Defining Sustainable Economic Systems – Development vs Growth
Prevailing economic systems are not working and it is becoming increasingly clear that we require a paradigm shift to address pressing social and environmental problems. The brown economy continues to dominate and it is driving many of the world’s most pressing problems. There are however alternative economic systems like the green economy and the blue economy which are capable of meeting the needs of current generations without compromising the needs of future generations. Sustainable economies like these can help us to realize the United Nations’ Sustainable Development Goals (SDGs).
The SDGs offer a comprehensive and widely accepted summary of the most important social and environmental issues in the world today. As such the SDGs can help us to assess the utility of different economic alternatives. Looking through the lens of the SDGs can help us to understand the weaknesses of our current structures, and give us an idea of how we can respond to the challenges of our times.
Recent events are forcing us to consider new economic paradigms. The Covid-19 pandemic that gave rise to the plague economy has revealed fault lines that we can no longer ignore and the dangers of fossil fuels are being highlighted by Russia’s war against Ukraine. Our dependence on dirty energy is funding genocide and exposing vulnerabilities to blackmail from corrupt dictatorships.
The repercussions of these dramatic events are reverberating around the world and calling us to confront deeply entrenched weaknesses in our economic systems. Our economic system has failed to address long-standing threats like climate change, biodiversity loss, disease, water scarcity, and inequality.
Current economic paradigms are myopically fixated on growth and this is not sustainable. We are forced to concede that our economies are not equipped to deal with a wide range of serious environmental and social issues. We tinker at the margins while ignoring entrenched realities that make solutions difficult if not impossible. Our ability to respond is constrained by short-term thinking. We can not deal with key issues as long as publically held firms have a fiduciary responsibility to deliver profits to shareholders and companies dismiss environmental threats as ‘externalities’. Exploitation and environmental degradation are inevitable corollaries of our economic system. These failures have far-reaching consequences. This includes radical polarization that threatens the basic principles of pluralistic democracy. The problems that inaction augurs are exploited by cynical politicians for political gain. In the U.S. and elsewhere, the political right is fueling culture wars and eroding participatory democracy.
What are the major economic systems?
Before we examine the capacity of different approaches to address the challenges we face we need to reassess prevailing economic models. Here is a brief summary of four types of economies: The market economy, the command economy, the mixed economy, and the traditional economy.
The market economy*
The market economy is an economic system in which private interests own and operate profit-focused enterprises. This is what we see in competitive capitalism which boasts efficient market-based pricing supposedly determined by supply and demand. Unfettered capitalism’s preoccupied with growth, is driving environmental degradation and social malaise and trickle-down economics, a key tenet of this economy, has proven to be a colossal failure.
The environmental toll associated with the wanton extraction of finite resources and the social toll of this exploitative type of economy is in direct conflict with most SDGs, however, some have argued that market economies contribute to GOAL 8: Decent Work and Economic Growth and GOAL 9: Industry, Innovation, and Infrastructure.
The command economy
The command economy is a centralized system in which the government owns the means of production and controls pricing. Socialism is the most widely practiced form of this type of economy. State-controlled economies have tremendous potential to realize many of the SDGs but highly centralized economic and political systems commonly violate human rights and as such, they work against the ideals embedded in many SDGs including GOAL 16: Peace and Justice Strong Institutions. While a command economy may claim to seek equality, in practice such economies disproportionately benefit the ruling class which violates GOAL 10: Reduced Inequality.
The mixed economy
The mixed economy is a combination of both private and state control. This incorporates elements of the market economy (capitalism) and the command economy (socialism) in which free enterprise and centralized authority coexist. This blend of free markets and state control is the dominant economic system in the vast majority of developed nations in the world today.
This system has the advantage of benefiting from the profit incentive and efficient capital allocation alongside state-imposed regulatory regimes that can mandate reform through a combination of incentives and regulation. When it comes to achieving the full range of SDGs this may be the best economic system in the world today.
The traditional economy
The traditional economy is a culture that is based on agriculture and hunting and is represented by Indigenous hunter-gatherer communities that flourished for millennia before colonialization. With its focus on environmental stewardship and respect for the land, this approach seamlessly addressed many of the 17 SDGs. However, there are concerns about the ability of such an economic system to work at the scale of large populations like big cities.
Examples of sustainable economies
Now that we have reviewed the four major economic systems, we need to understand some of the possible permutations of a sustainable economy. Here are four examples of sustainable economies: Sustainable capitalism, circular economy, inspiration economy, and resilience economy.
Sustainable capitalism leverages the ability of companies and investors to mobilize the capital needed to address problems like those contained in the SDGs. Sustainable capitalism resists short-term thinking and endeavors to maximize long-term economic value creation. It does this by reforming markets to address real needs while factoring costs and stakeholder concerns.
