I recall more than a decade ago, I read a fascinating report \u201cThe Limits to Growth\u201d which was published in 1972. The report was prepared by a group of MIT scientists for the research project sponsored by the \u201cClub of Rome\u201d, a think tank on global and environmental issues. The 1972 report highlighted the issues of rapidly growing population and exponential economic growth at the cost of natural resources and earth\u2019s ecosystem.<\/p>\n\n\n\n
The report concluded that.. \u201c\u2026. If the present growth trends in world population, industrialization, pollution, food production, and resource depletion continue unchanged, the limits to growth on this planet will be reached sometime within the next one hundred years. The most probable result will be a rather sudden and uncontrollable decline in both population and industrial capacity<\/em>\u2026\u201d The report also provided a hope that .. \u201cit is possible to alter these growth trends and to establish a condition of ecological and economic stability that is sustainable far into the future ..\u201d<\/em><\/p>\n\n\n\n The report was hailed by its supporters as an eye-opener while critics dubbed it as \u201cmodel-of-doom\u201d. The critics compared it with Thomas Malthus\u2019 pessimism on population growth while many rubbished its predictions and discredited it as a deliberate attempt to thwart future growth. But the report did spark a debate on habitability of this planet. Today, during the Covid-19 lockdown, the same thought has crossed a lot of minds \u2013 is there really a limit to our economic growth?<\/p>\n\n\n\n Since the industrial revolution of 1700, we have had exponential economic growth from $700 billion GDP in 1700 to $100 trillion now in 2019 ($ in 2011 prices) about 143 times growth. In the same period population has grown from 603 million to above 8 billion – a 13 times increase. Industrial and food productions have also increased multifold, and the overall average living standards, although it varies by countries, has also increased dramatically. But this growth has been accompanied by a drastic depletion of natural resources and environmental degradation.<\/p>\n\n\n\n Something is wrong with our pursuit of economic growth which we measure in terms of Gross Domestic Product (GPD). All those who manage the economy and formulate policies put efficiency and economic growth at the center of their policy goals. We conveniently forget that this reckless pursuit of growth is at the cost of environment, natural resources and our planetary ecosystem. We assume that the technological progress will continue to bring us higher output per unit of natural resources. But we conveniently forget \u2018Jevons paradox\u2019 which says, although technological progress increases efficiency, it also increases the rate of consumption. New inventions have brought us increasing returns and economies of scale, which in turn decreased marginal and average cost and lowered prices. The lower prices went on to increase the quantity demanded which in turn resulted in more and more production and use of natural resources.<\/p>\n\n\n\n In our supply side production function, we have conveniently ignored natural endowment as a fundamental input factor in the production process. We have accounted only for capital and labor, and not natural resources. In formulating growth policies, we assumed our natural resources are abundantly and perpetually available. Natural resources are finite and cannot be replaced at the same rate as its consumption rate and these natural resources are going to run out at some point of time. Hence, it is logical to infer that there is a limit to economic growth no matter how much efficiency we achieve in the production process.<\/p>\n\n\n\n ________________________<\/p>\n\n\n\n Note: The author is thankful to Atul Gopal, the founder of Peepal Tree School, Pune, India for his valuable comments and editing this article. The views and opinion expressed are of authors. Any comments or criticism are welcome. <\/em>2<\/p>\n\n\n\n Interestingly, we do include the cost of some natural resources (coal, oil etc.) as production costs in our income statement and balance sheet. We do valuations and monetizations of natural resources for cost estimation purposes and for price setting. We humans are clever and selfish. We consider this monetary value as a cost to the producer and not as a payment to the ecosystem.<\/p>\n\n\n\n We boast that the market mechanism is an ideal process for it allows consumers and producers to act in their self-interest. We claim this process creates healthy competition, forcing supply and demand to equilibrate. Theory says that this is the optimal way of resource allocation. True.<\/p>\n\n\n\n But an excess of that market mechanism also creates a disequilibrium with nature. Our economic theories explain interactions only between consumer and producer. There is no consideration for nature in our market mechanism and in cost-benefit analysis. In this analysis, invariably we consider standings only for parties involving \u2013 people, government and private entities \u2013 all are humans and representing humans. There is no legal standing and compensation for wildlife habitats, forests, mines and nature. We define \u201cproperty rights\u201d for us but not for wildlife habitats from whom we have forcibly taken their land and resources. This is the fallacy in the cost-benefit and environmental impact analysis.