that promote sometimes incompatible theories. Mainstream economics, with the neoclassical paradigm at its core, largely dominates the academic discourse. Although the mainstream embraces new approaches such as behavioral economics, many economists have a narrow understanding of valid ways to do economics. Thus, alternative schools such as Post-Keynesian, Marxian, Austrian, evolutionary, feminist, or institutional approaches are often marginalized.
With respect to environmental issues such as natural resource depletion, pollution, and climate change, different and sometimes opposing economic views are debated between environmental economics, the mainstream analysis of economic interactions with the environment, and alternative schools of thought, mainly ecological economics, a heterogeneous and transdisciplinary field that challenges mainstream convictions.1 The label “ecological economics” may not be embraced by all heterodox scholars concerned with environmental topics, and the boundaries between ecological economics and other approaches such as evolutionary, Post-Keynesian, and institutional economics are blurry.2 I will nevertheless use this label in the essay to designate heterodox positions on environmental questions. In the following sections, I introduce the main arguments and points of divergence in the debate. As we will see, the framing of the same problems can lead to very different conclusions about desired actions.
Economic‒Environmental Relations and Valuation of Ecosystems
A very general difference is the ontological understanding of how economies, societies, and ecosystems relate to one another. Environmental economists tend to frame the economy as external to the ecosystem. Of course, human actions may change the ecosystem, but for environmental economists this seems important only insofar as the changes influence other people’s lives and decisions.
In contrast, ecological economists conceive the economy as a subsystem of society and as a part of the ecosystem.3 They emphasize the co-evolution between economic and ecological systems and criticize the increasing colonization of nature: i.e. the human effort to control and instrumentalize ecosystems. Often, ecological economists consider environmental problems as much more severe than their environmental colleagues do, and recognize that the solution of these problems is not only a question of the correct economic policy.
One of the core questions economists deal with is how to value nature. This is discussed, for instance, in the framework of ecosystem services. Mainstream economists often aim at an economic valuation: i.e. putting a price on ecosystem services such as water provision, climate regulation, or air purification. If ecosystem services are priced incorrectly, or if their use is not restricted by the state, they may be overused or damaged.
Ecological economists are often skeptical about the monetization of ecosystem services and environmental damage. People might be unwilling to pay for ecosystem conservation, either because they are unaware that the services are provided, or they may have limited knowledge or care little about the long-term consequences of ecosystem destruction (i.e. nonlinear regime shifts), or lack the economic resources to respond. Instead, ecological economists point out that economic actors are moral subjects, and that ethical arguments and social norms play a crucial role in ecological conservation. They argue that in light of our limited knowledge about the functioning of the Earth system we should apply the precautionary principle and refrain from changing our environment when the consequences are uncertain.
Solving Environmental Problems: The Role of the Markets
As economies develop, governance through markets becomes increasingly important. A central concept in environmental economics is that of market failure: allocation of scarce resources may not be efficient or socially optimal due to ill-defined property rights, externalities, or non-excludability in market settings. If these effects are significant, the social costs are not reflected in the price of goods. A particularly stylized version of market failure is the tragedy of the commons, in which economic actors overuse a common resource to everybody’s disadvantage.
Economic policies that are proposed to solve these problems include the establishment of clearly defined property rights, environmental regulations, and the internalization of externalities through taxation, subsidies, and other incentives or disincentives. For example, in order to reduce environmental pollution, environmental policies can regulate industries by setting standards, taxing pollution, or establishing markets for tradable pollution certificates issued by the government (defining a property right on pollution, for instance on carbon emissions as in the EU Emissions Trading Scheme). Many environmental economists argue that the latter is the most cost-efficient, but policymakers still have to determine a socially optimal level of pollution in order to set the quantity of certificates. If transaction costs between parties are sufficiently low, then the outcome of negotiations between the polluters and the actors suffering the effects of pollution is supposed to be socially optimal, regardless of the initial allocation of property rights (the Coase theorem).
Another market failure is the underprovision of public goods: i.e. goods that benefit everybody regardless of their contribution to its provision. Prominent examples are ecosystem conservation and climate change mitigation. Although these measures would benefit everybody, single actors may be unwilling to make the effort for fear that other actors will take a free ride on their efforts and thus gain economic advantage. The problem might be solved by government provision or subsidies to provide the good, but as past climate negotiations illustrate, it is especially difficult to establish this at an international level.