Sustainable capitalism fosters long-term value creation through five key actions: The identification and incorporation of risks from stranded assets, integrated reporting mandates, ending the default practice of issuing quarterly earnings guidance, aligning compensation structures with long-term sustainable performance; and encouraging long-term investing with loyalty-driven securities.
Sustainable capitalism also invites efforts to reinforce sustainability as a fiduciary issue, create advisory services for sustainable asset management, expand the range and depth of sustainable investment products; reconsider the appropriate definition for growth beyond GDP and integrate sustainability into business education at all levels. However, it remains focused on profit maximization.
The circular economy
The circular economy is a sustainability paradigm that may prove to be instrumental in realizing the SDGs. There is no waste in this model, everything is designed to last, be shared, reused, repaired, or recycled. This type of economy strives to minimize inputs and eliminate waste by closing the loop with life cycle analysis. In this paradigm, everything required for production must be accounted for, and producers must take responsibility for all the stages in a product’s life cycle from cradle to grave,. This includes everything from the resources required to make an item right through to end-of-life recycling.
A circular economy will enable us to sustainably address our basic needs using the resources that are available to us. Here growth is restrained by the available means. Minimizing the need for natural resources may eneable us to respect planetary boundaries and live within the earth’s carrying capacity.
The inspiration economy
Another type of economy that contributes to sustainable development is the Inspiration Economy which recognizes the cultural potential of goods and services as they relate to the unique characteristics of each region. The focus is not on pay but on the ability to foster inspiring solutions known as ‘inspiration currency’ and this augurs equality between people independent of gender, class, or race.
An inspiration economy is a radical departure from where we are today. It is independent of materialistic solutions as well as ruling economic systems and political policies. This economy is about the intrinsic resources or intrinsic power within community settings.
The resilience economy
A final model we should consider is the resilience economy. This economic model is designed to increase the human capacity to deal with shocks (climate disasters, supply chain interruptions, etc). It acknowledges diversity and humanizes the economy while preserving it for future generations. This is an economy that is structured to be adaptive. A subset of this economy is the climate-resilient economy or climate-resilient green economy (CRGE) which prioritizes minimizing exposure to climate hazards while reducing emissions and conserving biodiversity.
What are the 10 colors of the economy?
In order of their presentation, here are brief descriptions of the brown, green, blue, golden, purple, white, silver, red, gray, and black economies. Some of these color-coded economic systems have dual meanings so in several cases asterisks and brief footnotes have been added to briefly define alternate meanings.
1. The brown economy
A brown economy is focused on economic growth that is largely dependent on environmentally destructive forms of activity, especially the extraction and burning of fossil fuels like coal, oil, and gas. One of the byproducts of this form of economy is massive levels of climate change-causing greenhouse gas (GHG) . The brown economy also generates water pollution and air pollution (particulate matter).
The brown economy is harmful to biodiversity, it overtaxes finite resources and is the driving force behind a wide range of global crises. The brown economy employs people in industries like fossil fuels, cement, iron smelting, quarrying, and mining.
In one way or another, the impacts of the brown economy adversely impact all 17 SDGs, however, some have argued that cheap energy has benefited GOAL 1: No Poverty, GOAL 2: Zero Hunger, and GOAL 8: Decent Work and Economic Growth. Today we know that the brown economy has a large number of well-documenteddestructive impacts. This includes GOAL 3: Good Health and Well-being, GOAL 4: Quality Education, GOAL 6: Clean Water and Sanitation, GOAL 7: Affordable and Clean Energy, GOAL 10: Reduced Inequality, GOAL 11: Sustainable Cities and Communities, GOAL 12: Responsible Consumption and Production, GOAL 13: Climate Action, GOAL 14: Life Below Water, GOAL 15: Life on Land, GOAL 16: Peace and Justice Strong Institutions, and GOAL 17: Partnerships to Achieve the Goal.
2. The green economy
The green economy is geared to undo the damage caused by the brown economy. The green economy seeks to sustain and advance economic, environmental, and social well-being, increase GDP, and contribute to poverty reduction. The UN succinctly defines the green economy as one that, “carries the promise of a new economic growth paradigm that is friendly to the earth’s ecosystems and can also contribute to poverty alleviation.” This economy contains many diverse approaches to enhance efficiency, eliminate pollution and recycle waste.
As indicated in a United Nations Environmental Program (UNEP) report on the green economy (page 16) diverse strategies for economic growth and environmental stewardship can complement one another. UNEP defines a green economy as, “one that results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities.” This definition is in line with the three pillars of sustainable development (economic, social, and environmental).
The green economy is premised on economic production which minimizes pollution and reduces resource consumption. It is focused on recycling waste to lower environmental costs. This model of economic development merges economic, environmental, and social issues to improve life on earth In a green economy sustainable and environment-friendly economic impact on all human activities. It is also reliant on cleantech, and innovative technologies that optimize the use of the earth’s finite resources.