<\/p>\n\n\n\n We define GDP as the sum of monetary value of the final goods and services or \u201cvalue added\u201d to raw and intermediate goods. But there is no provision for value addition to nature from where we extract raw and intermediate inputs. Our economic concepts of growth are lopsided and biased. We need to strengthen growth concepts by accounting for cost to nature. We must widen the GDP\u2019s definition to accommodate depletion of natural resources. Such accounting practices will be similar to depreciation on the balance sheet and income statements. Accounting for natural resources in GDP will tell us \u201creal\u201d growth (GDP minus depletion of natural resources) which will be not just adjusted for inflation but also for the natural endowment.<\/p>\n\n\n\n Ironically, there have been attempts to come up with alternative concepts to GDP like Human Development Index developed by the United Nations. Bhutan, a small Himalayan country had already come up with the concept of Gross Happiness Product (GHP). Economists also came up with the concept of \u2018externalities\u2019 which recognizes costs (e.g. pollution) imposed by one party on another party who is not in actual market transaction. But again, these concepts and metrics are also human centric and have little accommodation for natural endowment.<\/p>\n\n\n\n There are also attempts such as the Intergovernmental Panel on Climate Change (IPCC) formed by the U.N., which is spearheading the global efforts in tackling climate change. It\u2019s a top-down approach. But their efforts are falling short as many countries including the U.S. are not willing to compromise on their policies centered around GDP growth.<\/p>\n\n\n\n Today, the Corona virus has crippled us. We see a decline in our population and our economic output. This looks similar to the warning by the MIT researchers, albeit the Corona episode is not caused by the reductions in natural resources. It might have emerged from a lab or from a bat. But it is still nature\u2019s fury. It seems there is a message from the nature. It\u2019s a time to look back on our beliefs, habits, greed, wants, and economic concepts of growth.<\/p>\n\n\n\n As I contemplate during this lockdown, it gives me this realization that we (individuals and nations) must limit our wants for our true progress and respect our nature. We must design our economic system which will equilibrate with our ecosystem. If we don\u2019t then nature will put a limit on our growth. The Corona virus has taught us what the MIT report had warned us in 1972. That there is a limit to growth!<\/p>\n\n\n\n References:<\/p>\n\n\n\n The Limit to Growth – A report for the Club of Rome\u2019s Project on the Predicament of Mankind<\/em>\u201d, Donella & Dennis Meadow et. al., 1972; \u201cThe Limit to Growth<\/em>\u201d was subsequently updated in 2004 and 2012 with the revised forecasts.<\/p>\n\n\n\n Atul comments<\/u><\/strong><\/p>\n\n\n\n Anant hits bulls eye when he mentions degrowth as the single most important solution to the world\u2019s problems. This would also imply some v ery personal action points. Are we all ready to live in smaller houses. Ready for fewer, local vacations? Ready for fewer gadgets? Ready to die at our homes instead of hospitals? Matthius was unfortunate. He was born in the early days of the industrial revolution. Anant may be as unfortunate – to be alive in the early days of the information revolution. The naysayers always start as a minuscule minority. And although all of us are talking of the new normal – reality is that post lockdown – it would be more or less life is usual. <\/p>\n\n\n\n I am reminded of a study about how more use of tech has not helped getting more time. If we have vacuum cleaners, we vacuum everyday. So a higher use, as Anant highlights nicely using Jevon\u2019s paradox, is really something that needs to be reversed. We all need to reward ourselves more with time, than money.<\/p>\n\n\n\n The silver lining is most probably going to be in fossil fuels. People will definitely be travelling less – and working from home. So we can see many barrels of gas continue to occupy their rightful place underground. Current Economics has helped slow growth rates down. As families become better off, they do produce fewer kids. But the role model has to be places like Japan, where the population has been degrowing for many years. Closer home, India is seeing good population degrowth in the South – but also a concomitant loss of political power for those states. This would definitely lead to political centrifugal forces. <\/p>\n\n\n\n Would have loved if Anant had been more specific on the economic measures that reflect mankind\u2019s sustainability. Maybe we need to have specific teams to handle degrowth. <\/p>\n\n\n\n Simran’s comments<\/u><\/strong> I like the article. It has a lot of good points. The data was insightful and I liked how it was converted to \u2018n times\u2019 as the human brain often fails to comprehend the vast difference between million and billion.One thing is very clear- we need to control the damage to the environment and we need to do it immediately. I am afraid that after the economy is opened up the damage will exceed the pre corona era too and this small relief will be negligible in contrast. I completely agree with the part about the valuation of natural resources being for cost estimation and not price setting purposes. It is the perfect example for the tragedy of the commons taught in econ 101. An easy way out would be to make the public goods private and give certain bodies ownership or internalize the externalities. As the author mentions- we humans are greedy by nature. One way to make sure the environment prospers is to align our greed with it in such a way that our greed benefits the environment. I have no idea how\/ if this is possible but this is the first thought that came to my mind. The Jevon\u2019s paradox (I will not lie- I had to google for it) is also very important but overlooked. It makes so much sense when you think about it but most of us don\u2019t think about it in the first place.<\/p>\n","protected":false},"excerpt":{"rendered":"