New Economy Journal

How Big Should the Economy Be: An Educational Imperative

Volume 2, Issue 4

August 4, 2020

By - Jason van Tol

Piece length: 3,059 words

Photo caption: Photo by Tyler Casey on Unsplash
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Introduction

Education in Australia is guided by a national curriculum and has three cross-curriculum priorities, one of which is sustainability. These priorities are supposed to pervade all aspects of learning in school, rather than being confined to a single subject or topic. Because sustainability encompasses so much, this broad-based approach seems to make sense, but some research shows that it is better to treat such interdisciplinary topics in one integrated subject, rather than spread out over many. Geography is the subject best suited for this holistic approach as it is the only one with sustainability as a core concept, along with change, interconnections, environment, scale, place, and space.

The NSW geography syllabus defines sustainability as “the capacity of the environment to continue to support our lives and the lives of other living creatures into the future” and elaborates by stating that:

An understanding of the causes of unsustainability requires a study of the environmental processes producing the degradation of an environmental function; the human actions that have initiated these processes; and the attitudinal, demographic, social, economic and political causes of these human actions.

As the syllabus describes, there are a variety of human actions which degrade environmental functionality, but are some of these causes more primary than others?

The Australia: State of the Environment (SoE) reports provide a detailed, longitudinal account of the condition of the Australian environment. The first of these, published in 1996, cautiously refers to Australia’s growing population and highly concentrated distribution as possible candidates for causing unsustainable environmental changes. The following report in 2001 repeats the concern that population growth is putting pressure on the environment, and also raises concerns about economic activity, stating that “Australians face major problems of living sustainably in … a society in which agriculture and industry, population and the built environment all continue to grow” (p. 22). The next report, published in 2006, gives considerable attention to the interrelated issues of population growth and increases in energy, material, and water use and the resulting increase in environmental pressure. The more recent reports state the causes of environmental change more boldly. The 2011 report states that “[t]he principal drivers of Australia’s environment…are climate variability and change, population growth and economic growth” (p. 42), and mentions the challenge of “decoupl[ing] national growth from increased pressure on the environment.” Most recently, the 2016 report repeats the previous warning by saying “[t]wo drivers will continue to shape Australia’s environmental challenges in the coming decades: population growth, distribution and composition; and economic activity” and goes on to say that “[g]rowth and change in our population and industries directly affect the Australian environment through the resources we use and the waste we produce” (p. 9).

Given the conclusions of the SoE reports, geography teachers need to understand how economic growth acts as a fundamental driver of the human actions that have not only initiated the degradation of many environmental functions, but continue to do so, since growth is enshrined worldwide in national government policy (see next section). As described below, economic growth is closely coupled with population growth – the other repeated concern of the SoE reports.

Economic Growth: Theory and Practice

Just about every country in the world today has growth as a core principle of its macroeconomic policy. The Australian Treasury states that “the challenge for Australia is to raise standards of living through economic growth” and that “[w]e must maintain the growing momentum in the economy”. Other countries have similar policies. The EU seeks to set itself “firmly on the path to growth” and Goal 1 of the US Treasury is “Boost U.S. Economic Growth”. Meanwhile Canada has prioritised “sustainable economic growth” and the UK’s first priority is “achieving strong and sustainable growth”. The policy extends to the international arena, with Goal 8 of the United Nations’ Sustainable Development Goals being “decent work and economic growth.” Clearly, governments are in the business of growing the economy.

Economic growth is measured by increases in the Gross Domestic Product (GDP) (pp. 370-371), the sum of the final market value of all goods and services produced within a country in one year. It is this metric that governments are so anxious to increase year after year. As Figure 1 shows, the Australian government has been quite successful in increasing GDP with very few interruptions over the last quarter century.

Quarterly GDP percent change in Australia

Figure 1: Quarterly GDP percent change (seasonally adjusted) in Australia, 1959-2020. Source: Australian Bureau of Statistics.

