Unbounded economic growth destroying biodiversity

16 08 2010

…we can’t have more of everything instantaneously

…increasing takeover of the ecosystem is the necessary consequence of the physical growth of the macroeconomy

…consider telling the economist to go to hell

Herman Daly

© M. Leunig

Last month I had the privilege of listening to Rob Dietz of the Centre for Advancement of the Steady State Economy (CASSE) when attending the 2010 International Congress for Conservation Biology. He introduced the CASSE and their mandate – to promote stable or mildly fluctuating levels in population and consumption of energy and materials. This is the steady-state economy.

I’ve hinted before that our essentially linear economy (natural resource exploitation -> transport -> manufacturer -> redistribution -> sale -> consumption/use -> disposal (discussed in a very easy-to-understand way in the Story of Stuff) is not sustainable in the long term because of the finite resource base of the planet (think trees, coal, oil, arable land). My colleagues and I have even shown analyses based on hard data demonstrating that total wealth is the ultimate driver of environmental degradation at the country scale.

So, it is my opinion (and a growing number of others‘) that we need a new way of measuring economic prosperity, or the world will enter a state of permanent financial crisis. The mantra of constant economic growth is simply unrealistic as our human populations continue to expand. This is a very simplistic statement and on the surface an apparently impossible goal; however, people who put together the CASSE believe it is achievable.

It is for this reason that I have been communicating with Rob Dietz and others at CASSE about reposting some of their excellent essays on ConservationBytes.com. Please feel free to comment here on the subject matter because the CASSE people will be monitoring. I hope we can expand the readership and support base, and eventually start to convince politicians that growth will eventually kill us and a good slice of the planet’s biodiversity.

So with that, here’s the first repost by Professor Herman Daly entitled “Opportunity Cost of Growth“:

Economics is about counting costs, and the cost to be counted is “opportunity cost”, arguably the most basic concept in economics. It is defined as the next best alternative to the one chosen, in other words, as the best of the sacrificed alternatives. You chose the best alternative, the opportunity cost is the second best, the alternative that you would choose if the best were unavailable. If there were no scarcity, choice would not be necessary, there would be no opportunity cost, and economics would not exist. More of everything means opportunity cost is zero, and is essentially the denial of economics. Yet “more of everything” is the goal of so-called “growth economics”. When the whole economy grows, the growth economists say that we get more of everything. Is there an opportunity cost to the growth of the whole macroeconomy? Not in the view of mainstream macroeconomists. In their view the economy is the Whole and nature (mines wells, grasslands, fisheries, forests…) are Parts of the economy. Used up parts can be substituted by new parts; natural parts can be substituted by manmade parts; natural resources can be substituted by capital. The whole macroeconomy is not itself seen as a subsystem or part of a larger but finite ecosystem, into which the macroeconomy grows and encroaches. These economists imagine that the macroeconomy grows into the void, not into the constraining biophysical envelope of the ecosystem. Since macroeconomic growth is held to incur no opportunity cost (the displaced void is worthless!), one must conclude that “growth economics” is really not economics – it is almost the negation of economics!

Almost – there is one remaining bit of scarcity. Growth economists recognize that we can’t have more of everything instantaneously. To get more of everything we must invest and wait. The opportunity cost of investment is forgone present consumption. But it is a temporary cost. Later we will have more of everything, and after that still more of everything, etc. Is there no end to this? Not for the standard macroeconomists. In their view it might be possible to grow too fast, but never to get too big. That is, the opportunity cost of investment needed for rapid growth might be too high in terms of forgone present consumption. But that misallocation is temporary and will soon be washed away by growth itself that will give us more of everything in the future – more consumption and more investment. That is the growth economist’s theory.

However, increasing takeover of the ecosystem is the necessary consequence of the physical growth of the macroeconomy [my emphasis]. This displacement is really a transformation of ecosystem into economy in physical terms. Trees are physically transformed into tables and chairs; soil, rain, and sunlight are physically transformed into crops and food and then into people; petroleum is physically transformed into motive force, plastics, and carbon dioxide. Thanks to the law of conservation of matter-energy, the more matter-energy appropriated by the economy, the less remains to build the structures and power the services of the ecosystem that sustains the economy. Thanks to the entropy law, the more dissipative structures (human bodies and artifacts) in the economy, the greater the rates of depletion and pollution of the remaining ecosystem required to maintain the growing populations of these structures against the eroding force of entropy. These are basic facts about how the world works. They could plausibly be ignored by economists only as long as the macroeconomy was tiny relative to the ecosystem, and the encroachment of the former into the latter did not constitute a noticeable opportunity cost. But now we live in a full world, no longer in an empty world – that is, in a finite ecosystem filled up largely by the economy. Remaining ecosystem services and natural capital are now scarce and their further reduction constitutes a significant opportunity cost of growth.

The new economic question is: Are the extra benefits of physically transforming more of the ecosystem into the economy worth the extra opportunity cost of the ecosystem services lost in the transformation? Has the macroeconomy reached, or surpassed, its optimal physical scale relative to its containing and sustaining ecosystem? Is the economy now too big for the ecosystem from the point of view of maximum human welfare? Or from the point of view of all living species and the functioning of the biosphere as we know it? If these questions about the opportunity costs of growth sound too abstract, think of the following concrete examples: wholesale extinction of species, climate change, peak oil, water scarcity, topsoil loss, deforestation, risks from more powerful technologies, a huge military to maintain access to world resources, and an increase in the risk of wars over resources, etc.

