Is Economic Development Good or Bad?

I've been attempting to justify my offensive opinions — the ones that I seem not to share with many of my friends. This is the fourth in the series of (I expect) five, and tonight I turn to economic development -- specifically to my offensive opinions number 7, 8, and 9, as follows:

7. Economic development is good, and need not use up the earth’s natural resources.

8. The economy is increasingly a matter of creating and selling knowledge, and less and less a matter of producing material stuff.

9.The best way to reduce birthrates is by economic development.

I hope you are shocked by the very idea that economic development is a controversial goal. All decent people want the poor people of the world to escape from poverty and improve their living standards and life expectancy.

Yet beyond that basic level one hears expressions of ambivalence about further development – especially when it involves economic growth. This anxiety arises from the ongoing commitment to a theory that has been immensely influential over the years: Malthusianism.

Though he died over 250 years ago, Thomas Malthus lives today in the assumptions of people who do not know his name. The Malthusian assumption is that the earth's resources — notably food — are capable of increased growth, but only at an “arithmetic” rate, whereas population is capable of increased growth at an exponential rate. Indeed, considering certain built-in aspects of human nature, we must expect the human population to grow beyond the means of subsistence. Since that situation cannot be prolonged very long, there will be “positive checks” that bring the population back down to the levels that can be sustained. These positive checks are disease, famine, and war — sources of death.

Malthusian assumptions can take other forms besides referring to the production of food. Since raw materials of all kinds are finite, one can make the same argument about other aspects of economic development. Mining, forestry, fisheries, fresh water, and all the other necessities for economic growth can be depleted, thus causing industrialization to collapse. And empirically, one can find historical cases of such actual population collapse – such as the Easter Islanders and the Mayan civilization. So we have to ask whether this must inevitably be the fate of our own civilization.

The humanitarian concern for the well-being of the world’s poor is tempered, then, by an offsetting concern that their expanding population, coupled with increasing affluence, will inevitably bring the world to the brink of collapse. Only a drastic reduction in humankind’s consumption of raw materials (known nowadays as our “ecological footprint”) will allow us to avoid worldwide collapse. Or so modern Malthusians believe.

But in reality, humankind has multiplied six times over since Malthus’s day, while improving our standards of living vastly. The price of commodities has fallen, year by year, instead of becoming more scarce. People live twice as long as before. How is this possible?

The Malthusian answer only takes account of two factors; population size and economic growth. To restore the balance between these, it would seem that what is required is: (a) an increase in death rates, (b) a decrease in birthrates, (c) a cut-back in material consumption, or (d) a combination of these three factors.

That Malthusian theory may stand to reason, but it is not true. What has happened instead is that technology has improved the efficiency of production enough to allow human well-being to improve. This is, of course, economic development. And as the Nobel laureate in economics Amartya Sen (see photo) points out in his book, Development as Freedom, there is no reason to expect this enhancement of efficiency to stop. We do not face any imminent threat of collapse from the depletion of natural resources or from food or water, since when one material resource becomes scarce, economic development yields substitutes and ways of producing the same goods with less material.

The world does face great dangers, but they are from such factors as global climate change and warfare, but not from shortages of material resources – at least if we don’t interrupt the process of economic development. The economy requires wise policies and intellectually sophisticated leaders. Without astute coordination, societies can indeed collapse — as Easter Island did when its leaders kept cutting down trees to build huge stone heads.

As Sen points out, economic development enhances human capacities. It provides education, health, and an opportunity to choose freely among various options rather than live like beasts of burden, tilling the soil merely to survive. The prospect for our collective future depends on improving efficiency.

And the consequences of economic development include a decline in infant mortality, followed by a decline in birthrates, and the stabilization of population size, with societies constituted largely by old people.

If, however, one tries to solve the problem in the opposite way – by reducing consumption – then the economy cannot grow and development cannot occur, so death rates will remain high and so will birthrates. This is a recipe for disaster.

Leftists in capitalist societies tend to believe that economic growth should be curbed, so as to reduce the “through-put” of raw materials. The cessation of economic growth is not a tenable goal. Why not? Because all productive enterprises require capital investments. A businesswoman setting up a new firm, for example, will borrow money from the bank or offer shares on the stock market. This money must be repaid with interest, or the new company must go bankrupt. The interest cannot be repaid unless the profits grow by at least that amount. Hence if economic growth stops, all productive enterprises will go bankrupt and the economy will collapse. We must either grow or die.

But growth does not necessarily mean that the natural resources are used up. With the rise of the “information economy” growth can take place by exchanging ideas rather than processing physical things. To be sure, humans always will require food, shelter, clothing, and other physical necessities, but such products will never again be our main expenditures or our main sources of income. Material comforts can become simple, cheap, and abundant, while economic growth continues.

This is already the trend. We don’t have to do anything remarkable to make it occur. Economists now know what is required to facilitate economic development. We can help it along or mess it up with bad theories, but the basic outlines of development are understood.

So relax and enjoy it. Life is good.

But don’t relax altogether. We have other problems to solve — such as nuclear weapons and global climate change. Let’s pay attention to these issues – the ones that we really do face, instead of false problems that we need not worry about.