Environmental sustainability vs. economic growth

Steven Cohen writes, "One of the more persistent myths in our political dialogue is that we must tradeoff environmental sustainability and economic growth." He points out that U.S. environmental law only works to clean up or reduce pollution. Instead, greater focus is needed on sustainability measures which allow economic growth and resource reuse/conservation to grow hand in hand. Mr. Cohen further argues that this ideal is not impossible because, in reality, economic growth is dependant on high quality natural resources being available for both the short run and the long run.

In 2010, the U.S. Bureau of Labor Statistics began tracking "green jobs" (or jobs engaging in energy efficiency, recycling and reuse, advocating awareness through education or training, etc.), they found 3.1 million related jobs. Researchers from MIT interviewed global executives as part of a three year study on sustainability innovation and found that 68 percent of these companies, "increased their commitment to sustainability." 67 percent of respondents indicated that possessing a strategy for sustainability was, "necessary to be competitive."

I think Mr. Cohen is correct that environmental sustainability should not be political. Sustainability is not about public relations or pretty landscapes; but necessary for a global economy which encompasses seven billion people. I watched The Lorax movie with my kids the other day, I couldn't help but think how absurd it was for a growing small business to literally hack its way through available resources with absolutely no regard, or strategy, for long term growth.


Michael said...

Although I do not see much managerial economics in this post, I do agree with Mr. Cohen's view that environmental sustainability and economic growth can flourish together. It is my belief that the "sustainability movement" will be one of the main contributors to future economic growth. Companies today are seeing more than just bottom-line benefits coming from the concept of sustainability. They are also reaping the rewards of improved customer perception. Many more jobs will be created as more and more companies embrace the sustainability concept. Companies that fail to adapt will likely be left in the dust.

Dave Tufte said...

Dominick: 100/100.
Michael: 50/50.

Oy vey ... where to start?

First off, I don't see anything that needs correcting in the post or comment. Having said that, I think Michael says more than he knows when he wrote "I don't see much managerial economics in this post".

Let me get The Lorax out of the way first. This is an environmental story that even environmental economists wish had better economics. If you want to watch cartoons with your kids that are (more or less) economically correct, watch the three Warner Brothers cartoons made in the 1950's.

I think Dominick makes a great point that current environmental laws are better at reducing or cleaning up pollution, than at making sure it never happens in the first place.

But, the elephant in the room for thinking about that last paragraph and the idea of sustainability is "compared to what?" This question doesn't get asked much, and this is where the economics starts.

Let's see where this question gets us with pollution. Yes, our anti-pollution laws have been successful. But, here's the thing: what about all the pollution that people cleaned up before there were laws requiring it? Somehow people cleaned their homes, and kept their farms productive, long before there were anti-pollution laws. So, the opportunity benefit of these laws is perhaps much smaller than people guess.

Moving on to sustainability, we have the same issue. The most sustainable industries historically have been glass and aluminum, followed by forestry (on private land), and ranching (remember those videos about all the products that come out of a cow?). I do not think those industries would be on the top of the list of anyone interested in promoting the current sustainability movement. Why is that? That question is pregnant with answers that many people would rather ignore.

Then there is Dominick's statement that some people believe there is no tradeoff between sustainability and economic growth. Fair enough. As an economist, what I'd say is that there is always a tradeoff somewhere, and if you're not looking for it you'll miss the economics.

What is really meant here is that sustainability and economic growth do not have to be negatively correlated (which is a lot weaker than saying there is no tradeoff). And, weaker or not, it's true. Theoretically, there's a result called the environmental Kuznets curve (or EKC). It is that pollution initially grows faster than an economy, peaks and then declines, while incomes keep rising. You probably saw this over the holiday weekend: if the person who was cooking is also doing the clean up, the mess typically is worst a while before the meal hits the table. Macroeconomically, we see this in richer countries that are cleaner than poorer ones. But, this was true 50 years ago before the start of the contemporary environmental movement.

One last macro note: "compared to what" also applies to the new measures of green jobs. Those numbers don't include any information about 1) whether there were green jobs before anyone counted, and 2) if the world is a better place with more green jobs. Those are the ideas we need to be concerned about. If we're not thinking about those, then sustainability is more like a faith than an intellectual principle.

Dave Tufte said...

In rereading my comment, I think I sound like a crab. I'm not: I have way more optimism about the human race than most people ... and that can make me seem crabby when discussing fads.

First, "sustainability" is an economically sound idea.

But, in economics, we view people as being able to come up with (and practice) economically sound ideas before anyone discovers and names them. For example, supply and demand worked before economists discovered them.

And, it certainly seems like there are a lot of areas of economic life where sustainability isn't anything new. I named some in my first comment.

Further, the EKC (environmental Kuznets curve) suggests that uncleanliness will peak out before standards of living plateau. The evidence for this is all around us; it's why America is cleaner than, say, Mexico.

If you put those three ideas together, it paints a picture of improvement on the environmental front, by people recognizing that their actions can be improved ... before anyone really notices either one. This is a good thing, but one that is ripe for confusion.

What is not so good is the very human tendency for us to discover something that is new to us, and then to claim that all improvements occurred after our discovery. This is an extension of the aphorism that if you give a toddler a hammer, they think everything is a nail.

So, as an economist, what I see and worry about is the claims that the "sustainability movement" is doing anything useful at all, without carefully subtracting out the positive trend we were already on before that movement became a fad.

Has this ever happened before? Yes. A good example is the collection of social safety net policies enacted in the U.S. in the 1960's. Most of our society's improvements in the well-being of individuals occurred during the long positive trend over the 1800 to 1960 period. If the social safety net was an improvement, it should have been able to make that trend steeper. It hasn't.