Sustainable Growth?

Learning Objectives Self-Check

Read through the following statements/questions. You should be able to answer all of these after reading through the content on this page. I suggest writing or typing out your answers, but if nothing else, say them out loud to yourself.

If you haven't done this already, the next time you hear or read an economic report, or hear a politician discuss economic policy, pay attention to how much focus is on growth. The tax cuts passed at the end of 2017 in the U.S. provide a great example of this, as do the more recent Covid relief bill. "Economic growth" was often cited as the main purpose of the tax bill, and Covid relief to a lesser extent. One of the major economic concerns expressed with regards to the Covid-19 pandemic is "contraction," i.e. negative growth. This is not an aberration! We hear the phrase "economic growth" so much that the attempt to achieve it is taken as a given. This cuts across political (Republican, Democrat, Independent, etc.) and international boundaries, by the way.

But have you ever thought about what the implications of a permanent state of economic growth are, or if it is even possible? Renowned economist Herman Daly - who, among other accolades received the prestigious Right Livelihood Award, aka "the alternative Nobel prize", in 1996 - provides a concise explanation of the inadequacies of the notion of "sustainable growth" in the article below.

Important Note

In general, the most acceptable type of information source is peer-reviewed research, which appears in journals. There are thousands of scholarly/academic journals, and to be fair not all of them are regarded with equal esteem. But, by and large, if you find information in a journal, there is good reason to believe that there is at least relatively solid scientific backing behind it, and often very solid scientific basis (again, this depends somewhat on the journal).

"Peer-reviewed" means that the article was reviewed by experts in the field of research addressed in the article, i.e., the author's peers. This is usually a very rigorous process, and it is rare to find major errors in peer-reviewed research, particularly for well-regarded journals. There are some exceptions - for example, you have to be careful who funds research. Authors are supposed to disclose who funded their research (research can be very costly, if nothing else to compensate the authors), but there are instances of this not happening. Funders are not supposed to influence research outcomes. In fact, that entirely contradicts the principle of the scientific research process. But results are often open to some interpretation, and methods are never perfect, so there is room for subtle influence. For example, you may want to take energy research funded by energy companies or energy advocacy organizations with a grain of salt (i.e., really use your critical thinking skills!). This is much more important for non-peer reviewed research. This is usually oil- and/or natural gas-related - mostly because they are some of the wealthiest corporations in the world and stand to gain (or lose) significantly due to changing scientific and policy understanding - but this stands for renewables as well.

All that said, peer-reviewed research is considered the best type of information to use. The article below is from the peer-reviewed journal Development. Note that many non peer-reviewed articles use peer-reviewed information as source material, which is important to consider when analyzing the reliability of the information.

To Read Now

Before reading the article, a short note on terminology: Gross Domestic Product (GDP) is the "value of all finished goods and services produced within a country's borders in a specific time period" (source: Investopedia: gdp). Gross National Product (GNP) is the same as GDP, but includes money made overseas by domestic residents, and does not include money made domestically by foreign residents (source: Investopedia: gnp). I recommend at least watching the videos on the GDP a GNP Investopedia pages.

So, GDP is the dollar value of every new product and service bought and sold within a country's borders, plus things like government spending and net exports. Say a Chinese company sells products within the U.S.'s physical borders. All income counts toward the U.S.'s GDP, but not China's GDP. But that income does not count toward the U.S.'s GNP, instead, counting toward China's GNP. It used to be more common to use GNP, but now GDP is much more commonly used. For the purposes of this course, it is not important to spend time distinguishing between the two, but to understand that they are both measurements of overall economic activity.

Economists use GDP as a sign of general economic health, particularly whether it is growing (considered a good thing) or shrinking (not good). Another important term is GDP per capita (GDP/capita). This is a measure of GDP divided by the number of people living in a country.

Read "Sustainable Growth, an Impossibility Theorem," by Herman Daly, located in the Modules tab in Canvas under Lesson 2. This is pretty dense reading. There's no shame in reading it more than once!

The Steady State Economy

There are a lot of good points made in the article, but the overarching one is:

"An economy in sustainable development...stops at a scale at which the remaining ecosystem...can continue to function and renew itself year after year" (p. 45)

This should sound very familiar! It coincides neatly with the concept of ecological footprint. (I'll leave you to think about what this means in terms of global ecological footprint, i.e. 1 earth, less than 1 earth, etc.) He describes this point (an economy in sustainable development) as the optimal scale for the economy, and that optimal scale is never addressed when discussing macroeconomics(p. 46). In other words, economists (and by extension, politicians) do not discuss the best (optimal) size of the economy, only focusing on growing it as large as possible. Think about this next time you read or hear a story regarding economic growth.

