Growth, Growth, Growth: What Will Happen?

By Arthur MacEwan | May/June 2020

Dear Dr. Dollar:

Infinite economic growth on a finite planet is impossible and ruinous. And yet the drumbeat goes on for growth, growth, growth. Surely it is true that the world is grossly overpopulated; it is projected to grow to nine billion by 2050. How will the current economy serve these billions? It won’t work, and it wouldn’t work even if there were no global climate change at all. —Daniel Warner, via email 

Well, yes, growth of population and of production cannot go on forever. And, while the problem is broader than climate change, climate change has generated new attention to the issue.

At the same time, concern about this issue is not new. With the early economic expansion of the industrial revolution, in 1798 the English cleric and economist Thomas Malthus published An Essay on the Principle of Population as it Affects the Future Improvement of Society, in which he argued that food production could not keep up with the unchecked growth of population. The result would be periodic famines or plagues that would limit population growth and, Malthus’s principal concern, prevent the “perfectibility of the mass of mankind”:

... it appears, therefore, to be decisive against the possible existence of a society, all the members of which should live in ease, happiness, and comparative leisure; and feel no anxiety about providing the means of subsistence for themselves and families.

Consequently, if the premises are just, the argument is conclusive against the perfectibility of the mass of mankind.

Regardless of the possibility—and the meaning—of the “perfectibility of the mass of mankind,” Malthus was wrong about the possibilities for the huge expansion of both production and population. He never would have conceived of our current world with 7.8 billion people, let alone the global population of nine billion projected for mid-century.

I bring up Malthus, whose argument has been repeated many times over the last 220 years, not because I want to debunk the problem of population growth or the devastation that economic growth is inflicting on our planet. Rather, the reference to Malthus leads us to look beyond the obvious (growth cannot go on forever) and include a more complex examination of what is going on and what can be done to improve the situation. The problem, it turns out, is not simply growth, growth, growth, but also the nature of growth.

While economic growth of any sort cannot go on forever on a finite planet, the actual nature of growth over the past 200-plus years has been particularly problematic. Three aspects of that growth are especially significant: its dependence on fossil fuels, the high degree of inequality that growth has continually generated, and the ability of producers to “externalize” the environmental costs of their activities.

The Fossil-Fuel Basis of Economic Growth

While economic activity has long been based on energy from fossil fuels, and this reliance on fossil fuels grew along with the industrial revolution, the increased use of fossil fuels exploded in the last several decades. Between 1950 and 2017, the world’s use of fossil fuels (coal, crude oil, and natural gas, measured in terawatt hours of energy) increase six-and-a-half fold. During this period, world output (inflation-adjusted Gross Domestic Product) rose roughly twelvefold. (Later on in this article I will return to the falling intensity of fossil fuel use.)

The great increase in the emission of carbon dioxide from the burning of fossil fuels has been the principal (though not the only) cause of climate change. And in addition to climate change, the pollution from the burning of fossil fuels creates major health problems, generating costs of nearly $200 billion annually in the United States, to say nothing of human suffering and deaths throughout the world.

Increasingly, alternatives to fossil fuels are emerging and are cost-competitive—particularly solar and wind energy. (See Ask Dr. Dollar, Is a Rapid Green-Energy Switch Prohibitively Costly?, D&S, March/April 2020.) These innovations will not eliminate the problems associated with economic growth, but they do portend a different basis for economic growth that could be much less damaging to the planet and the people who inhabit it.

But this shift is not happening fast enough, as the recent spate of severe hurricanes, huge wildfires, and the rising sea level demonstrates. While there are technical problems in a full transition to green energy, the main problems are political: the continuation of large subsidies to fossil fuel companies, the failure of government authorities to require that fossil fuel prices include social costs, and the limits—including actual rollbacks in the United States—of regulations requiring greater fuel efficiency in automobiles.

Economic Inequality and the Environment

It is well established that economic inequality contributes to the damage of the natural environment. As the economist James Boyce has pointed out:

Those who are relatively powerful and wealthy typically gain disproportionate benefits from the economic activities that degrade the environment [e.g., oil company executives and stockholders], while those who are relatively powerless and poor typically bear disproportionate costs. All else equal, wider political and economic inequalities tend to result in higher levels of environ-mental harm.

It could be added that the wealthy, to a large extent, are able to avoid the negative impacts of environmental degradation—for example, by living in cleaner communities, away from the toxin-generating factories and refineries that they own.

Also, the impact of inequality on what people see as their needs is pervasive. Modern economists have built their analyses on the premise that there is no limit to human wants. More is better, and economic growth will be driven indefinitely by people’s striving for greater income to provide for greater consumption.

But things aren’t so simple. It is more accurate to see human wants as being created by society, by what people see that others have. With great inequality, people at all levels are driven to strive to gain what others have—and to keep from sliding down the very steep income ladder.

