In this chapter we will explore the sustainability of social provisioning processes and their associated social costs. First, we look at social provisioning for human needs and the meaning of sustainability within this process. We will show how the satisfaction of human needs is enshrined in the declaration of human rights. We go on to discuss how societies make different efforts and score different achievements in this area, leading to different human development performance and happiness. You will see that this way of looking at the economy reflects a substantive meaning of economy, which is one of the bedrocks of heterodox economics that will be contrasted to the purely formal meaning of economy, that is, orthodoxy’s monetary maximizing behavior under constraints. Particular attention will be paid to the open system character of the economy and its non-equilibrium characteristics, which can exhibit self-reinforcing, non-linear dynamics, such as vicious cycles of socio-ecological decline, unless preventative measures are taken.

Economy as Social Provisioning

One way of thinking about sustainability starts from the heterodox definition of the economy as a social provisioning process (see chapter “Defining Economics“). The concept of social provisioning can be traced back amongst others to Max Weber’s widely recognized description of a substantive rationality: an economically oriented course of action, which aims at adequately satisfying the needs of a given group of persons.^[1] This shifts the focus of economic analysis towards empirical human needs instead of market demand. Focusing on this material dimension of the economy is important because, for example, the human needs of the poor who do not possess sufficient purchasing power do not find adequate expression in market demand and are thus not met by market supply. The same is true for the needs of future generations who cannot participate in current market exchanges. Moreover, market demand is often merely a reflection of the power of advertisers, misinformation, or errors in consumer valuation. This means that some human needs are neglected by markets and not reflected in market demand. Yet, satisfying human needs is essential if the social provisioning process is to prevail and avert breaking-down.

From this starting point sustainability of social provisioning might be defined as satisfying the needs of members of society over long periods of time. This is consistent with one of the most widely adopted definitions of sustainable development adopted by the Brundtland Report (also known by its title “Our Common Future”) sponsored by the United Nations and published by the World Commission on Environment and Development in 1987: “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”.^[2] The subsequent process has led to the adoption of the United Nations’ Sustainable Development Goals in 2015, including the elimination of poverty, zero hunger, good health and well-being, to name but a few.^[3] This line of thinking is also enshrined more concisely amongst others in Article 25 of the Universal Declaration of Human Rights^[4] of the United Nations:

“1. Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control. […]”

These goals and rights involve duties for the signatory countries of these legally binding documents. Unfortunately, the process of attaining these goals and guaranteeing these rights is an ongoing challenge and far from being accomplished. What do you think?: Does everyone in your country enjoy the rights listed under article 25 above?

The Substantive Meaning of Economy: openness, embeddedness, holism, and non-equilibrium

Typically, economists view economies as open when they engage in international trade rather than opting for self-sufficiency or autarky. However, this definition is not the only sense in which economies are considered as being open. Another sense of openness captures the varying social and natural contexts in which an economy is embedded. This implies semi-regular and changing interactions between economy and locational and cultural factors, such as geological, geographic, climactic, atmospheric, biotic, and socio-cultural conditions.

This means that the economy is fundamentally an open system, which is interrelated with its social and natural environment, and not a closed system of market exchanges. Accordingly, the economist K. William Kapp wrote that “economic systems and ecological systems are fundamentally open systems, which have an intimate reciprocal relationship.” (Kapp 1972) This insight is backed up by the physics of living organisms that maintain themselves by transforming nutrients into waste materials. From this purely bio-physical perspective the existence of the human economy speeds up the transformation of Earth’s finite resources into waste, such that economic order emerges at the expense of rising disorder in the environment. This has been described as the entropic nature of the open economic process. (Georgescu-Roegen 1971) One of the implications is the focus on environmental pollution and resource depletion, and the requirements for sustainability.

Socio-ecological openness of the economy also evokes the notion that economic process is embedded within society and nature. Indeed, this is the substantive meaning of economy as the economist Karl Polanyi stated in The Livelihood of Man: “The substantive economy must be understood as being constituted on two levels: one is the interaction between people and their surroundings; the other is the institutionalization of that process. In actuality, the two are inseparable […]” (p. 31)^[5]

This substantive meaning of economy^[6] is a universal meaning applicable to all societies past and present, regardless of their concrete social-ecological contexts. Consequently, sustainable social provisioning for human needs cannot be reduced to market exchange as a mode of allocation. The latter is only the formal meaning of economy defined as individuals’ maximization under constraints for gain.^[7]

Defining economy as sustainable social provisioning is holistic. This is to say that we reason from the whole of society or even humanity as whole to the parts. Both society and nature precede and outlast individuals, just like the human economy is embedded in nature and society. From holism arises the question of individuals’ responsibility for the whole of sustainable social provisioning, including the needs and survival of future generations. Capturing the sense of the whole thus provides the ethical and empirical ground for institutional reforms towards the vision of the good life encapsulated in sustainable social provisioning.

Holism matters because it exposes how markets are merely formally rational while being not rational from a social provisioning perspective. That is, markets adopt a narrowly individualistic and monetary-quantitative perspective that loses sight of the whole of society and its qualities. For instance, this is the case when the human need for healthy nutrition goes unmet while 40% of edible food is discarded by food markets, or when people are homeless while others own multiple homes that are empty for most of the year. Another example is global warming, which demands a reduction in green-house gas emissions in the interest of future generations, while the super-rich purchase luxury trips to space and heat up the climate. This shows that an economy can be formally rational in the sense of orthodoxy’s maximization under constraints, while failing to be substantively rational, meaning that it does not meet the requirements of sustainable social provisioning.

