The determinants of economic growth

Abstract

The Millennium Ecosystem Assessment 3 provides a comprehensive review of the status, trends, and possible future conditions of ecosystems, ecosystem services, and human welfare. Its findings include: − “Over the past 50 years, humans have changed ecosystems more rapidly and extensively than in any comparable period of time in human history, largely to meet rapidly growing demands for food, fresh water, timber, fiber and fuel. This has resulted in a substantial and largely irreversible loss in the diversity of life on Earth.” − “The changes that have been made to ecosystems have contributed to substantial net gains in human well-being and economic development, but these gains have been achieved at growing costs in the form of the degradation of many ecosystem services, increased risks of nonlinear changes, and the exacerbation of poverty for some groups of people. These problems, unless addressed, will substantially diminish the benefits that future generations obtain from ecosystems.” Why is our current approach to development unsustainable? Ecologically sustainable development must maintain ecosystem resilience-the continued ability of ecosystems to provide future generations with services in spite of natural and human-driven disturbances. Many current ecosystem management strategies are unsustainable, focusing on a single service-such as the production of food, fuel, or fiber-to the neglect of others. Such strategies can reduce biodiversity and ecosystem resilience by eliminating native species, introducing new and harmful species, converting and simplifying habitat, and polluting the surrounding environment. In addition to reducing resilience, these strategies reduce the capacity of ecosystems to deliver other important services. For example, harvesting timber might provide a near-term profit to the owner of wooded land, but only at the expense of the ecosystem services that the forest ecosystem once provided, such as clean water, carbon sequestration, and recreational opportunities. Humanity as a whole will not necessarily be “richer.” How can we determine sustainability? Human wellbeing depends on numerous forms of wealth. People’s quality of life is determined not only by their property (produced capital), but also by their skills (human capital), their social institutions (social capital), and their biophysical environment (natural capital). Some of this wealth is in private hands, but much belongs to communities, and resources such as the atmosphere belong to all of humanity. Sustainable investment should be informed by gains and losses in all forms of capital, across all ownership categories. Most conventional measures of economic growth, such as Gross National Product, focus exclusively on produced capital. This provides decision makers with little incentive to safeguard natural, social, and human capital. The best test of sustainability is to determine whether average inclusive wealth (all forms of capital taken together) is being maintained. There have been very few attempts to measure inclusive wealth, but measurements that do exist, such as the World Bank’s concept of adjusted net saving, indicate that the growth patterns of many nations are currently unsustainable.