Growth versus Environment

The relation between economic gains and environmental losses is close, as McNeill notes. The economy consumes natural resources

(both renewable and nonrenewable resources), occupies the land, and releases pollutants. As the economy has grown, so have resource use and pollutants of great variety. As Paul Ekins says in Economic Growth and Environmental Sustainability, "the sacrifice of the environment to economic growth . . . has unquestionably been a feature of economic development at least since the birth of industrialism."11 We saw in detail in Chapter 1 that this sacrifice has been and remains enormous.

Growth is traditionally measured as an increase in Gross Domestic Product, and GDP growth is what is meant here by growth. It has given much of the world remarkable material progress—progress in the things that economies can produce and money can buy—but this prosperity has been and is being purchased at a huge environmental cost. McNeill reports the following increases over the century from the 1890s to the 1990s:!2

World economy

up

14 fold

World population

up

4 fold

Water use

uP

9 fold

Sulfur dioxide emissions

uP

13 fold

Energy use

uP

16 fold

Carbon dioxide emissions

up

17 fold

Marine fish catch

up

35 fold

Such trends continue into the present. Over the past quarter century—a period during which major environmental programs were in place and operational in many countries—the following increases occurred globally on average each decade from 1980 to 2005:°

Gross world product 46 percent

Paper and paper products 41 percent

Fish harvest 41 percent

Meat consumption 37 percent

Passenger cars 30 percent

Energy use 23 percent

Fossil fuel use World population Grain harvest Nitrogen oxide emissions Water withdrawals Carbon dioxide emissions Fertilizer use Sulfur dioxide emissions

20 percent i8 percent i8 percent i8 percent i6 percent i6 percent 10 percent 9 percent

Each of these indicators measures environmental impact in some way, and each shows that impacts are increasing, not declining. It is significant that these growth rates of resource consumption and pollution are lower than the growth of the world economy. The eco-efficiency of the economy is improving through "dematerialization," the increased productivity of resource inputs, and the reduction of wastes discharged per unit of output. However, eco-efficiency is not improving fast enough to prevent impacts from rising. Donella Meadows summed it up nicely: things are getting worse at a slower rate.M

What the environment cares about, moreover, is not the rate of growth but the total loading. These loadings—for example, the amount of fish harvested—were already huge in i980, so that even modest growth per decade produces large increases in environmental impacts—impacts that were already too large. By 2004, the world was consuming annually 369 million tons of paper products, 275 million tons of meat, and 9 trillion tons of fossil fuels (in oil equivalent). Freshwater for human use was being withdrawn from natural supplies at a rate of about a thousand cubic miles a year.

Behind these numbers is the phenomenon of exponential expansion. A dominant feature of modern economic activity is its exponential growth. A thing grows linearly when it increases by the same quantity over a given time. If college tuition goes up three thousand dollars a year, the increase is linear. A thing grows exponentially when it increases in proportion to what is already there. If college tuition goes up 5 percent a year, the increase is exponential. The modern economy tends to grow exponentially because a portion of each year's output is invested to produce even more output. The amount invested is related to the amount of the economic activity. Food production, resource consumption, and waste generation also increase because they are linked to population and output growth.

Or so it has been thus far. But what of the future? The world economy is poised for explosive exponential economic growth. It could double in size in a mere fifteen to twenty years. So the potential is certainly present for large and perhaps catastrophic increases in environmental impacts in a period when they should be decreasing rapidly.

There are many good reasons for concern that future growth could easily continue its environmentally destructive ways. First, economic activity and its enormous forward momentum can be accurately characterized as "out of control" environmentally, and this is true in even the advanced industrial economies that have modern environmental programs in place. Basically, the economic system does not work when it comes to protecting environmental resources, and the political system does not work when it comes to correcting the economic system.

Economist Wallace Oates has provided a clear description of "market failure," one reason the market does not work for the environment: "Markets generate and make use of a set of prices that serve as signals to indicate the value (or cost) of resources to potential users. Any activity that imposes a cost on society by using up some of its scarce resources must come with a price, where that price equals the social cost. For most goods and services ('private goods' as economists call them), the market forces of supply and demand generate a market price that directs the use of resources into their most highly valued employment.