The standard model of economic growth comes from the work of Robert Solow. Although many refinements have been made to it, they all share the same premise that growth depends on three factors: capital, labour, and technological progress (pp. 501-518). Despite having been considered a factor of economic production, and thus growth, by all the classical economists, land, and the natural resources derived from it, are notably absent from Solow’s model. The history of why land, and thus resources, was removed as a factor of production from economic theory is interesting and full of political intrigue, but beyond the scope of this paper (see here, pp. 80-101). For our purposes, the important point is that the Solow model leads to the peculiar conclusion that because growth proceeds without physical resources, it has no limits. While all models are imperfect representations of reality, this one clearly lacks something essential.

One of the ways in which the measure of GDP misinforms the argument that growth can and should continue without limit is that because GDP is a measure of value (in dollars, euros, yen etc.), it is not limited by physical constraints. However, GDP is not simply a measure of dollars, but of dollars’ worth of stuff. This is made abundantly clear by the Australian Bureau of Statistics calculations, which show that GDP is in fact a measure of the volume of goods and services, rather than value. With this confusion corrected, we are now in a position to make a biophysical analysis of economic growth. What changes in matter and energy use occur as economic growth proceeds? Figure 2 shows the change over time between GDP and the material footprint (MF) of a variety of countries, both developed and developing.

Figure 2

Figure 2: Relative changes in material footprint (MF), domestic material consumption (DMC), and GDP for selected countries, 1990-2010. Source: Wiedmann et al. (2015).

The MF accounts for all the raw materials embodied in a product and allocates them to the country where that product is consumed. Other resource flow accounting metrics also exist, like the domestic material consumption (DMC), which is also shown in Figure 2. However, the DMC does not capture all of the ‘upstream’ raw materials related to imports and exports originating from outside the country in question, leading to the comforting but erroneous conclusion that some developed countries have ‘decoupled’ economic growth from resource use. The trend for the MF however is clear: with the exception of South Africa, every country has roughly a direct proportion between MF and GDP. That is, as their economies grow, so does the amount of material that they consume, which is what we would expect given that GDP is a measure of the volume of goods and services produced. The notable exception of South Africa is one that demands an explanation, but this has not yet been attempted in the literature (Wiedmann, 2019, personal communication). This could make for an interesting geo-historical analysis since the time frame in question begins roughly with the end of apartheid, after which tremendous changes occurred in all aspects of South African society, including its economy.

What happens to energy use while an economy grows? It too is of interest since it is a finite, physical resource. Figure 3 shows the change in Australia’s energy consumption versus its GDP for the period 1960 to 2017.

Figure 3

Figure 3: Energy consumption versus GDP, Australia, 1960-2017. Source: Department of Environment and Energy.

Note that Australia’s GDP has been growing faster than its energy use, suggesting that as the economy grows, improvements in technology and economies of scale can use energy more efficiently. A different interpretation is that the financialisation of the economy has artificially inflated the GDP. Similar results have been found for global analyses of the same sort. Here Figure 1 shows a plot of the per capita energy consumption versus per capita GDP growth for 220 countries over 24 years. Each thin line represents the data for a single country while the thick black line represents the mean. As these figures indicate, economic growth undoubtedly demands more energy use, which is, again, like the MF, what we would expect given that GDP is a physical measure of the production of goods and services. With this biophysical analysis in view, clearly economic growth cannot continue forever on a finite planet. Our affinity for growth has derived from what Daly calls an empty world to a full world – where the world is now full of people and our stuff. Figure 4 helps depict these circumstances.

Figure 4

Figure 4: Economic growth causing the transition from an empty world to a full world, diminishing ecosystem services along the way. Source: Daly (2015).

Notice that the economy grows into ecosystems, degrading ecosystem services as it does so as indicated by the thinner line. Ecosystem services are broadly defined as things that ecosystems do which benefit people. As such, they are closely related to environmental functionality as described above in the introduction. The conflict between economic growth and ecosystem services is elaborated on below.

