Uneconomic Growth

by Joshua on August 9, 2009 · 7 comments

“That which seems to be wealth may in verity be only the gilded index of far-reaching ruin”
John Ruskin

Herman Daly is often given credit for pioneering the term “Uneconomic Growth.”  It is a key term in ecological economics and Daly has given us numerous works on the subject. What is uneconomic growth? It is closely related to the optimal or sustainable scale of our economy.

When social or environment costs become larger than the benefits of more production and consumption growth is no longer economic. As Daly and Farley put it in their textbook Ecological Economics uneconomic growth happens when continued growth “costs us more than it is worth. A situation in which further expansion entails lost ecosystem services that are worth more than the extra production benefits of the expanded economy.”

There are values to every ecological service, from CO2 sequestration by forests to water filtration by soil. The total value of mother nature’s ecological services is estimated at upwards of $71 trillion (with a T) a year. While we might find that a tree is more valuable to us as a table, eventually a warehouse full of tables becomes less valuable than the ecological service the forest of trees provided.

Degrading the Earth’s valuable services like flood control, carbon sequestration, oxygen production, water filtration, et cetera is commonplace in today’s world. Every instance where we remove a vital natural service we must replace it with a man-made equivalent. For instance, when we clear-cut forests that naturally prevent soil erosion and landslides we must either pay for the side effects (mudslide, unusable land) or build structures to prevent them (retaining walls, soil remediation).

Rising Marginal Costs

Daly said in his Right Livelihood Award acceptance speech,

“the law of increasing marginal costs [or conversely diminishing returns] tells us that we first make use of the most productive and accessible factors of production – the most fertile land, the most concentrated and available mineral deposits, the best workers – and only use the less productive factors as growth makes it necessary.”

We take advantage of all the cheapest, most profitable resources in a process we are forced to use harder and more costly means as the processes grows. For example, we have used up all the easily extracted oil deposits and now we are searching for deep, difficult and far away reserves as our demand grows. This makes oil extraction and production more costly, raising the cost of fuel, and eventually it is cheaper to use alternatives because the benefits of oil become overwhelmed by the raising costs.

Grim Prognosis for the Future of Economic Growth

Continued growth on a finite planet will ultimately lead to a point where the costs of growing outweigh the benefits. When do we cross this point? There are many who believe we already have surpassed this marker. Ecological economists have investigating the signs and the prognosis is grim.



Growth in GDP no longer makes us happy. There is a limit to the amount of happiness we receive with more money. The Genuine Progress Indicator takes into account things that actually matter to things, adding in benefits and subtracting costs. The GDP adds everything together to one number – a number we follow religiously. Unfortunately, when you subtract the costs and add the benefits you find that even while GDP has been increasing, GPI has leveled off.

Our growth has taken more and more natural resources and degrades an increasing number of ecosystems around the world. The most far-reaching effect to our growth is Global Climate Change which is directly related to the actions of industrialized processes polluting the atmosphere. The side effects are already becoming apparent: increasing the number of intense weather events (e.g. Katrina), ocean dead zones, melting sea ice leading to rising sea levels, retreating glaciers, pollution-caused respiratory diseases, aquifer depletion, ocean acidification, and so on.

At what point do we realize that growth can only take us so far? Initially growth did a lot for our progress, but now we are seeing the impacts of uneconomic growth worldwide. It is time we turned our focus away from growing – getting larger – and push for development – getting better. The steady state economy is the logical next step for a growth economy that has reached the end of economic growth.

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