What is economic growth?

Economic growth is an increase in the production and consumption of goods and services. It entails increasing population and/or per capita consumption. It is indicated by increasing gross domestic product (GDP). Economic growth literally refers to an economy that is getting bigger, not necessarily one that is getting better.

Why is economic growth a threat to the environment?

The economy is a subset of the ecosystems that contain it. This fact is overlooked in business and economics textbooks, where the ecosystem is viewed as a subsystem of the economy, and the economy itself is portrayed as a circular flow of money between firms and households. The production of goods and services entails the conversion of natural resources, or “natural capital,” into consumer goods and manufactured capital. This explains why there is a fundamental conflict between economic growth and conservation of natural resources. Growing the economy means shrinking the ecosystem. Furthermore, pollution is an inevitable byproduct of economic production. The degradation of the environment as a result of economic growth occurs in many ways, but in general, economic growth leaves a larger ecological footprint.

Why is economic growth a threat to economic sustainability, national security, and international stability?

To grow, an economy requires more natural capital, including soil, water, minerals, timber, other raw materials, and energy sources. When the economy grows too fast or gets too big, this natural capital is depleted, or “liquidated.” To function smoothly, the economy also requires an environment that can absorb and recycle pollutants. When natural capital stocks are depleted, and/or the capacity of the environment to absorb pollutants is exceeded, the economy is forced to shrink.

National security, meanwhile, is a function of economic sustainability. The economic strife of a nation may result in insurrection or revolution, and eventually the nation may turn its agressions outward. From the Nazi doctrine of Lebensraum to the 21st century powder kegs, war invariably involves, and often revolves around, struggles for resources by nations that have exceeded their ecological capacities – or have had their capacities impacted by other nations.

Can’t technology alleviate the threat of economic growth?

Some economists think that, because a particular production process can become more efficient (more output per unit of natural capital), there is no limit to economic growth. These economists and “technological optimists” are disregarding the second law of thermodynamics, the entropy law, which tells us that we cannot achieve 100% efficiency in the economic production process. When the entropy law is applied across all economic sectors, or in other words when the limits to efficiency have been reached, the only remaining way to grow the economy is by using more natural capital (including energy).

The application of technology, if embedded in a system of economic growth, also sets up a dangerous cycle.  The first step in this cycle is characterized by economic growth, expanding population and consumption.  Such expansion leads to the second step — a situation in which society begins to bump up against the limits to growth, in the form of dwindling supplies of resources. Since necessity is the mother of all invention (at least according to Plato), the third step involves development of technological methods to manage the limits.  These technological methods allow society to reach the fourth step: a state of breathing room in which the limits have been pushed back.  The cycle is formed to connect the fourth step back to the first if society decides to use the breathing room to accommodate more growth. The dangerous part of this cycle is that the limits become more profound over time, shifting from minor predicaments such as local pollution to major problems such as global climate instability and widespread loss of ecosystem services.  So technology can alleviate some problems from economic growth, but not if the the breathing room is squandered on the impossible goal of perpetual growth.

Can’t the economy continue growing for quite a while without bumping up against ecological limits?

There are three crucial considerations here and, unfortunately, each one is consistently overlooked by economic policy makers. First, some of the most rigorous examinations of the ecological state of affairs show that we are hitting and even surpassing limits (see this article in Nature) with the economy operating at its current size.  Ecological footprint analysis shows that globally we are using more resources than the Earth can regenerate each year, a situation known as overshoot. Conservation biologists have documented the sixth mass extinction event, an ominous name for the current spate of biodiversity loss caused by exponentially growing economic activity. Failure to consider these issues could be rectified if economists included the costs of economic growth in their official indicators of economic health.

Second, consumers, firms and governments do not automatically seek the most efficient outcomes. In fact, when the goal is increasing production and consumption, moderate levels – not maximum levels – of efficiency are selected. Physicists and systems ecologists may recall the maximum power principle. Getting serious about increasing efficiency requires a policy goal of something other than economic growth.

Third, technological progress is not a free lunch. In today’s computerized, competitive economies, technological progress comes from research and development, or “R&D.” Profits required for financing R&D are gained partly from economies of scale, which by definition entail increasing the size of the enterprise. This sets up a “chicken-egg spiral” between technological progress and economic growth at current levels of technology, or in other words, a zero-sum game between technological progress and environmental protection. Economists and economic historians may recall “Jevon’s paradox.”

Can’t “green growth” allow the economy to continue growing without causing harm?

Some of the talk about green growth, and “smart growth” in general, is well-intended, but is more often a function of political expediency. Would we not expect politicians, who court industry while appeasing the public, to promote “green growth?” It’s handy political rhetoric, because “green” is too vague to be relevant to economic policy.

One thing is clear, however. If “green” means protecting the environment and conserving natural resources, then economic growth is fundamentally “brown.” Economists and politicians who speak loosely of “green growth” usually have no background in ecology.

