How Can Growth Be Sustained?

Nearly four years after the US financial meltdown of 2008, the economic situation in the developed world has remained in the doldrums. Government deficits are blamed for the problem, but they are only a result of the long recession rather than the cause. The rich want more tax cuts by claiming they are the job creators without thinking that tax cuts will worsen government deficits. We may also want to blame the politicians as the election season heats up. I think we are missing the point big time. The problem is in fact much more complex and tough to solve, but it is not entirely new.

A different economic crisis is coming that we are only beginning to understand and accept as real. It’s the crisis of limited natural resources and environmental pollution that has started to bite in recent years. This leads to the following question: Can economic growth be sustained for the future?

This looming crisis presents two big challenges hitherto being ignored. First, we used to assume that the world has unlimited resources such as oil, fresh water, arable lands, woods from the forests, and fish from the ocean. Since the earth has a finite size with growing population and consumption, should we assume unlimited natural resources? Although we could in the past, we’ll invite trouble if the same assumption is made now because the realities have changed.

The second challenge involves environmental pollution that inevitably increases as the economy grows. Pollution is seen both locally and globally. The local consequence is obvious because our health is adversely affected by polluted air, water or food in the surroundings. The global consequence is hard to visualize, because it only affects us indirectly or not at all for now. The global consequence of pollution is climate change due to greenhouse gases, mainly carbon dioxide. Greenhouse gases released into the atmosphere impair the earth’s ability to produce more crops on land and more fish in the ocean. Why? They warm up the planet, resulting in extreme weather conditions and potentially altering the existing pattern of ocean currents.

Can’t you see the predicament we are in? We want more jobs and higher standard of living. This means the world economy must continue to grow and consume more natural resources. However, a growing economy pollutes the environment more, which adversely impacts our quality of life even when we enjoy more material possessions. The limited supply of natural resources is acting as a brake on economic growth via cost inflation, as best illustrated by oil that we have to pay dearly. It looks like we are trapped in a vicious circle of slow growth, fewer jobs, cost inflation, and declining quality of life.

Why had the developed countries done so well before but not now? The answer is inequality and exclusion. The developed world comprising North America, Western Europe, Japan, and Australia accounts for less than 10% of the world’s population, but it consumes more than 50% of its natural resources, notably oil. During the heydays of empire, some of them such as Great Britain and Spain with a powerful navy even occupied and ruled over a greater part of the world. When the world’s resources were controlled by the powerful 10%, they could enjoy as much as they wanted at artificially low prices.

This inequality began to shift in 1973 when OPEC flexed its muscles by raising oil prices. The tipping point came when China emerged in the late 1980s as an economic powerhouse, followed by India, Brazil, and Russia (known as the BRIC countries) with a combined population at over 40% of world total. They want to achieve the same standard of living as the developed world. Where will the natural resources come from? Will there be enough to go around? It looks scary and impossible, but the BRIC countries are determined to push forward. Why shouldn’t they since the developed 10% have enjoyed high consumption for a long time?

As a result, we now face a potential world conflict over dwindling natural resources between the developed countries (rich minority) and the developing countries (poor majority) as the latter tries to industrialize at a feverish pace. At the national level, the same conflict has heightened between the rich 1% and the rest 99% as seen in the Occupy Wall Street movement.

How can we break out of this conflict between rich and poor over dwindling natural resources? The temptation of returning to the old order still lingers where the powerful few subjugate the weak masses. Are they able to do it in the age of cell phones and social media? Have they smelled the winds of revolution spreading even to the Arab world? The old method of forcibly grabbing a country’s natural resources has proved expensive and damaging as shown by the US in the Iraq invasion of 2003. Therefore, the best approach is for all countries to learn to live peacefully by equitable sharing.

Equitable sharing is only a small part of the solution. Fortunately, the earth is a living planet that constantly regenerates itself and replenishes its own resources such as oxygen, fresh water, forests, crops, animals and fishes. The only condition is that humans do not mess up the natural process by interfering in the balance of nature. There are plenty of resources for all if we try to enhance the earth’s regeneration facility instead of disrupting and polluting it. We don’t have to beggar our neighbors to prosper. We only need to enlarge the pie that is the living earth. How can it be done?

We should be adopting a 21st century production/consumption system based on five operating principles as follows: more efficient use of natural resources, less wastes, recycling of used materials, environmental protection, and substituting fossil fuels with renewable energy. Of all the sectors involved, the most vital is energy where renewable sources should eventually replace dwindling and dirty fossil fuels. This future system requires an entirely different way of thinking based on a new set of realistic assumptions and attitudes.

The old assumptions and attitudes cannot change quickly due to all the entrenched interests in existing industries, especially those that pollute most. What are the prospects for achieving a 21st century system? I think the prospects are good. Why? Four inevitable forces are gathering strength, and pushing the world in the right direction:

First, old attitudes and thinking are tied to age. Within the next few decades, the present generation and power structure will be largely replaced by a new one that does not think the same way. Because of their new experience and outlook, the next generation will be more adaptable and in tune with the new global realities.

Second, the fast rising costs of natural resources will force us to adopt a 21st century production/consumption system. The most important test is the use of oil whose price has risen relentlessly for 40 years. The transportation sector today consumes more than 70% of all the oil produced. Although oil still fuels most means of transport, we have already seen electrification first in trains, then in hybrid and electric cars. When electricity finally achieves cost parity with oil within a few years as expected, the electric motor will be adopted en masse for plug-in cars. Oil is one natural resource among many waiting for substitution as their prices rise due to dwindling supplies.

Third, the electronics industry has been playing a key role to enable a 21st century production/consumption system. Its contributions are as follows: Computer chips control lighting and temperature in buildings to minimize waste of energy. Emails, electronic cash transfers, and digital documentation save tons of paper everyday. Teleconferencing saves gasoline and travel time for business managers. Computers enable precision control to save raw materials in manufacturing processes. Finally, solar cell production is an offshoot of the chip industry.

Fourth, human awareness is fast rising concerning the deteriorating environment and dwindling natural resources. People are experiencing the new realities everyday through health problems, price increases, and the loss of wild lands and animals. Information technology helps raise consciousness by spreading the word quickly worldwide. As a consequence, a change in consumption habits is gradually taking shape such as wasting less and recycling more. When this change accumulates to a critical level, a tidal wave will be generated that will alter the course of history.

July 2012

This entry was posted in 21st Century, Economics/Politics, Environment, Inspiration. Bookmark the permalink.

One Response to How Can Growth Be Sustained?

  1. Dilce says:

    i appreciate you sharing this information here. it was a brilliant post. thanks!

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