Ajay Phatak's Blog
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Oct
05

Growth, development and progress

Traditionally and even today in almost all economies – progress is measured in terms of GDP growth.  Interestingly, growth has been used as a synonym for development as well.  In effect we have collectively come to believe that growth is the only way to make progress.

Conventional economics still continues to play a pervasive role in defining policies for most nations.  Climate change as a serious threat to human life in coming decades is helping a bit in nations thinking about the environment at the least.  Even so, we still have not exited the paradigm of “free natural resources and eco services” and that human economy is bigger than nature’s economy.

GDP, interestingly is cumulative sum of investment and expenditure.

GDP = consumption + gross investment + government spending + (exportsimports), or,
GDP = C + I + G + (X − M) .

In no other economic measure one would find these two quantities added.  An example below amply illustrates what will mean GDP growth and whether that is what we should call progress:

  1. Developed nations probably spend maximum amount of money on healthcare as a percentage of their GDP.  Increased healthcare expenditure means more consumption and production of medicines.  We add this happily in our gross domestic product.  If we just peep behind these numbers, we will be forced to ask a question  – is more people getting sick and needing medicines a measure of progress and development? What percentage of these medicines goes towards preventive medicine?
  2. Interestingly more crime also adds to the GDP.  More crime means more “investment” in surveillance related technologies and equipment.  More “investment” in crime prevention machinery.  More expenditure on jails and jailers!   Is this a measure of progress?
  3. Increased use of natural resources in any form which depletes natural capital, increases GDP.  In the long run (now in fact in a fairly short run!) we might land up exhausting the natural resources, even if we have achieved stable carbon emissions by then, we may not have any other resources (like water) to sustain.

Interestingly the 3 points combined together might well account for majority of GDP growth.

Very clearly the current almost unbreakable connection between GDP growth and Progress must be broken or else we can have tremendous growth for a short time culminating into a suicide!  We have to seriously start asking what the end objective of growth is.  Growth of growth sake seems to be a meaningless pursuit.  If we are working hard to grow for well being of all humans (hopefully we will move from this position to all life forms) – then we must question, whether we can really achieve that and equally important – sustain that?

As we recognize that we have a finite earth to live on and also sustain future generations, we have to move away from the paradigm of “free” natural capital.  When we realize that the Human economy must be a subset of nature’s economy and make this ingrained as our primary economic principle, we as intelligent beings will certainly be able to design our policies which can and will turn the focus on progress and development rather than myopic focus on growth.

Very clearly GDP growth is inherently linked to depleted natural resources.  As long as we are able to regenerate this depletion in some way (possibly human created natural capital) we should able to sustain humanity.  Unfortunately, much of what nature can regenerate on its own, if protected – we cannot regenerate by use of whatever means.  We must therefore understand what we can draw from the nature’s bank and what can we put back (may be by allowing nature to restore).  As long as we don’t draw more than what we can replenish every time, we should be OK.  If we start drawing more, which we have been doing since industrial revolution, we would be close to bankruptcy as far as nature’s bank balance is concerned.   We seem to be very close this potential disaster.

What could developing countries do in such scenario?  Does that mean that they cannot make progress?  Interestingly, thinking of nature and re-filling nature’s reserves will go a long way in making progress.  We cannot and must not believe that western model of consumption is the only way to make progress.

There are indeed various ways to address this aspect of progress.  We must therefore seriously consider “essential” Vs. Non-essential products.  If food from all sources is important and essential product, we must understand how we can produce the food we need in a sustainable manner.  This means that we must ensure that we are not increasing the yield in the short term at the expense of loosing soil fertility in the medium term.  We must be very careful of guarding the top soil as a treasure, which can help us grow our food on a sustainable basis.   As we make this our focus, we will see that we will have definitive impact on rapid poverty reduction.  Moving investment away from secondary goods will also mean that we will generate much less waste, which is also a significant down side of consumerist model of development.

If we design our policies keeping environment as an overarching super set of the human economy, we certainly have enough intelligence to design and implement the policies that would mean more equitable progress, progress that will also bring in peace and importantly will be sustainable.  As we identify the constraints imposed by natural resources and respect these limits, we would immediately place ourselves on the path of progress.

