Keynes, the Post Keynesians and Sustainable Development

1. Keynes, the Post Keynesians and Sustainable Development Eric Berr University of Bordeaux Keynes Seminar, Robinson College Cambridge, 27 April 2010

2. 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

3. 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

4. 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

5. 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)

6. 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

7. 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)

8. Uncertainty and precautionary principle • Rio declaration on environment and development (1992) (Principle n°15) “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

9. 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)

10. 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

11. 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

12. 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

13. 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 α is the rate of increase of labour productivity which depends upon technical progress and ε is the rate of increase in employment

14. 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

15. 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

16. Towards a political economy of (strong) sustainable development