Economic Growth and Human Wellbeing (Part II)

By Carmen Lawrence
Winthrop Professor, School of Psychology, University of Western Australia
Posted on 3 May 2011
Filed under Cognition, Culture, Economic Equity

(This post is the second of a three-part series. See Part 1: Introduction and Part 3: The Psychological Down Side of Growth.)


Part 2: Revisiting Limits to Growth

Whether the focus is on pollution, biodiversity loss, resource depletion or climate change, the underpinning cause is the same: the human consumption that drives economic growth. As the ecologist Jane Lubchenko said in her address as the president of the American Association for the Advancement of Science in 1998, “During the last few decades, humans have emerged as a new force of nature. We are modifying physical, chemical, and biological systems in new ways, at faster rates and over larger spatial scales than ever recorded on earth. Humans have unwittingly embarked upon a grand experiment with our planet. The outcome of this experiment is unknown, but has profound implications for all of life on Earth”.

Our levels of consumption are high and rising and, in the West, we are more affluent – and wasteful – than we have ever been.  Add to that the rising affluence of the middle classes in India and China who are beginning to consume like we are, and it is obvious that climate change is not the only momentous problem we’re facing; there are many serious commentators who believe we are already overshooting the earth’s carrying capacity.  Visit any large city and witness the vast activity of the modern market place, the mobilisation of resources and energy from around the world. Two questions immediately suggest themselves: How can this last? And do we actually benefit from all that consumption?

Dasgupta (2010) has demonstrated that a country’s wealth per capita can decline even while GDP per capita increases and the UN Development Index records improvement. This is because the GDP does not deduct the depreciation of capital (including natural capital) since nature is taken to be a fixed, indestructible factor of production. As Dasgupta points out (p 6), the problem with this assumption is that it is wrong: “nature consists of degradable resources. Agricultural land, forest, watersheds, fisheries, fresh water sources, river estuaries and the atmosphere are capital assets that are self-regenerative, but suffer from depletion and deterioration when they are overused”. 

Consider, too, the world’s fisheries. The global catch rose from 19 million tons a year in 1950 to 80 million tons by 1990, with the result that 70% of the world’s saltwater fish are judged to be overexploited or fully exploited. Some fisheries have collapsed altogether. Similarly, many of the planet’s mineral and energy resources are being used so rapidly that we are fast approaching – and may even have passed – the peak of production, the case of oil being the most often debated (Speth, 2008).

Modern economies evolved on the basis of availability of cheap oil - cheap to extract, cheap to use; oil permeates every corner of our daily lives both as source of energy and a component of manufactured goods. No major industrial society can survive today without oil – food, transport, heating, plastics, cars, drugs, prosthetics, computers, housing. But global oil production is forecast to peak and then begin terminal decline, the “big rollover” where demand will exceed supply. Predictions vary about imminence of problem: some think it is already happening; others put it within the next 10-15 years; others still up to 40 years hence. But all agree that it is a real problem. It means that before oil runs out it will become too expensive to use for many purposes, especially private transport. Of course, it is the least well off in the community who are most vulnerable to such price increases, the same people who are often out of range for reliable public transport. Even if we ignore the global warming imperative to decrease oil use, even the most unvarnished optimists recognise that new fields in prospect will not cover the shortfall if we continue growth as usual. It is estimated that exploration is turning up one new barrel of oil for every six we consume. Just as oil supply is looking uncertain, global demand is rising faster than ever.

Despite optimistic pronouncements  about the dematerialisation of advanced economies, the aggregate volume of material used globally (and in most regions) is also rising quickly and – apparently inexorably; resources like fuels, wood, sand, minerals, biomass are being used at ever increasing rates. Material flow analysis, which tracks the extraction of such resources, shows that in 1980 we extracted and used 40 billion metric tons of such materials. Twenty five year later, the figure had increased by 45% to 58 billion (Schor, 2008). And despite improvements in the efficiency of production, the per capita consumption of such materials has been nearly constant because of the expanded scale of production.

These changes have human impacts too. The World Bank recently highlighted the fact that a third of the world’s population faces water scarcity, that 70% of the world’s fisheries are overexploited, that soil degradation affects a significant proportion of both irrigated and rain fed agricultural lands and that every year at least a million people die prematurely from respiratory illnesses linked to air pollution.

There are strong arguments – including from within profession of economics - that growth indicators like the GDP and the concept of growth itself fail to capture these unfolding environmental and humanitarian challenges. Indeed they mask inequities and fail to register actual declines in well-being, even in the wealthiest of countries

There have been some attempts to move to a more complex set of national accounts.  Work is being undertaken in the EU and within the OECD to construct robust indices to better capture wellbeing: composite indices of elements overlooked in the GDP – the state of environment, social indicators and non-market exchanges. Following international initiatives, Australian researchers (Hamilton & Denniss, 2000) also constructed an alternative index, the “Genuine Progress Indicator” to remedy the deficiencies in the GDP and to measure changes in well being in Australia over the last 45 years. This analysis showed that GDP per person increased from $9 000 to $23 000 or 2.1% per annum over the period 1950-1995 but the GPI rose at a rate of only 1.3% from $9 000 to $16 000.  Of note is that fact that the GPI did not increase at all from late 70s i.e. in the last two decades. In other words, the benefits of economic growth to the society were fully offset by the costs. The principal contributors to this phenomenon were found to be the increasing levels of foreign debt, the costs of underemployment and overwork, the impact of environmental problems, the escalating cost of energy resource depletion and the failure to maintain the national capital stock. Similar results have been obtained in many developed countries.

Economic growth does not appear to be the last word in improving the quality of our lives. On the contrary, it appears to be placing severe stress on our life support systems. As Lester Brown puts it (www.earth-policy.org), we need a Plan B.

 

References

Dasgupta, P. (2010) Nature's role in sustaining economic development, Philosophical Transactions of the Royal Society, 365 (1537), 5-11.

Hamilton, C., & Denniss, R (2000). Tracking Well-Being in Australia: The Genuine Progress Indicator 2000. Discussion Paper no 35, Australia Institute, Canberra.

Lubchenko, J. (1998). Entering the century of the environment, Science, 279, 492.

Schor, J. (2010). Plenitude: The New Economics of True Wealth. Melbourne: Scribe.

Speth, J. (2008). The Bridge at the Edge of the World. New Have: Yale University Press.

 

 


 

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