Sustainable Growth is Actually Possible

Climate and environment blog

There is no contradiction between environmental considerations and economic growth. But to unite these two, more insight is required into what problems the companies are facing that today are introducing green technologies.

We need to find out how capital markets can stimulate new companies and better understand the interaction between environmental regulations and environmental innovations. With more knowledge about innovation processes at both corporate and social levels, we can prepare the way for sustainable development.

Sustainable growth is an impossibility. He bases his reasoning on a certain critique of neoclassical economic theory in some respects.

The focus of economists and society on growth is not compatible with sustainable development because growth requires more resources to be used.

But economics is actually about economics with resources. For example, models of supply and demand assume that resources are scarce, which in turn is reflected in price formation.

A high price indicates that there are small quantities in relation to what is demanded, while a low price means that a product or service is in abundance. Prices provide information on the relative scarcity of resources. Thus, prices also send out signals to society about the need for more resources or alternative solutions.

However, as points out, the economy has had a hard time explaining how wealth actually arises. Research has long assumed that markets are in equilibrium. Important factors for creating wealth were considered exogenous.

Simply put, this means that economists did not include technology, knowledge, and institutions in their models of society. This made it difficult to explain how wealth is created in other ways than through increased use of resources.

However, this criticism has been brought forward and the fact is that it has gained more hearing in recent times. Joseph Schumpeter was the first economist to seriously introduce innovation and entrepreneurship into the economy. In his book The Theory of Economic Development, Schumpeter argued that existing theory could not explain how wealth was created because it was too static.

Assuming equilibrium prevails in an economy and that innovation and entrepreneurship are exogenous factors, it will be difficult to understand how prosperity arises.

With a static theory, it also makes perfect sense that economic growth must occur at the expense of the environment. If there is no renewal, the total production can only be increased by using more resources, which by extension is unsustainable. It is, therefore, no wonder that the environment and growth have often been opposed.

However, the fact that economists ignored anything other than input-based growth for a long time does not mean that growth always destroys the environment.

Growth can be achieved without more resources being used. In some parts of the economy, this becomes extremely clear. In order to create computing power corresponding to a smartphone using 1940s electronics, a computer that required more than 200 buildings were required. The plant had required 50 terawatts of energy. With such energy consumption, a phone battery had run out in less than a nanosecond.

Malmaeus is right that today’s view of economic growth is too one-sided. However, the problem is not our focus on growth, but our poor understanding of the phenomenon and how it can be combined with environmental considerations. The key to sustainable development is thus a deeper knowledge of innovation processes and the institutional conditions required.

In this area there is much to do. Which companies are introducing green technologies and thus making the use of resources more efficient?

What challenges do they face? How do capital markets need to be designed to stimulate the growth of new companies? How can environmental regulations be designed to create incentives to develop environmental innovations? Which innovation and research policy promotes the development and commercialization of new technologies?

The economic sciences bear part of the blame for environmental issues being opposed to economic growth. Many economists have long believed that growth is only achieved by using more resources. We need to leave this debate and focus instead on how economic growth and environmental considerations can be combined. More knowledge about innovation processes at both corporate and social levels can take us a little way.

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