So, since the economy cannot grow forever, we should ask: How big should the economy be? To help refine the question, and make it more directly an object of geographical inquiry, we might pose it as: How big should the economy be relative to the containing ecosystem? The next section addresses this question.

Ecological Economics and the Steady-State Economy

Ecological economics is based on three hierarchical goals, the first of which is called ‘sustainable scale’. The second and third goals are fair distribution and efficient allocation, but are beyond the scope of this article. Sustainable scale attempts to answer the question: How big should the economy be relative to its containing ecosystem(s)? As mentioned above, this question is absent in standard economics, which advises unlimited growth instead. Before answering the question just posed, we might first ask: How big is the economy? In dollar terms the gross world product is about US$87.8 trillion, but ecological economists are interested in providing a biophysical answer to this question. One way to do this is by considering what percentage humans appropriate of the earth’s potential net primary production[1] (HANPP). This is currently 25% and it may only grow to about 27-29% by 2050, but large increases in bioenergy might see it increase to about 44%.

The ideal size of the  economy is a question that has no definite answer, but a few things can be said with some certainty. For one, two more doublings of HANPP would leave no bioenergy available for any species other than humans and our domesticated animals. Because crucial ecosystem services depend on these other species, HANPP should not grow to such levels. Also, globally over the last century HANPP per dollar has declined by more than a factor of eight, suggesting that further economic growth in dollar terms might be possible, even while HANPP remains relatively stable. However, this has occurred because of the enormous increase in the use of fossil fuels rather than bioenergy. Not only are such non-renewables limited at the waste end by contributing to climate change, but they are increasingly limited at the source end too. Because energy is an essential resource for economic production – indeed for doing anything at all – this suggests that further economic growth will soon begin to reach earth’s biophysical limits. Some research suggests that this is already happening, not only in terms of climate regulation, but also in biodiversity loss and overextension of the nitrogen and phosphorus cycles. Thus, the precautionary principle suggests that the economy should probably not encroach upon the biosphere anymore, and that we need to change our pro-growth policies.

For about 50 years now Herman Daly has been promoting the steady-state economy (SSE). While there are many nuanced arguments supporting the SSE, it has four defining characteristics:

    1. A constant or mildly fluctuating human population.
    2. A constant or mildly fluctuating stock of human-made things.
    3. The levels at which 1 and 2 are held steady are sufficient for a good life and sustainable into the future.
    4. The rate of matter and energy (collectively referred to as ‘throughput’) which sustain 1 and 2 are kept as low as possible.

Readily apparent is that the SSE is in direct opposition to the biophysical results of a growth economy, where, as we have seen, both matter and energy increase as the economy expands. Also notable is that a zero-growth economy need not have any negative connotations; this is because development can still occur independently of growth. Growth is specifically a quantitative, biophysical phenomenon. It occurs as throughput increases. Development, on the other hand, entails qualitative changes that occur with throughput held constant. These include changes in information, technology, fashion, and income and wealth distribution. A good analogy to our economy is a human body: a baby grows but eventually stops accreting matter and demanding more energy, but a grown adult can continue to develop by education and experience throughout her life without any growth at all.

Applications for Junior Geography

There are significant opportunities for the conflict between economic growth and ecological sustainability to address each of the seven geography core concepts noted in the introduction, and as such the conflict could be used as a unifying theme throughout the study of geography. Stage 5 of the geography syllabus in particular lends itself to this purpose. With the understanding that the nominal reason for economic growth is to improve human wellbeing, this could include the Human Wellbeing unit. The World Happiness Reports, the editors of which are all economists, can provide ample data for that unit. The focus here however is on the biophysical nature of the conflict, and this is perhaps most thoroughly covered in the Environmental Change and Management unit. The syllabus content requires that students:

  • investigate the role and importance of natural environments
  • investigate human-induced environmental changes across a range of scales
  • investigate environmental management, including different worldviews and the management approaches of Aboriginal and Torres Strait Islander Peoples

In addition, this unit has an investigative study comparing one Australian environment with one of another country. Students need to:

  • investigate the biophysical processes essential to the functioning of the selected environment
  • investigate the causes, extent and consequences of the environmental change
  • investigate the management of the environmental change

All of these content descriptors lend themselves to an application of a growth versus steady-state economy. The overarching object of investigation is the impact that economic growth has on ecosystem services. For this, an overview of some salient ecosystem services would be helpful, such those used here.

