Masters of Degrowth : Ecological Economics (w.2.2) The market and social provisioning

Dasgupta, P 2007:  Markets: A very short introduction

Dasgupta describes efficiency in ideal markets in terms of Pareto, meaning that is not possible to make the bundle different without making at least one agent worse off. This theoretical foundation is at the core of the defence of 'free' global trade.

Pareto efficiency says little about the justice or fairness of such endowments resulting from the market transactions. There are possible allocations that are either egalitarian and Pareto efficient and one but not the other.

There are multiple cases where markets do not function well, such as public goods, externalities, imperfect information of the good or service quality and monopolies. In is often argue that monopolies are an acceptable evil as its profits are a driver for innovation as well as its scale can led to lower unit cost, when economies of scale are present.

Mainstream theories struggle to explain crises and stagnation, as well as different levels of unemployment. During the crisis of the 1929, as unemployment skyrocketed, several theories like the one from Keynes emerged to ask the state and government to estimate investment or use interest rates to smooth the fluctuations of the economy. There are very few of those theories who were able to predict recent theories or assess optimal policies for situations like the covid crises, or the supply side inflation that we face today.

Unregulated markets and the transformation of society - Asad Raman 2017

Raman exposes the conflicts between social and market norms and how the latter is subordinating the former. He depicts pre industrial life as full with values and a lower priority to productivism. Reciprocity and redistribution drives the organisation of production.

'Market societies" are specialised on the basis of comparative advantage, while preindustrial ones are generalist and self sufficient communities.

Only recently there was a massification of waste, luxurious and excessive consumption.

The protection of relationships with other humans and nature was understood as critical for survival, not a romantic relationship that is expendable.

The raise of capitalism, lead both to a productive and inequality explosion, according to Smith the wealth inequality was a result of hard work, while Marx assess power relations between the owners of money versus those who only have the work to generate wealth as the basis of exploitation and inequality.

Historically more valid is the phenomenon of the enclosures where a egalitarian peasant society where disposed by the elites from their land and forced to move to factories in the cities.

Market economies turned all forms of life into commodities and profit into the single reason and drive for production.Capitalism requires a constant supply of materials, labor and money, to do so, it exploits nature and humans alike to their exhaustion. The survival of capitalism depends on the capacity of society to regulate and reduce such exploitation.

Economic theory and the capitalist form of organisation, as well as markets are a human invention and should not be explain as positive science, as it contains implicitly many normative assumptions of what society should pursue, as well as individualistic values.

There is a very different understanding of wealth for the author as he acknowledges the destruction require for its creation. The advocacy for an economic system that stops growing is pushing for an alternative relationship with production and it clashes with capitalism.

Very little faith is given to current industrial structures and states and there is advocacy for smaller communities that embrace low tech and live out of their close environment.

 Dasgupta states that “ideal markets are a good thing” based on the assumption that perfectly

working markets benefit society as a whole. This view clashes with Zaman’s who argues that

“unregulated markets are so extremely harmful to society, that society must take steps to protect

itself”. How can you judge which statement is true?

Dasgupta explains markets with a focus on preference satisfaction (not needs|) and also in terms of Pareto efficiency. Leaving out many situations of market failures, the author advocates that markets under ideal conditions produces at the point where all production is consumed and not excess demand or shortage of supply happens.

Zaman leverages Polanyi critique of markets as exploiting people and the natural environment till they are totally exhausted, and claims that a pre market or industrial way of organising society is truly sustainable and socially desirable.

Dasgupta is right that a decentralised market under certain conditions can provide abundance of goods and services at affordable prices under the conditions of internalised externalities, lack of cost shifting, monopoly, asymmetries of information... but it totally misses the fact that wealth is much more related to power than to effort, and hence there are less efficient allocation that could be preferred as they can satisfy universally human needs with lower footprint, even if this is at higher prices. Zaman rightfully points to a critique of the flaws and problems of capitalism, the delineation of people with communities and the environment, the exploitation of humans and nature alike, will lead to a breakdown if it is not reverted. The solution to relocalise everything has two problems: one it only considers the cost and not the benefits of specialisation and industry (economies of scale, useful technology, exchange of ideas and international goods), and the return to a community of small scale is likely to have huge opposition, even from the working class in cities.

