31st Annual Conference of the International Group for Lean Construction (IGLC 31) - Lille, France - 2023

https://doi.org/10.24928/2023/0300

Waste: Why Economics Got Is So Wrong, and What Could Be the Remedy?

Lauri Koskela1, Glenn Ballard2 & Trond Bølviken3

1Professor, School of Arts and Humanities, University of Huddersfield, UK, [email protected], orcid.org/0000-0003-4449-2281
2Researcher, Project Production Systems Laboratory, University of California, Berkeley, Berkeley, CA 94619, US, [email protected], orcid.org/0000-0002-0948-8861
3Professor, Faculty of Engineering and Science, Department of Engineering Sciences, University of Agder, N4846 Grimstad, Norway, [email protected], orcid.org/0000-0003-4834-2408

Abstract

A paradigm shift occurred in economics in the middle of the 20th century. According to the old paradigm, economics studies the determinants of wealth. The new paradigm, called neoclassical economics, posits that economics studies behaviour under scarcity of resources. A corollary of the new view is that people and organisations can be assumed to make optimal, best possible, decisions regarding the scarce resources. The old paradigm of economics recognized waste as a factor influencing wealth. The new paradigm, focusing on optimal allocation of resources, did not apply the notion of waste. The Nobel laureate economist Stigler went in 1976 even further and claimed that waste is not a useful concept in economic theory, though he admitted the occurrence of waste, which he narrowly defined as a foregone product that can be obtained for less than its cost. The 1976 paper of Stigler is critically assessed. Three major shortcomings are found. First, waste is ubiquitous in economic activities, whereas Stigler downplayed its significance. Second, waste can occur irrespective of the context, whereas Stigler insisted that waste occurs in the context of market exchange. Third, decision usually needs to be implemented in the material world, and waste often emerges in this implementation. Stigler considered decisions without taking implementation into account. To rectify the shortcomings in the economic conception of behaviour under scarcity, a new conception is offered. It is based on the recognition of three different types of waste in relation to a decision: background waste, non-optimality of the decision, and foreground waste. There should be an attempt to reduce or to eliminate all three types of waste. The new conception implies that the starting point of neoclassical economics has been seriously wrong.

Keywords

Economics, waste, optimum, scarcity, Stigler

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Reference

Koskela, L. , Ballard, G. & Bølviken, T. 2023. Waste: Why Economics Got Is So Wrong, and What Could Be the Remedy?, Proceedings of the 31st Annual Conference of the International Group for Lean Construction (IGLC31) , 1-12. doi.org/10.24928/2023/0300

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