Another essential concept is that Daly is careful to point out the difference between growth (getting "bigger") and development (getting "different"). The economy and society can develop forever, but cannot grow forever. A developing economy is not stagnant, even if it is not growing. Money will change hands, services will be provided, goods will be made, etc. An economy cannot grow forever, however, because it is a subset of the earth, and is subject to the physical limitations that the earth's biocapacity provides. This is a fundamental principle that should be considered when discussing economic growth and economic sustainability, and it also aligns closely with the notion of ecological footprint.

The whole article is important, but a few other highlights I'd like to point out are:

He states from the outset that "sustainable growth is impossible" (p. 45). Simply put, as long as the economy is based on the unsustainable use of natural resources, economic growth cannot be sustained indefinitely.
Sustainable development is possible only if it exists within a system that is "maintained in a steady state by a throughput of matter-energy that is within the regenerative and assimilative capacities of the ecosystem" (p. 45). I.e. (again, this should sound familiar), we can only use resources at a rate no faster than they can be replenished, and cannot emit wastes any faster than they can be safely absorbed into/assimilated by the natural environment.
He notes that growth has "almost religious connotations of ultimate goodness" (p. 45). This was addressed above. It is beyond rare to hear someone publicly state that growth is not necessary.
On p. 46, he is clear that one of the primary goals of the economy should be to alleviate poverty, but that simply growing GDP (or GNP) will not make that happen without some guidance and/or policies.
He offers a few relatively straightforward policy solutions on pp. 46 - 47:
- Tax resource extraction and use the money to reduce income tax, particularly at lower income levels. (Side note: This is referred to as a revenue-neutral tax because all of the revenue is given back to the people, not the government. A revenue neutral carbon tax has been proposed by more than one bipartisan group. See the link to the Citizens' Climate Lobby, and this one to the Climate Leadership Council, if you are interested in learning more.)
- "Renewable resources should be exploited in a manner such that: (1) harvesting rates do not exceed regeneration rates, and (2) waste emissions do not exceed the renewable assimilative capacity of the local environment" (p. 47). Sorry to sound like a broken record, but these should sound familiar.
- Finally, he proposes that: "Non-renewable resources should be depleted at a rate equal to the rate of creation of renewable substitutes" (p. 47). For example, for every 1,000,000 Btu's of fossil fuel used, we should find a renewable source of 1,000,000 Btu's. He suggests supporting this by taxing non-renewables and using the funding to develop renewable substitutes.

All of the above summarizes the concept of the steady state economy.

To Watch Now

Please watch a video (5:07) featuring Herman Daly, himself, discussing the steady state economy:

A Steady State Economy?

Click Here for Transcript of a steady state Economy Video

If we start with the total system, the Earth, then it's fairly clear that the earth is more or less a steady state - in the sense that is not increasing in aggregate mass; it is not increasing in surface area. The rate of inflow of solar energy is more or less constant. The rate of outflow of radiant heat energy is more or less constant. – at the same amount, same amount of energy.

If that weren't the case, then temperatures will be going up. The import from outer space of materials and the export to outer space of materials are roughly equal - I mean both negligible, and usually involuntary in any case. So, the Earth as a whole, in its behavior mode is a steady state. So as the economy becomes a larger and larger subsystem of the Earth, then more and more it has to conform to the behavior mode of the whole of which it is an ever-larger part.

So in the limit, I mean the economy takes over the whole earth, well then it’s got to be a steady state because that's the way the earth is. And then I think it needs to approximate a steady state long before it hits that limit. And so I think that's kinda the long run idea of steady state.

Now the idea, I think there are limits, you know, long before the macroeconomy hits that physical scale limit. Long before that happens, we experience the cost of growth rising faster than the benefit. Because we're sacrificing natural services that are more important than the production benefits that we gain.

I mean, you would expect this to be a normal consequence of classical economics - the law of diminishing marginal utility: you satisfy your most pressing wants first. So, you are going to run out of important things that you need. And the Law of increasing marginal cost: you do the easiest thing, you have access to the easiest resources first, so the cost will go up there.

So, you know, what we need is to be good economists, in the sense that we measure costs and benefits and are sensitive enough to recognize the economic limit to growth, to stop when growth becomes un-economic and not be so dumb or so insensitive that we have to crash headlong into biophysical limits and really get smashed.