Can’t we continue growing the economy indefinitely as we transition to an information economy?

The “economy of nature” operates in trophic levels, and so does the human economy. In nature, the “producers” are plants, which literally produce their own food in the process of photosynthesis. Herbivores consume plants, and carnivores consume herbivores. Omnivores may eat plants or animals, and some species function as “service providers,” such as scavengers and decomposers.

The human economy follows the same natural laws. The producers are the agricultural and extractive sectors, such as logging, mining, and fishing. As Adam Smith wrote in The Wealth of Nations, it is the agricultural surplus that allows for the division of labor and economic growth. Analogous to herbivores, we have economic sectors that consume the raw materials of the producers. These are manufacturers, and the higher level manufacturers are analogous to the carnivores. The economy also features service providers, such as chefs, janitors, bankers, and purveyors of information.

The key point is that the economy tends to grow as an integrated whole. More manufacturing and more services requires more agricultural and extractive surplus. In other words, economic growth, with limits to efficiency as described above, requires the use of more natural capital and results in more pollution. Through the lens of trophic theory, it is easy to recognize the fallacy of “green growth.”

The fallacy of a “de-materialized” information economy also becomes evident when we ask two questions. First, what do we do with the information? If the information is to be relevant to economic growth, it must be used by the “regular old sectors,” from agriculture to mining to manufacturing to electronics to banking.

Second, how does anyone come to afford the information? For, if no one can afford it, the information will not get past the invisible hand of the market, and it will not be relevant to economic growth. As Adam Smith and trophic theory tell us, the origins of money are in the agricultural and extractive surplus that free the hands for the division of labor.

So much for de-materializing the economy!

Why should we emphasize the phrase “economic growth” in discussions on the environment and national security?

In recent decades, many publications have warned of the environmental perils of “human activities.” These warnings have been based on important scientific findings, but they have had little effect on public policy. Why? Imagine walking through the policy arena, searching for a policy table where “human activities” are handled. Your search will be fruitless, and so are the warnings.

To affect policy decisions, we will need to use language that points clearly to an established policy table. The biggest policy table in the domestic policy arena is devoted to economic growth.

When we use the phrase “economic growth” to describe the overall threat to the environment and national security, the relevant policy table is unmistakable. To the extent we are effective, policy reforms to stabilize the size of the economy will follow, with an inevitable stabilizing effect on population, per-capita consumption, and “human activities.”

What would a steady state economy look like?

A steady state economy features policies that aim for sustainable scale, fair distribution of wealth, efficient allocation of resources, and high quality of life.  Living in such an economy would be more satisfying for citizens today and provide more opportunities for citizens tomorrow. One way to think about a non-growing economy is simply to look around at the current state of affairs. If the economy stopped growing today, we would have just what you see out there. We would have our current population and stock of natural and human-built capital into the foreseeable future. Investment would be redirected toward maintaining those stocks of capital. Energy usage would stabilize (or decrease if we started using energy resources more sparingly and more efficiently). The difference in income levels between the richest and poorest people in society would shrink. Society would focus on economic development (such as educational empowerment, poverty alleviation, and high-quality employment opportunities) rather than uneconomic growth.

Would we have to give up individual freedoms in a steady state economy?

A steady state economy can exist in a constitutional democracy with an educated citizenry and a common-sense mixture of markets and market regulations. Conspicuous consumption and over-investment would desist, but the freedoms of life, liberty, and the pursuit of happiness go hand in hand with the steady state economy. In addition to securing the rights of future generations, a steady state economy would promote additional privileges for current citizens, such as continued access to functioning ecosystems.

What is the CASSE position on economic growth?

CASSE advocates a carefully crafted, scientifically sound position on economic growth. Individuals are invited to support the position by e-signing (we will not contact you unless requested). Professional societies, non-governmental organizations, and other organized groups are invited to join the growing list of organizations that have endorsed the CASSE position. CASSE also assists organizations in tailoring and developing their own positions on economic growth. Contact CASSE to offer an endorsement or for more details.

How can I help?

The very first thing to do to help support the transition from uneconomic growth to a steady state economy is to get informed. After arming yourself with information about how the economy works, you can stand up for the truth and publicly state your opinion by signing the CASSE position on economic growth. The steady state economy will gain political traction only if it receives widespread support from voters. We, therefore, invite you to help us spread the message, either on your own or in concert with CASSE. Check out our action pages for ideas, and please consider becoming a CASSE member or outreach volunteer. Another way you can help is to think and act like a steady stater.  A steady stater is someone who consumes resources wisely, ensuring that there will be enough for future generations. Finally, you can help by asking lots of questions. Economists, business leaders, and politicians who may not have a firm grasp on ecological concepts need to be pressed to answer questions such as, “How can we have infinite economic growth on a finite planet?”