How Economics Can Become Compatible with Democracy

Abstract

This chapter introduces a Scandinavian and European tradition of institutional economics as an alternative non-orthodox branch of economics that claims relevance in addressing sustainable development issues. The challenge of sustainable development is complex. Existing development trends are unsustainable in more ways than one, for example concerning climate change, loss of biological diversity, depletion of fish stocks, risks of nuclear accidents. When attempting to deal with these issues, it is often assumed that we can rely on science and on economics in particular. Economics claims to supply a conceptual framework and theory for efficient resource allocation at various levels; at the level of individuals, of business corporations and of society. University departments of economics educate students in one way, nationally and globally, so called neoclassical economics. This theory can offer some ideas about how to deal with sustainability issues. But neoclassical theory has been dominant in a period when serious problems related to sustainability have emerged. It is therefore probably wise to also consider alternatives to neoclassical theory, such as institutional economics. In the present essay I will - while pointing in the direction of institutional theory - suggest a way of opening up economics to make the field more compatible with democracy. Economics has to move from the present monism to pluralism and become more sensitive to value or ideological issues in present society.