As John Stuart Mill said, who was the classical economists who gave the fullest exposition and the most favorable exposition of the idea of a steady state, which they referred to as a stationary state, but it meant basically the same thing… He says it by no means implies any stationary state of human welfare. There will be as much room for moral and ethical and technical improvement as there was in a growth economy. And much more likelihood of it happening, in a way, because when you close off physical growth then the path to progress has to be moral and technological and intellectual and informational. You’ve switched the path to progress from this physical more and more stuff to a qualitative improvement of the same amount of stuff.

And, how far we can go in that direction? Uh, you know, who knows, but regardless of how far, why not, to we're gonna have to go in that direction.

So, let’s do it, and if we're lucky it won't be all that costly. It will be a great deal of moral improvement because I rather expect that we will…it will go well in that way because the material, the attempt to satisfy our wants by material growth was a little bit like scratching in the wrong place. You know, you’ve got a real itch, but you are just clawing somewhere and it doesn't help.

So at least I think this will help us to scratch in the right place if we devote our attention to moral and technical progress.

Credit: TreeTV / N2K Need to Know. "Herman Daly on the Economy & the Environment." YouTube. March 15, 2015.

Suggested Reading

Feel free to read a description of the steady state economy, as well as a brief historical background of the concept, by the Center for the Advancement of the Steady State Economy (CASSE). One thing to note that you will see in the article: Ecological Economics is a sub-field of Economics that essentially advocates for the application of the steady state economy concept (among other things). This should not be confused with Environmental Economics, which is more of a traditional Economics sub-field. Note that the "History of the Steady State Concept" section is less important than the others, but provides some good historical context.

Steady State Economy Definition, by Center for the Advancement of the Steady State Economy

There are a few important/interesting things I'd like to note from the reading and video:

First, a steady state economy is an "economy of stable or mildly fluctuating size...[and]& entails stabilized population and per capita consumption." Also, that: "To be sustainable, a steady state economy may not exceed ecological limits."
They note that: "GDP is not a good indicator of well-being, but is a solid indicator of economic activity and environmental impact." They recognize that GDP is limited in its usefulness. They indicate in a briefing paper many of the reasons GDP is inadequate and offer alternatives. Overall, they are very skeptical of the viability of GDP as an true economic and quality of life indicator. This is something we will discuss in a future lesson.
As Daly does, they differentiate between growth and development. "Economic growth is distinguished from economic development, which refers to qualitative change independent of quantitative growth. For example, economic development may refer to the attainment of a more equitable distribution of wealth, or a sectoral readjustment reflecting the evolution of consumer preference or newer technology."
"Theoretically and temporarily, a steady state economy may have a growing population with declining per capita consumption, or vice versa, but neither of these scenarios are sustainable in the long run...It also has a constant rate of throughput; i.e., energy and materials used to produce goods and services." the economy and resource use are able to grow until a certain point. There is a maximum size at which a steady state economy may exist based on the capacity of the earth to supply natural resources. Once this maximum is achieved, growth must stop, lest natural resource capacity be diminished.
They point to technology as a source of efficiency that can reduce the physical resources needed to produce goods and services. Efficiency is an essential component of steady state economics because it allows us to reduce our ecological impact. However, there are physical limits to this. As the economy converts raw natural resources into other products, some waste is generated along the way. The waste is usually difficult, if not impossible, to convert back to its original form. Think of how difficult it would be to make sawdust back into a tree; carbon dioxide, water vapor, and heat back into coal; plastic back into oil; and a silicon microchip back into grains of sand. As the economy chugs along using resources faster than they can be replenished, the natural system degrades. This imposes limits on what we can do in an economy.
As Daly says in the video, achieving a steady state economy does not mean the quality of life must decrease, or even stay the same at a certain point. Qualitative (type; character; quality) improvements can continue while quantitative (amount; quantity) increase stops. In fact, as you explore the CASSE website, you find out that they believe that achieving a steady state economy will improve the quality of life for current and future generations and that quality of life is a major goal of the steady state economy.
Proponents of the steady state economy have poverty alleviation as a primary concern, as well as ecological overshoot. The three main concerns of a steady state economy are "sustainability, equity, and efficiency."
They note that: "Neither economic growth nor economic recession are sustainable; therefore, the steady state economy remains the only sustainable prospect and the appropriate policy goal for the sake of sustainability." They view the steady state economy as the only sustainable way to organize an economy.

Some other points that are important to note about the steady state economy. (This is from a reading by CASSSE that has unfortunately disappeared from the internet, but the points are important.)

