“Earth provides enough to satisfy every man’s needs, but not every man’s greed.” (Mahatma Gandhi)
You might be thinking that this one is a complete no-brainer. How could growth be good for the environment? The larger the economy is, the more material waste and pollution is produced, right? True, but as we will see, it is not the whole story. Other factors intervene that many believe make the argument plausible. In arguing that continued growth is not good for the environment, I therefore hope to help put the claim to rest.
In 1972 the “Club of Rome,” a group of 100 eminent scientists, economists, business, and politicians, published The Limits to Growth. Arguing that the global economy was on an unsustainable course, the report caused quite a stir in the mainstream media, and it continues to be mentioned even to this day. Theirs was a computer simulation in the early days of computers, and it estimated a number of global trends (see Chart)
Summary Graphic from The Limits to Growth (1972)
The story it tells, in brief, is one where we run down the planet’s stock of resources, overpopulate and over pollute the planet, after which, eventually, the economy collapses along with population and the global food supply. Biologist Paul Ehrlich also achieved notoriety around this time with publication of his The Population Bomb, which made similar Malthusian-style arguments.
Ecological Economics and Sustainable Development
Economists were not at the time receiving (or reading) the memo about the dangers of growth. For decades the principal environmental concerns for economists were things like localized pollution and inadequate sanitation. Research was mostly limited to policy remedies for these problems. Few self-respecting economists as recently as the 1970s ever questioned growth. Why wouldn’t we always want “more?”
Then, in 1987, came the Brundtland report, published by the UN through Oxford University Press. It is impossible to overstate the impact of a single quotation in this document. If not on the world, at least on the academic and professional community. It reads:
Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. (Gro Harlem Brundtland)
This one hyper-cited quotation arguably gave birth to the idea of sustainable development. One could probably write three books on sustainable development and still not give it adequate coverage. Basically, the term supports the idea that we can have our cake and eat it. In other words, contrary to the Club of Rome and Paul Ehrlich, continued growth, if done right, is sustainable.[1]
Economics had finally recognized that sustainability was at least a concern. In fact, just a couple of years later Robert Costanza, along with other scientists and economists, founded the International Society for Ecological Economics. Economists were finally getting on board with the ecologists and urging a more prudent approach to economics.
But how could two such seemingly-contradictory visions – conservation and growth – be reconciled? As I’ll discuss, ecological economics, like the idea of sustainable development, developed into an “umbrella” term that would come to encompass a great variety of viewpoints. Both technological optimists and Malthusian doomsayers, for example, professed to be ecological economists.
The Environmental Kuznets Curve
The original ecological economics message – that perpetual growth was not sustainable – was therefore watered down and never gained any notable policy traction. An important catalyst in the dilution was when in the early 1990s ecological economics introduced the so-called environmental Kuznets curve (EKC) hypothesis. As we will see, it proved to be an effective counterpoint to the original “limits to growth” narrative because of its more optimistic policy implication.
First, why “Kuznets?” Before going further, I should point out that if Simon Kuznets knew anything about the EKC he would be turning in his grave. As I remarked in an earlier post, his warnings about the deceptive political use of GDP went unheeded. But so did the caution he urged against reading too much into the results of a 1955 paper.
In it, Kuznets found tentative evidence in support of the hypothesis that countries become more unequal as they grow richer; but that it reverses beyond a certain point and fully developed countries are relatively equal. Mind you, the study was based on six countries. And to Kuznets’s credit, he was clear that it would be foolish for anyone to try to generalize his findings. Did anyone listen?
Starting in the 1980s, development economists would be repeatedly estimating “Kuznets curves” for data sets of dozens of countries. They were, in other words, entirely heedless of Kuznets’s statements about the fragility of the data that he had used.[2] But as I’ve noted repeatedly, for economists this is par for the course. No sense squandering an opportunity to say something definitive with data – international data, no less – even if the analysis misrepresents the original author’s intent.
But the greater folly was yet to come, and here I can end my digression. The environmental Kuznets curve I mentioned earlier has absolutely nothing to do with Simon Kuznets. In their infinite laziness, economists gave it that name because it has the same shape as the “original” Kuznets curve. In other words, the hypothesis here is that pollution worsens (or the environment is degraded) as a country gets richer; but the direction changes beyond a certain threshold and fully developed countries have cleaner environments.
Theory: Scale, Composition, and Technique
Let’s leave aside the problematic and inappropriate name for the hypothesis. Is there anything to the idea? Surprisingly, yes. I’ll address the theoretical argument first. As I noted, the EKC itself has a quadratic or inverted-U shape (see Chart) that reflects a gradual “cleansing” of the environment as a country grows richer. But we can decompose the phenomenon into three distinct effects.
Decomposition of the Environmental Kuznets Curve
First, the scale effect shows adverse environmental impacts growing exponentially as economies grow and become richer. It is, in other words, the “limits to growth” argument. The composition effect, which has the same shape as the EKC itself, is all about structural change. The essence of the argument is that the poorest countries are mostly agrarian and therefore pollute very little. Industrialization makes pollution increase substantially as a country grows richer. But as incomes continue to rise, the common trajectory is for a country’s economy to become more service based. Services are presumably less environmentally impactful than industry.
Finally, the technique effect is the most controversial. Notice from the chart that it depicts an asymptotic drop in pollution impact from the start. The richer the country, the less pollution – simple as that. How can the claim be defended? There are two parts. First, richer citizens, because their more pressing needs are already met, have the luxury to “demand” a cleaner environment by pressuring policymakers. Second, richer countries are more educated and have more intellectual resources. It means that they are better at developing more environmentally efficient (i.e., greener) technologies.
