Is Growth Possible?

Aaron James

by Aaron James, Erb MBA /MS Class of 2010

I would like to draw your attention to a BBC article on a report by the New Economics Foundation asserting that economic growth is not possible: http://news.bbc.co.uk/2/hi/science/nature/8478770.stm

Of particular interest is the disconnect between the authors’ perspective and that of Tom Clougherty, executive director of the Adam Smith Institute.

This article reflects the disconnect between the economic perspective that dominates business school education and the ecological perspective that dominates natural resources education.

It is not as if we are observing different facts or studying different subject matters. We look at the same set of facts and draw different conclusions. The conclusion that I draw from this is that we work with different perspectives, different assumptions, perhaps even different paradigms. I am interested in identifying and articulating the assumptions behind these perspectives in pursuit of greater synthesis and greater understanding.

Herman Daly said that he would accept the possibility of infinite growth in the economy on the day that one of his economist colleagues could demonstrate that Earth itself could grow at a commensurate rate. Finite planet, infinite growth: are these at odds?

I have made a point in several of my courses to distinguish among measurements of growth along three different dimensions:

1) material throughput (physical)

2) wealth and consumption (economic)

3) human well-being (social)

In the School of Natural Resources and Environment we often conflate #1 and #2, assuming that economic growth requires more material throughput. But if Cradle to Cradle can become more than just an ideal, we would be able to continue increasing wealth without increasing material throughput by using the resources that we have in closed-loop cycles that create greater value and generate ever more consumer willingness to pay. Is this possible at scale? I don’t know, but the conceptual distinction at least creates the possibility that we might consider economic growth independent of natural resource depletion.

In the Business School, we often conflate #2 and #3, assuming that economic growth implies better social outcomes. But research on wealth, consumption, and human happiness has demonstrated that economic gains in industrialized countries improve human happiness only marginally if at all. This psychological research challenges the application of economic utility theory. Stiglitz’s Commission of Experts on Reforms of the International Monetary and Financial System highlights the challenges of measuring human well-being at scale and the hazards of conflating it with GDP.

I find these distinctions useful, but I have been at pains to convey them in my courses. We wrap many factors into our thinking about economic growth. This leads business academics to assume that growth is good and natural resource academics to assume that growth is bad. I believe that we are talking about the growth of different things, each conflated with GDP. I suggest that we would all be in favor of increasing #3) human well being, while decreasing #1) material throughput, if such a scenario were possible. I find this a far more interesting and potentially fruitful line of conversation than arguing over the right vector for a necessarily limited measure of economic output.

Perhaps there are further distinctions to be made as to what growth is and what growth means.

This is not just a matter of intellectual curiosity; If economic growth destroys the planet without contributing to society, then there is little meaning in working in the private sector. If economic growth simply creates wealth, then there is little meaning in attending to ecology. These are the traditional paths of my two schools, both of which I find lacking.

Near the heart of this issue lies the process of value creation. We are taught in business school that businesses exist to create value for society. When we define value strictly in terms of customer willingness to pay as demonstrated in the market, we fall back on the economic perspective by assuming that price = value. This ignores externalities and the diminishing marginal utility of wealth and consumption. The ecological perspective suggests that value is not created in business, but transferred from natural to technical capital or even destroyed as more natural capital is used than replaced by technical capital. From this perspective, business is at best a transfer of wealth from poor to rich and at worst a pillaging of natural abundance for short-term private gain.

The truth, I would presume, lies somewhere in between. But how do we make distinctions between firms that create value and firms that destroy value, between products that create value and products that destroy value, between careers that create value and careers that destroy value, when our intellectual foundations make blanket assumptions about entire economies and our global society as a whole?

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