Hoover Daily Report

Economic Growth—the Essence of Sustainable Development

Wednesday, November 17, 2004

Thirty years ago, a group of academics known as the Club of Rome put forth the "limits to growth" theory, predicting disaster for humankind unless natural resource–depleting economic and technological progress were abandoned. This gloom-and-doom theory has been resurrected under the guise of sustainable development, calling for changes in virtually every aspect of our consumption and production.

"Sustainability," a seductive though vague term, argues that resource use today should leave future generations at least as well off as current generations. Of course nobody wants to make future generations poorer and less healthy, but this definition provides no guidance for how this result can be avoided. There is no way to know what resource use is acceptable today and no way to know what future generations may desire. Yet because of its deceptive simplicity, sustainability is applied to anything from agricultural practices to energy use to mining.

Implicit in the calls for sustainable development are two fundamental assumptions. The first is that we are running out of resources, thus leaving future generations with less; the second is that market processes are the cause of these depletions. But in fact, several studies offer evidence suggesting the opposite.

Resources are becoming less, not more, scarce. Agricultural yields for rice, corn, and wheat have increased for decades. Known reserves of oil, natural gas, and coal have been expanding, and accessible stocks of aluminum, zinc, iron, and copper have grown as technology develops more-conservative production techniques and the price mechanism encourages exploration and new discoveries of underground reserves. Moreover, life expectancy, housing, nutrition, and education levels are improving in both the developed and the developing world. In short, the prosperity we enjoy today is leaving future generations better off, not worse off.

How can this be? Sustainable development, if it can be defined as a call to maximize human welfare, is only possible in a legal system where property rights ensure market operability. Property rights (when well defined, enforced, and transferable) provide the structure that encourages development, innovation, conservation, and discovery of new resources. Growth, and increasing wealth through these methods, leads to improved environmental quality by raising demands for it and by providing the wherewithal to meet these demands. In this context, economic growth is not the antithesis of sustainable development; it is the essence of it. Therefore, how we deal with the evolution and protection of property rights in the future will determine not only how free and prosperous we are but also how much environmental quality we enjoy.

Sustainable development stems from sustainable institutions—political and economic systems based on secure property rights and the rule of law. Doomsayers, however, continue to profess, as they have since Thomas Malthus, that exponential economic growth and consumption will ultimately run up against resource limits. They call for more government regulation to stop this growth. If their calls are successful, we will have neither sustainable growth nor sustainable improvements in environmental quality. It is not resources that are too scarce but the institutions that ensure human freedom. Only by sustaining those institutions will we be able to sustain development and advance environmental quality—only then can we have our environmental cake and eat it too!