"There are, however, circumstances where a market price may not emerge to guide individual decisions. This is often the case for various forms of environmentally damaging activities. . . . The basic idea is straightforward and compelling: the absence of an appropriate price for certain scarce resources (such as clean air and water) leads to their excessive use and results in what is called 'market failure.'

"The source of this failure is what economists term an externality. A good example is the classic case of the producer whose factory spreads smoke over an adjacent neighborhood. The producer imposes a real cost in the form of dirty air, but this cost is 'external' to the firm. The producer does not bear the cost of the pollution it creates as it does for the labor, capital, and raw materials that it employs. The price of labor and such materials induces the firm to economize on their use, but there is no such incentive to control smoke emissions and thereby conserve clean air. The point is simply that whenever a scarce resource comes free of charge (as is typically the case with our limited stocks of clean air and water), it is virtually certain to be used to excess.

"Many of our environmental resources are unprotected by the appropriate prices that would constrain their use. From this perspective, it is hardly surprising to find that the environment is overused and abused. A market system simply doesn't allocate the use of these resources properly."i5

Political failure perpetuates, indeed magnifies, this market failure. Government policies could be implemented to correct market failure and make the market work for the environment rather than against it. But powerful economic and political interests typically stand to gain by not making those corrections, so they are not made or the correction is only partial. Water could be conserved and used more efficiently if it were sold at its full cost, including the estimated cost of the environmental damage of overusing it, but both politicians and farmers have a stake in keeping water prices low. Polluters could be made to pay the full costs of their actions, in terms of both damages and cleanup, but typically they do not. Natural ecosystems give societies economic services of tremendous value. A developer's actions can reduce these services to society, but rarely does the developer pay fully for those lost services.

Governments not only tend to shy away from correcting market failure but exacerbate the problem by creating subsidies and other practices that make a bad situation worse. In Perverse Subsidies, Norman Myers and Jennifer Kent estimate that governments worldwide have established environmentally damaging subsidies that amount to about $850 billion annually. They conclude that the impact of these subsidies on the environment is "widespread and profound." They note: "Subsidies for agriculture can foster overloading of croplands, leading to erosion and compaction of topsoil, pollution from synthetic fertilizers and pesticides, denitrification of soils, and release of greenhouse gases, among other adverse effects. Subsidies for fossil fuels aggravate pollution effects such as acid rain, urban smog, and global warming, while subsidies for nuclear energy generate exceptionally toxic waste with an exceptionally long half-life. Subsidies for road transportation lead to overloading of road networks, a problem that is aggravated as much as relieved by the building of new roads when further subsidies promote overuse of cars; the sector also generates severe pollution of several sorts. Subsidies for water encourage misuse and overuse of water supplies that are increasingly scarce. Subsidies for fisheries foster overharvesting of already depleted fish stocks. Subsidies for forestry encourage overexploitation at a time when many forests have been reduced by excessive logging, acid rain, and agricultural encroachment."16

We live in a market economy where prices are a principal signal for guiding economic activity. When prices reflect environmental values as poorly as today's prices do, the system is running without essential controls. And there are other problems too, discussed shortly. Today's market is a strange place indeed. At the core of the economy is a mechanism that does not recognize the most fundamental thing of all, the living, evolving, sustaining natural world in which the economy is operating. Unaided, the market lacks the sensory organs that would allow it to understand and adjust to this natural world. It's flying blind.

This problem of political failure is exacerbated in our era of globalization and international competition. One of globalization's foremost analysts, Thomas Friedman, has described what he calls "the golden straitjacket." "When your country . . . recognizes the rules of the free market in today's global economy, and decides to abide by them, it puts on what I call 'the Golden Straitjacket.' . . . As your country puts on the Golden Straitjacket, two things tend to happen: your economy grows and your politics shrinks. That is, on the economic front the Golden Straitjacket usually fosters more growth and higher average incomes—through more trade, foreign investment, privatization and more efficient use of resources under the pressure of global competition. But on the political front, the Golden Straitjacket narrows the political and economic policy choices of those in power to relatively tight parameters."!7 Business Week struck a similar theme in a cover story in 2006, "Can Anyone Steer This Economy?" Its conclusion? "Global forces have taken control of the economy. And government, regardless of party, will have less influence than ever. . . . Globalization has overwhelmed Washington's ability to control the economy."!8 If Washington has trouble controlling the economy for economic ends like job creation and wage growth, imagine the difficulty of controlling it to benefit the environment.

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