What is Economic Sustainability and Why We Need it Now

In this last article on the fundamentals of sustainability, we are going to look at economic sustainability. If you missed the first three articles in this series, you can read about the basics, social sustainability, and environmental sustainability.

Achieving economic sustainability is not immediately obvious. When we recall that sustainability is the effort to ensure the longevity of processes indefinitely, one can argue that governments already try doing that by focusing on GDP.

In an article on Thwink, there is an excellent breakdown of how a steady growth of GDP is not a good measure of sustainability. It is not sustainable because continuous growth is impossible; more importantly though, it comes with a heavy cost.

So what is economic sustainability then, and how do we solve this piece of the puzzle to save the environment? Read on.

What is economic sustainability?

Economic sustainability is the practice of doing business so as not to deplete and damage resources beyond recovery. It looks at the entire supply chain of business: consumption, production, usage, repair, management, costs, opportunities, threats, and more from the lens of sustainability.

Economic decisions have to consider the environment and the challenges we are facing as a planet. Since the industrial revolution, as a race, we have pursued development and growth to the exclusion of almost everything else. It is a short-sighted strategy that is rapidly coming to a head.

Rampant development and growth that burns through resources with impunity spells destruction for business as well.

How to think about economic sustainability?

There are three perspectives from which we need to consider economic sustainability: individuals, organisations, and governments or nations.

Economic sustainability for individuals is to ensure that their basic needs are met. There is financial security; potentially with a regular and reliable source of income, some savings, and the security of knowing that their needs are being met currently and will continue to be met in the near future.

There are many people across the globe today that do not have that security. They do not know where their next meal will come from, or indeed if one will be forthcoming at all. They do not have access to clean drinking water or adequate shelter and sanitation. Development is critical for these people, and governments therefore have to consider them carefully.

Organisations need to incorporate economic sustainability through responsible practices. Revenue cannot be the only driving force, even if it needs to be an important factor. Revenue at the cost of resources has led to unsustainable practices across the board: consumerism and rabid consumption, wasteful manufacturing practices, food waste, consumption of fossil fuels, and even suppression of viable sustainable alternatives, in some cases.

Case in point: Why is so much farmland still given over to tobacco farming? It is a harmful product, not only for the consumers but also to the farmers and the land it is cultivated on.

Governmental considerations for economic sustainability are that any government should receive adequate funds to support its citizens. It should also prioritise sustainability accounting, which will be an impetus for corporations to adopt sustainable practices. Finally, a government needs to protect the natural resources within its jurisdiction.

Challenges of economic sustainability

The trouble at the heart of economic sustainability is lack of accountability. As Geoff Norby says in this TedX video: “Everyone wants sustainability. Nobody wants to pay for it.”

This is especially true of businesses. How does the depredations caused to the environment and natural resources affect their balance sheets? The short answer is that it doesn’t but it should. The sad fact of the matter is that the cheaper alternative is usually the one that has worse implications for the environment.

Therefore, corporations have to be held accountable for their practices, and pay the price not only of resources they consume, but also their practices. Again, it is policy and governance that has to make the paradigm shift here. It may be challenging, but it is not impossible.

How governments can ensure economic sustainability

As we’ve seen in the sections above, a lot of the burden of economic sustainability lies with policymakers. Apart from electing the right people with the mandate for effecting change, there is little an individual can do on their own steam.

So what are some of the things that nations can do to foster sustainability?

1. Invest in innovation

Greentech or cleantech is still nascent, and hasn’t been implemented at scale. It takes time and investment to be able to get it to that level. Rather than doubling down on existing tech and established practices, which are obviously contributing to the problem, there needs to be a concerted effort to explore new avenues.

2. Diversification of industry

If a country’s economy is heavily reliant on one industry, it is vulnerable to disruption. For instance, if agriculture is responsible for over 70% of a country’s income, a drought or other climatic event could wipe it all out in a matter of hours. It is important to diversify industry for this, and many other reasons.

3. Implement fair trade

Make sure everyone in the supply chain receives fair compensation for their work that can meet their needs. Increased trade fuels economic growth. Fair compensation is an economically sustainable practice, as there is an increase in spending as the standard of living improves.

4. Institute employment reforms

Citizens who have work and a regular income are happier and likely to contribute more to society. Greater contributions to taxes mean more money for the government to focus on sustainable development initiatives, which in turn support the citizens.

5. Incentivise sustainability practices

Reward companies for taking on the initially heavier investment of changing their practices to sustainable ones. These changes disrupt business and employee lives, not to mention restructuring of processes and physical assets. If it needs to be done, change has to be supported to make sure the business doesn’t fold in the process.

6. Involve the consumer in the process

Consumers are much more likely to opt for green alternatives if they can know that they are indeed green. Traceability and accountability is very important to assure the consumer that by voting with their wallet, they are indeed supporting important change. Green alternatives — at least at present — are significantly more expensive than their harmful counterparts. Building trust, educating consumers, and finally involving them in the process fully will encourage them to choose the more expensive alternative for the good of the environment.

Why we need economic sustainability

An analogy often used to describe sustainability is a term deposit account. In this article about economic sustainability, it is a conceptual and thematic fit.

Think about a sum of money placed in an account with a potentially higher rate of return than a savings account. The account holder receives a payout of interest on a fixed schedule, and receives the principal amount they started with on the maturity date.

Suppose that sum of money was all the account holder had to live off of, perhaps because it is their only source of income. If their expenses exceeded the interest paid out to them periodically, they would need to dip into the principal. The principal diminishes over time, reducing the interest payout, and finally the account dwindles to nothing. The resource is over, and the account holder has now no means to sustain their life.

As this was an analogy, one can replace term deposit with any resource. If the equation of give, take, and regenerate lists heavily on the side of take, the status quo will eventually collapse. It is not sustainable. And that’s why we need economic sustainability.

Sources

1. “Definition of Economic Sustainability.” 2010. Thwink.org. 2010. https://www.thwink.org/sustain/glossary/EconomicSustainability.htm.
2. “Introduction to Sustainability and Economic Sustainability.” n.d. Www.youtube.com. Accessed August 3, 2022. https://www.youtube.com/watch?v=QHDW0gKO9_w.
3. “Economic Sustainability Examples That Inspire Change.” n.d. Population Media Center. https://www.populationmedia.org/blog/economic-sustainability-examples-that-inspire-change.
4. “Sooner or Later, We Have to Stop Economic Growth — and We’ll Be Better for It.” 2019. Post Carbon Institute. January 14, 2019. https://www.postcarbon.org/sooner-or-later-we-have-to-stop-economic-growth-and-well-be-better-for-it/.
5. Chouinard, Yvon, Jib Ellison, and Rick Ridgeway. 2011. “The Sustainable Economy.” Harvard Business Review. October 2011. https://hbr.org/2011/10/the-sustainable-economy.
6. “8 Ways to Build a Sustainable Economic Recovery.” n.d. World Economic Forum. https://www.weforum.org/agenda/2020/06/8-steps-towards-a-sustainable-economic-recovery/.