How much additional economic growth can the planet sustain?
Some environmental scientists argue that these environmental impacts mean that economic growth is destabilizing society. Economists tend to counter that the only way to keep society stable is to keep economies growing.
A scientist by training myself, it’s probably no surprise that I was skeptical of the possibility of infinite growth on a finite planet. I’ve been puzzled as to why economists find the standard economic arguments put forward for growth so appealing, while dismissing concerns about the physical limits of growth as, well, a bit silly.
However, a few weeks ago I encountered the first truly compelling explanation of why the economists’ view was so compelling. He came in a lecture given by distinguished Cambridge University economist Partha Dasgupta. He pointed out that it is difficult to appreciate the profound appeal of these ideas to economists without understanding the historical context of their emergence – in the post-war period when technological innovations in fields such as medicine , agriculture and chemicals have contributed so much to generating global prosperity.
Even so, the growth theory itself, according to Dasgupta, contains serious flaws that have derailed modern economics in a major way, with the result that our continued pursuit of growth actively reduces the overall wealth of the planet. The key question that Dasgupta raised – and then answered – is: how come economic theory got into a situation where it doesn’t even count the natural world as a significant part of our economic wealth?
An early theory of growth, proposed by economist Robert Solow in 1948, held that long-term growth depends on fundamental factors, including population growth, savings and investment, and the rate of technological development. Subsequent growth theories have essentially followed this blueprint, emphasizing technological innovation – our ability to continually find new ways to use resources more productively – as the true engine of economic growth.
Dasgupta pointed out that this deep faith in innovation – instilled in economists by what they saw happening in the post-war era – was the reason why economists in the 1970s rejected suggestions from natural scientists that it there may be natural limits to growth. These scientists suggested that human expansion of economic activity would eventually grow too large for the planet to safely contain; that our activities could undermine much of the value produced by the natural world. Economists dismissed such worries, believing that innovation would always allow humans to find a way around these problems.
Early growth theorists – not intentionally, but through some subtle assumptions they made – effectively stipulated that nature plays no significant role in sustaining economic growth. In the standard theory, human innovation enters the formula for growth as a purely human construct, not dependent on a vast array of valuable things the environment provides us with, such as air and water. clean, stable climate and abundant reservoirs of complex biomatter. As a result, innovation and growth are still possible, even if the natural world were to be severely degraded.
This seems like a huge oversight today, when the science of ecology is well developed and we have decades of evidence showing the natural costs of human activities. But we didn’t have these things when the growth theory was first developed. The field of ecology barely existed. “At this early stage,” he told me in an interview, “I don’t think it’s an outrageous idea to keep nature out of economic modeling.”
But, he argues, it is certainly outrageous to continue in this way today, and he has taken important steps to show how economists can include innovation in theories of growth in a way that recognizes its deep dependence on the natural environment. The key problem is that economists today, when they talk about growth, almost invariably mean GDP growth, which does not record the depreciation of natural capital that occurs in the production of goods and services. . What Dasgupta has tried to do in his work is to include nature in economic accounting.
At this point, his lecture went into the detailed mathematics of growth theory, which I won’t go into here. In a nutshell, he showed how small changes in mathematics would make it clear that our human capacity to innovate still depends on a stock of goods and services provided by the environment. Therefore, the depletion of this stock would also reduce our ability to continue to do innovative things.(1)
“If a household consumes more than its income,” as Dasgupta put it, “it can fund the excess by depleting household wealth – selling stocks, dipping into savings accounts at the bank, etc. But he can’t do it indefinitely without going bankrupt. That’s the problem facing humanity today, and why we need to move on to talking about the inclusive wealth of nations and the global economy, not of GDP.
Dasgupta took a big step forward in showing precisely, within economic orthodoxy, where growth theorists can take the objections of environmental scientists seriously and construct a more realistic and useful theory as a result. The revised theory still views economic growth as overwhelmingly positive, but views growth not as GDP growth, but as much more inclusive growth, which must preserve the value of the natural world for continued prosperity.
Successful theories of one era are often so entrenched that they limit later scientists’ ability to think clearly. But today, there’s every reason to take limits to growth issues seriously: A 2018 United Nations study found that global natural capital shrank by almost 40% between 1992 and 2014. We seem consume the stock of natural wealth on which we end up depending.
I heard Dasgupta’s lecture at the International Center for Theoretical Physics in Trieste, at a meeting convened by the US State Department. It was somewhat unusual in that it brought together economists, physicists, ecologists, demographers, and business leaders to break down some of the intellectual barriers to real progress in sustainability. More events like this are needed.
Because technological innovation may not be enough to get us out of this mess. For this, we will also need innovation in our economic thinking.
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(1) Readers interested in mathematical details should consult the starred chapters, in particular Chapter 4, of a major Dasgupta report produced in 2019 for the UK Treasury: The Economics of Biodiversity: The Dasgupta Review.
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Mark Buchanan, physicist and science writer, is the author of the book “Forecast: What Physics, Meteorology and the Natural Sciences Can Teach Us About Economics”.
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