Furthermore, the open economic system is interrelated with the social and ecological systems in a circular manner, causing a non-equilibrium process that moves towards states of higher environmental disorder. A movement in one direction has the tendency to become cumulative in the sense of compounding, non-linear, and unstable by force of self-reinforcing circularity.

One example is an asset price inflation, the classic case of which is a housing market bubble. Credit leads to more demand for houses, leading to rising housing prices, which in turn leads to more credit being issued due to the rise in collateral values and speculative investments. As debt-income ratios rise the process becomes financially unstable and ultimately collapses, impoverishing large parts of the population. Another example is the inequality between rich and poor countries, which leads to brain drain of human capital and talent away from relatively poor areas. This further diminishes the potential to close the gap between rich and poor regions and further increases inequalities.

Circular cumulative causation in social provisioning can trigger vicious cycles of socio-economic and ecological collapse. The reason is that cause and effect are interrelated in interlocking ways by force of institutions, which lock the systems’ development into path-dependency. The effect can thus become the cause of its cause and push the system further in the same direction. This is based on the continuity and connectedness inherent in cumulative causation, such that the past overshadows the present and future through institutional inertia. In other words, individual human beings make history but not as they please because the institutions handed down from the past limit human freedom and constrain the future to a considerable extent by force of inertia. This inertia is based on widely accepted social norms and habits of thought which are often hard to change. Moreover, these habits of thought are embodied by powerful vested interests who benefit from them and accordingly move heaven and earth to conserve these institutions.

For example, vicious cycles operate in global warming where an initial warming from greenhouse gases beyond a threshold triggers further warming through the melting of permafrost soils that trap methane gas. Once the ecological systems’ tipping point is reached the process becomes an unstoppable process of global warming. But circular cumulative causation is also able to capture the social causes and effects of such ecological vicious cycles. In other words, it is the lack of sustainable social provisioning in the first place, which – due to mal-adjusted institutions from the past – causes ecological vicious cycle. As a result, the socio-economic system gets entrapped in a downward spiral and receives the negative consequences of the ecological decline in the form of ever diminishing levels of social provisioning. In this sense, openness of socio-economic and ecological systems means that they operate according to circular cumulative causation, which makes them vulnerable to socio-ecological vicious cycle dynamics.

Substantive Rationality: Facts and Values, Final-Goal Principle, and Instrumental Analysis

Studying the substantive economy as a sustainable social provisioning process aims at empirical cause-effect theory. Yet, this is not value-free, in the sense of a positive empirical exercise. Indeed, whilst acknowledging the distinction between facts and values, as well as facts and concepts, these are nevertheless related, yet without being reducible to one another, remaining distinct and distinguishable. Economic theory formation depends not only on the interest and creativity of the economist but also his or her preanalytical vision and value predispositions. The latter determine which facts are selected for analysis and how they are interpreted. The task is to make these biases explicit and stay as true to the facts as possible, in spite of norms.

For example, economist K. William Kapp argued, the substantive study of the economy is based on the humanist ethics of preventing or reducing avoidable and unnecessary human suffering.  This is a normative ground, or goal that requires no further justification, according, for example, to philosophic principles established by philosopher Immanuel Kant.^[8] The substantive economic rationality of social provisioning is in this sense merely the means by which the ethical end is achievable as an absolute value or ultimate concern. However, this does not imply a blind conviction or adherence to an absolute value. The empirical facts of human needs and levels of satisfaction are subject to scientific test, which narrows down the options for social provisioning. This way the substantive rationality of social provisioning does not derail into mere ideology and unresolvable differences of opinion, for which there is no resolution. It is not an ethics of conviction but adheres to an ethics of responsibility, which revises views in the light of empirical facts and the scientific test.

Honoring the above humanist, ethics-based constraints as the qualitative primary criteria means adopting a final-goal principle. This qualitative primary criteria can be transformed into quantitative goals (ends) as secondary criteria and working backwards to identify suitable goal-oriented paths (means). This takes on the form of instrumental analysis  in economics in the real terms of concrete human needs and satisfiers.^[9]

Going off previous examples, sustainable social provisioning faces the task of preventing the scenario of runaway global warming and mass species extinction. In this case scientific studies can determine the environmental qualities for human need satisfaction (e.g. limiting average global temperature increase to 1.5 degrees centigrade) as the goal and work backwards to derive the necessary quantity controls on economic output (capping of flow rates of fossil fuel production at the source as well as CO2 emissions per country and corporation).^[10] This follows the final-goal principle of preventing and reducing unnecessary social damages. This precautionary and preventive approach calculates “in real terms” or “in-kind” as the basis of an “instrumental analysis”. For example, the failure to achieve the 1.5-degree goal would mean that social harms in the form of unsatisfied human needs would increase dramatically in an ever-hotter global climate. This approach differs from orthodoxy’s marginalist approach, which knows neither absolutist ethical final-goal principle, nor science-based in-kind calculation, and leaves the task of valuing damages to maximizing homo economicus.

Reducing the study of the economy to maximization under constraints (whether profits or utility) does not make economics a purely positive science that is free of norms. Instead, its underlying norm is that of capitalist accounting, which remains hidden and introduces an uncritical bias in favor of monetary market exchange as a mode of allocation. It thus reflects a purely formal understanding of the meaning of economy.