Difference between neoclassical and ecological economics

Assume you are living in a small village located at the shore of a beautiful lake. Your village’s main source of sustenance is fishery. You, like your fellow villagers, live a simple but happy life. You don’t have luxury cars, high-end music sets or swimming pools, but you have your close friends and relatives, and the beautiful lake for all sorts of recreation like walking, picnics, swimming etc.

One day, a businessman comes to your village with a fat local politician, talking about building a factory at the lake shore. The politician promises for more wealth and workplace. He says “we want to leave middle age behind us. We will have cars, modern TVs and music sets. We will eat fine food from the supermarket in the village center”.

Very seductive, isn’t it? Or is it?

Some critical minds raise questions about pollution and noise, but the politician assures that the factory will have a decent waste treatment facility and the level of pollution will be kept within tolerable limits. Tolerable means here, no harm will be done to human health.

This is also the way how a neoclassical economist thinks. The nature is a passive entity for either extracting natural resources like wood, minerals and oil, or a dumping ground for waste material. There’s no harm done as long as the carrying capacity of our environment is not exceeded.

Neoclassical model for economy & environment

Neoclassical model for economy & environment

There’s still an important question to be asked however, among others. “What will happen to the production capacity of our lake? How will this factory with its waste dumped into the lake affect it?” Remember, fishing is our primary source of sustenance, and for fishing we depend on our lake.

“Production capacity of a lake? How odd! Lakes don’t have a production capacity” says the politician. Yes sir, they do like most of other ecological resources like forests, oceans and rivers.

For ecological economics there are two kinds of capital: Natural and manmade. Consequently,  there are two sources for our welfare: Services of natural capital (ecological services) and manmade capital. And that’s the main biggest difference between the conventional (neoclassical) and ecological economics. Conventional economists have a narrow minded focus on manmade capital and services. They usually ignore that an intact ecology provides us with the most essential products and services like clean air and water, mild climate, food, medical plants, erosion prevention, recreation, meaning and enjoyment in life.

“Why?” you may ask. “Are all of the conventional economists simply idiots?”

Well some of them might be. Some of them might have their own agendas, or serve the narrow interests of certain influential groups. Some of them might be well educated in their expertise area, otherwise perfectly ignorant in life sciences. Some of them may be too slow to adapt from empty to full world paradigm (see Ecological Economics, Herman E. Daly)

But most of them suffer from one-sided neoclassical ideology and indoctrination. As already mentioned, they focus solely on manmade products and services. Development and growth are measured by some dollar numbers which can only be representative for the amount and quality of manmade tools and services. Consequently, technology is for them an artifact of humanity; they are blind to the more elaborate and sustainable technology of nature.

Basic model of ecological economics

Basic model of ecological economics

Now compare for example our lake as a natural fishery with a manmade fish farm. Feeding, breeding, diseases, filtering, aeration, cleaning etc. all these cumbersome issues that needs hard and boring work for an artificial fishery are solved automatically and self-sufficiently by the lake itself. An ecologically intact lake with its vicinity is a perfect example for a sustainable technology; it can produce fish for hundreds of years, whereas an artificial fish farm becomes a muddy, smelly and ugly piece of unproductive land after ten years of operation. New diseases produced in fish farms due to intensive fish keeping may even harm wild stocks. An ecologically intact lake is good for the welfare of the society; a manmade fishery is good for accumulating wealth in the hands of a privileged minority.

Assume you want to pull down an active factory in order to replace it with a new one. Every rational person, even a neoclassical economist expects a good explanation for this intention. You must show that you have no other choice than pulling down the old factory, and prove that the economic value of the new factory is much higher than pulling down the old one.

Similarly, the businessman in our case must convince the villagers that the opportunity costs of building a factory at the lake shore are lower than the added welfare value of the factory for each villager. Just think of the reduced annual fish production which is only one of the long list of opportunity costs beside noise, pollution and industrial ugliness. Aquatic crustaceans for example, decapods shrimps etc. as primary food source for fish react very sensitive to even lowest levels of pollution. What will exactly happen to the ecosystem of the lake? What will be the opportunity cost of reduced fish production? Rational economists should ask these questions.

Tunç Ali Kütükçüoğlu, July 2009, Zürich

About tuncali

I began keeping aquariums as early as I was nine years old. Since then, I kept many aquariums and lots of fish, plant and invertebrate species. My favorite fish family is of course cichlids with their fascinating behaviors. My relatively new area of interest is low-tech natural aquariums as almost self-sufficient ecosystems that are I think ideal models for sustainable life.
This entry was posted in Sustainable life and tagged , , , . Bookmark the permalink.

2 Responses to Difference between neoclassical and ecological economics

  1. varanx says:

    Interesting article. What do you mean by “full world paradigm”?

  2. tuncali says:

    Varanx, the total human population of the world was under 500 millions for millions of years. 1 billion was reached in about 1825. At the beginning of the 20. century (1900) it was appr. 1.7, about 2.5 in 1950 and today about 6.5 billions (Green History of the World, Clive Ponting). As I was at the primary school (30 years ago) we learned that the population of Turkey was 40 millions. And today over 70! It was about 13 in 1920. The last century is an unprecedented catastrophe for the life on earth. The level of carbon dioxide increased from 270 ppm in 1750 to 380 ppm in 2005. The global production of organic chemicals skyrocketed from 1 million to 1 billion tonnes annually in 2000. Whereas the ecological burden of human activity increased with such a pace, the carrying capacity of our planet’s poor ecology diminished with a similar pace (8. chapter “rape of the world”, Clive Ponting). For example, the total area of rain forests was reduced to half in the last century; from 2.8 to 1.5 billion hectares. I think these particular numbers should already give an idea that how full our world is today, compared to the situation 50 or 100 years ago.

    “In this empty-world vision, the environment is not scarce and the opportunity cost to expansion of the economy is insignificant. But continued growth of the physical economy into a finite and non-growing ecosystem will eventually lead to the full-world economy in which the opportunity cost of growth is significant. We are already in such a full-world economy, according to ecological economists” (Ecological Economics, H. Dahl).

    Uneconomical growth in full world means, opportunity costs of the growth of (manmade) economy may well exceed its benefits to society. Neoclassical economists never thought abut uneconomical growth. For them, all natural resources are either not scarce, or replaceable by human technology which is o course false. Just think of the multidimensional and sustainable productivity of rain forests and coral reefs, or oil. We have still no alternative for the pollinating activity of bees.

Leave a Reply