Sustainable Development in Affluent Countries and the Neo-Institutionalist Synthesis

Abstract:

Since development is a process rather than an end-state, all countries are always in a constant state of change, regardless of their level of income. This article focuses on the challenges that affluent countries face today in shifting to a sustainable development path. These challenges include improving the quality of life, achieving environmental sustainability, and addressing inequality. In the United States in particular, these challenges have increased in recent decades, despite significant economic growth. The neoclassical development model assumes that growth makes it easier to achieve sustainable development and that wellbeing rises with per capita income. We question these assumptions, and find a theory of economic development in institutional economics that better explains and accommodates sustainability. We draw on the work of many original institutionalist economists (OIE), and others working in this tradition, to analyze the challenges of sustainable development in affluent countries, especially in the United States.

Keywords::

• abundance
• economic development
• growth
• institutionalism
• neoinstitutionalist
• provisioning
• sustainable development
• sustainability

JEL Classification Codes::

• B15
• B52
• D02
• O1
• O18
• Q01

Notes

¹ Paul D. Bush credits the term “neoinstitutionalism” to Marc R. Tool’s 1953 doctoral dissertation: “He apologized for introducing a new term into the already cluttered jargon of contemporary economics. But Tool believed it was necessary to do so in order to clearly identify the new strain of institutional analysis that was emerging from Clarence E. Ayres’ integration of Veblen’s evolutionary theory of institutions with John Dewey’s theory of instrumental valuation (Ayres [1944] 1962). Allan Gruchy (1972) appears to have adopted the term ‘neoinstitutionalism’ from Tool, but he used it in a more general way to refer to the institutionalist literature, including and following Ayres’ Theory of Economic Progress” (Bush 1995, 10). In regard to its use since then, Bush writes: “While much of the institutionalist literature from the mid-1940s to the present is, in my view, broadly consistent with the neoinstitutionalist approach, it cannot be rightfully said that all institutionalists writing since the end of World War II would consider themselves neoinstitutionalists. And it certainly cannot be said that those New Institutional Economists who refer to themselves as ‘neoinstitutionalists’ … have any affinity whatsoever to the Veblen-Dewey tradition in the Original Institutional Economics (OIE)” (Bush 2009, 294).

² It is a common neoclassical assumption that growth should facilitate the transition to sustainable development, but that does not seem to be the case, at least for the US. As Gregorio Vidal and Wesley C. Marshall (2014, 1110-1111) note, crumbling infrastructure, along with insufficient investments in human capital and Internet capacity, suggest that the very affluent United States is actually “lurching toward underdevelopment,” and question whether the US is going “backwards” in development, despite its continued world economic leadership.

³ Variations of Commons’s workers compensation program for Wisconsin were rapidly adopted by other states (Street 1987, 1873), while the unemployment insurance and pensions systems he designed for the state became models for the New Deal.

⁴ This demand is more general than the demand for any one particular good. Galbraith ([1958] 1969, 148) quoted James Duesenberry’s observation that, when society’s goal is a higher standard of living, “the desire to get superior goods takes on a life of its own.” Galbraith ([1958] 1969, 148) also suggested that our social and economic values affect the level and rate of growth of the overall consumer demand, while advertising allocates that demand among competing goods and services (see also Peach and Dugger 2006).

⁵ Kuznets, who won a Nobel Prize in economics for his empirical work in measuring the economy and its growth, was an institutional economist in many ways, according to James H. Street (1987). Kuznets contributed “a tool kit of extensive quantitative investigation … incorporating demographic data into the description of the evolutionary development process … and supplying additional evidence of the powerful role of science and technology in promoting economic growth through their effort on prevailing institutions and ideologies” (Street 1987, 1872).

⁶ See Kuznets’s statement to the Joint Economic Committee of Congress (as cited in “The Measure of America: American Human Development Report” of 2006–2007).

⁷ The Koch Family foundation provided funds to over 190 colleges and universities to support “the principles of free enterprise and classical liberalism” (available at www.kochfa.milyfoundations.org/Foundations.asp).

⁸ Humans have difficulty adapting to new “rules of thumb” about how the world works, just as they often use new technologies in the old way. Many drivers still unnecessarily “pump the engine” on a cold day, while others want enough detergent to create lots of suds in the washing machine when new products make this wasteful. In a similar vein, old ideas like austerity and the gold standard block affluent economies from achieving economic progress.

⁹ The Better Life Index is available at http://www.oecdbetterlifeindex.org/.

Additional information

Notes on contributors

Daphne T. Greenwood

Daphne T. Greenwood is a professor of economics at the University of Colorado–Colorado Springs, Colorado.

Richard P.F. Holt

Richard P.F. Holt is a professor of economics at the Southern Oregon University in Ashland, Oregon. The authors thank Christopher Brown for his editorial suggestions, the anonymous reviewers for their helpful comments, and Sissela Bok for her comments on an earlier draft of this article.