Ecological economists are more critical about solving environmental problems by introducing novel markets and privatizing the commons. Not every external effect of a market can be internalized. To do so would entail a never-ending game between market participants and regulators and result in an absurd increase in bureaucracy to control the market. Markets are always embedded in a social context such that social norms and moral issues play an important role in agents’ decisions. Therefore, ecological economists emphasize the co-evolution of market institutions, consumer preferences, and suppliers. Social relations are often more important than economic calculations, which is one of the reasons why the tragedy of the commons often does not occur even without formal institutions or clearly defined property rights.
Ecological economists also criticize the strong focus on Pareto-efficient allocation of resources and stress, instead pointing to the importance of a just distribution between societal actors and resilient resource use.4 This is particularly important for the allocation of resources between present and future generations, because the latter hold no property rights in the current system. As this example shows, unequal endowments are important for the market outcome. Even in a market with clearly defined property rights, the rich can degrade the environment at the expense of the poor.
The idea of a clear separation between market and state can also be challenged at a fundamental level. Policymakers are increasingly influenced by demands from market actors rather than acting to contain and regulate markets for the common good. Market actors, on the other hand, can be involved in political decisions that influence market structures and rules. Despite the rhetoric of the markets allowing everybody free choice as opposed to governmental despotism, people experience the tyranny of the market. In political terms, the market operates according to the logic of “one dollar = one vote,” such that the poor cannot participate in important decisions mediated through the markets, e.g. with regard to their future as determined by investments in different kinds of energy production. Thus, the mainstream concept of the market as a desirable mechanism that coordinates all participants’ self-interests for the common good is challenged.
Teaching Pluralist Economics
The divergent views discussed above are rarely reflected in economics education at universities. Instead, economics students are mainly trained in neoclassical economics theory. Environmental economics is often either an optional subject in general economics programs or part of specialized ones that focus on environmental issues. Only a few universities offer courses in ecological economics, for instance at the universities of Vienna and Leeds.
Although much of the academic mainstream discussion has moved forward and is now more concerned with exploring the limitations of neoclassical theory, economics curricula devote much time and effort to teaching, cohort after cohort, the basic building blocks of neoclassical economics: perfectly competitive markets, general equilibrium, and homo economicus. One reason for the dominance of neoclassical economics, especially in the curricula, is probably that it provides a consistent framework with a compelling mathematical formalization. However, the dominance of neoclassical thinking in economics curricula comes at a cost: there is only a small share of courses on ethical issues, the methodology and history of economics, and alternative approaches to economics.5 Furthermore, students often are not encouraged to engage critically with the theories presented or to reflect on their historical development.
Why is this important? Many economics students of today will go on to advise decision-makers in the future and their education influences how they perceive and frame problems. Thus, the education determines the kind of business or policy advice they will give. But because policies or business practices influence people’s behavior in ways consistent with the theory, this can lead to situations in which reality increasingly resembles economic theory, for better or for worse. Economic sociology has coined the concept “performativity of economic theory” to explain this phenomenon.6 However, as the recent financial and economic crises have shown, markets do not always work in the way that the established theories describe.
In view of the limitations of mainstream economics, students and heterodox researchers increasingly call for more pluralism in economic research and teaching.7 Pluralist teaching of economics allows students to become acquainted with different schools of economic thought, learn about the strengths and weaknesses of varying approaches, and reflect upon the applied methodologies. This includes economists becoming more aware of the effect their theories can have on the economic system and the normative assumptions that go into them. Of course, it is important to keep up the ideal of separating normative and descriptive statements in economic science. However, economists need to be sensitive to the limitations of this ideal in practice.
Finally, ecological and environmental issues should become part of the core economics curriculum. Without awareness of environmental issues in all political and business decisions, a transition toward a sustainable economy—of whatever model, however it may look—will not work. Students ought to be exposed to debates around the relationship of economic and ecological systems, the limitations of market solutions to environmental problems, and the desirability of economic efficiency and growth. Specialized programs that deal with these issues are not enough. We need to fully integrate ecological issues into the teaching of economics and stop treating it as a well-separated subfield.
Conclusion
In this essay, I have highlighted key points of the economic debate around environmental issues that are prevalent in the Anthropocene discourse.8 There are a number of diverse economic positions regarding the framing and solution to these problems through environmental governance, but as far as teaching economics is concerned, the mainstream environmental economics view dominates. This is a dangerous one-sidedness because the “one size fits all” solution of increasing financialization and thus more markets, as often proposed by mainstream economists, might not solve ecological problems. Instead, community-based governance structures could be the key to a sustainable economy. In preference to blindly trusting in the effectiveness of governance through markets, their purported self-regulation, and the swarm-intelligence of market participants, economists should be educated to think about where markets are actually beneficial and how to reclaim control over markets that no longer serve sustainable societal goals.