Put the three effects together and, since the first and third appear to cancel out, you have an inverted-U shape. Yet the whole thing hinges on the relative magnitude of the effects. While the rationale behind the technique effect is sound, there is nothing automatic about its being sufficiently strong to negate the scale effect. You do not need to be a Malthusian to hold serious doubts.
The Evidence
Now for the data. The EKC literature is truly encyclopedic, as the curves have been estimated for everything from access to sanitation to biodiversity. I don’t have space here to go into the various reasons the methodology behind the EKC is dubious (if you write me, I’ll be happy to explain). But perhaps the most important thing to recognize is that “the environment” means many things. And concerning the question raised in this article, it sometimes means contradictory things. Here I will just summarize what some general findings have been (see Table).
Relationship between Income and the Environmental for Select Environmental Variables
Most studies have found that the three variables at the left of the table – population access to sanitation and clean water and dissolved oxygen in rivers – have steadily improved as countries became richer. These variables, in other words, support the claim that the environment improves as countries grow richer.
One could draw the same conclusion with the four variables in column two. That is, sulfur dioxide, nitrous oxide, soot, and aquatic heavy metal pollution all appear to diminish in richer countries following an earlier rise during a country’s economic development phase. The two variables that consistently show a steady increase with income are CO2 emissions and municipal waste per capita.
Discussion
What are we to conclude from this? Based on the table it would appear that there is something to the claim that economic growth is good for the environment. And there is. Consider for a moment how much more serious a problem air and water pollution were in this country 60-70 years ago before the government started regulating. You might argue that the regulation is woefully insufficient – and you’d be correct – but it would not be an argument against growth per se.
The environment improves with national income for seven of the nine variables that I list above. But unfortunately, it does not close the case. While we might argue that city garbage production is no more (or indeed less) important than, say, air pollution, we cannot reasonably claim it to be the case with CO2. In the mid to late-1990s, the heyday of the EKC, one might have plausibly asserted that it is merely a single variable among many. But much has changed over the past 25 years. While atmospheric CO2 is not pollution in the traditional sense, its global impact is now undeniable.
And it raises another critical methodological weakness of the EKC. Which is that it is entirely blind to cumulative or “scale” effects. In other words, research has emphasized emissions of pollutants rather than their concentration. Atmospheric CO2 is a perfectly natural thing, unless of course we have too much. Many scientists who did not believe that we had too much back in 1990 are now singing a different tune.
It is as if we were all lulled into complacency by what I earlier referred to as the technique effect. But in truth there is no reason to assume that demand for stricter environmental measures coupled with technology will be sufficient to offset the scale effect. I am not as pessimistic as the Malthusians. Global population will level off in the coming decades and fertility rates have already dropped dramatically worldwide (as predicted by the Club of Rome study). But as atmospheric CO2 becomes more concentrated, it is more difficult to envision technological solutions.
I would argue that the harm done by the EKC is incalculably huge. Its policy implication that income growth is good for the environment is politically loaded. It justifies “business as usual” and continued apologia for private property and markets and has set policy back at least two decades. Hard as it might be to believe, some people still actually believe that limited environmental regulation is the best environmental policy!
Not to be overly cynical, but the EKC hypothesis has made a good number of careers in economics. With the almost limitless number of variables, countries, and time periods that one can consider, there is plenty to look at. But the EKC is a dangerous distraction. Spending precious time looking for one is akin to fiddling while Rome burns. We might say the same about studies on sustainable development which, depending on how it is defined, could be considered an oxymoron.
Conclusion: Reforming Ecological Economics
I believe that ecological economics, at its inception, sincerely wanted to offer an alternative paradigm to orthodox or neoclassical economics. If you’ve been looking at my posts, you know that I can only sympathize with the intent. The problem is that, rather than advancing knowledge by fostering debate between the Malthusians and the tech optimists, ecological economics became an “open admissions” club that welcomed all comers but did not encourage serious discussion between rival perspectives. At least not those that differed on substance.
Ecological economics has made some meaningful contributions. One important one is its critical attention to the orthodox economic idea of relative scarcity. What I mean by this is that neoclassical economics claims that we never “run out” of a resource. Instead, it becomes prohibitively expensive as it grows scarce, and we invariably develop new and cheaper substitutes. Built into the models, in other words, is the assumption that humans will never fail to find technological substitutes. So much for using models to predict.
Contrary to neoclassical theory, ecological economists, with their emphasis on limits, see scarcity as absolute. They are correct to caution against overuse of certain resources. But in addition to relative scarcity, the neoclassical school also sees human needs as absolute. Elementary microeconomic theory is clear on this. We always desire more of everything and can never be satiated. There is no distinction to be made between needs and wants. The secret to greater wellbeing is simply to consume at a higher level.
While recognizing that in the limit this is impossible, ecological economics does not go far enough in challenging this assumption. Social and institutional economists better understand that needs are relative. Many of our contemporary needs are created through advertising and other social pressures. In a certain sense, recognizing this can be liberating. Continued growth is not good for the environment, to be sure, but neither is it necessary. The challenge is in developing a true alternative economics paradigm that is able to sway policy in a direction that discourages consumerism.
It is not an easy task. Yet the present situation is ripe for major change. Leaders and policymakers are increasingly questioning long-standing economic assumptions. The climate change crisis is not going anywhere, especially as its connection to health and disease risk is better understood. Ecological economics, in concert with other heterodox approaches to economics might never again find a more opportune time to sway policy.
[1] I need to clarify that I do not for one second equate development and growth. Rather, the term “development” has been used as subterfuge for pursuing the status quo of continued GDP growth.
[2] Not to get too technical, but another egregious error frequently committed by researchers is that they were looking at single data points for multiple countries (cross-sectional analysis, in the jargon). It was entirely inappropriate because Kuznets’s original hypothesis concerned a single country’s inequality trend over time (what we call a time series).