Reconciling sustainability, systems theory and discounting

Article history: Received 12 May 2006 Received in revised form 6 October 2006 Accepted 9 October 2006 Available online 30 November 2006 Most definitions of sustainability imply that a system is to be maintained at a certain level, held within certain limits, into the indefinite future. Sustainability denies run-away growth, but it also avoids any decline or destruction. This sustainability path is hard to reconcile with the renewal cycle that can be observed in many natural systems developing according to their intrinsic mechanisms and in social systems responding to internal and external pressures. Systems are parts of hierarchies where systems of higher levels are made up of subsystems from lower levels. Renewal in components is an important factor of adaptation and evolution. If a system is sustained for too long, it borrows from the sustainability of a supersystem and rests upon lack of sustainability in subsystems. Therefore by sustaining certain systems beyond their renewal cycle, we decrease the sustainability of larger, higherlevel systems. For example, Schumpeter's theory of creative destruction posits that in a capitalist economy, the collapse and renewal of firms and industries is necessary to sustain the vitality of the larger economic system. However, if the capitalist economic system relies on endless growth, then sustaining it for too long will inevitably borrow from the sustainability of the global ecosystem. This could prove catastrophic for humans and other species. To reconcile sustainability with hierarchy theory, we must decide which hierarchical level in a system we want to sustain indefinitely, and accept that lower level subsystems must have shorter life spans. In economic analysis, inter-temporal discount rates essentially tell us how long we should care about sustaining any given system. Economists distinguish between discount rates for individuals based on personal time preference, lower discount rates for firms based on the opportunity cost of capital, and even lower discount rates for society. For issues affecting even higher-level systems, such as global climate change, many economists question the suitability of discounting future values at all. We argue that to reconcile sustainability with inter-temporal discounting, discount rates should be determined by the hierarchical level of the system being analyzed. © 2006 Elsevier B.V. All rights reserved.