Transcript Biophysical Limits to Economic Growth

Biophysical Limits to
Economic Growth
The Malthusian Perspective
Malthusian Model of Economic Growth

Thomas Malthus (17661834) developed a growth
model that relates the
association of resource
scarcity and the prospect
for long-run human
economic growth.
Malthusian Model of Economic Growth
1.
Resources are scarce in absolute terms.
That is, humanity is endowed with a finite
amount of material resources.
2.
If uncontrolled, the tendency of human
populations is to grow exponentially.
3.
Technology should not be perceived as
the ‘ultimate’ escape from the problem of
resource scarcity.
Assumptions of Malthusian Model
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the total amount of land available for
agriculture (arable land) is immutably
fixed;
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the growth of population is limited by the
amount of food available for subsistence;
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human population will invariably increase
where the means of subsistence increase.
Malthusian Model of Economic Growth
“The power of population is indefinitely
greater than the power in the earth to
produce subsistence for man.”
“Population, when unchecked, increases in
a geometrical ratio. Subsistence increases
only in an arithmetical ratio.”
“A slight acquaintance with numbers will
show the immensity of the first power in
comparison with the second.”
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Law of diminishing marginal product
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“Iron Law of Wages”
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“vices” and “virtues” in the Malthusian
period
Ricardian Model of Growth
David Ricardo (1772–1823)
 Human material progress would not be
hampered in the long run by explosive
growth of human population as Malthus
had envisioned, but by the progressive
decline in the quality and quantity of
extractive resources, most importantly,
agricultural land.
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Ricardian Model of Growth
Agricultural land varies in its natural
productive capacity.
 Plots of land with high natural fertility (or
mines containing high-grade ores) are put
to use first because their real cost is low.
 (Real cost: the amount of factors of
production needed to make a farmland
available for cultivation.)
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Ricardian scarcity
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A steady increase in rent (and real cost) as quality
of land (or any other extractive resources) decline.
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It is the steady increase in rent as land use
expands that would ultimately stifle human longterm economic progress.
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Population is relevant only to the extent it has an
effect on what happens to demand.
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The major impediment to human material
progress would emerge not so much from demand
as rather from supply side constraints.
Neo-Malthusian Models
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Incorporate the effects not only of
population and resource scarcity but also of
technology and human institutions in their
consideration of environmental
sustainability.
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The emphasis has been shifted from
concerns about limits to economic growth to
worries about environmental sustainability.
Neo-Malthusian Models

increased human activities would lead to
increasing stress on the functioning of the
environment and in so doing ultimately lead
to environmental degradation.

if degradation of the environment is not
restricted to the point that it is considered
sustainable, biophysical limits will eventually
place bounds on the growth of human
activity.
Neo-Malthusian Models:
Ehrlich–Commoner Model
I=PxF
I: total environmental effect or damage, measured
in some standard units.
P: population size
F: an index that measures the per capita impact (or
damage) to the environment. (ecological footprint
of the average person)
Ehrlich–Commoner Model

at any given point in time, the total
environmental impact of human activities is a
product of the underlying population size, P,
and the per capita damage to the
environment.
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total environmental impact equals total
population multiplied by the average impact
that each person has on the environment.
Ehrlich–Commoner Model
F = f[P, c, g]
c: per capita consumption or production
g: composition of inputs and outputs in an
economy, expressed in terms of their
impact on the environment
δF/δc > 0
δF/δg > 0
δF/δP > 0 (the law of diminishing marginal
returns)
Ehrlich–Commoner Model

Shows the fundamental positions of neo-Malthusians
regarding the link between environmental sustainability
and economic growth.

Neo-Malthusian starts with a view that the current rate of
world economic growth, (in terms of GDP), cannot be
environmentally sustainable.
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The major issues of interest have been to identify the
causes and possible remedies for the damages that
have been inflicted on the natural environment from
various forms of human activity over the past century.
The Ehrlich–Commoner (E-C) model
suggests that neo-Malthusians would tend
to claim that;
 the
steady increases in population
 the steady increases in per capita consumption
 the proliferation of products that are harmful to
the environment
are the major factors contributing to
continued global environmental
degradation.
No consensus on the relative impacts these
three key variables have on the
environment.

