Policy Statement on Economic Growth

List of Proposers Updated March 20, 2008

Proposed by ESA Members Warren Aney, Paul Angermeier, Robert Baldwin, Randy Bangert,

Alice Bard, Terry Bowyer, Mark Boyce, Cara Lin Bridgman, Jim Brown, Joel Brown,

Peter Brussard, David Bryant, John Cairns, Joseph Cech, Jameson Chace, Dana Coelho,

Christopher Craft, Brian Czech, Dominick DellaSala, David Ehrenfeld, Elmer Finck,

Dan Fiscus, Curt Flather, Edward Gates, Joseph Gathman, Brian Halstead, Rod

Heitschmidt, Jeff Houlahan, Nancy Johnson, Evan Kane, Rick Knight, Nicola Koper,

Erika Latty, Josh Lawler, Karin Limburg, Richard Lindroth, Michael Lowe, Michael

Marsh, Carl McDaniel, Eliot McIntire, Guy McPherson, David Mech, Chris Papouchis,

Mary Price, Kenneth Raedeke, Heather Reynolds, Todd Rinaldi, Winston Smith, Nicholas

Stowe, Stephen Trombulak, Gerald Van Amburg, Skip Van Bloem, Ashwani Vasishth,

Robert Wagner, Mohan Wali, David Walls, Nick Waser, Jake Weltzin, John Yunger,

Richard York, and Patricia Zaradic.

Background

Economic growth is an increase in the production and consumption of goods and

services.  It requires increasing population and/or per capita production and

consumption.  It is indicated by measures of production, income, and expenditure,

most notably gross domestic product (GDP). 

Economic growth is a function of land, labor, and capital.  Capital may be real or

financial.  Real capital includes natural capital, manufactured capital, and human

capital.  Natural capital may take the form of raw materials (e.g., oil, timber,

fish) or services (e.g., solar radiation, water filtration, climate regulation).

Manufactured capital includes the infrastructure, plant, and machinery that are used

in the production of consumer goods or additional manufactured capital, or in the

performance of services.  Human capital refers to various aspects of the human

condition that allow for higher productivity; for example, education, information,

and health. 

The economic production process entails the conversion of natural capital into

manufactured capital (including service facilities) and consumer goods and services

by the application of labor, manufactured capital, and human capital.  Some services

may be performed with little manufactured capital, but natural capital in the form

of energy and/or agricultural commodities are nevertheless required for such

performance.  Essentially, the human economy has a sectoral structure that reflects

the trophic structure of the ecosystem. 

The ecosystem comprises an economy of nature that is founded upon the producers, or

plants, which produce their own food in the process of photosynthesis.  Among the

animals, primary consumers eat plants, secondary consumers eat primary consumers,

etc.  In some ecosystems more than five distinct trophic levels may be identified.

Omnivores consume in more than one trophic level, and many species are omnivorous to

some extent.  Some species, such as pollinators, detritivores, and scavengers, are

aptly characterized as service providers in the economy of nature.

The human economy is also founded upon producers, most notably the agricultural and

extractive sectors.  Surplus production in these sectors is what allows for the

division of labor.  Laborers and other individuals consume products from the

agricultural sectors for sustenance, and manufacturing sectors transform energy and

raw materials from the extractive sectors into consumer goods and manufactured

capital.  Service sectors, such as janitorial, transportation, and financial

services, are an integral component of the full economy, as with the service

providers in the economy of nature.

Macroeconomic Policy and the Environment

Of primary concern to the Ecological Society of America is the relationship of

economic growth to the functional integrity and sustainability of the ecosystem,

which in turn has implications for the sustainability of the economy itself.  The

Ecological Society of America is also concerned with the lack of public policy

dialog on the implications of macroeconomic policy to ecological integrity and

economic sustainability.  Furthermore, in the limited dialog that does occur, there

appears to be confusion about limits to economic growth and the tradeoffs between

economic growth and environmental protection.  The Ecological Society of America

believes ecologists have a unique conceptual toolkit, as a result of their training

and research, for helping to build understanding and awareness about the ecological

effects of economic growth and for identifying policy tools conducive to ecological

integrity and economic sustainability.  To wit, the Ecological Society of America

takes the position that:

