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Special series: Ecological economics, part 2

NewsNotes, March-April 2009

In the first article of this series, we looked at the problem of using GNP or GDP as an indicator of well being. In this article, we look at the concept of uneconomic growth, or “illth,” an important idea for understanding ecological economics and the limits to growth.

In a speech at the University of Maryland, ecological economist Herman Daly said, “We cannot avoid producing ‘bads’ along with goods. If we stop depleting, we die of starvation. If we stop polluting, we die of constipation.” The important question is how to keep this necessary use of resources “within the natural capacity of the ecosystem to absorb our waste…and to regenerate resources that we can use again.” It is when the economy surpasses this natural capacity for regeneration that economic growth becomes “uneconomic” growth. Instead of producing wealth, uneconomic growth produces “illth,” a term originally coined by John Ruskin, a 19th century philosopher to mean the opposite of well being.

Ecological economists spend much of their time focusing on the flow of resources – from extraction to production to disposal – also called “throughput.” How large is the economy and its throughput in relation to the earth’s ecosystem? How large could it be? But most importantly, is there an optimal size beyond which the growth of throughput begins to have more costs than benefits? These questions are never considered in classical economics, but are fundamental question that we face today as a human community.

A major concern today is that much of the economic growth currently taking place in the U.S. and Europe is uneconomic growth. It is creating more “bads” than goods. To measure this, Daly and others created the Index of Sustainable Economic Welfare (ISEW) which measures 19 items including but not limited to income inequality; public spending on health and education; costs associated with pollution, commuting, etc.; the depletion of natural resources; and the loss of farmland and natural habitats. The ISEW is one of the most advanced attempts to measure economic well being.

When they made graphs comparing the United States’ ISEW to its GDP, they found something very interesting. While the graphs ran together from 1929 until the mid 1960s, after that, GDP continued to grow while the ISEW remained stagnant until the mid 1970s. Since then GDP has continuously grown, while the ISEW actually declined. This means that while the economy has continued to grow, the well being of people in the U.S. has not improved and has even worsened. This is what is meant by “uneconomic growth.”

This does not mean that it is impossible to improve well being in the U.S. and other overly developed countries, but it does mean that governments in these countries need to pay attention to more than simple GDP growth. They need to identify and increase those parts of the economy for which the marginal benefits still outweigh the costs while decreasing the parts of the economy where the costs of growth outweigh the benefits from that growth.

As we move from an “empty” world to a “full” one, the limiting factor in production will increasingly be natural capital, not human-made capital. For example, while in earlier times, the amount of fish caught was limited by the number of fishing boats, now it is limited by the number of fish in the sea. Irrigated agriculture was once limited by the amount of pumps and pipes used, whereas today, it is limited by the amount of water in the reservoirs. As we move into a full world, economic logic remains the same in terms of wanting to economize what we have less of, but we have not caught up with the fact that natural resources are limited and therefore cannot be considered “free.” It is important to study the nature of natural capital and environmental goods and services so as to allocate them better.

For centuries, humans have used science to bend the natural world to our will. We must now use science to change our ways to be more in harmony with the natural world. The Millennium Ecosystem Assessment represents an excellent beginning in using science for this means. By measuring the condition of and trends in the world’s ecosystems such as water, food, forests, flood control, and natural resources, we are better able to understand the full costs and benefits of our economy and make necessary changes to be more synchronized with the natural world.

One workable solution would be to use two sets of national accounts instead of just one. One account would measure the benefits from growth, while the other would measure the costs, including environmental and health costs. The goal of each country would be to find an optimal level of activity where benefits are maximized and costs minimized.

Whatever we do, it is essential to begin to address the size of our economy before it overruns our planet’s resources. As Daly wrote, “Some say that it is idle to talk about maintaining a steady state at some limited scale unless we first know the optimal scale at which to be stable. On the contrary, unless we first know how to be stable, it is idle to know the optimal scale. Such knowledge would only enable us to recognize and wave goodbye to the optimal scale as we grew through it! If one jumps from an airplane one needs a parachute more than an altimeter.”

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