Economic frameworks for thinking about growth, sustainability, and the role of state intervention: paths to green economies

The economic growth literature is surveyed in regard to the question of sustainability and innovation. It is argued that the state is able to elect the technologies on which its economy is based, and that these technologies (and the capital in which they are embedded) are the fundamental determinants of the mix of environmental and consumption goods and services produced in that economy. The basic mechanism for inducing a particular technology choice is the use of management: the introduction of any mechanism that provides a signal of increased future resource scarcity. The response of the economy to such a mechanism is to invest in the technologies and the capital goods that embody that future price path. This implies that a state should introduce resource management for the purpose of electing its future development path, moreso than to clean up after past development. This dynamic approach to regulation is associated with the so-called Porter hypothesis, and emphasises that the dynamic and long term consequences of resource management are far more important than the static and short term ones. It is clear from the economic literature on innovation policy that state intervention is critical to optimal innovation, although the most fundamental form of innovation remains resource management (increased shadow prices). The timing of such interventions is a matter of fairness within the society concerned, but also a matter of competitiveness. The order of adoption of technology is important in determining the total benefits that a state can receive from its adoption. States that lead in terms of environmental and innovation policy can often be the most significant beneficiaries from the adoption of environmental management.