„X        There is a limit to economic growth, based upon the laws of thermodynamics and

principles of ecology.  The availability of matter and energy are limited in

accordance with the first law of thermodynamics.  The efficiency with which matter

and energy may be converted into goods and services is limited in accordance with

the second law of thermodynamics.  Just as energy and biomass is lost in the economy

of nature from one trophic level to the next, energy and materials are lost in the

human economy from one sector to the next.  For example, it takes more than 100

kilotons of vegetation to produce 100 kilotons of rabbits, and it takes many more

kilotons to produce (via rabbits and other prey) 100 kilotons of foxes.  This

ecological principle is grounded in the second law of thermodynamics and is referred

to as ¡§ecological efficiency.¡¨  Likewise, it takes more than 100 kilotons of iron

ore to produce 100 kilotons of steel, and more yet to produce 100 kilotons of auto

chassis.  The efficiency with which consumer goods and services are produced from

natural capital is called ¡§productive efficiency.¡¨

„X        Assessing the limits to growth at local, regional, and national levels is

complicated by the prospects for importing labor and capital.  The ultimate limit to

economic growth on Earth manifests at the global level because all labor and capital

is accounted for at the global level.

„X        The human economy grows as an integrated whole.  Although particular processes

and sectors may wax and wane as a function of technological progress, the basic

collection of agricultural, extractive, manufacturing, and service sectors tend to

grow and recede in unison.  Furthermore, there is a limit to the proportion of

services that comprise the human economy because of the land, capital, and

consumption requirements of the service providers.  Additionally, most services are

used by or with other economic sectors such that growth in those service sectors

requires growth in the other economic sectors.

„X        Economic growth ultimately requires more agricultural and extractive surplus,

resulting in the liquidation of natural capital.  Increased productive efficiency

may allow some economic growth to occur with less environmental impact per unit

production, but efficiency is limited to less than 100% pursuant to the second law

of thermodynamics. 

„X        Regarding the size of an economy, the basic alternative trends are growth,

recession, and steady state.  Because an economy may neither grow without limit nor

recede into negative production, only a steady state economy is sustainable in the

long run. 

„X        There is a fundamental tradeoff between economic growth and environmental

protection, where environmental protection refers to the maintenance of ecosystem

characteristics conducive to human welfare.  These characteristics include but are

not limited to: purity of air and water, soil productivity; naturally occurring

biological diversity; capacity to buffer communities from natural disasters such as

hurricanes, and composition of atmospheric gases associated with climates that

humans and other species have adapted to and evolved with.  This tradeoff is

practically irrelevant for economies with abundant natural capital and ecological

integrity, but becomes more policy-relevant as the economy grows, natural capital is

liquidated, and ecological integrity is compromised.

„X        Because of the tradeoff between economic growth and environmental protection,

which is necessary for human welfare including economic sustainability, continued

economic growth is certain to exceed a socially optimum level.  The fact that such a

level may be difficult to ascertain precisely, or may fluctuate as a matter of

natural cycles or events, does not render the concept of optimum size less relevant

to public policy.  Given an adequate understanding of the tradeoff between economic

growth and environmental protection, most citizens and policy makers will be capable

of recognizing if an economy is far beyond the socially optimum size.  Moving toward

the optimum size or an acceptable range of an economy¡¦s size should be a policy

goal of the polity.

„X        The economies of some localities, regions, and nations may have already surpassed

optimum size.  Ecological evidence for this exists in the form of water shortages,

soil erosion and degradation, high levels of biodiversity loss, and lack of wild

areas and ¡§green space,¡¨ among other things.  Broader evidence, including but not

limited to ecological parameters, is found by using various indicators of human

welfare, such as the Index of Sustainable Economic Welfare and the Genuine Progress

Indicator, which in some nations have been declining while GDP has been increasing.

It behooves nations and other political units to adopt alternative indices of

welfare and monitor them along with GDP, attempting to parse out the net effects of

economic growth, whether beneficial or detrimental.

„X        In nations for which it is apparent that economic growth has proceeded beyond the

optimum, in which case the expanding production process may more accurately be

designated ¡§uneconomic growth,¡¨ various policy tools should be carefully and

gradually applied toward the goal of a more optimally sized economy.  Many of these

tools already exist, including fiscal, monetary, and trade policies.  Although these

policy tools have most often been used to stimulate growth or increase the growth

rate, they may instead be used to lower the growth rate or stabilize the economy.

Additional policy tools for achieving a stabilized (mildly fluctuating) steady state

economy may be used to supplement the existing policy tools, including cap-and-trade

systems in the energy and extractive sectors, graduated consumption taxes, and

banking reforms that entail less debt (and therefore less pressure for economic

growth) than the current fractional reserve system.