Keynes, the Post Keynesians and Sustainable Development

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Keynes, the Post Keynesians and Sustainable
Development
Eric Berr University of Bordeaux Keynes
Seminar, Robinson College Cambridge, 27 April 2010
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Introduction A short history of Eco-development
and Sustainable development

• Meadows Report (1972), conference of Stockholm
  (1972), Cocoyoc seminar (1974) birth of the
  concept of Eco-development (Ignacy Sachs)
• Denunciation of the  bad development  of
  developed countries which is built on a double
  waste
• Over consumption of rich countries which drain
  the great majority of available resources
• Under consumption of poor countries which overuse
  their scarce resources
• Fighting against this double waste means to
  overcome misery and to promote a better
  management of the environment
• The three pillars of Eco-development
• Self-reliance
• Satisfaction of basic needs
• Ecological carefulness

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Introduction A short history of Eco-development
and Sustainable development

• During the 1980s, the concept of Sustainable
  Development replaces Eco-development
• Definition of sustainable development (Brundtland
  report, 1987)
• Sustainable development seeks to meet the needs
  and aspirations of the present without
  compromising the ability to meet those of the
  future
• Weak sustainability (Brundtland report, Rio
  summit, MDGs)
• Monetary evaluation of the environment
• Environmental Kuznets curve
• Substitutability of production factors
• Strong sustainability
• Opposition to the monetary evaluation of the
  environment
• Complementarity of production factors
• Emphasis on distribution, equity, full
  employment, satisfaction of basic needs, etc.
• Approach which breaks with mainstream economics
• Obvious links between Eco-development and strong
  sustainability, to be deepen with post Keynesian
  economics

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Content

• Keynes and sustainable development
• Environment, Arts and the critic of capitalism
• Uncertainty and precautionary principle
• Unemployment, distribution and the place of
  economics
• The post Keynesians and sustainable development
• The role of economic growth
• The place of effective demand

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Environment, Arts and the critic of capitalism

• Keynes militates in favour of a gradual movement
  of relative withdrawal of national economies, in
  order to restore the primacy of politics on
  economics
• I sympathise, therefore, with those who would
  minimise, rather than with those who would
  maximise, economic entanglement between nations.
  Ideas, knowledge, art, hospitality, travel
  these are the things, which should of their
  nature be international. But let goods be
  homespun whenever it is reasonably and
  conveniently possible and, above all, let
  finance be primarily national (Keynes, 1933)
• He also realises that economic and financial
  logic are in opposition with ecological and
  social reason
• the same rule of self-destructive financial
  calculation governs every walk of life. We
  destroy the beauty of the countryside because the
  unappropriated splendours of nature have no
  economic value. We are capable of shutting off
  the sun and the stars because they do not pay a
  dividend (Keynes, 1933)
• Arts, as nature, must be disconnected from
  economic considerations
• the exploitation and incidental destruction of
  the divine gift of the public entertainer by
  prostituting it to the purposes of financial gain
  is one of the worse crimes of present-day
  capitalism (Keynes, 1936)

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Environment, Arts and the critic of capitalism

• Capitalism is amoral
• It seems clearer every day that the moral
  problem of our age is concerned with the love of
  money, with the habitual appeal to the money
  motive in nine-tenths of the activities of life,
  with the universal striving after individual
  economic security as the prime objective of
  endeavour, with the social approbation of money
  as the measure of constructive success (Keynes,
  1925)
• Moreover, he recognizes the confiscation of the
  power by a minority for its own interest
• it is the modern method to depend on
  propaganda and to seize the organs of opinion it
  is thought to be clever and useful to fossilise
  thought and to use all the forces of authority to
  paralyse the play of mind on mind (Keynes, 1933)
• Keynes is conscious of environmental and cultural
  limits of capitalism but for more personal
  reasons, due mainly to his social origins, he
  rejects any idea of revolution and preaches
  gradual changes towards a society less subjected
  to international constraints

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Uncertainty and precautionary principle

• Influence of George Moore who considers that we
  can never be sure of the results of our actions
  nor even of their desirable nature
• Keynes rejects the rationality principle
• the attribution of rationality to human
  nature, instead of enriching it, now seems to me
  to have impoverished it. It ignored certain
  powerful and valuable springs of feeling
  (Keynes, 1938)
• Non probabilistic world Radical
  uncertainty Expectations
• Precautionary principle Conventional base
  (different from Moore)

