Beat Bürgenmeier

The Environmental Debate

Although the environmental debate has been going on for more than thirty years, it is only now beginning to bear fruit. The flood of conflicting opinions it has generated makes the literature extremely difficult to summarize. It includes the full range of arguments which are brought to bear on social issues of any kind. A middle way needs to be found between the views of those who dismiss the problem as insignificant and those who see it as our sole legitimate concern. An initial framework for this debate can be provided by economic theory, which will also draw our attention to the very aspects it glosses over. This brings us back to the reservations expressed earlier with regard to methodology, basic assumptions and instruments. However, our discussion of the concept of productivity has raised another, more fundamental doubt regarding the whole purpose of economics as expressed by neoclassical theory. However, neoclassical theory remains an irreplaceable yardstick and will therefore serve to guide our approach in this chapter.

Economic Instruments and Social Acceptability: A Debate about Values

The theoretical foundations of economic instruments for environmental protection have long been known and their efficiency gains widely recognized (Baumol and Oates, 1988). Yet the application of these instruments raises important conceptual problems.

The Fragmentation of Economics

Towards the end of the nineteenth century, mainstream economic thought was based on a model which attempted to explain how prices were determined in the market. Price was interpreted as an indicator of value which reflected both conditions of production and consumption needs — an interpretation which was to be harshly criticized by both Marxist thinkers and the institutional school.

The Links Between Economic Theory and Practice

The links between economic theory and practice are based on two opposing theoretical approaches — classical theory and Keynesian theory. There are those who would claim that the clash between the two has long since made way for a synthesis which is supported by most economists. In practice, however, Western economic policy continues to reflect a tug-of-war between interventionists and non-interventionists.

The Meaning of Productivity

Optimal allocation of resources is the stated aim of economics, and requires productivity to be measured statistically. In everyday usage the terms “profitability”, “performance” and “efficiency” — which are embodied in the concept of productivity — are often treated as synonyms, indicating that even the definition of productivity is unclear. It is no exaggeration to state that society has built up a veritable myth around this concept, showing once again that economic terminology is full of symbolism (strength, power, ability to adapt, competitiveness, motivation, and faith in material goals) which reflects the interaction between institutions and human behaviour. In short, the concept of productivity is a source of controversy.

The All-Pervading State

It is no exaggeration to say that, by the end of the Second World War, the state was involved in almost all economic decisions. However, behind the scenes, preparations were already under way for a return to the ideal of classical theory. These preparations can be explained in the context of the cold war between the two superpowers in the 1950s. In the United States, theories of individual freedom were widely supported, even though individual freedom was not in any way threatened by the state. It is, however, threatened by an impersonal working environment; hence the adoption of a huge range of economic policies which, instead of resulting in coherent action, have caused increasing confusion as to their effectiveness and goals.

The Instrumentalization of Economics

It has become a commonplace to say that economics borrowed its analytical tools from nineteenth-century physics. Having opted for a deductive approach, it used mathematical language to build models. The years following the Second World War saw the spread of national accounting, an increasing use of statistics and, in particular, the massive development of computer science. All of this undoubtedly helped to widen the gulf between economic theory and practice.

The Threat of Institutional Paralysis

Is state involvement in virtually all economic decisions a threat to the market economy? The answer, I believe, is no: the wide variety of economic policy instruments and problems of implementation have left the state with very little power. Though all-pervading, the state is weak.

The Role of the State in Economic Theory

In this chapter we will discuss the origins of liberal thinking, and compare liberal economic theory with actual economic policy. The principal economic thinkers often expressed views on policy even though they disregarded it in their theoretical writings. The main reason for this may be that, in the nineteenth century, the leading states were not sufficiently organized to concern themselves with economic matters. By all accounts, the resources available to governments in those days were modest. Taxation did, of course, require an administrative apparatus, but one that bore no comparison to what we know today. Moreover, since the main burden of expenditure was military, the role of the state was largely supervisory, as a result of which it came to be seen as exogenous to the economy. Yet why did economic theory continue to take so little account of government?

Economics and the Social Sciences

Although its theories do not satisfy the criterion of falsification, most economists consider economics to be the most scientific of the social sciences, since it is based on a series of “laws” which have deeply influenced contemporary economic reasoning. At the same time, its history, which is longer than that of most other social sciences, gives it pride of place: it can take advantage of both the current revival of positivism and the inferiority complex that afflicts the social sciences (Machlup, 1978).