Economic Growth and the Environment

Dean Baker

Many environmentalists believe that there is an inherent contradiction between a capitalist system that is predicated on growth and the limits imposed by a finite planet. They point not only to the devastation from climate change, but also the increasing scarcity of water and other resources, and argue that we can’t continue on our current course.

That part is clearly true. However, the question is whether growth is the enemy or whether the problem is the specific course that growth has taken. I would argue that the problem is the latter and it is important to have clear thinking on the topic if we are to address both the immediate environmental crisis facing the world and the real economic problems facing billions of people daily.

When people hear the term “growth” they tend to think of physical objects such as houses, cars, and refrigerators. Growth can mean more of these products. While more cars and refrigerators are growth, this does not fully define the term.

Newer and better treatments for cancer and other diseases are also growth. So is an increase in the number of people going to college or other getting other types of education. Better software is also growth. More and better performances of music, plays, and other types of live entertainment are also growth.

All of these services, most of which involve little use of natural resources, are forms of economic growth. An economy that produces more of such services can be associated with a reduction in resource use and emissions of greenhouse gases, especially if these services substitute for the production of items that do harm the environment.

It is not just services that can be associated with environmentally friendly growth. Replacing cars, refrigerators and other appliances with newer versions that use much fewer resources are also growth. So is building transit systems that reduce the need for cars as transportation. Or better yet, Internet-based work, or teleconferencing, that reduce the need to commute to work or travel across country for meetings is also growth. So is the installation of solar panels and better insulation to reduce energy use.

Historically, growth has been associated with increased use of fossil fuels and other resources, but that link has gotten much weaker over the last 15 years. Furthermore, with the right incentives, such as carbon taxes and subsidies for clean energy, there is no reason to believe that the link between growth and environmental damage could not be severed altogether.

Obviously, there are considerable political obstacles to implementing environmental policies in the United States and other countries. But there are clearly much bigger political obstacles to putting in place a new economic system.

The fact that growth need not be bad news for the environment is not just a matter of logic, it is important for effective political action on environmental issues. For better or worse, “growth” has positive connotations for large segments of the population. They associate it with having a job and rising living standards. The latter could mean more things, but it may also mean families knowing that they can pay their rent or mortgage, that they can afford health care and that they can provide a decent education for their kids. Attacking “growth” is effectively telling an awful lot of people that their lives don’t matter.

The key to advancing policies to reduce greenhouse gas emissions and other forms of damage to the environment will be to structure growth so that more jobs are to be gained by reducing environmental damage than increasing it. We are already seeing this to a large extent with the growth of the solar and wind industries. There is no reason to believe that there cannot be more jobs, and profits, in producing clean energy than in digging up and burning fossil fuels. With the right polices, that crossing point need not be far in the future.

Just because growth can be consistent with a healthy environment doesn’t mean that it should be pursued as an end in itself. People in the United States work many more hours each year than people in other wealthy countries. Workers in other countries have shorter workweeks and have paid vacations and paid family leave and sick days.

The shorter work year translates into lower GDP, but there is no reason to view this as a bad thing. It is perfectly reasonable for workers to prefer having more free time to more income. In fact, this gap in hours is the main reason that the United States has a higher per capita income than the countries of West Europe.

Shortening work hours through guarantees of paid time off is a great way to increase employment that does not depend directly on growth. Insofar as this leads to more actual leisure time that people can enjoy, instead of disguised unemployment where people actually want to work longer hours, the shortening of work hours is a clean way of raising living standards.

In short, growth is not necessarily bad for the environment. And, as a practical matter the only way we will be able to advance environmental goals is by tying them to a growth strategy. At the same time, growth is not an end in itself. It is important for ensuring people decent standards of living, but more growth is not always better.