Kenneth E Boulding, an English-American economist and an interdisciplinary philosopher once said; “Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.” Further, he added, “unfortunately, we all are economists.” Boulding made this statement in 70’s. Sad to say that, we still adhere to the illusion implied by Boulding for a little less than half a century ago!
“There is no conflict between economics and environmental science. Economic growth can be continually sustained without doing any harm to the environment and its protection”. The statement is often articulated by economists as well as those people who are considered to be the official spokespersons of development. They try to convey their views and convince the general public whenever they get a chance during a debate which involves development and environmental problem. For the time being, we may feel that the statement is true, but may soon realize that situation is grave and the proclamation of this kind did not involve serious discussions about the depth of the crises and comes out of our ignorance about the problem we are facing now.
What could be the true nature of the idea that “endless economic growth is possible with environmental protection” that the conventional economic theorists argued with? The statement is trying to make us to believe that the world is facing very simple crises that could be overcome by appropriate, yet simple corrections to the existing system and thus does not require a paradigm shift. It is high time to realize that these statements bear only half-filled truth and may arise out of confusions concerning the level of understanding about the concepts of aggregate growth and the possibility if recycled use of resources. The conventional economists’ treats aggregate growth as the growth additions to the market value of final goods and services produced in an economy.
An economy forms a subsystem of the greater biosphere in which we live. The biosphere should be seen as finite, non-growing, closed (except for the constant input of solar energy) and constrained by the laws of thermodynamics. There is nothing new except sunlight enters into the earth. This means that whatever physical and natural resources we have is limited and are produced due to geological activities of millions of years. When the economy’s expansion encroaches too much on its surrounding ecosystem, it uses more and more energy and matter by shifting them from their natural uses to more artificial ones. Thus the human economic interventions would bring the bio-system into a state of diminution in which a return would be nearly impossible. So the mainstream (also known as neoclassical) economists held the view that there is no conflict between economic growth and the environment will not hold well. Recycling on growth in this way might be fine in the global economy existed in a void, but it does not. Rather the economy is a subsystem of the finite biosphere that supports it. As long as the goal of continuing growth remains, the conflicts between economy and environment will be inevitable.
But the facts are plain and incontestable. It is very clear to everyone that the economy is only a subsystem of a greater bio-system. Any subsystem, such as economy, must at some point cease growing and adapt itself to a dynamic equilibrium. Something like a steady state. But the neoclassical or mainstream economists unfortunately were in a denial mode. They still believe that growth is the panacea for all economic ills and largely ignore the issue of sustainability and trust that because “we have come so far with growth, we can keep on going ad infinitum”. Unfortunately, many of them are comfortably enjoying the rank of advisers and policy makers to developing and developed economies who design the future course of action.
A recent study conducted by the British Natural Capital Society reasserts that “environment cannot be seen in isolation from the economy, it is part and parcel of it. It is our duty that a cordial relationship between these two would be ensured without losing any opportunities to guarantee economic growth”. Their approach is explicit and supports the whole neoclassical doctrine that economic growth should be maintained by adopting temporary measures to cure environmental problems. Unfortunately, their views dominate the world and thus laid the foundation stone of the crises we faces today.
Exponential Growth in a Finite Planet!
In order to understand the physical limits within which the economy operates, it is imperative to have a theoretical understanding of ‘empty world and full world’, the concepts developed by Herman E Daly, an American ecological economist. The term empty world implies that the economy could be seen as a subsystem of an ecosystem, there still would be no need to stop growing as long as the subsystem is very small compared to the larger ecosystem. In this ‘empty world vision’, the environment is not scarce and the opportunity cost of the expansion of the economy is insignificant. The earth is a closed system which imports and exports energy only, matter circulates within the system but does not flow through it. Our economic efforts are aimed at converting matter and the energy in the biosphere into economic goods and services.
Continued growth of physical economy in a finite and non growing ecosystem will eventually lead to the ‘full world economy’ in which the welfare from ecological services diminishes. According to the second law of thermodynamics, the system will be plunged into a state of entropy. The reduction in the amount of energy and matter in the biosphere is increasingly felt.
In an empty world the economic system is very small compared to the ecosystem. This is mainly due to two important reasons. One reason cited for this is man’s limited technological knowledge for the extraction and economic use of environmental resources. Moreover the biological growth of natural resources is faster than its extraction rate. In other words, natural resources are not scarce in an empty world. This statement is true only in an economic sense and in physical sense it can only be partly true.
