A SUSTAINABLE GLOBAL ECONOMY

by Dick Felton, Emeritus Professor of Economics, University of Nebraska

For the global economy to be sustainable, a minimum condition is that "real," inflation-adjusted, per capita income not decline over the indefinite future. As a matter of fact, Thomas Robert Malthus to the contrary notwithstanding, the gross domestic product of the nations of the world has tended, over the last 2 centuries, to increase more rapidly than the population.

As long as each generation appeared to enjoy better economic circumstances than the preceding one, it was extraordinarily difficult to make a case for any restraint on the use of the world's resources. Whether that condition will hold for future generations is a matter of debate.

Many members of the economics profession profess to foresee no problem of sustainability. Continuing technological change plus the substitution of less scarce resources for more scarce ones will, according to their optimistic scenario, generate ever-increasing output. Furthermore, the industrialization of developing countries, more education, improvement in the status of women, and so on will bring down the birth rate and, as a consequence, greatly reduce the rate of population growth. The global economy will achieve sustainability through a combination of free markets and individual incentives to limit population growth. I am less sanguine. My reasons are:

Countries which initiated industrialization a century or more ago began the process with a much smaller population base than do third-world countries today. The pressures of population on a poor country's resources make the diversion of current income into the creation of infrastructure and other capital assets a daunting challenge.

Population growth in both third-world and industrialized nations has been promotive of what economists term "negative externalities," that is, the shifting of costs of both production and consumption to third parties, frequently society at large. Thus, a city which dumps raw sewage into a river shifts costs from the residents of that city to persons who live downstream; and an additional driver entering a freeway during rush hours adds to the congestion and slows the progress of every other vehicle. More generally, under current technology and a world population approaching 6 billion, human production and consumption activities has brought with it the pollution of rivers, lakes and oceans; the deterioration of air quality through the creation of greenhouse gases; the destruction of the ozone layer; and the decimation of forests with attendant exacerbation of erosion and floods, on the one hand, and the reduction of the Earth's capacity to absorb carbon dioxide, on the other.

What will it take to achieve a sustainable global economy? I should place reduction in the global birth rate at the top of the agenda. Not only does a larger population increase the demand on the Earth's limited resources, but also, as we have noted, greater population density is a prime factor in the creation of negative externalities. While population pressure may not be the only threat to a sustainable economy, it is a fundamental direct menace, and it is the chief contributor to most of the others--whether they be destruction of rain forests, reduction in biological diversity, global warming, or the spread of increasingly virulent communicable diseases.

Under such circumstances, a Congress which votes to curtail family planning assistance is not merely cruel but also suicidal. It is clearly time for Congressional leaders to look beyond the next election to at least the next generation. If not, the price will be exorbitant.

While I have been most critical of the capacity of the "free" market to reverse our descent into an unsustainable future, I have the utmost regard for markets as a mechanism to further a policy of sustainability. For example, a gasoline tax is a much more efficient tool to reduce automobile exhaust emissions than a government mandate on auto manufacturers.

We could also use the market to stabilize population. Suppose the United States diverted a small fraction of the defense budget to assist third-world countries to pay women not to have children. In poor countries, a small subsidy, together with family planning information and assistance, would provide all the incentive necessary to have a real impact upon the birth rate.

These are just two of the ways in which enlightened public policies might improve our chances of achieving a sustainable global economy. It is high time we adopted some of them.

In conclusion, if we reduce markedly the extent of negative externalities and curtail significantly future population growth, then innovation and substitution will continue as powerful forces for sustainability. On the other hand, should we permit environmental degradation and population growth to continue unchecked, nothing will save us!

From Pop!ulation Press vol 4, #4, March/April 1998.