Abstract
The phenomenon of production and consumption of commodities and services is at the centre stage of economic theory and policy. However, it is now well known that any production process will have a bio-physical foundation, and the entropy law will have a role to play in economic processes. Consequently, sustained economic growth will require a continued support of the ecosystem for the economy by way of resource supply and waste absorption. Characterizing sustainability as a process of non-declining inter-temporal well-being of a society, the paper first expands the Leontief input–output model to incorporate the environment as a sector of resource extraction and waste disposal, in addition to the usual sectors of industrial production. Secondly, it factors in the ecological processes of resource regeneration and waste absorption by the ecosystem explicitly into the dynamic version of the Leontief model of multi-sectoral growth. This is helpful for deriving the sustainability condition of economic growth, by recognizing the economy–ecosystem interactive linkages. Since sustainability is conceptualized as a monotonic behaviour of some well-being index, which has as its basis the satisfaction derived by households from consumption, the paper further builds on Leontief’s model of inter-industrial interdependence, with a view towards developing an index of well-being, as an alternative to that of per capita GDP. It offers a new approach to modelling an economy, with the objective of optimizing the use of a production system with inter-sectoral interdependence for attaining a level of human satisfaction at the societal level, without any requirement for monetary evaluation of satisfaction conceived at an abstract level. In this context, the paper shows how the essence of Leontief’s notion of interdependence can be extended not only to the ecosystem–economy interactive interface, but also to the analysis of the level, composition and distribution of consumption for delivering social well-being as an output of such consumption.
Keynote Paper in the 19th National Conference of the Input–Output Research Association of India held at Pune, January 2017.
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Notes
- 1.
The second law of thermodynamics is the entropy law. In our context, it is important to note that this law plays an important role in ecological economics by providing justification for the view that all economies would have limits to their growth. Any economy uses low entropy energy and matter drawn from its surrounding natural environment or ecosystem to produce a good for consumption or capital use, and some residual high entropy wastes and heat for being sent back into the environment. Georgescu-Roegen defines a closed thermodynamic system to be the one in which there is no exchange of matter or energy with its environment. An economy as situated in its eco-environment is conceived as a closed system. As a result, the molecular structure of any biochemical compound defining a resource gets disrupted once used in the production process due to no possibility of replenishment of the basic molecular constituents. In view of this, those residual high entropy molecular substances cannot be put back to the same use with same efficiency again and become a waste from anthropocentric point of view. The process of continuous use of resources in production processes is one of continuous degeneration in this finite planet. It is in this philosophical sense we characterize, following Georgescu-Roegen, any process of economic production as an entropic one and can explain “Limitationalism” in the context of economic growth (see Georgescu-Roegen 1971; Ayres 1978).
- 2.
The resources as converted into products like “coal extracted from mines and ready for use in power industry”. It is an intermediate good produced with the help of human labour, and service of machinery of coal mines and other inputs.
- 3.
Geological resource such as coal as lying in the seam underground, but not yet extracted, yet only discovered as prior geological information obtained through seismic survey or satellite imagery, etc.
- 4.
B1 and B2 are matrices of capital coefficients of the Leontief dynamic model for the sectors of non-environmental goods and services corresponding to our production group of activities (c) denoted by subscript 1 here, and those of environmental protection services corresponding to our activities of production group (b) denoted by the subscript 2 here, respectively. The typical element bij of matrices would represent the amount of the concerned good i that would be required for capital stock use for capital formation for a unit increase of output capacity in sector j over time.
- 5.
Where Q(P) is the depreciation of the stock of pollutant due to its degradation as an ecological process, where P is the stock of pollutant.
- 6.
\( \dot{S} \) is not savings. It should be interpreted as change in stocks of goods per unit of time as contained in the form of fixed capital stocks of various sectors and goods inventory as already noted above.
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Acknowledgements
The author would first like to thank the Peter Wall Institute of Advanced Studies of the University of British Columbia (UBC) and the Department of Electrical and Computer Engineering of the same university for supporting his work in developing the research ideas behind this paper. He also would like to thank Prof. Kakali Mukhopadhyay of Gokhale Institute of Politics and Economics, Pune, and McGill University, Montreal, Canada, for inviting him to deliver the keynote address in the 19th National Conference of the Input–Output Research Association of India, 2017. He would further like to thank Prof. Jose Marti of the Department of Electrical and Computer Engineering of UBC, and Mr. Ehssan of his i2sim research team, for many fruitful interactions and exchanges of ideas. He would finally wish to express thanks to Mr. Sovik Mukherjee for his valuable research assistance. However, the burden of all assertions in the paper lies with the author.
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Sengupta, R. (2018). Extension of the Leontief Input–Output Model to Accommodate New Concepts of Sustainability and Social Well-Being. In: Mukhopadhyay, K. (eds) Applications of the Input-Output Framework. Springer Proceedings in Business and Economics. Springer, Singapore. https://doi.org/10.1007/978-981-13-1507-7_16
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