Volker Radke

Land use, biodiversity, and sustainability

We focus on the effects of deforestation for agricultural purposes on biodiversity. This topic has been dealt with in the recent literature where “forested land” and “biodiversity” are treated as synonyms. In contrast to that, this paper distinguishes between “forested land” and “forest” itself, the latter being interpreted as a measure of biodiversity. The regenerative capacity of forests is modeled as a function of the own stock and of the habitat size. In particular, the threat of a given minimum viable population to be achieved in the course of the reduction of habitats is taken into account. The corresponding structure of a sustainability indicator is elaborated.

Fundamental Concepts of Macroeconomics

While microeconomics is interested in the behaviour of single economic agents and their coordination, macroeconomics is not in the first place. In macroeconomics, similar economic agents are aggregated to sectors and different goods are aggregated to index numbers like Gross Domestic Product. The reason for this is that macroeconomics deals with problems different from those of microeconomics. Firstly, economic growth is defined as an increase in real Gross Domestic Product over time. As a prerequisite for economic growth, an increase in an economy’s productive capacity is identified. Any growth in productive capacity requires investments in the productive stocks available. In neoclassical growth theory, the feasibility of unbounded growth is postulated. Secondly, the various purposes of national accounting are outlined. Based on the United Nations‘System of National Accounts (SNA), real Gross Domestic Product as a central flow concept of national accounting is defined. The procedure used in the SNA to account for the stock of national wealth is sketched.

Fundamental Concepts of Microeconomics

This chapter starts with the introduction of two of the “protagonists” in the “drama” of economics, consumers, and firms. We elaborate on how they make their decisions and on how these individual decisions are coordinated in the marketplace. Sometimes, most of society is unhappy with the results of private decision making and market coordination; such an example is environmental destruction. We explain environmental problems to be a case of “market failure”, the inability of the market system to attain socially satisfactory (“optimal”) results.

The Fundamental Problem

The satisfaction of human needs constitutes the primary goal acknowledged in mainstream economics. In order to explore the nature of human needs, Maslow’s hierarchy of needs is discussed. Human needs are observed to be principally without constraint. A “good” is defined with regard to its ability to satisfy a human need. Within the set of goods, commodities are distinguished from services. A classification of goods according to the criteria of excludability from use and rivalry in use is presented. Production is identified as the most important approach to make goods available. The main problem that forms the point of departure of economic thinking is described as the tension between the boundlessness of human needs, on the one hand, and the limited availability of the means to satisfy those needs, on the other. This phenomenon is called “scarcity”.

Summary to Part II and Looking Ahead

The present Part I began with the observation that human beings are restricted, in all their attempts to satisfy their unlimited needs, by the limited availability of goods. This phenomenon was called scarcity. Humans oppose scarcity by acting in conformity with the economic principle. Based on rational behaviour, the negative consequences of scarcity can, in principle, be addressed better within a market system than in other forms of economic systems. However, given some special circumstances, market processes fail to produce outcomes that meet the goal of the greatest degree of satisfaction of human needs. In those cases, the application of economic policy measures is justified. The very special case of market failure, which constitutes the core idea behind the present text is the socially undesirable utilization of natural goods in the context of a market economy.

Integration of the Natural Environment: Socially Undesirable Utilization of Natural Goods

The importance of natural resources for the satisfaction of human needs both as consumer goods and as factors of production is emphasized. This is contrasted with the circular flow diagram discussed in Chap. 3, which does not represent the natural environment at all. Instead, it is proposed that the economic system is embedded into and dependant on the natural system. Based on the criteria of non-excludability and non-rivalry it is argued that natural collective goods and natural open access resources are used inefficiently in the market system. Departing from the criterion of justice, the notion of sustainable development is introduced. Some examples of policy interventions aimed at efficiency and justice in connection with the use of natural resources are sketched.

The Economic Approach

The economic principle is presented as the strategy best suited to deal with the problem of scarcity. Acting in accordance with this principle yields efficient results, such that there is no waste of resources. Consumers and firms are assumed to be agents who act economically. The structure of interaction between consumers and firms is outlined as a circular flow. A positive, i.e., merely observing and describing, analysis of this interactive structure is distinguished from a normative one, which evaluates the outcomes of interaction according to the criteria of efficiency, justice, and stability. (Efficiency is in the centre of mainstream economic analysis. This is so because the impetus for acting efficiently follows directly from the fundamental economic problem of scarcity. Therefore, this criterion receives particular attention in our discussion.) From any violation of these criteria, a justification of governmental action may be deduced. As two fields of governmental action, the choice of economic system and interventions in the economic process are discussed.

Summary to Part III

Large parts of the natural environment are excluded from the mainstream of economic thinking. Basic models of economic growth neglect the productive character of natural resources completely. The procedure of accounting for the flows of national product applied in the traditional system of national accounting does not account for productive services of natural resources which are not controlled by institutional units. In computing national wealth, the SNA neglects natural assets which are either not owned by institutional units or not of economic value to their owners.

A Sketch of Environmental Microeconomics

In Sect. 10.1, we examine how the conclusions of neoclassical growth theory that were explained before in Chap. 9 are altered if a non-renewable natural factor of production is introduced. The neoclassical assumption of unlimited growth possibilities has been questioned by, among others, the Club of Rome, by hinting at the exhaustability of natural productive stocks. The neoclassical rejection of the assumption of natural limits to growth rests on the possibility to substitute for declining natural productive stocks by investing in man-made capital in order to ensure intergenerational justice. The latter is interpreted as constant consumption of goods over time. The idea of intergenerational justice forms the base for the concept of sustainable development, which is, controversially, discussed. Technological progress might relax the dependence on natural production factors but hast o be analysed in a differentiated manner. ► Section 10.2 reports on attempts to incorporate natural resources into national acounting procedures more completely. Both the flow indices and the stock indices of the SNA have been criticized for neglecting important contributions of the natural environment. As a response to this critique, the United Nations’ System of Integrated Environmental and Economic Accounting (SEEA) is presented. Both the SEEA and various other approaches of integrating the natural environment into national accounting are assessed with regard to their ability to measure progress toward sustainable development.