Ehrlich and his followers:
rising human population is a predominant factor
in accelerating pollution and other resource
problems in both the developed and the
developing countries of the world.
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Commoner and his associates:
population growth plays only a minor role in
explaining the environmental and resource
condition of the modern era, especially in the
developed world.
Instead, a major part of environmental damage
results from inappropriate applications of
modern technologies in the extraction,
production and consumption sectors of the
economy.
Technological choices are often made purely on
the basis of profitability considerations rather
than environmental sustainability
Neo-Malthusian Policy Implications
Policies are directed to achieving a
combination of:
(i)
(ii)
(iii)
Control population growth;
Moderate or reduce per capita resource
use; and
Promote the development of
technologies that are environmentally
benign.
use policy instruments that permit direct
government intervention
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ending environmentally damaging subsidies by
government decree,
penalizing wasteful consumption habits by means
of income redistribution,
implementing family planning programs with
considerable governmental supervision,
providing subsidies to promote the development
of environmentally benign technology such as
solar energy,
putting broadly based strict quotas on the amount
of fish to be harvested or forest area to be cleared
on an annual basis, etc…
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Neo-Malthusians are skeptical about the notion
that all resource allocation problems can be
solved by market or extra-market mechanisms.

The private market tends toward overexploitation and degradation of resources that
are externality-ridden (environmental resources)
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Not all technological changes favor the
environment. Thus, environmental sustainability
requires specific consideration of the impacts
new technologies have on the environment, not
just on the production and delivery of goods and
service.
Weaknesses of the
Neo-Malthusian Model
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No clear definition of ‘sustainability’ in the E-C
model.
Ignore the potential for resource conservation
through technological means, such as factor
substitution and technical progress.
Consider resources, consumption and
population only at an aggregate level, without
adequate reflection on the social, technological
and political aspects of resource use.
Predictions of catastrophe politically not useful.
‘If the present growth trends in world
population, industrialization, pollution, food
production, and resource depletion
continue unchanged, the limits to growth
on this planet will be reached sometime
within the next one hundred years. The
most probable result will be a rather
sudden and uncontrollable decline in both
population and industrial capacity’
The Limits to Growth (Meadows et al. 1971)
‘Let us face the uncomfortable truth. The
model of development we are accustomed
to has been fruitful for the few, but flawed
for the many. A path to prosperity that
ravages the environment and leaves a
majority of humankind behind in squalor
will soon prove to be a dead-end road for
everyone’
Kofi Annan, 2002
How should we deal with the existence of
the seemingly perennial Malthusian
specter?
Sustainable economic growth that will
necessitate the design and implementation
of social and technological conditions that
ensure both environmental and economic
stability concurrently.
Which view? Neo-classical or ecological?
Biophysical Limits to
Economic Growth
Neo-Classical Perspective
Neo-Classical Fundamentals
1. Market is the medium for resource allocation.
2. Resource valuation depends only on individual ‘preferences’
and initial endowments as determinants of prices.
3. For privately owned resources, market prices are ‘true’
measures of resource scarcity.
4. Price distortions arising from externalities can be effectively
remedied through appropriate institutional adjustments.
5. Resource scarcity can be continually augmented by
technological means.
6. Human-made capital and natural capital are substitutes.
Malthusian Thesis
In the long-run, depletion of some key
material resources (e.g. a shortage of
global petroleum supply or water, or
large scale degradation of land due to
desertification and deforestation) would
act as a bottleneck to further economic
growth.
Neo-classicals have a strong skepticism to
collapse scenarios, as technology overcomes
resource scarcity.
 According to neo-classicals, Malthusians;
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 view humankind
as having a natural propensity for
self-destruction; underestimate human creativity and
instinctive capability for self-preservation.
 have the strong tendency to lump all resources
together without regard to their importance,
ultimate abundance or substitutability
