Growth, Degrowth and Greening
Although discussions about the relationship between economics and the environment are no longer confined to scientific forums and have in fact become an inspiration for a variety of popular movements, it is often difficult to grasp the core issues at stake. The public agenda is literally flooded every day with news regarding the trade-off between preserving industrial jobs and averting climate change; supporting urban development and preventing environmental degradation; ensuring living conditions for an increased human population and avoiding biodiversity loss; but the average citizen is often unable to see how all these worrisome, dire, even catastrophic events and proposed solutions fit together in a coherent way and could therefore be addressed in a rational manner.
Environmentalists have numerous concerns and often take a piecemeal approach to policy, but their common denominator is that over the last two centuries the human footprint over the Earth’s ecosystem has become too large and burdensome to be ignored. This era, increasingly subsumed under the name Anthropocene in various environmentalist writings, coincides with rapidly increasing human populations, industrialisation and an extensive use of natural resources. In the environmentalist worldview, the cumulative effect of human activity since man has become the unchallenged dominant specie of our planet is generally judged as detrimental to the very conditions that have generated complex forms of life. This perspective often leads to various warnings regarding an irreversible environmental threshold beyond which all life on Earth will decay, as is the case with climate change at present, pollution in the 1990s or human population growth in the 1970s.
The most common definition of economics, since Lionel Robbins, is the efficient allocation of scarce resources, either material, such as goods, or immaterial, such as services. In view of many economists this makes economics an ecological science in its own right. Nevertheless, economics is a social rather than a physical science. The efficient allocation mainstream economists speak of is based on people’s preferences and their endowments. The environment as such in this view is either a general condition of life with no cost or benefit for individuals; a valuable factor of production which enters into the goods they consume, when the former is divisible, excludable and rival; or a public good, when the effects of an individual’s actions on the environment exceeds the costs borne and cannot be divided among the concerned parties.
Capitalism, as a social system of mass production and consumption of goods and services that took off with the advent of the steam engine, was born in a time of intellectual and technological optimism, which aimed to relieve humanity from the chronic scarcities it often faced until then. In those pioneering times resources seemed untouched and the environment as such was only valued as a divisible factor of production, say a piece of arable land or a coal field, with little or no concern for the external costs or benefits from its use. The 18th century coal-based steam engine was followed by the petroleum-based internal combustion engine during the 19th century, but in the terms of present-day environmentalist concerns the amount of energy consumed in the process of creating more desired goods and services only increased. The advances in electricity at the end of the 19th century and the beginning of the 20th century, followed by the more ambivalent discovery of nuclear power, constituted major technological advances, but at the same time they generally consolidated the same pattern of environmentally-blind capitalistic growth: a higher GDP had to be obtained only by “burning” a higher amount of energy (see Figure 1), pretty much in line with the exogenous, Solow-Swan, growth model of neoclassical economics.
As the deleterious side effects of transforming stuff into stuff on an industrialized scale became more apparent, the environment as such acquired a new importance for people around the world. In a vague and sentimental manner, this idea was expressed early on during the 19th century arts and literature, as nostalgia for an idealized rural life in harmony with nature from which many factory workers were uprooted. However, it was only towards the middle of the 20th century, in the writings of Nicolas Georgescu-Roegen, that the most radical form of this idea was formally spelled out within the discipline of economics: the environment, once a free condition of human life, not only ceased to be a provider of rare resources, but was now thought that it could become depleted to the point of not being able to maintain a complex society, in line with a thermodynamic model of entropy. The idea that natural resources are rare but also finite, since they never revert back completely to their original state after anthropic use, has led to what is often called degrowth theory, which usually marries the environmentalist critique of existing capitalism with an anthropological critique of orthodox economic postulates that purportedly undergirds it. According to this view, which inspired the “Limits to growth” reports of the influential Club of Rome among other things, the only sustainable way to reconcile environmental conservation and personal utility is to reshape society such that it produces less of the things we don’t need anyway (in fact given pollution, waste and the herd psychology of capitalist consumerism, we’re actually talking about things that might even harm us!). As can be seen in Figure 2 below, this effectively means reversing the order of the intercept points A, B, C in Figure 1.
With the environment acquiring the status of a public good in its own right (protected by laws against pollution, various conservationist efforts and recycling mandates) a new growth paradigm emerged, which builds on the strength of the previous two but eliminates their drawbacks, often called sustainable development or, in the current context dominated by debates about climate policy, greening. As can be seen in Figure 3, greening simply means reducing the amount of energy per capita used in the economy – and thus waste, pollution and greenhouse gases as harmful side-effects – while preserving and even expanding the total amount of goods and services produced. This approach implies important compositional and qualitative changes for the energy, transportation, construction and agricultural sectors of the economy, most notably, but its ambition is basically to do more with less.
This latter perspective on growth strategy is actually at present the basis for most public policies that address the nexus between economics and the environment, from setting industry decarbonisation targets in order to combat global warming to promoting new crop cultures in order to ensure food safety as well as an adequate income to local farmers. It is also a highly criticized perspective from both the right as well as from the left. On the right, critics – who sometimes deny the existence of a persistent conflict between free-market capitalism and the health of the environment – often consider greening programs as a burdensome cost of doing business. They also question its effectiveness in the context of free-riders, such as producers from China and other still developing countries that don’t consider themselves responsible for most of the CO2 and other toxic gases released in the atmosphere during the last two centuries and therefore refuse to curb their emissions by as much as the more industrialized countries. On the left, critics view greening as a destined to fail middle-of-the-road strategy mostly designed to suit the interests of big business groups or a PR effort to relieve rich people of their feeling of guilt rather than to achieve concrete results. In their view, preventing a climate catastrophe cannot be achieved without a radical change in lifestyles, the way most societies currently function and maybe even a significant reduction in the human population, as prescribed by degrowth theory.
Nevertheless, the sustainable growth or the greening paradigm of addressing environmental challenges still has one major ally in the original element that fuelled both capitalism as well as the following concerns regarding the betterment of the human condition: the belief in human progress. The proposal for an intensive use of energy resources, susceptible to achieve a higher output with a much lower environmental footprint, is at first glance perfectly descriptive of endogenous growth theory, first formulated by Paul Romer, in which long-run growth, the unexplained Solow residual in the endogenous growth model, is the result of new technological or organisational knowledge. With one major amendment however. As the recent European debates regarding the environmental status of nuclear energy suggest, the environmental risk factor of the newly adopted technologies must be evenly distributed in order for the greening strategy to have long-term success and avoid a reversal to the mean.
Photo source: PxHere.