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Uncertainty and precautionary principle

• Rio declaration on environment and development
  (1992)
• (Principle n15)
• In order to protect the environment, the
  precautionary approach shall be widely applied by
  States according to their capabilities. Where
  there are threats of serious or irreversible
  damage, lack of full scientific certainty shall
  not be used as a reason for postponing
  cost-effective measures to prevent environmental
  degradation
• Two antagonistic conceptions of the precautionary
  principle
• Weak precautionary principle, based on a
  cost/benefit analysis expressing risk management,
  where the burden of proof of the danger falls
  onto the opponents of a decision
• Strong precautionary principle which considers
  that the promoters of a potentially dangerous
  decision have to show the absence of serious
  risk

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Unemployment, distribution and the place of
economics

• The outstanding faults of the economic society
  in which we live are its failure to provide for
  full employment and its arbitrary and inequitable
  distribution of wealth and incomes (Keynes,
  1936)
• Increasing Negative impact
  Unemployment
• instability on effective demand
• Technological unemployment, due to our discovery
  of means of economising the use of labour
  outrunning the pace at which we can find new uses
  for labour (Keynes, 1930), may result in
  reducing the sorrow of each one, i.e. to make
  what work there is still to be done to be as
  widely shared as possible (Keynes, 1930)

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Unemployment, distribution and the place
ofeconomics

• Concerning distribution, Keynes condemns the love
  of money as a possession which generates
  speculation and therefore an increasing economic
  instability and more inequality
• The role of economics is to allow the
  satisfaction of essential needs (food, health,
  education, etc.)
• Essential needs are far from being satisfied
  today
• Confiscation of the power by the powerful?
• Keynes believes that solutions are national and
  promotes a trade regime based on mutual aid
  rather than on competition

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Keynes is an initiator of sustainable development

• He promotes a cut in working time
• He rejects an immoderate pecuniary accumulation
• He conflicts with speculation
• He favours a balanced international trade
• He minimizes the place of economics

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The post Keynesians and sustainable development

• Post Keynesians said little about the environment
• Because they were engaged in a struggle with
  neoclassical economists for whom environment is
  not a key issue
• The focus on growth and demand could reveal a
  certain incompatibility with a sustainable
  approach
• Post Keynesians share some key features with
  (strong) sustainable development
• Complementarity, rather than substitutability of
  production factors
• Importance of the concepts of hysteresis and
  irreversibility
• Importance of distribution and equity
• Rejection of the cost-benefit analysis

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The role of economic growth

• Questions
• What should grow ?
• How to make wealth produced fairly distributed ?
• Theory of growth of Kalecki
• with r the rate of growth, i the relative share
  of investment in the national income, k the
  capital-output ratio, a the parameter of
  depreciation which can be assimilated to economic
  obsolescence and u the parameter of better
  utilization of equipment  due to improvements in
  the organization of labour, more economical use
  of raw materials, elimination of faulty products,
  etc.  (Kalecki, 1968)
• where a is the rate of increase of labour
  productivity which depends upon technical
  progress and e is the rate of increase in
  employment

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The place of effective demand

• Few weaknesses of Keynes analysis
• He does not distinguish physical capital from
  natural capital, and thus does not take into
  account the scarcity of natural resources
• His emphasis on demand could lead to a waste of
  resources
• He considers that full employment goes through an
  increase in public expenditure, in order to
  favour investment, whatever those investments are
• He underestimates the power of vested interest
• the power of vested interests is vastly
  exaggerated compared with the gradual
  encroachment of ideas (Keynes, 1936)
• Which should be overcome by referring to
  Kalecki who
• considers it indispensable that the State
  intervene in investment choices to ensure that
  they are geared toward the satisfaction of
  essential needs and the reduction of waste
• underlines that the influence of economic ideas
  in shaping policy is severely constrained by the
  prevailing social and political institutions
• seems closer to reality when he emphasizes on
  political and class struggles
• notes that the main problem in developing
  countries is that productive capacities are
  insufficient, not that they are under-used

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Conclusion

• A unified post Keynesian approach does not exist
  yet that deals with a global approach of
  sustainable development
• However, post Keynesianism is compatible with
  strong sustainability
• Importance of the interlinkage between the social
  and ecological dimensions of sustainable
  development, which is the basis of a political
  economy of (strong) sustainable development

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Towards a political economy of (strong)
sustainable development