The authors are clear that a steady state economy can only be reached by regulating of the market, which is a primary reason that many economists are critical of them. BUT they also state that "ecological economists support many market strategies to accomplish efficient allocation of resources". They recognize that markets are very good at efficient resource use, but are only useful "after achieving sustainable scale and fair distribution."
To reiterate an earlier point, note that Daly and CASSE are not saying that economic growth has to stop now, but that it must stop at a point at which the earth is capable of renewing its natural resources indefinitely. If we can grow the economy while maintaining a steady state of natural resources, then hey, have at it! But at this point, all we have is one earth to pull resources from, so we must obey its laws.
(Optional) The "history" section mentions more than a few well-known figures in the history of economics, including Adam Smith, John Stuart Mill, John Maynard Keynes, Nicholas Georgescu-Roegen, and E.F. Schumacher. Some of them are seen as controversial in some circles, but all of them are notable. Worth looking into if you are interested in economic history and ideas.

Make no mistake: being on record as saying that the economy must stop growing at some point is anathema to the core of mainstream thinking about how economies should work. It will not win you many friends in the policy or economic world, and certainly won't get you elected to public office (in the U.S., anyway). But the logic is hard to argue with.

Good to Know - Degrowth

There is a burgeoning belief in the sustainability movement that not only do we need to stop focusing on economic growth as a development/policy goal, but that we actively need to seek ways to have negative growth (i.e. contract) in order to achieve sustainability goals. This is most often referred to as "degrowth." There are a lot of folks researching and making proposals on this, but there is a lot of controversy about this even among sustainability advocates. Some folks believe that technology and efficiency will solve sustainability problems (they are often referred to as technological optimists/techno-optimists or cornucopians). They often point to the possibility of "decoupling" resource use from growth. The jury is out on this, but it's not looking good for the cornucopians. While many countries have reduced emissions while growing GDP, most scientists believe it is not possibly to fully decouple environmental impact from economic growth.

This is an essential debate! The exact solution is not clear, and it will take years if not decades to figure out the best approach. But as burgeoning sustainability experts, it is helpful for you to know that degrowth may be necessary to achieve a sustainable future.

There is a lot of literature on this, but the following article provides a good overview of the current debate. They synopsize Degrowth thus: "The degrowth movement, as it’s called, argues that humanity can’t keep growing without driving humanity into climate catastrophe. The only solution, the argument goes, is an extreme transformation of our way of life — a transition away from treating economic growth as a policy priority to an acceptance of shrinking GDP as a prerequisite to saving the planet." While I strongly disagree with the phrase "save the planet" - the planet will survive, but the people and other organisms may not - the rest of the article is very good.

Suggested reading: Can we save the planet by shrinking the economy?, by Vox
Other possible readings: World Scientists’ Warning of a Climate Emergency, Ripple, W.J., Wolf, C., Nwsome, T.M., Barnard, P., & Moomaw, W.R. (2020), Bioscience, 15(1), 8-12; The decoupling delusion: rethinking growth and sustainability, The Conversation; Is Decoupling GDP Growth from Environmental Impact Possible?, Ward, J.D., Sutton, P.C., Werner, A.D., Costanza, R., MOhr, S.H., & Simmons, C.T. (2016), PLoS One, 11(10).

Free Market Environmentalism

It should not be difficult to recognize that humans are subject to the physical constraints of planet earth. But how we make sure that we do not exceed our limit to the point of collapse (e.g., overshoot and collapse mentioned previously) is something that is debated, even by people with seemingly the same end goals. There is a branch of environmental (well, it's primarily economic) thought that is based on the power of free markets to most efficiently manage resources. This is often called free market environmentalism (FME). Those who advocate for FME believe that free markets (economic systems that are free from government regulation) are the best way to solve environmental problems. And, just as important, they believe that the government is much worse at managing resources than the market. This article from the Library of Economics and Liberty (a free-market think tank) summarizes the school of thought pretty well.

As outlined in this article, this school of thought rests on three assumptions in order for markets to work for any environmental good (e.g., a forest, clean water, clean air, etc.): "Rights to each important resource must be clearly defined, easily defended against invasion, and divestible (transferable) by owners on terms agreeable to buyer and seller" (source: Library of Economics and Liberty). In other words, if a piece of property has:

clear ownership, and
those ownership rights are defensible in court (or elsewhere), and
it can be bought and sold freely, it will be preserved.

I would add that (4) the author (and this is typical of FME) also assumes that the owner of the property is motivated to protect the property in anticipation of future profits.

For example, if I own a lake and someone pollutes it, if the courts are just, the polluter will end up paying me because (s)he compromised my ability to enjoy my property. If these conditions are known, then the polluter, in theory, will decide not to pollute in order to avoid the extra cost. As you can see, all of this relies on using money as the motivating factor.

