Tuesday, March 31, 2009

Is Economic Growth Good or Bad?

On April 13th I will be participating in a City Club of Corvallis discussion about economic growth and development and whether it is a good goal for a city like Corvallis. In preparation for the event, John Sechrest, the Economic Development Specialist for the Corvallis-Benton Chamber Coalition, has initiated a preliminary discussion between me and Rob Dietz of the Center for the Advancement of a Steady State Society. The first exchange was about setting the table, defining growth and its implications. Here is a slightly edited version of the first exchange:

Rob Dietz

A large part of the problem with economic policies today is that governments, businesses, and citizens have confused the concepts of"economic growth" and "economic development." Pursuit of economic growth has become the top priority of virtually every nation in the world, and this priority, in turn, affects policies at all scales of society -- from states to regions to cities to communities.

Economic growth is not an end, but rather a means to an end. We are not interested in growth for growth's sake, but presumably to achieve a higher level of individual and societal well-being. Before we can decide whether economic growth is a good way to increase well-being,we need to agree on the meaning of economic growth.

The most policy-relevant and publicly resonant definition of economic growth is increasing production and consumption of goods and services, indicated by rising GDP. Some definitions add a few more words, but they tend to be more convoluted. Instead of "increasing production and consumption," they use phrases like "increasing capacity to produce and consume" or"increasing value of goods and services." Regardless of the phrasing, economic growth boils down to more quantity of more things. For a colorful definition, Brian Czech writes in his book Shoveling Fuel for a Runaway Train that economic growth means "more MacDonald's and Antoine's, more Fords and fiats, more jeep trails and ship sails."

Here are a few definitions from various economic authorities... [He describes them , but for brevity I'll just provide the links]

All of these definitions have at their core the concept of quantity. Economic growth is about quantity. Economic development, on the other hand, is about quality. A well developed economy is one that meets peoples needs and provides a high level of well-being for citizens. If increasing quantities of goods and services help achieve that goal, then pursuit of economic growth makes sense. If growing bigger does not help society get better, however, then pursuit of growth is wasteful and potentially hazardous.

Patrick Emerson

All of the definitions of growth are acceptable to me (they are all essentially the same), but the key to all of them is this: growth is about creating more value per person. With that additional created value a society can afford to do more things: more medical care, more and better schools, fund parks and arts and cultural institutions, etc., etc..

Suggesting that growth is about using and consuming more quantity of more things is a bit misleading. Growth is about producing more value - not just about making more material stuff. For example, if someone is good a singing songs and other people find it enjoyable to listen to those songs, the singer can create value by performing in a cafe and charging admission. This activity has created more value where there was not before and thus can caused economic growth to happen. It has also increased both production and consumption, by the way.

The point is that growth and resource depletion are not inexorably linked. Yes, the industrial revolution and growth in the 20th century is closely linked with resource depletion, but future growth will have to be different - it will be driven by increased productivity much more than resource extraction. In fact it is in economic growth that hope for the future rests - without major improvements in things like energy efficiency the future is not so bright. But every increase in average energy efficiency is an increase in growth.

I agree completely that economic growth is a means to an ends and not an ends itself. But these ends are critically important. John [Sechrest] mentions some of the worldwide metrics of the human condition, here is another one: for the almost one billion people that live in the "Low Human Development" countries, life expectancy is 53 years old. Much of this is due to the fact that many of these people do not have access to clean drinking water and basic medical care.

Here are some more statistics (from 2003):
•826 million people do not have enough food
•1 billion people have no access to safe drinking water
•2.4 billion have no sanitation
•10,000 children die EVERY DAY from diseases caused by contaminated water

Some of this is due to political reasons, but most of it is due to poverty. And while growth will not automatically cure these ills, it provides the means to do so. Without growth in these countries there is virtually no hope in improving the lives of the citizenry.

Locally, we have problems with poverty, malnutrition, inadequate access to medical care, under funded schools, etc. I can't imagine that most local residents are satisfied with the way things are and the way to improvement in these areas is through future economic growth.

So I think that growth is not the point but the means to the ends, and in the same vein growth is not the enemy but the friend as long as it is done right. Growth can be dumb or smart, and no one wants dumb growth, but smart growth is the way we can create the town, the state, the nation and the world that we can all be happy with.

What do you think?


Oliver said...

It seems Mr. Dietz argues economic growth and economic development are separate concepts, whereas you maintain development IS growth. Despite the semantic difference, you're both saying growth for the sake of growth is bad, while growth for the sake of development is good. Right?

Patrick Emerson said...

I think we actually agree on much more than we disagree on. No, I don't believe that development is growth, but that economic growth is a precondition for economic development. They are not the same thing but are inexorably linked.

What I think Mr. Dietz believes is that growth is essentially destructive and we need to curb growth unless we think this destruction is worth it in terms of what growth provides. I think he woudl say that we need to think carefully, therefore, about when and where we want growth. I do not view growth as necessarily destructive and think that, as long as we pay attention to commons problems, externalities and public goods, growth should be encouraged.

I would even go farther and suggest that the only hope for the 1/3 of the world in poverty is economic growth.

So I guess I am at once and idealist and a realist in the sense that I have a lot of faith in growth and a lot of pessimism that any other non market-based solution to worldwide poverty will arise.

Dennis said...


I am more interested in the way you seem to collapse or conflate the idea of 'adding value' (value being a shared assessment of something's worth) and the use of material resources. I tend to think of them as very different things, given that they can have very different effects on the world.

Am I reading you correctly on this? If so, what is the justification for lumping the two together?

Patrick Emerson said...


I am attempting to do the exact opposite: I am saying that growth in value is not the same as the use of material resources. For example, if I figure out a way to make a car engine that gets 500 miles per gallon of gas, I have created enormous value and growth while at the same time using fewer material resources.

My point is precisely that we should not link the two together.

What I think you are getting at is a sense of valuing something that the market does not (or undervalues) - like community perhaps. I am projecting here but let's go with this idea. Suppose community is a value (in the moral sense) but it is hypothetically threatened by economic growth. If this is true than this is an example of what I meant by smart v. dumb growth. If community has value (in both senses because if all residents share a moral preference for this is thus has a real economic value) that is shared then it is like the classic commons problem and the economically optimal solution is government oversight.

So, for example, urban growth boundaries are completely justified in my view as sprawl has an external cost.

The point is, let's not conflate market failures and appropriate responses with growth in general.

Also, and I say this because of my use of urban growth boundaries as an example, don't confuse economic growth with population growth. The two are generally negatively correlated.

Dennis said...

Thanks for the clarification. However, doesn't that distinction mean something like the GDP is actually a bad measure of growth insofar as it does not differentiate between 'good and 'bad' growth? For example, wouldn't the GDP count the value created in employment and materials demand when cleaning up, say, millions of tons of coal ash, as "growth"? If I am reading things right - and I am no economist - this would be a bad thing, no?

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