Neoclassical growth theories and principles have undergone a lot of change since its beginning. Empty world became a full world driven by economic growth. The numbers of potential consumers are multiplied during the past centuries. Material goods and services were multiplied at the rate in which the rate of change in economic activities took place. Growth in multiple scale happened not only to abiotic material goods such as building, vehicles and electronic equipments, but also biotic species such as cattle, goats, chicken etc. According to the laws of thermodynamics, the high growth rate of biotic and abiotic components in an economic system requires high rate of consumption of renewable and nonrenewable resources. This will increase the generation of waste with high entropy content and use the finite environment as a waste sink. Accordingly, excessive growth of these material goods breaks the natural order of the ecosystem; the ultimate result of this extravaganza could be seen in the form of serious ecological and environmental catastrophe such as depletion of natural resources, climate changes and global warming. The greatest mistakes of the mainstream economics are that they failed to take account of the growth and decay of materials went through certain forms of operations. It is convenient for the growth proponents to neglect these concepts which form the basic meaning of the second law of thermodynamics. But it is impossible to ignore these facts as the rhythm of nature affected. It is high time to realize that the long term existence of mankind depends on the early detection of the warning shots and a complete turnaround of economic theories and systems.
Conventional neoclassical economists might define economic growth as increase in the economy in terms of production goods and services, typically measured by GDP. Viewing growth rate in terms of GPD shows a rosy picture to the existing economic order, but the same time creates a inauspicious situation. They often view GDP growth as the ultimate goal, but the ecological economists do not. Ecological economists try to distinguish development that of growth. According to them, an economy can develop without growing, grow without developing, or do both at the same time but may be at a different scale.
GDP growth involves the flow of natural resources from the environment through the economy and back to the environment as waste. It is only a quantitative increase in the physical dimension of the economy and thus would be seen different from that of development, which we define as qualitative changes. The idea of sustainable development advocated by the ecological economists is development without growth- that is qualitative improvement in the ability to satisfy wants without a quantitative increase. Development of this kind should not come into conflict with environment.
Conventional economist’s response to resource scarcity usually comes in three ways, Firstly they were in denial mode and tried to hide the symptoms of scarcity from the outer world. Secondly, they will continue to create fallacies by presenting the GDP growth figures and finally, they will try to convince the world about the perfect sustainability of natural capital with that of man-made capital. On the whole, they were not ready to accept the basic facts that human being cannot create anything new by themselves and could only convert the matter and energy from one form to another using labor and capital.
A basic understanding of three more fundamental concepts helps us to know more about limits to growth. These are the Futility Limit-limit to production-, Ecological Catastrophe limit and Economic Limit. As economic growth proceeds, a state occurs in which the process of production cannot be continued further. This is called the futility limit, where the marginal utility of production fall to zero. Even with no cost of production, there is a limit to how much we can consume and enjoy it. There is a limit to how many goods we can enjoy in a given time period as well as a limit to our stomachs and to the sensory capacity or our nervous systems. The Ecological Catastrophe limit occurs when human activity, or the novel combination of activities, may induce a chain reaction, or tipping point, and collapse our ecological niche. The leading candidate for the catastrophe limit at present is runaway climate change induced by greenhouse gases emitted in pursuit of economic growth. The increase in production and consumption can be called economic growth only up to the ‘Economic Limit’. Beyond that point it becomes uneconomic growth because it increases costs by more than benefits, making us poorer not richer. The good thing about the economic limit is that it would appear to be the first certainly occurs before the futility limit and likely before catastrophe limit, although as just noted that is uncertain. At worst the catastrophe limit might coincide with and discontinuously determine the economic limit.
The constraints, both ecological and economical can only be solved through identifying economic system as a subsystem of a finite, non-growing biosphere rather than viewing itself as a self sufficient whole entity. This requires a general understanding of the following strategies; 1. Economic Imperialism; 2. Ecological Reductionism; 3. Steady state subsystem. Each strategy may be thought of as beginning with the picture of the economy as a subsystem of the ecosystem. This would be help us to set priorities, form policies and shape our outlook regarding the issue.
Economic Imperialism, Ecological Reductionism, Steady state subsystem
Economic Imperialism tries to expand the boundary of economic subsystem within the finite biosphere. It does not share the consequence of resource constraints. Economic imperialism solely depends on the continuous growth. The basic tenet of it lies in continued economic growth through competitive market mechanism and conversion of natural resources into marketable goods and services. It always performs functions such as the process which natural capital could be transformed to satisfy individual needs and motives and thereby encourage endless consumption behavior among human beings.
