A pluralist review of economic theories of the firm – implications for "cenonomic sustainability"

Summary

Sustainability science has always had a curious relationship to economics. It emerged from the “growth debate” of the 1960’s/1970s that attacked neoclassical approaches of environmental valuation, nature/capital substitution and the aim of limitless growth. However, a problematic “economic dimension” was subsequently added to the definition of sustainability, paradoxically reintroducing growth as a policy goal. In this paper, I explore how this has affected indicator-based “sustainability assessment” (SA) methods applied to firms to evaluate the green transition in agriculture. I aim to (1) identify theories of the firm that underpin the selection of economic indicators and the definition of economic sustainability; and (2) explore the potential of heterodox theories as a basis for indicator selection (ecological economics, post-Keynesian, institutionalist and Marxian). I use empirical data from a systematic literature review of evaluative studies of green innovations in the olive sector in the Mediterranean. Olives production is a cornerstone of the region, generating employment and income, but also huge social-ecological impacts due to shifts towards highly intensive production. From 203 articles, half (52%) contained economic indicators. The majority of these relate to costs (14%), revenues (13%), land productivity (13%), profitability (10%), efficiency (9%), product quality (8%) and capital investments (6%). In general, formal economic theory is scarce in justifying indicator selection. A general focus on efficiency, competitiveness and growth is compatible with neoclassical theory of the firm. Post-Keynesian and Marxian theories are more realistic, but still only explain how firms behave under capitalism, but don’t prescribe how they should behave in a sustainable economy. Ecological economics provides the best starting point for (re-)defining economic sustainability (as the achievement of macroeconomic stability and just human development in the absence of growth). Finally, institutionalist perspectives offer key insights into aspects like ownership structures and social-ecological embeddedness, providing useful guidance for indicator selection and aggregation.