Classical economists, unlike their modern-day descendants, recognized the social bases of people’s wants. For example, in his 1776 classic, The Wealth of Nations, Adam Smith writes:

... in the present times, through the greater part of Europe, a creditable day-labourer would be ashamed to appear in public without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty which, it is presumed, nobody can well fall into without extreme bad conduct.

It is not the linen shirt per se that is the need; the need is the capability to appear in public without shame. Karl Marx expresses the same basic idea in his 1847 essay, Wage Labor and Capital. Discussing how people determine their economic well-being, he writes:

A house may be large or small; as long as the surrounding houses are equally small it satisfies all social demands for a dwelling. But if a palace arises beside the little house, the little house shrinks into a hut. ... Our needs and enjoyments spring from society; we measure them, therefore, by society and not by the objects of their satisfaction. Because they are of a social nature, they are of a relative nature.

In the modern era, the economist Richard Easterlin has developed the argument that:

Economic growth in itself does not raise happiness. Evidence for a wide range of developed, transition, and developing countries consistently shows that higher growth rates are not accompanied by greater increments in happiness.

Easterlin has supported his argument with data from a wide range of countries, highly developed (e.g., the United States and the wealthier countries of Europe) and less developed (e.g., Mexico, Turkey, and China).

“Happiness” is hard to both define and measure, of course, and Easterlin’s analysis has been disputed. Nonetheless, it is well established that a high degree of inequality within a country is associated with a high degree of stress at all levels. Stress and happiness would seem to be inversely related. And, data suggest that happiness seems to be connected more with relative economic equality than with a country’s higher level of average income. For example, the World Happiness Report for 2019 (from the Center for Sustainable Development at the Earth Institute of Columbia University) ranked Finland as number one on its happiness index, while the United States ranked 19th. Per capita income in the United States is 30% higher than in Finland, but economic inequality in Finland is much less than in the United States. (The World Bank reports Gini coefficients, a common measure of a country’s inequality ranging theoretically from zero, perfect equality, to one, all income going to one person. For almost all countries, the Gini coefficient is between 0.25 and 0.65. For Finland and the United States, the Bank reports coefficients, respectively, of 0.274 and 0.414.)

At least in relatively high-income countries, it seems likely that economic inequality and the insecurity that accompanies it are stronger drivers of consumerism and the sense of a need for growth, growth, growth. Higher taxes on the wealth and income of the affluent, along with several other social policies (See “Are Taxes the Best Way of Dealing with Inequality?” D&S, November/December 2019) could, then, dampen the drive for economic expansion. Indeed, greater economic equality is probably a necessary condition for creating a sustainable economy.

“Externalizing” Environmental Costs

When I was growing up in Portland, Ore., during the 1950s, our family often drove across the Columbia River to Washington and into the wilderness northeast of Portland. While the wilderness had many attractions, my clearest memory of those trips is the stench from the paper mill in Camas, Wash. The mill’s air pollution, I am pretty sure, was only its most obvious impact on the environment, as I believe its waste was also dumped into the Columbia River.

The Camas paper mill is only a small example of a much larger phenomenon, and more well-known examples include the tragedy at Love Canal and the devastation at some 40,000 Superfund clean-up sites around the country. The largest expression of this phenomenon is the discharge of greenhouse gases from the burning of fossil fuels.

When economic activity generates pollutants—from toxic waste to noxious odors and noise—those engaged in that activity will profit by placing those pollutants on society outside their operations. They usually could to otherwise—cleaning up the waste, filtering out the odors, blocking the noise—but this would impose costs. They could internalize those costs, but this would reduce profits. So they externalize the costs, imposing them on society at large.

Of course, regulations can force, and have forced, polluters to internalize costs. Due to many factors, the paper mill at Camas has dwindled to a fraction of its 1950s size, but one of those factors has been the increased cost of reducing its pollution as a result of regulation. Over recent decades, in the United States we have attained cleaner air and cleaner water as a result of these regulations. Businesses have, however, achieved many successes in limiting the extent of environmental regulations and getting the public to bear the cost of pollution controls. For example, at Camas, the Washington legislature provided tax exemption incentives for the installation of pollution control equipment. In recent years, the Trump administration has striven to reduce environmental protections in a wide range of activities. The most recent example is the administration’s effort to eviscerate fuel efficiency requirements for automobiles.

Yet, the Trump administration aside, the development of effective, enforced regulation of pollution has been a slow and limited process. Firms continue to externalize much of the costs of their activity. Meaningful regulation might slow economic growth, but it would make economic growth less damaging.

No Growth?