There are significant fieldwork opportunities to investigate these and other ecosystem services in students’ local environment. Teachers and students can choose an ecosystem service and attempt to measure any reduction in it while economic growth occurs in a particular environment. Note that some ecosystem services, like gas and climate regulation, are not localised and would escape simple measurements conducted by a class in their local environment. For these, studies would depend on secondary data. Others however, like refugia and disturbance regulation, are localised and degradation of them during economic growth could be observed and directly attributed to that growth, making them amenable to primary data and thus fieldwork. Note that like ecosystem services, some economic projects are diffuse, whereas others are localised. Some projects like the NBN network being rolled out across Australia are not amenable to high school fieldwork, whereas a particular construction project is. An example of such growth and its impact on an ecosystem service comes from the author’s home town of Byron Bay, and is elaborated in this article.

Environmental Management and Active and Informed Citizens

Everything that has been said has implications for our management of the environment and students’ roles as active and informed citizens. As described above, the SSE is directly opposed to the growth economy. Because of the current existence of nation states and their macroeconomic policies, the transition from a growth economy to a SSE can only be made effective at a national level. As such, students can fulfil their role as active and informed citizens by pressing their representatives, as well as their fellow citizens, to adopt it. This would help fulfil the second of Australia’s two overarching educational policy goals: that all young Australians become “active and informed members of the community” who “work for the common good, in particular sustaining and improving natural and social environments”. (p. 8).

As for the syllabus’ suggestion that students have a “discussion of the factors influencing the management responses” of the environment, teachers could lead a discussion of why there is such worldwide governmental allegiance to economic growth. Though delving into this topic is important, it is beyond the scope of this paper. Here all that can be said is that economic growth has not always been a central focus of economic policy – it is specifically a post-WWII phenomenon; there is no ‘natural law’ which dictates that economies must grow forever; on the contrary, natural laws state that the economy will stop growing, the only question is how. Through their role as active and informed citizens and members of the community, hopefully teachers and students can help make the transition a smooth, rather than abrupt one.

A version of this paper was published in the NSW GTA’s Geography Bulletin in 2020 and is accessible here

  • [1] Net Primary Production (NPP) is the energy captured by plants via photosynthesis minus that which they use during respiration. This energy is the basis for virtually all food chains in the biosphere.

One Reply to “How Big Should the Economy Be: An Educational Imperative”

  1. Thank you for your excellent article, Jason. Just a couple of comments.

    1. While I agree that economic growth cannot continue indefinitely on a finite planet, that growth in energy consumption must be halted and that we must move onto a pathway of degrowth to a steady-state economy, part of the paper you cited by Brown et al. (2011) re energetic limits has been superseded by more recent data. According to IEA (2019), global growth in total primary energy supply (TPES) 2017-2017 was 8.74%, but growth in TPES per person was only 0.22% over the same period. With the continuing shift to renewable electricity and electric vehicles, both providing huge gains in energy conversion efficiency, I expect that TPES per person may decline. I haven’t yet obtained the recent trend data on global final energy consumption.
    IEA (2019) https://www.iea.org/reports/global-energy-co2-status-report-2019/emissions/.

    2. While I agree that Geography may be the most suitable subject for leading the teaching of the interdisciplinary field of sustainability in secondary schools, it would be a mistake to exclude sustainability from other subjects such as Physics, Chemistry, Mathematics and History. Each of these subjects can potentially make a valuable contribution that would not be treated in geography.

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