April 16, 2024

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For all we depend on economic growth, there’s still a lot we don’t understand about it. Spectacular growth has brought hugely positive impacts — longer and healthier lives, millions removed from poverty, myriad life-improving innovations. But these benefits have also come with immense costs, including vast pollution, land degradation, biodiversity loss and global warming.
Some environmental scientists argue that these environmental impacts mean economic growth is now actually destabilizing society. Economists tend to fire back that the only way to keep society stable is to keep economies growing.
Trained as a scientist myself, it’s probably no surprise that I’ve been skeptical of the possibility of infinite growth on a finite planet. I’ve been perplexed as to why economists find the standard economic arguments put forward for growth so appealing, while dismissing concerns about physical limits to growth as being, well, a little silly.
However, a few weeks ago I encountered the first really convincing explanation of why the economists’ perspective has been so persuasive. It came in a lecture delivered by the distinguished Cambridge University economist Partha Dasgupta. He made the point that it’s hard to appreciate the deep appeal of these ideas for economists without understanding the historical context of their appearance — in the postwar era during which technological innovations in areas like medicine, agriculture and chemistry did so much to generate global prosperity.
Even so, growth theory itself, Dasgupta argued, contains serious flaws which have pushed modern economics off track in important ways, with the result that our continued search for growth is now actively reducing the overall wealth of the planet. The key question Dasgupta raised — and then answered — is this: How is it that economic theory got itself into a condition in which it doesn’t even count the natural world as an important part of our economic wealth? 
An early growth theory, proposed by economist Robert Solow in 1948, held that long-run growth depends on basic factors including population growth, saving and investment, and the rate of technological development. Later growth theories have essentially followed this plan, emphasizing technological innovation — our ability to continually find new ways to use resources more productively — as the real engine of economic growth. 
Dasgupta pointed to this deep faith in innovation — drummed into economists by what they saw happening in the postwar era — as the reason economists of the 1970s rejected suggestions by natural scientists that there might be natural limits to growth. These scientists suggested that the human expansion of economic activity would eventually grow too large for the planet to safely contain; that our activities could undermine much of the value that is produced by the natural world. Economists dismissed these worries, believing that innovation would always allow humans to find a way around such problems.
The early growth theorists — not by intention, but through some subtle assumptions they made — effectively stipulated that nature has no important role in supporting economic growth. In the standard theory, human innovation enters the growth formula as a purely human construct, not dependent on a huge range of valuable things the environment provides for us, like clean air and water, a stable climate and plentiful reservoirs of complex biomatter. As a result, innovation, and growth, are always possible, even if the natural world were to be severely degraded.
This seems like a huge oversight today, when the science of ecology has been well-developed and we’ve got decades of evidence showing the natural costs of human activities. But we didn’t have these things when growth theory was originally developed. The field of ecology barely existed. “At this early stage,” he told me in an interview, “I don’t think it was an outrageous idea to keep nature out of economic modeling.”
But, he argues, it is surely outrageous to continue this way today, and he’s taken important steps in showing how economists can include innovation in growth theories in a way that would acknowledge its deep dependence on the natural environment. The key problem is that economists today, when they talk about growth, almost invariably mean GDP growth, which does not record the depreciation of natural capital that comes about during the production of goods and services. What Dasgupta has tried to do in his work is to include nature in economic accounting.
At this point, his lecture stepped into the detailed mathematics of growth theory, which I won’t delve into here. In a nutshell, he showed how small changes in the mathematics would make it clear that our human ability to innovate always depends on a stock of goods and services provided by the environment. As a result, depletion of this stock would also deplete our ability to continue doing innovative things.(1)
“If a household consumes more than its income,” as Dasgupta put it, “it can finance the excess by running down household wealth — selling stocks, drawing down savings accounts in the bank, and so on. But it cannot do that forever without becoming bankrupt. That’s the problem humanity faces today, and why we must shift to talking about the inclusive wealth of nations and the global economy, not GDP.”
Dasgupta has taken a big step forward in showing precisely, within economic orthodoxy, where growth theorists can take the objections of environmental scientists seriously, and build a more realistic and useful theory as a result. The revised theory still holds economic growth to be enormously positive, but envisions growth not as GDP growth, but as far more inclusive growth, which has to preserve the value of the natural world for prosperity to continue.
The successful theories of one era often get so entrenched that they constrain the ability of later scientists to think clearly. But today, there’s every reason to take limits to growth concerns seriously: A United Nations study from 2018 found that the world’s natural capital declined by nearly 40% between 1992 and 2014. We appear to be consuming the stock of natural wealth on which we ultimately depend.
I heard Dasgupta’s lecture at the International Centre for Theoretical Physics in Trieste, at a meeting convened by the US State Department. It was somewhat unusual in that it brought together economists, physicists, ecologists, demographers and business leaders to break down some of the intellectual barriers to real progress on sustainability. More events like this are sorely needed.
Because technological innovation may not be enough to get us out of this mess. For that, we’ll need some innovation in our economic thinking as well.
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(1) Readers interested in the mathematical details should look at the starred chapters, especially chapter 4, of an important report Dasgupta produced in 2019 for the UK Treasury: The Economics of Biodiversity: The Dasgupta Review.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Mark Buchanan, a physicist and science writer, is the author of the book “Forecast: What Physics, Meteorology and the Natural Sciences Can Teach Us About Economics.”
More stories like this are available on bloomberg.com/opinion
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