 do not comprehend the possibility of there being an
infinite amount of resource substitutability, even in a
world with a finite resource endowment
Neo-classical Empirical Studies
Against Malthusian Thesis
(before 1970)
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Barnett and Morse (1963) tested the hypothesis:
(‘the strong hypothesis of increasing economic
scarcity’)
“The real cost of extractive products per unit will
increase through time due to limitations in the
available quantities and qualities of natural
resources.”
Real cost: labor plus capital per unit of extractive output.
(αLE + βKE) / QE
Barnett and Morse test of the
Ricardian scarcity
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The U.S. output in extractive sectors
(agriculture, forestry, fishing, and mining)
increased markedly from 1865 to 1957, yet the
statistical record is contradictory to the
classical hypothesis.
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Real costs per unit of extractive goods did not
rise. In fact, they fell (except in forestry).
Possible reasons of the fall in the real cost of
extractive resources
Rapid technological progress
 Increased efficiency of resource use, in particular
energy
 Substitution of more plentiful resources for the
less plentiful ones
 Improvements in transportation and trade
 Improvements in exploration techniques and the
 Discovery of new deposits
 Increased recycling of scrap.
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Neo-classical Empirical Studies
Against Malthusian Thesis
(since 1970s)
Studies in late 1970s tested Barnett-Morse
hypothesis, again found decreasing resource
scarcity.
 pollution, energy crises, soil erosion,
desertification, deforestation, etc. not
indicative of emerging resource scarcity, they
are only temporary setbacks.
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The Resourceful Earth (1984)
 The world in 2000
will be less polluted, more stable
ecologically, and less vulnerable to resource supply
disruption.
 Stresses involving population, resources, and the
environment will be less in the future than now
 The world’s people will be richer.
 The outlook for food and other necessities of life will
be better
 Life for most people on earth will be less precarious
economically than it is now.
Why past trends of decreasing resource scarcity
may not be sustainable
studies based on statistical trends do not
explicitly take environmental quality into
consideration – loss of biodiversity
 transformations in the use of energy: the
decline in real costs of resource extraction
observed by empirical studies of the Barnett
and Morse (and similar studies) was not
solely due to technological changes, but
rather due to the substitution of higherquality energy resources for labor and capital
in the extraction of resources
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Decline in output
per unit of
energy used
Economic Growth and Environment
Economic growth is an increase in real per
capita income.
 Higher per capita income will increase the
demand for improved environmental quality.
 That will increase expenditure on
environmental cleaning.

Environmental
Damage
Environmental Kuznets Curve
Environmental Kuznets Curve
Grossman and Krueger (1991)
World Bank’s World Development Report (1992)
E: emissions, P: population
Environmental Kuznets Curve
1. Scale of production implies expanding production at given
factor-input ratios, output mix, and state of technology.
2. Different industries have different pollution intensities and
typically, over the course of economic development the
output mix changes.
3. Changes in input mix involve the substitution of less
environmentally damaging inputs for more damaging
inputs and vice versa.
4. Improvements in the state of technology involve changes
in both:
 a. Production efficiency in terms of using less, ceteris
paribus, of the polluting inputs per unit of output.
 b. Emissions specific changes in process result in less
pollutant being emitted per unit of input.
Implications of the
Environmental Kuznets curve
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It is possible for poor countries to ‘grow out’ of
some environmental problems once they attain a
certain standard of living or per capita income.
For the rich countries, continued income growth
will invariably be associated with improved
environmental quality.
Environmental policy should be examined
carefully as it has the potential of slowing the
pace of economic growth.
Criticisms of the
Environmental Kuznets curve hypothesis
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Relation has been found for only a few
pollutants, but does not include deforestation
Past trends in technological growth may not
justify the claim that the same trend will continue
in the future; in fact, the pace of technological
progress may decrease.
Neo-classical view denies the effect on the
biosphere of an infinitely growing human
economy. The human economy may grow but it
can never break its ecological bounds.