Economic imperialism is basically a neoclassical approach. It tries to satisfy human wants through continuously growing an economy within the finite biosphere. This is to be accomplished by complete internalization of all external costs and benefits into prices. But an important limitation to this monetization of expenditure is that, many times we are unable to assimilate or predict, the actual expenses of various economic activities (it is nearly impossible to assimilate the cost of global warming, loss of biodiversity and destruction of ecological balance-. And the most important things, as the economy expands, the ecological services available to us at free of cost, are dwindling day by day.
Ecological reduction begins with the true insight that humans are not exempt from the laws of nature. It then proceeds to the false interference that human action is totally explainable by the laws of nature. It seeks to explain whatever happens within the economic subsystem by exactly the same naturalistic principles that it applies to the rest of the ecosystem. It shrinks the economic subsystem to nothing, erasing the boundary.
Steady state economics try to see the economy as a part of the biosphere and maintain constant stocks wealth and people at levels that are sufficient for a long and good life. The system is sustainable-it can continue long time. it aims for an all encompassing development rather than infinite growth. The path of progress in the steady state is no longer get bigger, but to get better. It does not attempt eliminate the subsystem boundary, either by expanding it to coincide with the whole system or by reducing by it nothing. Rather it affirms the fundamental necessity of the boundary and the importance of drawing it in the right place. It says that the scale of the human subsystem defined by the boundary has an optimum with satisfactory standard of living, and gives emphasis to a pattern of a development with low entropy by which the ecosystem maintains and replenishes the economic subsystem at ecologically sustainable levels. Steady state economics works diametrically opposite to the economic imperialism which is riding on the principles of endless economic growth and devours natural resources on bigger scale and alters it into high entropy wastes.
Before getting into an economic activity, it is imperative to address some pertinent issues. What is the desirable goal of an economic activity? It is very difficult to attain our goals as long as we fail to define them. Secondly, what are the resources available for us to fulfill our satiety? Finally, what constitute the physical and structural characteristic features of these resources?
As a universal rule, everyone agrees with the objectives of a general advancement in the wellbeing of present as well as future generations. It is important to acknowledge three fundamental things to attain such objectives and to guide to the economy into a steady and sustainable development path. They are 1. a measure of environmental sustainability 2. Equitable distribution of wealth and resources and 3. Efficient allocation of resources.
Herman E Daly presents a steady state economic system as an alternative to economic imperialism and ecological reduction. He also suggests some measures for the planning and utilization of scarce resources in the future:
- To make control over the utilization of natural capital and maintain the health of ecosystems and the life support services they provide, renewable resources should be extracted at a rate less than their biological growth rate. The rate of extraction of non-renewable resources should be reduced drastically until alternatives are explored. Deposit waste in the environment at a rate no faster than they can be safely assimilated. Based on these important facts, natural capital should be utilized, allocated based on the principles of sustainability, equity and efficiency.
- A complete reform in the taxation policy is mandatory to bring control over the use of natural resources. The tax rate should be framed by taking into account of the social and environmental consequences of natural resource use instead of conventional value added method.
- Efforts should be taken to limit the accrual of income and wealth in the hands of a few people and thereby curb the plutocratic dominance inherently fundamental to the market mechanism.
- The dominance of finance capital and unfettered free trade should be controlled.
- Increase the leisure time so that more pleasure can be derived from recreation and other entertainment etc.
Economic growth and development cannot be made possible without addressing various ethical and environmental issues. These questions are more pronounced in the light of resource scarcity and environmental depletion. If we do not make the adjustments needed to achieve a sustainable economy, the world will become even more polluted and even emptier of fish, fossil fuels and other natural resources. For a while, such losses may continue to be masked by the faulty GDP- based accounting that measures consumption of resources as income. But the disaster will be felt eventually. Avoiding this calamity will be difficult. And the bell rings… will they hear?
- The state of Natural Capital, protecting and improving natural capital for prosperity and well being, the third report of the Economic Affairs Committee, Natural Capital Committee, UK. (2014).
- Ecological Economics; Czech, Brian; Centre for the Advancement of Steady State Economy, Virginia, US.
- Sustainability in Ecological Economics, Ecology and Livelihoods: a review; Sneddon, Christopher S; Department of Geography program in Environmental Studies; Hanover, USA.
- The Law of Energy for Sustainable Development; (edited), Bradbrook, Andrian J., et al; Cambridge University Press, 2005.
- What is Ecological Economics?; Constanza, Robert; Centre for Environmental and Eusterine Studies; University of Maryland, MD, USA.
- Ecological Economics, Principle and practice; Daly, Herman E, Farley Joshua; Island press, Washington DC, 2004
K.Sahadevan is an environmentalist from Kerala. He has been writing on Energy, Economics and Environment past few decades. He has authored half a dozen books on different topics and a regular contributor of Various Journals and Newspapers.