Strengths of Institutional Economics and the Weakness of Ecological Economics - Essay Example

Name) (Instructors’ name) (Course) (Date) Institutional Economics Vs Ecological Economics: This paper seeks to discuss the strengths of the institutional economics and the weakness of the ecological economics and ways in which institutional economics have adopted to be more compatible with the ecological economics. Institutional economics has two major schools; New and Old Institutional Economics. Though they are in some occasions considered incommensurable, they have co-existed for a long time. The old institutional economics represents a unified body of methodology, thought and program of research. In addition, OIE are normally criticized for not being based on theoretical basis. The NIE utilize a set of theories that are very clear from the onset. The first popularity of the NIE was because it was little messy and its theories were highly quantitative. The disappearance of institutional economics has been pronounced in a number of occasions and traditional economists seen to deliver most part of the eulogies (Hunt 7). The usual illustration given is that of an intellectual comet that sparked bright flames shortly, and then succumbed to a natural death. The strength of institutional economics is based on its explanatory power of concepts not the power in its numbers (Acemoglu 13). The fact that its influence and membership dwindled during the post World War II era still the ideas were not of attrition. No matter the differences among institutional economists, institutionalism has fundamental set of beliefs. Strengths of Institutional Economics and ways of making it more compatible with the Ecological Institution Economics: The attempt to move economics above the shortcomings and limitations of neoclassical models and methods and the prospect of it being realized is very exciting (Hunt 16). It’s therefore, not my wish to discuss all these achievements but rather focus more precisely on the developments in the institutional economics. The social, political, economic and legal institutions (“institutions”) have significant effect on the performance of economy (Acemoglu 36). The effects of alternative policies of public seven geared towards developing economic performance in several dimensions differ along with the institutions that are designed to respond to them (Aronson, Milton & Blignaut 22). Analysis of the institutions can be done using same kinds of empirical and rigorous methods that have been improved from the neoclassical tradition and at the same time acknowledging that more tools may be significant to better understand the role and the development of institutions in impacting on the economic performance (Hamilton 309). Empirical and theoretical analysis should be interactive and evolve as a unit over time. The hypothesis identifies relationships that can be analyzed empirically while the empirical anomalies and regularities pose the question on the relevance of the received hypothesis and can propose new targets of opportunity for further theoretical advances. An interdisciplinary study can make significant contributions to knowing the role of institutions and how they can impact on the performance and behavior of the economy (Hunt 29). Contributions from law, anthropology, religion, sociology and other related courses can have a great role in improving our understanding of economic institutions and their effects on the economy and the impacts on economic policies (Hamilton 320). Long term complex proposals associated with the diffusion of innovations, technological change and the effects of economic institutions on all plays a very big role in the analysis of economy (Aronson, Milton & Blignaut 56). Our understanding of institutions should be adequately enough to enable us apply empirical and theoretical knowledge to a broader array of political, ecological and economic build ups; developing and developed countries with complex political processes consisting variations of the adoption of democracy, countries with diverse ethical, religious, tribal, cultural and family traditions (Baran & Sweezy 41). Institutional analysis strives to understand the role of political institutions and government in policy drafting, adoption and economic index but have no political motivation. Ecological Economics The belief of ecological economics is that it will be at the forefront to the interpretation on how to reconcile the economy with the biophysically challenged earth in a manner that other economic parameters have not achieved (Williamson 596). The key strategy of ecological economics has been to classify the human economy within a wider biophysical process which is subject to the law of the nature and to emphasize that people have to limit human activity to the level of the planet to offer resources (Williamson 601). Major steps have been realized by a generation of ecological economists through their valuation of the natural capital and ecosystem products and deliberating on modalities of changing market prices and national income to cater for these (Williamson 613). Despite the speedy rhetoric of the strong state of economy the question that still lingers is how to appropriately and effectively transform the economy to check the scale of economic activity has not been adequately explored. Weaknesses of Ecological Economics There is huge confusion concerning the restructuring of the economy at the point when faced with serious consequences of cumulative growth, there is dire need for precision and clarity to take meaningful and decisive actions. The neoclassical economics focus on the short falls of scarcity though it’s not scarcity in an absolute manner rather in a relative sense (Daly & Farley 31). Ecological