Collaboration and the adoption of an integrated approach to solving systemic issues are key aspects of this type of economy. Millions of people are employed by the green economy in areas like renewable energy and green sector jobs are expected to continue experiencing exponential growth.
All 17 SDGs benefit from the green economy. GOAL 1: No Poverty. GOAL 2: Zero Hunger, GOAL 3: Good Health and Well-being, GOAL 4: Quality Education, GOAL 5: Gender Equality, GOAL 6: Clean Water and Sanitation, GOAL 7: Affordable and Clean Energy, GOAL 8: Decent Work and Economic Growth, GOAL 9: Industry, Innovation, and Infrastructure, GOAL 10: Reduced Inequality, GOAL 11: Sustainable Cities and Communities, GOAL 12: Responsible Consumption and Production, GOAL 13: Climate Action, GOAL 14: Life Below Water, GOAL 15: Life on Land, GOAL 16: Peace and Justice Strong Institutions, GOAL 17: Partnerships to Achieve the Goal
3. The blue economy
The blue economy (marine economy) is crucial to our financial, biological, cultural, planetary, and spiritual well-being. It refers to efforts to preserve the finite resources in our oceans and waterways. Biotechnology, fisheries, and aquaculture are all part of this economy. The blue economy seeks to manage marine resources through the adoption of sustainable harvests, and regeneration (restoration) where necessary and possible. This economy strives to eradicate pollution and recycle waste in the marine environment.
The blue economy supports clean and healthy oceans, as well as coastal, and other aquatic ecosystems. The seas are critical to global well-being because they cover more than 70 percent of the earth’s surface and they contain a wide diversity of marine life that are important sources of food and minerals. The blue economy is being threatened by pollution, warming, and acidification. In this economy, people earn their livings through sustainable commercial fisheries, tourism, and recreation. Increasingly this also includes offshore renewable energy development. Wealth in the context of this economy is about far more than financial riches, it is about the health of marine ecosystems.
While many SDGs benefit indirectly, the blue economy directly serves GOAL 3: Good Health and Well-being, GOAL 6: Clean Water and Sanitation, GOAL 12: Responsible Consumption and Production, GOAL 14: Life Below Water, GOAL 16: Peace and Justice Strong Institutions, and GOAL 17: Partnerships to Achieve the Goal
4. The golden economy**
The golden economy (also known as the sunshine economy) addresses the energy issue. It specifically addresses the destructive impacts of the brown economy by replacing fossil fuels with renewable sources of energy (wind energy, solar energy, hydroelectricity, geothermal, tidal power, etc.).
Along with the green and blue economies, the golden economy effectively addresses the social and environmental challenges we face. While the golden economy indirectly benefits many SDGs it primarily benefits GOAL 7: Affordable and Clean Energy, and GOAL 13: Climate Action.
5. The purple economy
The purple economy is a multidisciplinary approach to economics that encompasses a diverse array of key social issues that improve everyone’s quality of life. This includes care activities and services, such as education, healthcare, and women’s empowerment, It champions the interests of vulnerable groups like children, the elderly, and people with disabilities.
This type of economy pays heed to cultural realities through its support of human capital The purple economy is an approach to sustainable development that emphasizes diversity and cultural good. It focuses on rights like maternity leave, life balance, flexible work arrangements, fair pay, and the gender pay gap. It also supports moving away from traditional measures of wealth like growth and GDP in favor of measures like livelihood.
The purple economy seeks to expand social services, particularly in times of crisis (eg the Covid-19 pandemic) this supports GOAL 3: Good Health and Well-being. The focus on a higher standard of gender equality and equal opportunities are aligned with SDG GOAL 5: Gender Equality and GOAL 10: Reduced Inequality. The emphasis on better working conditions and better pay is in line with GOAL 8: Decent Work and Economic Growth. The focus on building resilience in the face of disaster is tied to GOAL 11: Sustainable Cities and Communities. Other SDGs that benefit from a purple economy are GOAL 4: Quality Education, GOAL 9: Industry, Innovation, and Infrastructure, GOAL 16: Peace and Justice Strong Institutions, GOAL 17: Partnerships to Achieve the Goal.
6. The white economy***
The white economy refers to the health industry. There are many facets to this type of economy. It includes hospitals, the pharmaceutical industry, the medical supply sector as well as providers of medical equipment, both diagnostic and biomedical. This involves workers with varying degrees of specialization. In the clinical context, this includes doctors, nurses, interns and other medical workers. It also involves the people who provide personal care assistance as well as other workers in health services and personal care sectors. Sick people are also included in this group as are people with disabilities, and the elderly. This is a broad and inclusive category as it applies to everyone as everyone avails themselves of some kind of health related service at some point in their lives. This type of economy is primarily concerned with SDG GOAL 3: Good Health and Well-being.
