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Naturalizing Economic Growth

An initial version of this article was written for the World Economic Forum’s annual meeting of Young Global Leaders in Dalian, China, September 2011. The recipients of this year’s, Nobel Memorial Prize in Economics, Thomas Sargeant and Christopher Sims are being celebrated for “causal relationship between economic policy and different macroeconomic variables such as GDP,...

An initial version of this article was written for the World Economic Forum’s annual meeting of Young Global Leaders in Dalian, China, September 2011.

World Economic Forum's Dalian Meeting Venue, China: Racing Ahead? Photo by Saleem H. Ali

The recipients of this year’s, Nobel Memorial Prize in Economics, Thomas Sargeant and Christopher Sims are being celebrated for “causal relationship between economic policy and different macroeconomic variables such as GDP, inflation, employment and investments.” The dominant paradigm under which these metrics operate is “economic growth” — an almost moral imperative among economists. Yet the public is seldom informed what such “growth” entails. All we are told is that growth suggests more production in the economy and hence more prosperity. However, we have seen that jobless growth is also very real in today’s world and continues to bedevil Washington policy makers.

In natural systems “growth” is always considered an intermediate step towards stability. Living things grow during certain stages of development and then reach maturity. Indeed, unfettered growth in natural systems is considered a disease — the pathology of cancer cells stems from their uncontrolled growth! However, in the mantra of modern economics it is assumed that growth is essential for well-being.

Economists have successfully branded themselves as scientists with  mathematical exactitude who can negotiate the vagaries of human consumption patterns through pricing mechanisms. Yet the life support systems that sustain the planet have eluded their grasp. Given the resistance of conventional economics to consider environmental  constraints directly, a parallel field of “ecological economics” had to develop, led by a few rebel researchers. Most notable among them was Romanian-American economist Nicholas Georgescu-Roegen, who had been a protégé of Joseph Schumpeter at Harvard.  Georgescu-Roegen dared to embrace other physical sciences, such as physics and biology in his analysis of the economy as part of a complex ecological system. His seminal book The Entropy Law and the Economic Process (1971), was the first treatise to consider physical constraints on capitalism described by his mentor, Schumpeter, as “a process of creative destruction.” Subsequently his work was also developed by a few strident and visionary professionals such as  former World Bank executive Herman Daly.

Despite the continuing snub from the Nobel academy to such “ecological economists,” there seems to be a promising shift across the tectonic plates of economic thought that just might close the fault lines. Recognition of resource policy scholar Elinor Ostrom as a co-recipient of the Nobel prize in 2009 suggested a tentative interest by the Nobel academy in considering alternative approaches to the economic growth paradigm.

At the same time ecological economists have moved closer to pricing strategies that have been the pulse of conventional economic analysis. For example, to conserve a wetland, they are now making the case for how the ecosystem provides an economic service of preventing property damage from hurricanes or naturally cleaning effluent. New York city made this estimate directly many years ago when it chose to conserve the Catskill watershed. Independent estimates showed that the total cost of building and operating the filtration system to serve the same purpose would be $6 to $8 billion.

Conventional economists are also beginning to think outside their hallowed box and consider the consequences of neglecting ecological constraints. Chinese economists estimated five years ago that neglecting environmental factors had cost them 13% of their Gross Domestic Product. However, economic growth still remains sacrosanct to mainstream economists. While there is little doubt that economic growth is necessary for developing countries to climb out of poverty, what is less clear is the necessity for economic growth in mature economies where population is also stabilizing.

A troika of inertial forces has prevented our move forward in addressing this issue. The first part of the challenge is the persistent and often errant conflation of technological innovation with economic growth — innovation is a cause rather than a consequence of growth and this year’s Nobel recipients work can provide methodologies to confirm this trajectory. Second, is the questionable assumption that links economic growth to quality of life that has been challenged among others by Nobel laureate Daniel Kahneman. Third there is an incipient reluctance for the global economic system to grapple with the question of inequality of wealth because of the political stigma of “socialism.”

On the issue of inequality, environmental sustainability advocates also have a checkered record since they often advocate local insularity even though international trade is well established as the most potent antidote to global inequality. If there is a nefarious necessity in this whole debate, it is perhaps the specter of regulation. The common good of planetary protection will have a political price that pits proponents of individual liberty against the regulators. Yet, in this day and age many of the erstwhile proponents of individual choice on the conservative edge of the political spectrum have been all too willing to dispense with individual liberties at the altar of “security.”

Economics is essentially a science of managing resource scarcity. Perhaps it is time to consider “ecological security” as the lens through which we approach economic regulation as well since ultimate resources are always predicated in ecological systems. Such an approach would require regulating the scale of consumption in developed countries, while creating incentives for constructive consumption and trade in developing countries for poverty alleviation. It’s high time we have a more nuanced and “naturalized” approach to economic growth that acknowledges the resilience as well as the constraints of natural systems.

Saleem H. Ali is professor of environmental planning at the University of Vermont and can be followed on Twitter @saleem_ali

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Meet the Author

Author Photo Saleem Ali
Saleem H. Ali is Blue and Gold Distinguished Professor of Energy and the Environment at the University of Delaware (USA) and a Professorial Research Fellow at the University of Queensland, Australia. He is also a Senior Fellow at Columbia University's Center on Sustainable Enterprise. Dr. Ali is a National Geographic Emerging Explorer for 2010 and World Economic Forum "Young Global Leader" (2011). His books include "Environmental Diplomacy" (with Lawrence Susskind, Oxford Univ. Press) and "Treasures of the Earth: Need, Greed and a Sustainable Future" (Yale University Press). He can be followed on Twitter @saleem_ali.