economics define sour current situation by the fact that it’s only the natural stock that has become scarce, which is relative to human acquired capital. The understanding is that it’s a shift in the predominance of scarcity that has happened. Ecological economics remains uncompleted. It essential to forge ahead to refine and scrutinize the institutional change needed to deliver a credible and meaningful resolutions of the challenges between biophysical limits and the structures of our economic as a danger of exponential development and growth increases relentlessly ahead. Some ideas are clear. Ecological economics are not properly served by the neoclassical roots for this course (Commons 3). These concepts assist ecological economics to evade hard questions must be answered. Since the millennia of relaxed agriculture, people have adversely altered human ecology with economic activity and termed it advancement. The experiment with the market economy is the most recent practical variant in this development. The emergence of post industrial capitalism and modernity remains the one to be confronted with the questions of economy and human ecology (Commons 18). Ecological economics started this system but it is crucial to expand its reach and its analysis. Establishing relative scarcity of the natural capital, being responsible for it, and inviting developments with no growth are not enough in these historic moments. They drive us to the direction of insufficient and ineffective change. To fully understand the predicament humanity faces we must first understand the growth of the social role has done in expanding not only the material goods but also the employment opportunities. Ecological economists together with other advocates occurring with the limits of nature will have difficulty in finding a sympathetic audience in order to proceed with its sustainability course if the issue of employment is not addressed. But given the present institutional framework of globalized capitalism lack of growth is indicated by stagnation and mass unemployment. The search for a sustainable institutional framework in which the biophysical limits are compatible with access to credible work is critical to improving the course of growth presently and a stable state in the future. The Problematic Roots of Ecological Economics There is a threat in failing to understand clearly the important institutional framework of an economy that can operate within the biophysical limits of the earth (North 97). Particularly, lack of clarity on the model of such an economy generates ambiguity on what should be altered and the plans on how to move from one point to other. In the process on that ambiguity the survival of the status quo is likely to remain stead fast (North 112). This is the fundamental reason why ecological economics have failed to make an important dent in the policy. A capitalist economy has policies of about attaining acceptable levels of growth and historically market capitalism has best at expansion of materials (Farley & Gaddis 15). It is both the responsibility and challenge of ecological economics to expand the plan in order to reconcile the biophysical limits with the economy but for this it becomes apparent that new foundations must be put in place. The concept of transaction costs leads to institutional ecological economics by promoting a detailed government solutions and policy problems (Farley & Gaddis 29). Policy problems which are done by the physical characteristics of the ecological resources and the attributes of their users greatly determine the degree of transaction costs. However, institutions of governance affect transaction cost especially their dispatch and more importantly the governance outcome. Transaction costs explain the institutional plan for the adoption and effectiveness of solutions of governance (Commons 26). It clarifies the reasons why governments often adopt institutional solutions that look weak and inferior in view of the received hypothesis and why some of the institutional solutions often fail or not used at all. Conclusion In conclusion, we can say that new institutional economies is key to growing institutional ecological institutions by giving insights on urgent fields of governance and environmental policy in many ways: The institutional approach assists us analyze how the characteristics of ecological resources and their applications build conflicts and interdependence. Conflicts of environmental nature can be resolved by making joint choices that are adopted by changing, reaffirming or establishing governance institutions. . Works Cited Acemoglu, Daron. (2003). Root Causes: A Historical Approach to Assessing the Role of Institutions in Economic Development. New York: John-Wiley. Aronson, S.J., Milton, E.& Blignaut, O. (2008). Restoring Natural Capital. Washington: Island Press. Baran, P., & Sweezy, P.M. (2002). Monopoly Capital. New York: Monthly Review Press. Commons, John R. “The Problems of Correlating Law, Economics and Ethics.” Wisconsin Law Review 8.1(2001): 3-26. Print. Daly, H. E. & J. Farley. (2006). Ecological Economics: Principles and Applications. Washington: Covelo. Farley, J. & Gaddis, B. (2007). Restoring natural capital: An Ecological Economics Assessment. California: University of California Press. Hamilton, David. “The Political Economy of Poverty: Institutional and Technological Dimensions.” Journal of Economic Issues 1.4 (1999): 309-320. Print. Hunt, E.K. (2002). History of Economic Thought. New York: M.E. Sharpe. North, Douglas. (2008). “Institutions.” Journal of Economic Perspectives 5. 1(2008): 97-112. Print. Williamson, Oliver. (2005). “The New Institutional Economics: Taking Stock, Looking Ahead.” Journal of Economic Literature 38. 12 (2005): 595-613. Print. Read More