Is economic growth desirable now or in the longer term?
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Philip Sutton
Director, Policy and Strategy
Green Innovations Inc.
Tel & fax: +61 3 9486 4799
Philip.Sutton@green-innovations.asn.au

20th September 1998 - Version 1.a-w:i

Graphic by Michael Pitcher
Paper marked up in HTML format
by Philip Sutton.

As a general rule, businesses and governments seem to be in favour of growth and environmentalists are against it, while almost everybody believes that a growing economy and a sustained environment cannot coexist for long. So how can the authors of this paper argue for a vibrant economy as a means of achieving ecological sustainability?

Part of the disagreement over growth has it origin in semantic confusion. When businesses and governments talk about growth they generally mean economic growth. When environmentalists talk about growth they most often mean physical growth. But economic and physical growth are not the same thing at all.

Economic growth is an acceleration in the production of economic value. Businesses usually like economic growth because it increases business opportunities and tends to reduce business risk. Governments usually favour economic growth because in the upswings of the business cycle it is associated with increases in employment, voter optimism and good electoral outcomes.

Physical growth of the economy means it spreads over more area or has a larger material throughput or has a larger stock of physical products or buildings or infrastructure. Businesses in the resource industries like physical growth because it generally increases the demand for their products. Environmentalists dislike physical growth because it correlates with environmental damage and resource depletion.

Many people think that making these distinctions is irrelevant because they are sure that economic growth is always associated with physical growth. Certainly for most of the last 200 years these two forms of growth have moved in lock-step. So it is not surprising that the iron law that "economic growth = physical growth" has lodged itself firmly in people's minds.

However in the US, for seven years after the OPEC oil price shock of 1979, that economy grew by 19% while energy use fell by 6% (Lovins & Lovins, 1998. p.9). A similar decoupling of economic growth from energy use occurred in many other countries (although not noticeably in Australia). This empirical experience challenges the iron law.

So what should we think of economic growth? Are we in favour of it or against it? Such a question is about as meaningful as asking a car driver whether they are generally in favour of acceleration or not. That question cannot be answered without reference to the circumstances. The same is true of economic growth and the economy. If the economy is structured so that, on average, new products and services are more resource intensive than the products and activities they replace, then acceleration of that sort of economy for any length of time would be an environmental disaster. But if, on average, new products and services are less resource intensive than the products and activities they replace, then economic growth in that economy would, most likely, be environmentally beneficial.

As it turns out, leading edge strategists are finding that when they use whole-system design they can achieve massive resource savings in new products and the operations of buildings and infrastructure (70% plus) and that large resource savings are often cheaper to accomplish than incremental savings because they can leapfrog the declining returns of old technology or designs and move to next-generation methods (Lovins & Lovins, 1998; von Weizsäcker et al., 1997).

So it seems that the empirical evidence gives confidence that for some time to come (10-30 years?) environmentally beneficial economic growth might be possible. Should we go for it then?

But before giving blanket endorsement to the pursuit of economic growth, even if it is environmentally benign, we still need to be sure of its non-environmental effects. For example, careful analyses have shown that since the early 1970s welfare for the average Australian person seems to have declined despite continuing economic growth (Note 1).

A normal to higher than normal rate of environmentally and socially-benign economic growth would be helpful, at least for a while:

On top of this, higher than normal productivity growth (Note 3) will be needed to offset:

Figure 1 - Scope of business opportunities arising from the response to environmental issues

If environmentally-benign economic growth looks possible for the next few decades, what are the chances of achieving it in the long term? The source of the environmental problems with economic growth is it's link to physical growth. Could we set the economy up in such a way that it never produced physical growth but was nevertheless capable of delivering productivity improvements and increases in economic (use value) output into the far distant future? It would seem that this could be done if the following five conditions were met: Under this model, increased economic value would arise because of an increase in the service value of the economy rather than because of any increase in the physical throughput of the economy. All services would be delivered via a physical 'platform' as usual (eg. doctors would still operate from medical clinics and have bandages and medicines, information would still be stored or conveyed using physical media) but this platform would be provided from within the capped resource-base of the economy as a whole.

Increased service value in the economy would be achieved by scrapping old products, buildings and infrastructure, in whole or in part, (thus releasing physical resources) and introducing new products, buildings and infrastructure or retro-fitting parts of the existing stock so that the service flow was enhanced and the necessary physical resources were made available from within the capped amount.

Given human ingenuity it is probable that qualitative improvement of this sort could go on for hundreds of years. There is a precedent for this and it is the natural living world. When life first evolved it would have started in a very localised area and then spread like wildfire into environments it was suited to around the globe. As life increased its variety it would have been able to take advantage of more and more areas of the earth - deep in the rocks, throughout the oceans and on the surface of the land. During this time the biomass (physical quantity) of life would have increased, often quite spectacularly as living things developed ways to tap new sources of energy and materials. But eventually when all the physical resources were fully utilised, perhaps 200 million years ago, the growth in biomass would have slowed right down and evolution (biological innovation) would have resulted not in significant increases in the tonnage of living matter, but in more and more sophisticated organisms, leading eventually to humans.

If we could totally decouple economic growth from physical growth in this way should we then be in favour of economic growth? We certainly would have no environmental reason to oppose it. But would we have any reason to favour it? That would depend, of course, on what such economic growth did to society in non-environmental terms - and that would have to be judged, in context, in each time period.

In the final analysis it is not economic growth that we are after anyway but improvements in the welfare of humans and the other living things on the planet. If these improvements occur we shouldn't care whether the accountants tell us that economic growth has or has not occurred. It is after all what the real economy does that counts.

Note 1: See the paper by Clive Hamiltonand Hugh Saddler on the genuine progress indicator.

Note 2: Maintaining the incomes of the super rich is not seen as morally desirable or politically necessary.

Note 3: We mean here total factor productivity, as outlined earlier, rather than the narrow concept of labour productivity.



Last modified: 20 September 1998

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