Saturday, December 13, 2008

Revisiting "The Limits of Growth"

The 1972 book, The Limits to Growth, was a pioneer in the use of computer modeling to predict the future. It ran a model using population, food production, industrial production, pollution, and consumption of non-renewable natural resources in an attempt to see how they would interact under a variety of different assumptions over the subsequent hundred years. It's essential conclusion was that continued growth in the global economy would lead to planetary limits being exceeded sometime in the 21st century, most likely resulting in the collapse of population and the economic system, though this was not a foregone conclusion if there were changes in behavior, policy or technology.

The book was bombarded with negative reviews, almost all of which seriously mis-characterized the book's argument. Reviews commonly made the false claim that The Limits of Growth had predicted that natural resources would be depleted and the world system collapse by the end of the 20th Century. These criticisms ignored the fact that the book made no specific predictions; it ran its computer model under a variety of different assumptions, some of which did not result in a collapse at all. Furthermore, the three main scenerios all showed the economy continuing to grow at the beginning of the 21st century.

More recently, a growing number of authors have taken a new look at The Limits of Growth and found that it's "business as usual" model, which assumed no major changes in behavior or policy, has been in remarkable agreement with the actual course of events. In 2000, oil industry analyst, Matt Simmons, published a paper asking, "Could the Club of Rome Have Been Correct After All?" in which he stated that the most amazing thing about the book was how accurate the basic trends it outlined were 30 years later. Just recently, Graham Turner published "A Comparison of The Limits of Growth with Thirty Years of Reality," which gives a more detailed comparison of book's "business as usual" scenario and the actual economic and environmental data of the past thirty years.

Why did critics of The Limits of Growth get it so wrong? Former World Bank economist, Herman Daily, sheds light on this by describing his efforts to get the ecosystem included in a World Bank report on sustainable development.

The first draft of its 1992 World Development Report, dedicated to sustainable development, contained a diagram labelled "the relation of the economy to the environment". It showed a rectangle labelled "economy", with an arrow entering it labelled "inputs" and an arrow exiting it labelled "outputs". That was it.

It was my job, as senior economist in the bank's environment department, to review the draft and offer suggestions. I said drawing such a picture was a great idea, but it really had to include the environment. As drawn, the economy was receiving inputs from nowhere and expelling outputs back to nowhere.

I suggested we draw a big circle around the economy and label it "ecosystem". Then it would be clear that the inputs represented resources taken from the ecosystem, and the outputs represented waste returned to it as pollution. This would allow us to raise fundamental questions, such as how big the economy can get before it overwhelms the total system.

When the second draft came back, a large unlabelled rectangle had been drawn around the original figure, like a picture frame. I complained that it changed nothing. In the third draft, the diagram was gone. The idea that economic growth should be constrained by the environment was too much for the World Bank in 1992, and still is today. The bank recognised that something must be wrong with that diagram - but better to omit it than deal with the inconvenient questions it raised.

The possibility that economic growth could end was a blind spot that traditional economics couldn't deal with. Daly writes that there is evidence that the global economy is approaching the limits of what our planet can cope with, and that, "As long as our economic system is based on chasing economic growth above all else, we are heading for environmental, and economic, disaster."

New Scientist magazine devoted its October, 2008 issue to the subject, "How Our Economy is Killing the Earth," arguing that science is telling us that, if we are serious about saving the Earth, we must fundamentally reshape our economy into a steady state economy. But an economic model with no growth heresy; nothing terrifies governments as much as the lack of economic growth.

Today the twin probelms of global warming and peak oil further challenge the idea that economic growth can continue indefinitely, and perhaps only for a very limited amount of time. The result is the rather grim conclusion that, although there are measures for us to take to avoid disaster, the specter of the end of growth still causes too much in denial for us to do the things necessary to change course.