 What does ‘market efficiency’ mean? How does the pursuit of ‘market efficiency’ justify or restrict the

exploitation of the environment?

Market efficiency means that there is no possibility to increase the utility or profit of an agent without making at least one worse off, it is the point of equilibria between supply and demand.  Market efficiency means that as long as someone is willing to pay at least the cost of the last unit produced, producers will offer it, even if that means breaking planetary boundaries for very little wellbeing or even without covering basic needs, as those who can consume more are simply those with more money.

Pirgmaier, E. (2017). The Neoclassical Trojan Horse of Steady-State Economics, Ecological Economics 133, 52-61. 

The steady state economy develop by Daly adds to neoclassical economics macroeconomic ecological boundaries and social and ethical considerations. According to Pirgmaier, it reliance of neoclassical theory posses some ontological problems and also can be a stopper of other heterodox theories more present in political ecology.

The steady state economy aims to reach a sustainable scale (based on planetary boundaries and fair country shares), fair distribution (based on ethics, lower and upper wealth boundaries) and efficient allocation of resources (based on markets and price systems). The Pareto efficiency of well functioning markets with a caped economic scale is assumed.

The problem with this theory is that it fails to explain the growth motive, barriers for adoption, power or social change... in short, it lacks a theory of the socioecological dynamics required for its execution.

The Steady state theory relies of general equilibrium models, which have been empirically challenged and are internally problematic. While Daly acknowledge the problems of the preference and value theory of neoclassical economics, it is actually embedded into the market and price mechanism he advocates to solve the allocation problem. 

Growth is not limited in the microfundations of neoclassical economics by producers, who mostly would sell more and more at profit, but rather by persuasion and capacity of consumers to buy by desire and available income. Caping growth at the macro scale leveraging a false equilibrium at the micro scale is technically wrong. The growth motive is not well explain in the Steady state economic theory.

It has to be open to discussion why efficiency remains a goal on itself, together with sustainability and moderate inequality. Not only it remains a goal and core to the allocation problem, but also it is assumed to be handle by separated institutions or policy tools.

Discussion

Economic theory should be able to explain the dynamics that create environmental destruction and be empirically sounded. It does little to explain power relations and require changes to implement the so called steady state economy. Important is also to address the limitations of market based allocation and provisioning to ensure basic needs are covered widely. The adoption of the neoclassical architecture in the steady state economy of Daly is problematic and does not embrace a rich literature of alternatives. Marxist, post Keynesian, feminist, coevolutionary are just some promising options to further advance ecological economic theory making.

 This paper offers a critique of ecological economic theory. What significance does mere critique

have, in your opinion, to move towards just and sustainable societies?

Internal critique is essential for the progress of the field and the movements around it. This critique is important as the adoption of neoclassical economics with macroeconomic limits may allow for better environmental outcomes but not necessary social ones. The reason for that is that the reliance on market mechanisms without a discussion on cost shifting, power relations and also the actual motive for corporations does not ensure a fair distribution of resources and means of production, nor proper distribution of the surplus of work. 

 Should ecological economics and degrowth be open to neoclassical theories and methods, or

should these be excluded? 

As stated in the previous answer, neoclassical theories do not provide useful tools to avoid cost shifting or to improve power relations between capitalists and the working class. That means that while market may, in some industries and in some conditions allows for Pareto efficiency, it does not necessary focus on social provisioning, coverage of basic needs and a new relation with other life forms that is more symbiotical. the lack of political traction of alternatives to neoclassical economics should not be a reason to stay to the flaws of neoclassical architectures. 

The literature, both theoretical and empirical to debunk capitalism and neoclassical theories is rich enough, so I believe ecological economics should focus on a theory of change that provides strategies for an implementation of a society with better societal outcomes within planetary boundaries.