Copyright: Ajay Phatak, Sustainability proponent

Feb
27

Energy is a very peculiar thing!  It has significant side effects on everything else on the natural resources front.  A few examples here will help understand this point of view.  Easy availability of electricity, leads to increased use of pumps (in the manufacturing of pumps one would need energy and materials – using more natural resources and energy) – leading to pulling out more and more water r from the ground (again wasting substantially more, than when one used a hand pump – say) – this leads to lowering of ground water levels, needing more energy to extract water and therefore more waste – apart from creating a water crisis!  This is what is called in technical jargon – a diverging loop – or a vicious circle.  Same is true with other aspects of “development” as it is defined today.  Easy availability of energy leads to more production, leading to “growth” leading to more need of energy and more natural resources.  We must start realizing that there are no natural resources to bank on for our infinite economic “progress” and the side effects of excessive energy use are leading us to bankruptcy on the natural capital front.  As soon as this realization sets in, there will be an urgent need of looking at ways to using “less” energy than more and still achieve well-being.

Feb
27

We have been so used to using energy (especially in the cities) that we are not even in a position to understand what its proper use is and what is its wasteful use!  As energy started becoming easily available – specially after the discovery of coal and then other fossil fuels – as a society we started becoming less and less aware about what could be the impacts of more and more energy use on the environment and then economy and society.

Interestingly for all of last several decades and even today, we are always trying to forecast – how will we meet the increased energy requirement of the future, without bothering about what impact can present level of use, leave alone increased use, is already creating on the environment and therefore our own lives.  All “development” as we conceive today has been associated with increase in energy use, may that be for lighting, industry or transportation.  In fact such is a correlation with increased energy use per capita by various nations that it is looked upon almost as an index of development!  Interestingly, the end objective of energy use is often forgotten and very large part of energy is just wasted.

Jan
29

Energy security cannot be looked at as an isolated problem to solve. Every instance of energy use creates substantial side effects apart from the well known CO2 emission and therefore potential cilemate change. Every instance of energy use – also uses material resources, which are scarce and getting further scarce, and it can also create waste which ecosystems cannot recycle. This means even assuming we indded solve the problem of energy availability, which itself is rather hard, unless we choose to get de-addicted from our comsumption behaviour, we will contunue to create material scarcity and create ample waste which cannot be recycled – as our ecosystems have aready hitting their limit. It is therefore important to look at our ecosystems health as a fundalmental requirement to any “progress” we make. As long as we are able to replenish the ever degrading natural capital, we will have a huge challenge at hand inspite of energy availability sooner than later.

