How Markets Make Economic Growth Sustainable

50 years ago, MIT researchers produced the first computer. The Limits of GrowthA report that examines how economic trends are predicting environmental disaster. The authors warned that if economic growth and population expansion were not controlled, global resources would be exhausted. this would eventually lead to civilizational collapse. Models upon which Be aware of the limitations Based on this assumption, global resources of lead, copper, silver and tin would all have run out and there would not be enough land available to support a world population exceeding 7 billion. Global trends cannot be changed without government intervention.[t]”The most likely outcome will be an uncontrollable and sudden decline in both industrial and population capacity,” said the authors.

The predictions made in Limits to Growth They (and many other modern doomssayers) were completely wrong. Many of their assumptions were wrong. They did not consider the way that markets react to scarcity. This creates incentives for efficiency, innovation and productivity, so we can do more with what is available. The authors didn’t understand how markets foster sustainability.

People who predicted the imminent exhaustion and depletion in global resources failed to see the arguably most significant and important environmental trend of 21st-century: the dematerialization of modern economy. In fact, the same economic incentives have allowed people in developed countries to make more of what they have.

Andrew McAfee’s novel chronicles this dramatic event. More from Less: The Surprising Story of How We Learned to Prosper Using Fewer Resources — and What Happens NextI have reviewed the book,. Regulation. This is an extract from my review.

The most significant, but often overlooked, aspect of 21st-century environmental progress is dematerialization. You will often see that people are driven to achieve more from less resources. So today’s soda can is only made of half the amount of metal that was required fifty years ago. But dematerialization is not merely a story about increased efficiency or per‐​capita reductions.

This is a sign of a profound decoupling between economic growth and resource consumption. Mature economies not only consume less per unit of output but use less overall. In other words, the net decrease in resource consumption is correlated with economic growth in most advanced nations.

Allow that to sink in. This isn’t just because we use resources inefficiently in nations like the United States. We actually use fewer resources each year,

Despite the continuing increase in GDP, the United States now uses less gold and steel as well as aluminum, copper (stone, cement, and paper) than they did at the beginning this century. The U.S. Geological Service has recorded that only six out of 72 resources have been consumed in an annual basis. These are called “post peak”. Additionally, we use less fertilizer as well as water to grow more crops. While plastic consumption and energy use are both on the rise, these seem to be uncoupled with population growth and economic growth.

This is how does dematerialization happen. Here are some examples. For those who are able to recall the heavy soda cans of 20th-century, the process of dematerializing soda cans is quite simple. Aluminum cans weighed 85 grams when introduced in the 1950s. By 2011, the average can was under 13 grams. These cans are thinner, lighter, and more efficient than the traditional metal sheet production.

A powerful method of dematerialization is substitution. Think about telecommunications. A single fiber optic cable made from less than 150 pounds of silica can carry the same volume of information as multiple 1‑ton copper cables. Satellite and wireless technology allow us to eliminate the need for physical cables. It is possible to communicate with more people while using far less material. It not only saves copper. But it also helps conserve other resources. Think of all the paper saved by e‑mail, e‑banking, and e‑readers.

These developments were not only not predicted by neomalthuians, but they also failed to realize that private markets would drive these trends, not government regulation.

Not because government regulation is necessary or that administrative directions are followed, capitalism and technology allow for more. These forces are what drive dematerialization in most advanced countries, and similar results could be achieved in other parts of the globe. McAfee points out that people “want to have more of everything, but less resources.” We desire more How can resources be used?You can do more with less. Market capitalism facilitates technological advancement and encourages efficiency gains. This not only leads to dematerialization but also promotes “critical aspects of well‐​being,” including health and prosperity.

These trends, however, aren’t universal. These trends are not universal, however, as we consume less resources in advanced countries than in developing nations. Many of these countries often have weak market economies. Emissions aren’t priced in the same way as consumption, so we have not seen similar trends. A widget maker who uses less copper to make them gains an advantage in terms of economics, since copper must still be bought. A entrepreneur who finds a way to reduce emissions of nitrogen oxides or particulates does not. This is because such pollutants aren’t economically affordable and current regulations don’t offer any incentives for reducing them.

If we want to reverse these trends in developing countries, and meet the current environmental challenges including climate change, it is important to know what factors have allowed and encouraged dematerialization. It is possible to spur decarbonization by implementing a series of policies that replicates the market dynamics that led to dematerialization. However, poorly designed policies can do more harm than good. This is but one more reason policymakers should be more interested in fiscal instruments than regulatory mandates to reduce greenhouse gas emissions.

A second article is available in the same issue. Regulation As my Get More for Less The review indicates that US greenhouse gas emissions could have peaked in 2005. GHG emission seem to first increase and then fall with economic growth. However, these trends don’t occur in developing and less market-oriented countries like China. Bruce Yandel and Jody lipford suggest that domestic GHGs may continue to decrease even without government policy changes. While this is true, it’s not as effective as if carbon emission prices were set and stronger market incentives were provided for decarbonization. A greater market incentive for carbonization may also encourage the development of and deployment low-carbon technologies. This is important because climate change is a worldwide concern and such measures are necessary to achieve atmospheric stabilization.

Competitive markets are powerful incentivisers for sustainable and efficient resource usage. The market has enabled more people to be provided for with less resources. Because there are no government programs or policymakers who can credit these environmental success stories, they often go unnoticed. These environmental successes result from market processes and not government direction.

It may prove difficult to replicate the incentive that encourages dematerialization, especially since some of the obvious options (such as taxes on carbon emissions) can be politically complicated. But, pursuing these policies will be the most effective way to duplicate market-driven successes in environmental issues. It is important to remember that environmental problems can’t be overlooked. However, this does offer a way to tackle many remaining environmental problems.