The Vulcan Hello

Economic growth over environmental degradation – How do we strike the perfect balance?

The question itself invokes an image of a Greek goddess holding aloft a weighing scale, perfectly poised, and the imperative seems to be to find the perfect tilt; the right angle; that sweet spot of give and take. What we’re missing, however, is that the environmental degradation side of the scale is attached to ten tons of dynamite that are rigged to blow if the scale drops too low. And the entire system is placed somewhere in Nakatomi Plaza in the final moments of Die Hard with the clock ticking down.

As it stands now the scales are tipped heavily towards the goal of economic amelioration – it’s what in the short run fills the vote banks, fills the coffers and keeps the peace. In the short run, the only notion of environment, or the one most frequently encountered is that of a mere externality. The relationship between our environment and our economy is multidimensional and complex but the fact of the matter is that the environment is not an externality- it is the foundation on which the economy is built. Every source of income, every industry, every article of consumption is dependent in some way on natural capital if nothing else.

The task of environmental management is a challenging one and the challenge is accentuated in developing countries where the opportunity cost of environmental conservation is tragically higher. Countries in early stages of progress are more likely to be dependent on primary and secondary sector occupations that rely heavily on natural capital and generate more waste than the tertiary sector that is dominant in more developed economies. For example, Wildlife sanctuaries in these areas are susceptible to an unsolicited clearing of land for agriculture. It may be suggested that the revenue earned from tourism that wildlife parks draw could compensate in part for the opportunity cost but studies show that the revenue generated from these activities often accounts for just a mere 8% of the opportunity cost in low income countries¹.

Early attempts at environmental modelling generated the Environmental Kuznets Curve( hereafter referred to as the EKC). It suggested an inverted U shaped relationship between GDP/Capita growth and environmental damage i.e, after a certain level of GDP growth was surpassed the environmental damage would begin to recede, courtesy of a shift in society mindset, technological reforms and development of the less polluting tertiary sector.

The curve had interesting policy implications as it favoured fast-tracking GDP growth over implementing costly environmental checks especially in developed countries that were nearing the turning point.

The notion is exceedingly counter-intuitive as one would expect developed countries to headline the motion for environmental reform. However, in today’s world, it’s

heartening to see leading economies like the United States propose reforms like the Green New Deal despite their leader’s worrying tendency to occasionally rebut the existence of global warming.

The EKC has since been subjected to criticism on the grounds of its narrow approach to what constituted environmental damage and pointed out that the relationship was loose at best for variable apart from air quality indicators. Furthermore, there was the vital matter of the hysteresis in the curve. Though the theory stipulated environmental damage would decrease as GDP increased beyond the turning point, it didn’t account for the fact that the cost of recuperation of the environment would increase the longer it was allowed to deteriorate.

An interesting line of thought asks whether there really has to be a trade-off between GDP growth- that drives noble goals like poverty alleviation- and environment conservation. A study in the UK suggests the emergence of a sector dedicated to environment maintenance. It states that the Low Carbon and Environmental Goods and Services sector was worth over £100 billion in the UK in 2007- 08, including the supply chains of these industries and generated 1.5 billion jobs². The same study features numbers that demonstrate the UK succeeding in increasing its GDP while simultaneously reducing its carbon footprint – a remarkable feat, The attempts can be traced back to the decoupling phenomenon – i.e the breaking of the link between economic growth and environmental degradation. OECD data up to 2005 indicates greater evidence of absolute decoupling in European countries, namely the UK, Germany, and France. However, a closer look reveals a different side of the story. UK’s success on the decoupling front seems to be attributed largely to its export of CO2 emissions. As the country shifted towards the tertiary sector, it outsourced most waste generating manufacturing activities overseas to less developed countries, further augmenting their struggle to keep pace with the fight for environmental preservation. It appears that while formulating the comparative advantage analysis, Adam Smith overlooked environmental implications of the theory. A journal by DEFRA says it best – “ If some of the comparative advantage arises from differences in the stringency of environmental regulation, this could reduce the overall efficiency and growth benefits from trade and specialisation. For example, if producers in some countries do not have incentives to reduce CO2 emissions, the comparative advantage they enjoy could be, in part, due to lower production costs resulting from less stringent emissions targets.” ,² The study drives one to conclude that should a panacean environmental policy be evolved it will have to involve an international effort towards decoupling.

Morally speaking, it isn’t an easy debate. We have to both fight for our own people and take measure to secure their well-being through GDP growth. But in doing so we can’t afford to neglect respecting the world we were brought into. Our scenario is reminiscent of a classic Star Trek episode wherein Captain Kirk is lax in acting on Mr. Spock’s far-sighted logical suggestion. The laxity, though caused by well-intentioned concern for his comrade, eventually led to the demise of a said comrade. It is normal and it is human to be concerned for the state of

our economy – for those suffering, ailed by poverty and disease that we perceive can be cured by economic growth, but reason dictates that we cannot turn a blind eye to the environment. There is a role for that reason to play and if we neglect that role for too long, like Kirk, we may end up stunting the very economy we tried to protect. In addition, a potent question to be asked here is not just whether or not a balance can be found and struck, but whether it can be found in time. Perhaps it’s time for us to turn to some of that far-sighted logic and ask – What would the Vulcans do?

By Sharanya Seth
Senior Secondary Student

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