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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

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