This is a very sound argument as long as those conditions are met, at least in terms of environmental protection. This situation, and variations of it, have been proven effective in a wide array of applications. It worked for water conservation in the Western U.S. And here are a number of case studies demonstrating that these principles can work.

But what if those four conditions are not met? With climate change, a fundamental question is: "Who owns the atmosphere?" (The answer: no one does.) If there is no clear ownership, the system may not work. Let's go back to my lake that got polluted, and think about a few plausible scenarios.

What if it was impossible to prove where the pollution came from? If it was airborne pollution that is impossible to trace, I am out of luck. I have no one to sue. This is, unfortunately, the case for a lot of types of pollution.
Even if I had a pretty solid case that the pollution came from a specific source, the owner of that source can probably afford better lawyers than me and could win a case.
What if I can make more money destroying my lake than preserving it? I could fill it in and build an apartment on it. Or sell it to a chemical company to use as a dumping ground. If I place a certain economic value on my lake, then it stands to reason that I would be willing to destroy it if I could make more money by doing so. I could use the money to move on and buy more property. The case studies noted above hinge on a party or parties agreeing that conservation is necessary.
This type of system is based on perceived value being real value, which can also cause problems. Biodiversity (which we will go over in the coming lessons) is something that very few people place value on, but is essential for human survival. Also, there are certain goods that are nearly impossible to accurately price, even using Willingness to Pay analysis. Negative impacts on future generations is one that is particularly sticky in this regard. (Remember intergenerational equity?)
Finally, by basing everything on money, those without money will have less access to the resource. If you recall from Lesson 1, this fits squarely with one of the fundamental sustainability principles (social equity). If I charge people a lot of money to fish in my lake, that may help preserve the lake, but at the expense of equity.

This article from the Property and Environment Research Center - also an advocate for free market environmentalism - goes over a few of these and other examples where the system breaks down.

What is the Solution?

This is a really dense, complicated topic that would take a very long time to fully flesh out. But determining the solutions to critical energy and sustainability problems is not one of the goals of this course, however, recognizing the planet's ability to support life is. One of the main points that I want you to walk away with from this page is that our economy has physical limitations that we must adhere to. The steady state economy is a precondition for environmental sustainability. But it is useful for you to know - especially in terms of critical analysis - that there are multiple possible ways to address this goal. Many - Herman Daly among them - advocate for government policy to solve this problem. Many - like the free market environmentalists - believe that markets and private property are the answer. I am not here to say which school of thought is correct, but my belief based on the evidence is that it is somewhere in between. Perhaps this could be done by having the government cap consumption at sustainable levels and allowing the market to work from there ("cap and trade"), or by using some of Daly's suggestions regarding subsidies and taxes. Cap and trade worked well for the acid rain problem in the early 1990s, for example, and is often cited as a solution to carbon emissions.

There are pros and cons to each approach. Markets are really great at efficiently managing resources that can have economic value attached to them (e.g., copper, oil) but even the most devout free market believers realize that they don't always work. Externalities are a good example of this (e.g., environmental destruction from copper and oil mining, air pollution from burning gasoline). And placing an economic value on something is a double-edged sword - it can, and often does, lead to preservation because of its expense (e.g., private nature parks), but it can lead to destruction if it is not perceived as worth enough (e.g., converting rainforest into pasture land). Private ownership often leads to inequity as well, as those without means are priced out of the access to goods (private education being a prime example of this). But government is generally not good at efficiently managing resources (e.g., the federal government of the U.S.). Overall, it is very difficult to believe that the market, left to its own devices, will achieve the Steady State Economy, especially if history is any guide. This is evidenced by the fact that the global ecological footprint is already at unsustainable levels.

One of the goals of this course is to help you think critically about these issues, so my hope is that when thinking about the information presented here you do so with "clarity, accuracy, precision, consistency, relevance, sound evidence, good reasons, depth, breadth, and fairness" as you will read in the critical thinking section at the beginning of the next lesson (source: The Foundation for Critical Thinking). To do this, you must look at the evidence and use sound logic, minimizing the influence of ideology as much as possible. But as we will also go over in the critical thinking lesson, the more you know about these topics, the better you are able to make a sound critical analysis.

Optional Reading

The following short article and web page describe somewhat competing views on this.

"How Sad; George Monbiot Does Not Realize That a Steady State Economy Is Not A No Growth Economy." Tim Worstall, Forbes Magazine. Please read through the comments on the second page.
Briefing Papers. Center for the Advancement of a Steady State Economy.

Check Your Understanding - Free Market Environmentalism

Optional (But Strongly Suggested)

Now that you have completed the content, I suggest going through the Learning Objectives Self-Check list at the top of the page.