Apr
07

Economics of sustainability:
In this world of ever growing consumption, there is a strong need to look at economics from a sustainability perspective. Will the current economic model help you achieve the well being of everyone on the planet? Does our current economic model understand and appreciate the dependencies on nature? Does our economic model cater for the living world at large? Do we understand the importance of connectedness of all life forms? Would we be able to live if we destroy all the other life forms in the process of achieving the ever illusive human well being? Do we, the way we are consuming, have any likelihood of surviving at least a few generations more? These and many such questions lead us to start looking at possible new economic models which will look at the well being in integrated and holistic perspective.
Economics in a conventional sense has been a science of production, consumption and allocation. In the words of Paul Samuelson – a renowned economist – “If a Parrot knows two words – demand and supply, he may well be called an economist”. The demand side is the consumption aspect while supply is governed by production.
Economics, I argue is therefore a science of material and energy consumption and distribution! Money is only a vehicle that was introduced to make things simpler – that is in making it easier to transfer material and energy across people at large or producers and consumers to be more specific.
In the pre-industrial revolution era, availability of energy which could be conveniently used was limited, making it quite difficult for producers to create goods and services easily. With easy access to convenient forms of energy – typically fossil fuels, the equations changed substantially. There was no way to imagine then that we as human beings would expand our economic activities so much that it could impact even the availability of natural resources. The good old thought of economics – which is also taught even today in our school and college curricula – considers even now that Natural resources are “free” & ” infinite”. Moreover human economy must “exploit” these resources for the so called well being of the human race. It was indeed thought that this mechanism will help us reach that illusive well being with a hope that it would not disturb well being of the other natural world. The truth seems to be far from these assumptions. In fact it is quite clear that human activities led by this economic thought are taking us to a brink of a disaster.
So, what do we need to do – that we are so clear about the impact of this current economic thought. One of the most important assumptions the current economics makes – that of “infinite and free” natural resources – has been clearly invalidated. What we need to understand is the cycle of material and energy use. It is important to understand that all that we use as “raw material” in terms of material or energy – comes from nature. The services like clean air and clean water that we take for granted are nature’s services which could continue only if we do respect the store of natural resources and in fact help restore this to a level where the nature can indeed support provisioning of its services! We have come to a scale of consumption that is not sustainable by nature anymore. We must therefore imbibe the new economic thought (and this is not so new in reality) where we acknowledge very clearly that the human economy is and must remain a subset of nature’s economy. There are limitations to material and energy resources that we can access and use. There is a limitation to how much waste could the nature absorb and recycle. Once we imbibe this holistic economic thought we can certainly start thinking about how to manage – to live well – for ourselves and for our future generations, without excluding the other life forms on the planet.
It is quite evident that in the current economic system, the market economy – we see that the investment has gone where there is a return and not necessarily where there is a need! There have been occasions when need and returns indeed have matched up and we saw investment doing justice as well. There are however not too many places, where such investment has been kick started by a private industry. More often than not – this has happened through government taking a certain view. These are the cases where the economic action has been taken up keeping people (and other life forms) in the center rather than “the goods” at the center. E.g. design of cities keeping a car in mind will produce one with a large sprawl, where car becomes a need. However, if we look at designing this for the people and with people’s needs in mind, we will plan to minimize people movement and provide for secure mobility and access sans cars. The difference clearly is what you have in mind when designing a community. Traditionally, (if we decide to walk back before industrial revolution) towns have been designed keeping in mind services offered by nature and other human considerations of trade and business.
In post industrial revolution Europe, the investment has many times gone where public interest was involved. This was made primarily by newly rising class of Merchant interested in the business of export and import. This investment further stabilized and later accelerated factory system of production. This acceleration happened specially when large stocks for fossil fuel were explored and became available at very low prices. Extensive use of machinery enormously increased production and led to overproduction compared to demand and generated necessity to stimulate demand. Artificial stimulation of demand led to overproduction of goods which essentially were not necessities by any definition.
For production businesses to earn profits, inputs had to be priced as low as possible which led to impoverishment of labor and suppliers of natural resources. This also concentrated wealth in the hands of manufacturing community. This created a situation where purchasing power was concentrated in hands of few which created tremendous income inequality. The increased scale of production necessitated expansion of feeder services such as accounting, management and transportation. This gave rise to a new middle class as a provider of these feeder services. This class wielded more purchasing power and participated in consumption of intermediate goods. This phenomenon further increased the pressure on natural resources and created huge waste.
This focus on producing intermediate goods has led to denying the remaining part of humanity their daily necessities – and accentuating inequality. We have seen this phenomenon time and again. So called industrial progress is mainly based on enormously undervaluing the inputs in terms of natural resources and nature’s services.
Low prices of food grains and other food items have further led to directing investment into cash crops – which are inputs to industry. Investment is clearly moving away from the daily dose of food we eat.
In countries like India, if the farmer stops producing the food we eat, just because it is no more ‘economical’ – resulting in increasing the prices beyond the means of many in cities, we could easily see a food crisis. In fact the food price rise witnessed by India in the recent months is a testimony to the theory. If enough investment was driven in sustainable farming and reducing the uncertainty of livelihood, if investment went into regeneration of natural resources, one could in fact see alternative livelihoods emerge.
In the times when “climate change” is a center stage issue, one must look at what went wrong and how do we design policies to shift towards this much needed correction. Let us assume for the time being that the problem of energy is solved and we will have as much energy as we need forever without any GHG emissions – we still have to live within the material limits of the planet, we cannot for example assume that say “aluminum” is available indefinitely, or any such “raw material” to be available all the time in coming future. It is very clear to see that excessive focus on production makes us drive excessive consumption and not really the other way round. This excessive consumption, by 5% of humanity creates enormous waste – solid, toxic or CO2 – which the planet is unable to digest and we are seeing challenges that are becoming insurmountable.
Today we promote how a car adds to your social status, we promote how living in large houses adds to the status, we also want to spur “consumption” and celebrate consumerism! We should in fact promote – how living in villages and regenerating nature, while producing necessary food is “the” lifestyle – which provides happiness, health and with media talking about this – even status. Policy makers and media together can play a significant role in seeing this shift happen and that too very quickly.
Adopting these elements of thoughts must become a driver for a much needed change in economic policy. This will then be the real economic reform which will lead us to sustainable future.

Copyright: Ajay Phatak, Sustainability proponent

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