This paper explores the contributions of market economy to sustainable development using the ‘capability theory’ framework. The operational (production of goods and services) and dynamic (innovation) capabilities of firms promote well being in communities, but not in an optimal manner; firms offer a number of low-paying jobs and economic growth often comes at huge costs to the environment. Public policy should be concerned with optimal economic growth; create jobs that pay a living wage and economic growth that is not (or least) harmful to the environment.