Political economy deals with the governmental allocation of scarce resources in a world of infinite wants and needs. In order to allocate these resources, politics are used within a state to provide for the organisation of people to create and increase in wealth year on year. Political economy is therefore the study of the relationships between individuals and society, and more specifically, the relationships between citizens and states. Machiavelli can be considered one of the first political economists as his works provided a link between a ruler and the state along with the use of power in this relationship. Likewise, Thomas Hobbes argued for the power of a sovereign leader because of his assumption that human beings are naturally bad. In the Enlightenment, the view of the role of individuals changed. Individuals were seen as virtuous and rational, able to find a natural Truth within the world. John Locke and Adam Smith helped to provide the fundamental beliefs of liberalism, which is the belief that the state which governs least is the one which governs best. As capitalism flourished in industrial countries in Europe, problems began to emerge from the economic system. As a result, political economists such as Malthus, Hegel, and Marx critiqued capitalism in their works as they presented alternatives to liberalism.
In the 20th century, modern political economists have continued to write about the relationships between individual and the state. Keynes, for example, introduced the alternative liberal idea of the welfare state (which helps to guide and protect the interests of those who have been damaged by the inequalities of the free market).
In all of these examples, these writers have presented new ideas about the allocation of resources within a society in the context of the relationships between individuals and states.
The debate about development integrated with the conservation of natural resources is based on the assumption that societies need to manage three types of capital (economic, social, and natural), which may be non-substitutable and whose consumption might be irreversible. Daly (1991), for example, points to the fact that natural capital can not necessarily be substituted by economic capital. While it is possible that we can find ways to replace some natural resources, it is much more unlikely that they will ever be able to replace eco-system services, such as the protection provided by the ozone layer, or the climate stabilizing function of the Amazonian forest. In fact natural capital, social capital and economic capital are often complementarities. A further obstacle to substitutability lies also in the multi-functionality of many natural resources. Forests, for example, not only provide the raw material for paper (which can be substituted quite easily), but they also maintain biodiversity, regulate water flow, and absorb CO2.
Another problem of natural and social capital deterioration lies in their partial irreversibility. The loss in biodiversity, for example, is often definite. The same can be true for cultural diversity. For example with globalisation advancing quickly the number of indigenous languages is dropping at alarming rates. Moreover, the depletion of natural and social capital may have non-linear consequences. Consumption of natural and social capital may have no observable impact until a certain threshold is reached. A lake can, for example, absorb nutrients for a long time while actually increasing its productivity. However, once a certain level of algae is reached lack of oxygen causes the lake’s
If the degradation of natural and social capital has such important consequence the question arises why action is not taken more systematically to alleviate it. Cohen and Winn (2007)[ point to four types of market failure as possible explanations: First, while the benefits of natural or social capital depletion can usually be privatized the costs are often externalized (i.e. they are borne not by the party responsible but by society in general). Second, natural capital is often undervalued by society since we are not fully aware of the real cost of the depletion of natural capital. Information asymmetry is a third reason—often the link between cause and effect is obscured, making it difficult for actors to make informed choices. Cohen and Winn close with the realization that contrary to economic theory many firms are not perfect optimizers. They postulate that firms often do not optimize resource allocation because they are caught in a "business as usual" mentality.
The most broadly accepted criterion for corporate sustainability constitutes a firm’s efficient use of natural capital. This ecological efficiency is usually calculated as the economic value added by a firm in relation to its aggregated ecological impact. This idea has been popularised by the World Business Council for Sustainable Development under the following definition: "Eco-efficiency is achieved by the delivery of competitively priced goods and services that satisfy human needs and bring quality of life, while progressively reducing ecological impacts andresource intensity throughout the life-cycle to a level at least in line with the earth’s carrying capacity." (DeSimone and Popoff, 1997: 47).
Similar to the eco-efficiency concept but so far less explored is the second criterion for corporate conservation managaement. Socio-efficiency describes the relation between a firm's value added and its social impact. Whereas, it can be assumed that most corporate impacts on the environment are negative (apart from rare exceptions such as the planting of trees) this is not true for social impacts. These can be either positive (e.g. corporate giving, creation of employment) or negative (e.g. work accidents, mobbing of employees, human rights abuses). Depending on the type of impact socio-efficiency thus either tries to minimize negative social impacts (i.e. accidents per value added) or maximise positive social impacts (i.e. donations per value added) in relation to the value added.
Both ecological efficiency and socio-efficiency are concerned primarily with increasing economic sustainability. In this process they instrumentalize both natural and social capital aiming to benefit from win-win situations. However, as Dyllick and Hockerts point out the business case alone will not be sufficient to realise sustainable development. They point towards eco-effectiveness, socio-effectiveness, sufficiency, and eco-equity as four criteria that need to be met if development through conservation management is to be reached..