How much more economic growth can the planet sustain?

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With all that we depend on economic growth, there is still a lot we don’t understand about it. Spectacular growth has enormously positive effects – longer and healthier lives, millions of people lifted out of poverty, countless life-enhancing innovations. However, these benefits also come with immense costs, including massive pollution, land degradation, biodiversity loss and global warming.

Some environmental scientists argue that these environmental impacts mean that economic growth is now actually destabilizing society. Economists tend to counter that the only way to keep society stable is to keep the economy growing.

Having trained as a scientist myself, it’s probably no surprise that I’m skeptical about the possibility of infinite growth on a finite planet. I’ve been puzzled as to why economists find the standard economic arguments made for growth so appealing while dismissing concerns about physical limits to growth as, well, a little silly.

A few weeks ago, however, I came across the first truly compelling explanation of why the economists’ perspective was so compelling. It came in a lecture given by Partha Dasgupta, the distinguished Cambridge University economist. He pointed out that it is difficult to appreciate the deep appeal of these ideas to economists without understanding the historical context of their emergence – in the post-war period when technological innovations in fields such as medicine, agriculture and chemistry have contributed so much to create global prosperity.

Nevertheless, Dasgupta argued, the theory of growth itself contains serious flaws that have derailed modern economics in important ways, with the result that our continued pursuit of growth is now actively diminishing the overall wealth of the planet. The key question Dasgupta posed—and then answered—is: how did economic theory get to a state where it doesn’t even consider 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 depended on fundamental factors such as population growth, saving and investment, and the speed of technological development. Subsequent growth theories essentially followed this plan, emphasizing technological innovation—our ability to constantly find new ways to use resources more productively—as the real engine of economic growth.

Dasgupta pointed to this deep faith in innovation inculcated in economists by what they experienced in the post-war period as why economists of the 1970s rejected suggestions by scientists that there might be natural limits to growth. These scientists suggested that human expansion of economic activity would eventually become too great for the planet to safely contain; that our activities could erode much of the value produced by the natural world. Economists dismissed these concerns, believing that innovation would always allow people to find a way around such problems.

The early growth theorists effectively established – not intentionally, but through some subtle assumptions they made – that nature does not play a major role in supporting economic growth. In standard theory, human innovation enters the growth formula as a purely human construct that does not depend on a variety of valuable things that the environment provides for us, such as 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 badly damaged.

This seems like a huge oversight today, when the science of ecology is well developed and we have decades of evidence showing the natural costs of human activity. But we didn’t have these things when growth theory was originally developed. The field of ecology hardly existed. “At this early stage,” he told me in an interview, “I don’t think it’s an outrageous idea to keep nature out of economic modeling.”

But, he argues, it is certainly outrageous to continue today, and he has taken important steps to show how economists can incorporate innovation into growth theories to recognize their deep dependence on the natural environment. The core problem is that when economists speak of growth today, they almost always mean GDP growth, which does not capture the depreciation of natural capital that occurs in the production of goods and services. What Dasgupta tried to do in his work is to include nature in economic accounting.

At this point his lecture entered the detailed mathematics of growth theory, which I will not go into here. In summary, he showed how small changes in mathematics would make it clear that our human innovative capacity always depends on a supply of goods and services provided by the environment. As a result, depletion of this stock would also affect our ability to keep doing innovative things.(1)

“When a household consumes more than its income,” as Dasgupta put it, “it can fund the excess by running down the household’s wealth—by selling stocks, drawing on savings accounts at the bank, and so on. But it can’t do that forever without going bankrupt. This is the problem facing humanity today and why we need to move to talking about the inclusive prosperity of nations and the global economy, not GDP.”

Dasgupta has taken a major step forward in pinpointing within economic orthodoxy where growth theorists can take environmental scientists’ objections seriously and, as a result, construct a more realistic and useful theory. The revised theory still thinks economic growth is hugely positive, but envisions growth not in terms of GDP growth, but as far more inclusive growth that must preserve the value of the natural world for prosperity to last.

The successful theories of an era often become so entrenched that they limit the ability of later scientists to think clearly. But today there’s every reason to take the limits of growth worries seriously: a 2018 United Nations study found that the world’s natural capital declined by nearly 40% between 1992 and 2014.

I heard Dasgupta’s presentation at the International Center 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 of this kind are urgently needed.

Because technological innovations may not be enough to get us out of this mess. For this we also need some innovation in our economic thinking.

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(1) Readers interested in the mathematical details should refer to the asterisked chapters, particularly Chapter 4, of an important report Dasgupta produced for the UK Treasury in 2019: The Economics of Biodiversity: The Dasgupta Review.

This column does not necessarily represent the opinion of the editors or of Bloomberg LP and its owners.

Mark Buchanan, physicist and science writer, is the author of Forecast: What Physics, Meteorology and the Natural Sciences Can Teach Us About Economics.

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