Sustainable Development Economy, is it a Utopia?

“..the planet is just too small for these developing countries to repeat the economic growth in the same way that the rich countries have done it in the past. We don’t have enough natural resources, we don’t have enough atmosphere. Clearly, something has to change.”

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“The planet is just too small for these developing countries to repeat the economic growth in the same way that the rich countries have done it in the past. We don’t have enough natural resources, we don’t have enough atmosphere. Clearly, something has to change.”

By Mario J. Molina.

Sustainable Development Economy, is it a Utopia?

Two schools of thought often dominate current economic debates. According to free-market economists, governments must lower taxes, reduce regulations, reform labor legislation and then leave the way free for consumers to consume and producers create jobs. According to Keynesian economics, governments must boost total demand through quantitative easing and fiscal stimulus. However, neither of the two approaches is giving good results. We need a sustainable development economy, in which governments promote new types of investments.

The free market economy produces great results for the rich, but results quite miserable for the rest. The governments of the United States and certain parts of Europe are cutting back on social spending, creating jobs, investing in infrastructure and vocational training, because the rich bosses who pay for the electoral campaigns of politicians are doing very well. well, precisely when the societies around it are falling apart.

However, Keynesian solutions have not achieved the promised results either. Many governments tried to apply the stimulus spending after the 2008 financial crisis. After all, most politicians love spending money they do not have. However, the short-term impulse failed in two important ways.

In the first place, the debt of the States went through the roof and their credit ratings collapsed. Even the United States lost its AAA rating. Second, the private sector did not react by increasing business investment and hiring new workers. In contrast, companies accumulated huge reserves of money, mainly in tax-free overseas accounts.

The problem of economics is that they do not understand well the nature of modern investment. The two schools believe that investment is driven by the private sector, either because taxes are low or because aggregate demand is high.

However, the current investment of the private sector depends on public sector investment. Our era is characterized by that complementarity. Unless the public sector invests and does so judiciously, the private sector will continue to stockpile their funds or return them to shareholders in the form of dividends or repurchase of shares.

The fundamental thing is to reflect on six kinds of capital goods: commercial capital, infrastructures, human capital, intellectual capital, natural capital and social capital. All of them are productive, but each of them has a distinctive role.

Commercial capital includes factories, machines, transport equipment and information systems of private companies. Infrastructures include roads, railways, electricity and water systems, fiber optics, gas pipelines and pipelines, and airports and seaports. Human capital is education, skills and health of the workforce. Intellectual capital covers the fundamental know-how -scientific and technological- of society. Natural capital is the ecosystems and primary resources that support agriculture, health and cities and social capital is community trust, which makes efficient trade, finance and public affairs possible.

These six forms of capital work in a complementary way. Business investment without infrastructure and human capital can not be profitable. Nor do financial markets work, if social capital is exhausted. Without natural capital, other types of capital can easily be lost and, without universal access to public investments in human capital, societies will succumb to inequalities extreme income and wealth.

Investment used to be a much simpler matter. The key to development was basic education, a network of roads and electricity, a functioning port and access to world markets. However, currently basic public education is no longer enough; workers need highly specialized skills that are acquired through professional training, advanced studies diplomas and apprenticeship programs that combine public and private financing. Transport requires more than just the construction of roads by the State; electricity grids must reflect the urgent need for electricity with scarce carbon emissions and governments everywhere must invest in new types of intellectual capital to solve public health problems, climate change, environmental degradation, management of information systems and another nature without precedents.

However, in most countries, governments are not leading and guiding – or even participating in – the investment process. They are making cuts. The free market ideologues affirm that states can not make productive investments. Nor do Keynesians think enough about the types of public investments that are necessary; for them, the expense is the expense. The result is a void in the public sector and a shortage of public investments, which, in turn, slows down the necessary investment in the private sector.


In short, governments need long-term investment strategies and ways to pay for them. They must understand much better how to prioritize investments in roads, railways, electricity and ports, how to make environmentally sustainable investments by adopting an energy system with scarce carbon emissions, how to train young workers to obtain decent jobs, not only low-paid employment in the service sector, and how to create social capital, at a time when there is little trust and considerable corruption.

In summary, governments must learn to make predictions. This is also contrary to the prevailing economic criteria. Free-market ideologues do not want governments to think about anything, and Keynesians want governments that think only in the short term, because they push John Maynard Keynes’s famous joke to the extreme: “In the long term, we will all be dead.”

Let’s see an idea that is anathema in Washington, D.C., but that deserves reflection. The world’s fastest growing economy, China, depends on five-year plans for public investment, led by the National Development and Reform Commission. The United States lacks such an institution or even any body that systematically examines public investment strategies, but all countries now need more than five-year plans; they need strategies twenty years on and over generations to create the skills, infrastructures and an economy with scarce carbon emissions, typical of the 21st century.

Recently, the G-20 took a small step in the right direction, putting a new emphasis on greater investment in infrastructure as a shared commitment of the public and private sectors. We need much more such thinking in the next year, as governments are negotiating new agreements on the financing of sustainable development (in Addis Ababa, July 2015), the objectives of sustainable development (at the United Nations in September 2015). ) and climate change (in Paris in December 2015).

These agreements are promising with a view to shaping the future of humanity in a positive sense. If they succeed, the new era of sustainable development should also create a new sustainable development economy.