7. The silver economy
According to the Oxford Institute of Population Aging, the EU defines the silver economy as the sum of the economic activities of people over the age of 50. This includes the products and services they purchase and the economic activity this spending generates. This economy contributes to a wide range of industries including health and nutrition; leisure and well-being; finance and transport; housing; education; and employment. The silver economy is also concerned with services related to wellbeing, health monitoring, health sports, health tourism, and green care. The silver economy supports SDGs like GOAL 1: No Poverty. GOAL 2: Zero Hunger, GOAL 3: Good Health and Well-being, GOAL 4: Quality Education, GOAL 8: Decent Work and Economic Growth.
8. The red economy****
The red economy is about mass production and mass consumption, it is derived from Fordism, which was named after Henry Ford who operated as though environmental resources were unlimited. This economic model is focused on reducing production costs by employing a linear business model of extracting resources and producing waste. It is hostile to both social and environmental concerns making it an unsustainable economic system. The red economy squeezes workers and commoditization drives down margins and profits.
Although there are those who argue that the red economy has the potential to benefit GOAL 1: No Poverty, GOAL 2: Zero Hunger, and GOAL 8: Decent Work and Economic Growth, a close examination reveals that this has not been born out in practice. The red economy has dire implications for GOAL 6: Clean Water and Sanitation, GOAL 9: Industry, Innovation, and Infrastructure, GOAL 11: Sustainable Cities and Communities, GOAL 12: Responsible Consumption and Production, GOAL 13: Climate Action, GOAL 14: Life Below Water, and GOAL 15: Life on Land
9. The grey economy
The grey economy, (aka the informal or underground economy), refers to a diverse array of economic activities that may be legal, but which evade taxes. It can include everyone from street vendors and unregistered factory workers to larger off the books transactions. This type of economy is present when governments are unaware of a particular activity or accept such tax-free unregulated activity. Many different types of workers are employed in the gray economy and such workers are afforded little state protection and are therefore subject to exploitation and abuse. Because these activities are not monitored by the state they are not included in assessments of the gross domestic product (GDP) of a country.
The grey economy can adversely impact GOAL 1: No Poverty and GOAL 2: Zero Hunger, GOAL 3: Good Health and Well-being, GOAL 5: Gender Equality, GOAL 10: Reduced Inequality, and GOAL 11: Sustainable Cities and Communities. While the grey economy touches on numerous social issues it has clearly harmful implications for GOAL 8: Decent Work and Economic Growth and GOAL 16: Peace and Justice Strong Institutions. and GOAL 12: Responsible Consumption and Production
10. The black economy
The black economy refers to illegal or unauthorized economic activities, including human trafficking, and smuggling weapons. It can apply to any product that is prohibited by the laws of a given country. In addition to avoiding taxation, the black economy operates in flagrant violation of the law and this includes the lethal illicit drug trade and violating sanctions against rogue regimes.
Even more harmful than the grey economy, the black economy adversely impacts the same wide range of SDGs GOAL 1: No Poverty and GOAL 2: Zero Hunger, GOAL 3: Good Health and Well-being, GOAL 5: Gender Equality, GOAL 8: Decent Work, GOAL 10: Reduced Inequality, and GOAL 11: Sustainable Cities and Communities. GOAL 12: Responsible Consumption and Production, Economic Growth, GOAL 14: Life Below Water, GOAL 15: Life on Land, and GOAL 16: Peace and Justice Strong Institutions.
A multicolored economy
The economic solutions to the challenges we face will likely involve a wide range of different approaches that are tailored to regional requirements. All the color-coded economies presented above have implications for the sustainable development goals, The four economic colors that offer the most promise are the blue, green, golden, and purple economies, as well as the white economy. While it may include reworked elements of the red economy, it cannot include the gray, black, or brown economies. The gray and black economies can be transformed by providing incentives for people to earn a living wage within the system. However, the brown economy is fundamentally incompatible with efforts to address our social and environmental ills.
There are some who believe we may be able to achieve our goals through sustainable capitalism, others think we require an entirely new economic system. Whatever path we take we must contend with our myopic preoccupation with growth and we must assess these approaches according to their ability to address the SDGs.
*In practice free-market capitalism is almost always tempered by varying degrees of government regulation.
**The term “Sunshine Economy” is sometimes used to describe Florida’s economy. Mzansi Golden Economy (MGE) refers to the strategy to reposition the cultural industries in South Africa.
***The white economy has also been used to describe the digital economy, this definition is attributed to Professor Douglas McWilliams, a British economist who wrote a 2015 book by the same name.
****The red economy sometimes refers to the communist-leaning economies where the state takes hold of production and distribution.