Sustainability through cost internalisation: Theoretical rudiments for the analysis and reform of global structures

Abstract

In the last 250 years, capitalism has been the cause of great wealth and affluence. This was brought about by the interaction between a dynamic mobilisation of resources and the efficient allocation of production factors, produced goods and services through control of the market, technical progress, the spread of trade and use of comparative cost advantages. In this respect, classical and neoclassical economics since Adam Smith has been proven correct. However, this school's postulation that the market's invisible hand will also provide for a balanced development of wealth between rich and poor regions and nations has not been proven correct. On the contrary, the gap between rich and poor has grown. The contradiction between theory and reality is not at all coincidental. Classical and neoclassical economics subordinate absolute equal opportunities between all (world) market actors and exclude extra-economic factors such as, for example, the disparity of power as a lever of wealth increment. Furthermore, it neglects the circumstance of capital accumulation and growth in consumption through the cost-free use of nature, which has many consequences for the destruction of the ecological balance. These methodical foreclosure proceedings do not only have fatal consequences for the theory; politics is also especially affected. To be sure, neoclassicism offers no solutions to the greatest challenges of the present, namely, social inequality on a global scale and the ecological crisis. The individual measures which have been enacted, such as the IMF's structural adjustment programme, often cause the opposite social and ecological effects. An important prerequisite for the development of strategies in a global reform perspective is, therefore, the dealing with some fundamental deficits in the dominant economic theory. This paper will (a) develop the idea that the disparity of political and economic power has historically promoted the externalisation of social and ecological costs and, as a result, caused the rise of non-sustainable structures in the world economy as well as social and ecological crises, and (b) prove that cost internalisation by means of new basic conditions in the world economy is an indispensable must for sustainable development in the world economy. (C) 1997 Elsevier Science B.V.