As the marginal costs of growth have increased, what has happened to the marginal benefits? Studies in the U.S. and other countries show that, beyond a threshold of sufficiency, growth in real GDP does not increase happiness. In sum, growth has become uneconomic at the margin, making us poorer, not richer. Uneconomic growth leads to less available wealth to share with the poor, not more. And such growth in the U.S. in recent years has been accompanied by increasing inequality in the distribution of income and wealth – that is, the marginal benefits of growth have gone overwhelmingly to the rich (third cars and second homes) while the marginal costs (polluted neighborhoods, unemployment and foreclosures) have gone mainly to the poor.

Surely economists have thought about such simple and basic questions as, Can the economy be too big in its physical dimensions relative to the ecosystem? And, Are the marginal costs of growth now larger than the marginal benefits? Surely economists have good answers to these obvious questions! Well, dear reader, I invite you to ask these questions to your favorite economics professor or pundit. If you get reasonable answers, please share them with me. If you get a lot of obfuscation, consider telling the economist to go to hell. Be open to learn – but also be prepared to show some disrespect when it is deserved!

CJA Bradshaw

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9 responses

14 11 2011
Debate blog - Julio

I think the challenge of growth also will defend false growth of financial speculation.
I think about where would the world be if the production of resources and their care is not the problem but create jobs, but still lie not find all the answers.

8 11 2011
Mucking around the edges « ConservationBytes.com

[…] policy recommendations and even some rescues of species on the ‘brink’. Huge consumption rates, a population of 7 billion humans and counting, carbon emissions exceeding all worst-case […]

26 08 2010
Critical Analysis of an Article of Hate… « Moth incarnate

[…] outdated simplified farming is simply setting us up for a fall. Corey from Conservationbytes has this excellent post regarding the situation. Hank at Ekos^2 has done many excellent posts, discussing the need to […]

18 08 2010
Ecosystem-economy connections: the macro story « Marginal Damage

[…] point. It’s the “to a point” qualifier that matters the most here. The latest in Conservation Bytes quotes a post by Herman Daly and the Story of Stuff (been there, done that…) and sums it up […]

18 08 2010
Carlos Ferreira

Thank you for putting this up for discussion. As an (environmental) economics student I am of course aware (and a bit of a fan) of Herman Daly’s work and perspective; and all of this reminds me of the Limits to Growth argument, now coming up to 40 years running.

I agree with the general notion that nature is being heavily impacted by growth, but allow me to contest the notion that nature and the economy are somehow opposed; our economy is included in the surrounding ecosystem. They impact each other, they complement and feed upon each other. We need both (I love both trees and toilet paper, in the right amounts), and the real question is how much conservation and how much development are right.

17 08 2010
Megan Evans

Of possible interest is a question put to Australia’s opposition leader on this topic last night:

AUDIENCE MEMBER: Mr Abbott, the world has just gone through about 400 years of exponential growth and as a result we have an economic system that demands constant growth. Do you think the world can take another 400 years of growth or do we have to come up with a new economic system based on balance and sustainability?

TONY ABBOTT: Well, I think that balance and sustainability are not incompatible with growth and I think at every point in our history, the people who have been responsible for economic growth have also been the people who have striven for balance and sustainability. I mean, look at the things of beauty that great builders have created, that great entrepreneurs have created. I mean, all of us crave spiritual growth, emotional growth and nourishment. We don’t just crave new gadgets but the new gadgets and the greater wealth, in most cases, most of the time, do help us to achieve all the other things that we want and so I think it’s wrong to see these things as opposed to each other.

[smacks forehead]

(http://www.abc.net.au/tv/qanda/txt/s2978032.htm?show=transcript)

If you can manage to get through the program without throwing something directed at John Elliot’s face, last week’s episode (although focussed on population) raised some important points. Seems to be gaining a (little) bit of mainstream attention right now:

BOB BROWN: …that we have to change – we have to change the basis of measuring what it is that makes for a good life and economic growth is unsustainable in the long run if it completes to bleeding resources. Bhutan has gone for an index of happiness. Ecuador has decided it will live within its ecological footprint. It’s way ahead of Australia in thinking about that. We need, here, to change our system so that we tax waste, pollution, a carbon tax to start with, we tackle climate change, we reward innovation, prosperity is a good thing, but the destruction of the natural resource base ought to be taxed along with the impost that puts onto – and if there’s one thing that unites…

JOHN ELLIOTT: Are you suggesting we shouldn’t mine the iron ore?

BOB BROWN: …Bangladesh and Australia and every other country in the world, it’s climate change, because by the end of this century, according to Garnaut, it will reduce productivity of the Murray Darling Basin 90 per cent and we’ll have lost the Great Barrier Reef. Now, we have…

JOHN ELLIOTT: Not if you take the water from the Ord River. I’ve already solved that for you.

BOB BROWN: That is so last century, John.

(http://www.abc.net.au/tv/qanda/txt/s2981403.htm)

18 08 2010
CJAB

Thanks, Megan. I’ve said it before and I’ll say it again – don’t vote for Abbott this election.

16 08 2010
Biopolitical

Daly says that:

1. Growth will not go on forever because at some point we will not have enough energy to replace structures lost by entropy. For example, future humans may be unable to get enough energy to prevent our planet from being engulfed by the sun.

2. The wholesale extinction of species, climate change, “peak oil,” water scarcity, topsoil loss and deforestation are signs of our limited ability to fight entropy. With no further explanation, this point simply restates the conjecture that humans will be unable to prevent the destruction of the earth by the sun, or the infinite contraction (or expansion) of the universe, any of which would effectively end economic growth.

3. Growth in real GDP does not increase happiness. Given standard measures of happiness, statistical correlations and Daly’s logic, we could also (or instead) conclude that more leisure time, higher literacy, cleaner city air, more nature reserves or more generous state pensions do not increase happiness.

17 08 2010
Entropically Challenged

Bummer dude.

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