Knowledge, Input-Output Complexity and the Notion of Sustainability

Abstract

The paper attempts to synthesize the analytical nucleus of classical political economy and modern ecological economics. In essence this means making a connection between social issues of income distribution, accumulation of capital and economic growth with biophysical limits to economic development. We first model a simple growing system of production and explore its potential to maintain sustainability when using a single natural resource. Taking into consideration the laws of thermodynamics we show that the long-term sustainability of such a simple system is unlikely. When the model is extended to incorporate a wider range of inputs used and commodities produced, such complexity accompanied by knowledge-based structural changes provides necessary conditions for the long-run sustainability of a growing economic system. Since input-output complexity results from the division of labour on the one hand and from intentional R&D policies on the other, this conclusion also brings forward some policy implications regarding income distribution in the society.