Although the cessation of economic growth might have desirable consequences, there is no way that “no growth” could be accomplished in the foreseeable future. Also, it would likely have some quite negative consequences unless it was accomplished by a massive economic redistribution (which is itself hardly likely in the foreseeable future). For example, because of the economic insecurity that generally accompanies great inequality, efforts to stop environmentally destructive activity have sometimes been opposed by workers and their unions because they need to maintain their employment. One reply by workers to regulations that would limit global warming has been statements to the effect of: “They’re worried about what will happen in 2050 and beyond. We’re worried about putting food on the table next week.”

Deniers of the dangers of unlimited growth argue that the market will take care of the problem. There are, in fact, some market phenomena, consequences of economic growth, that contribute to reducing the rate of increase of its negative impacts. As noted above, the intensity of fossil fuel use—that is, the decline in fossil fuel use per unit of output—has declined over time. This is probably due, first, to increased efficiency in the use of fossil fuels, which in some instances is a result of regulation (as with automobiles). More generally, firms find ways to reduce their costs by finding more efficient ways of using energy. Second, as economies grow, they shift toward greater service activity and proportionally less reliance on manufacturing—with the former generally less energy intensive. Yet, at best, all these changes do is reduce the rate of increase of environmental damage relative to what it otherwise would have been.

It seems clear that an economy run on the basis of the unfettered seeking of profits will be incapable of sufficiently limiting the negative environmental destruction that comes with growth. The “external” impacts of market activity cannot be altered without some forms of government intervention. At times, that intervention can take the form of taxes—for example, by raising the price of fossil fuels, which will reduce their use. But direct regulation is widely needed to prevent damaging processes from taking place. Certainly, very substantial regulation will be needed to dramatically reduce reliance on fossil fuels and forestall severe global climate change.

It also seems clear that little can be accomplished without the significant reduction of economic inequality. Economic inequality not only generates the push for economic growth. In addition, the concentration of political power, which is the necessary concomitant of economic inequality, will prevent the needed changes.

ARTHUR MACEWAN is professor emeritus at UMass Boston and a Dollars & Sense Associate.

Update: COVID-19 and Economic Growth

This article on “Growth, Growth, Growth,” was conceived well before the COVID-19 crisis dominated our lives, and it was mostly written as the crisis began to unfold. Commentators are fond of saying such things as, “This virus changes everything.” Yet, had the virus exploded on us earlier, the basic points of this article would not have been any different.

The issues that are addressed here—fossil fuel-based growth, economic inequality, and firms’ externalization of pollutants—will remain important issues after the COVID-19 crisis starts to fade from our daily lives. The need for change has not been altered by the crisis.

Yet, the experience of the COVID-19 pandemic has created some possibilities for progressive change. As a commentator in the New York Times stated in early May, we have been experiencing “a pandemic that is exposing nearly every systematic flaw in society.” Exposing systemic flaws—and they have been dramatically exposed in recent months—can be an important step forward. Consider:

On April 22, the Centers for Disease Control and Prevention reported on a study of the racial and ethnic makeup of those with COVID-19 at several hospitals. In the communities surrounding the hospitals, African Americans were 18% of the population, but they were 33% of those hospitalized. And on May 3, a story in the New York Times Magazine cited data from sites across the country showing the disparate impact of COVID-19 on African Americans. For example: “In Mississippi, black people are 38% of the population but 61% of the deaths ... [and in] New York, which has the country’s highest numbers of confirmed cases and deaths, black people are twice as likely to die as white people.”

During the COVID-19 shutdown, CNN reported that people living in the cities and towns of Northern India 100 miles from the Himalayas have been able to see the mountains for the first time in decades. In New York City, according to a study released by IQAir on April 22, PM-2.5 (particulate matter with a diameter of less than 2.5 micrometers) was down by 29% as compared to the average of the preceding four years (2.5 micrometers is about 3% of the diameter of a human hair). The study reports similar, though varying, change in nine other cities around the world.

While the poor response to COVID-19 in the United States can be partially attributed to the failures of the Trump administration, the weakness of the U.S. public health system is not new, and U.S. medicine has long been subordinated to the focus on profits rather than health. Just one example, provided by a story in The New Yorker of May 4. One doctor complained: “Why are nearly all the notes in Epic [the electronic medical record system] ... basically *useless* to understand what’s happening to a patient?” A colleague replied: “Because notes are used to bill, determine level of service, and document it rather than their intended purpose, which was to convey our observations, assessment, and plan. Our important work has been co-opted by billing.”

These examples could be buttressed by numerous others, from the racial and class makeup of those who have lost their jobs in the crisis to the dramatic resource differences between hospitals that serve a low-income clientele and those that serve a high-income clientele. All of these phenomena are exposing the “systemic flaws” in our society. These flaws were evident before we heard of COVID-19, but the COVID-19 crisis has brought them dramatically to the fore. Perhaps the experience of the crisis can help generate the action and organizing that will lead to change. —AM

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