How Big Should The Economy Be?

This article was originally published in January 2020 in the Echo here.

Anyone who has never studied economics would be excused for the common-sense belief that the economy cannot grow forever, but those who have been indoctrinated with an economics education know otherwise. The standard model of economic growth that they learn is independent of resources, so, they believe, there is no limit to an economy’s size. Sound strange? The key point to toppling this dogma is knowing that the economy is a real thing, requiring real resources to increase the amount of real products and services. Those real resources exist as either matter or energy, and they come from the environment, which can only supply a limited amount for the simple reason that the earth is finite. So, despite what economists and the politicians they influence tell us, there is a limit to how much the economy can produce in a given amount of time.  

So how big should the economy be? While there is no simple answer, as a sub-system of an ecosystem, the economy must at least remain within the biophysical limits of its parent ecosystem. Otherwise, just as a parasite kills its host by extracting too many resources, so too will an economy collapse when it draws out too many resources from its host ecosystem, killing both in the process. To highlight the ecological consequences of a growing economy, consider the diagram below, courtesy of Herman Daly: 

As shown, the economy grows into ecosystems, degrading their services as it does so. Ecosystem services are broadly defined as things that ecosystems do which benefit humans. For example, providing an ozone layer and stable climate, recycling nutrients and breaking down wastes, among many others. They are the fundamental object of sustainability since, if they cease functioning, no society, much less any economy, will survive. We are now living in what Daly calls a ‘full world’; that is, one full of people and all our stuff. What do climate change, biodiversity loss, plastics in the ocean, the hole in the ozone layer, and a slew of other ecological aberrations have in common? They are all a result of our growing economy. The series of reports Australia: State of the Environment, published every five years and arguably the most comprehensive account of the state of the Australian environment, identify growth of the human population and the economy (which are closely related) as the prime cause of our ecological decline. 

Locally, the Byron Bay bypass is just one example of the conflict between economic growth and ecological sustainability. Anyone who has spent at least a couple of years in Byron Shire can see that it is growing, both in terms of the number of people living in and visiting it, as well as the economic activity conducted here. This growth is endorsed by the NSW state government in its North Coast Regional Plan 2036, and its Growing Local Economies fund has provided close to half the money for the bypass. Of course, the bypass runs through wetlands where a number of threatened species live, including Mitchell’s Rainforest Snail, the Common Planigale, and Black Bittern, which thereby reduces the ecosystem service of providing a habitat for these and other species, since they will not live on or near the bypass, which is probably true for most humans too. 

While proving that economic growth will cause catastrophic dysfunction of ecosystem services is probably impossible for one specific case, the precautionary principle suggests that limiting growth for an economy as a whole would be wise. This is the conclusion of the IPBES (the biodiversity and ecosystem services analogue of the IPCC) in their recent Global Assessment Report. Therein they note that about 1 million species are threatened with extinction, many within decades, and suggest ‘steering away from the current limited paradigm of economic growth’. Yet in Australia, as with all other countries in the world, economic growth is set firmly at the centre of solutions to issues as diverse as poverty, unemployment, and even environmental degradation. 

A prudent response to these issues would include a re-evaluation of the growth economy, and replacing it with its counter-part, the steady-state economy. The steady-state economy is one with a constant or mildly fluctuating human population and stock of human-made things. In addition, the levels at which these two quantities are held steady are sufficient for a good life and sustainable into the future, and the rate of matter and energy flows maintaining them are kept as low as possible.  

There is no question that the growth economy must end, it is only a question of how. Those reasonable and caring would like the transition to be a smooth, rather than abrupt one. Does your MP endorse a steady-state economy?