What is Uneconomic Growth
Uneconomic growth is growth that produces negative externalities which reduce the overall quality of life. This is also known as unsustainable growth, where the negative social and environmental consequences outweigh the short-term value of an extra unit of growth, making it uneconomic.
Key Takeaways
- Uneconomic growth happens when the marginal benefits of a growing economy are outweighed by the negative social and environmental consequences.
- Funds that invest based on an environmental, social, and governance (ESG) criteria aim to align their portfolios with the ideal that growth should be more sustainable.
- Some environmental advocates believe the impacts of uneconomic growth can only be addressed via lower rates of growth.
Understanding Uneconomic Growth
Uneconomic growth happens when the marginal benefits of manufacturing more goods and a growing economy are outweighed by the negative social and environmental impacts. It has become an article of faith in environmental and ecological economics—although the idea of unproductive growth has been around for a while.
Some of its philosophy has also been adopted by climate-change conscious investors in the environmental, social, and governance (ESG) space, where large wealth funds and foundations have been divesting themselves of fuel stocks. Socially conscious investors have been avoiding fossil fuel stocks and making other ethical investment decisions, in order to align the core of their investment strategy with their values.
Greens Champion the Cause of Uneconomics
The concept of uneconomic growth and the steady state economy was popularized by World Bank economist Herman Daly in the late 1990s. Ecologists, like environmental activist David Suzuki, argue that the global economy is now so large that society can no longer safely pretend it operates within a limitless ecosystem.
When one nation increases production by damaging the environment, it creates negative consequences that are felt by the entire planet, in terms of lost ecosystem services. The same principle can be applied to the level of a city, company or even one's own home.
A Grim Prognosis for the Future of Global Economic Growth?
Concerns about possible negative effects of growth on the environment and society have led environmentalists and climate activists to advocate lower levels of economic growth and fossil fuel use to limit the damage to the environment and climate. Ecological economists think the world has already passed the point when growth costs more than it is worth, and that we need to focus on protecting natural habitats.
The United Nations has adopted a progressive agenda to achieve "sustained economic growth." But even that does not go far enough for green economists who want to move "beyond growth" and find alternative global indicators to gross domestic product (GDP)—which because it is a monetary valuation does not distinguish between market transactions that contribute positively to sustainable well-being (such as buying bicycles, solar panels or fresh food) and those that diminish it (such as buying gas guzzlers, guns, or cigarettes).
The focus on GDP means that economic policies automatically have a pro-growth bias and that there is no distinction between economies that are undermining critical ecosystems and those that are not.
FAQs
Uneconomic growth is growth that produces negative externalities which reduce the overall quality of life. This is also known as unsustainable growth, where the negative social and environmental consequences outweigh the short-term value of an extra unit of growth, making it uneconomic.
How does economic growth work? ›
Economic growth refers to an increase in the size of a country's economy over a period of time. The size of an economy is typically measured by the total production of goods and services in the economy, which is called gross domestic product (GDP). Economic growth can be measured in 'nominal' or 'real' terms.
What is the difference between economic growth and uneconomic growth? ›
Uneconomic growth is economic growth that reflects or creates a decline in the quality of life. The concept is used in human development theory, welfare theory, and ecological economics.
What is unsustainable growth? ›
growth that cannot continue at the same rate without causing environmental problems: We will never stop degrading the ecosphere unless we tackle capitalism and the unsustainable growth that lies at its core.
What does lack of economic growth mean? ›
When GDP goes up, the economy is generally thought to be doing well. Meanwhile, weak growth signals that the economy is doing poorly. If GDP falls from one quarter to the next then growth is negative. This often brings with it falling incomes, lower consumption and job cuts.
How to stimulate economic growth? ›
Economic growth often is driven by consumer spending and business investment. Tax cuts and rebates are used to return money to consumers and boost spending. Deregulation relaxes the rules imposed on businesses and has been credited with creating growth but can lead to excessive risk-taking.
Is economic growth good or bad? ›
There is a reliable historical correlation between economic prosperity and trends in life expectancy, which is enough for many scholars to suggest that growth is generally a good thing. However, this is not to say that we can expect continued improvements in health whenever we see economic growth.
What is an example of uneconomic growth? ›
The concept of uneconomic growth is often used in an environmental context, where goods produced from exploiting the environment end up degrading the environment and, over time, end up costing more than their contributory value through the creation of waste and pollution back into the environment from which they were ...
What is the difference between economic and uneconomic? ›
Economic activities refer to the actions of the individuals associated with the manufacturing and consumption of products and services. These are done for monetary gain. Non- Economic activities are those activities done to offer products or services to others with no purpose of financial gain.
What is it called when there is no economic growth? ›
Economic stagnation is a prolonged period of slow economic growth (traditionally measured in terms of the GDP growth), usually accompanied by high unemployment.
Yet, there is a conceptual error being made when economic growth is equated with environmental degradation, or at the very least, with the increasing consumption of the Earth's resources. Despite their close connection in the past, it is theoretically possible to have limitless economic growth on a finite planet.
What happens if there is no economic growth? ›
It is easy to see how a low-growth economy could become a dystopia: high youth unemployment could lead to wasted generations; unsustainable government debt burdens could force further cuts in public services; sections of society could be trapped in poverty; politics could become increasingly embittered.
Why is unsustainable economic growth bad? ›
Uneconomic growth is growth that produces negative externalities which reduce the overall quality of life. This is also known as unsustainable growth, where the negative social and environmental consequences outweigh the short-term value of an extra unit of growth, making it uneconomic.
Which economic system has the most government control? ›
A command economy is characterized by the most government control over the economy.
Is economic growth a cause of poverty? ›
Economic growth is the single most important factor influencing poverty. Numerous statistical studies have found a strong association between national per capita income and national poverty indicators, using both income and nonincome measures of poverty.
When economic growth doesn t mean anything? ›
Jack Kemp Quotes
Economic growth doesn't mean anything if it leaves people out.
What factors can produce economic growth? ›
The four main factors of economic growth are land, labor, capital, and entrepreneurship.
What is an economy and how does it grow? ›
Economic growth results when groups of people, so-called economic actors, are able to produce goods and services with increasing efficiency. To produce real productivity, an economy must have better tools and equipment, namely capital goods, and greater specialization of laborers.
How to calculate economic growth? ›
To calculate the economic growth rate, the growth rate of a financial measure is calculated. Gross Domestic Product, GDP measures the economy's stability and progress. To measure its growth rate, divide the GDP of a later year by the GDP of a prior year and subtract 1.
What are the three main sources of economic growth in any economy? ›
There are three main factors that drive economic growth:
- Accumulation of capital stock.
- Increases in labor inputs, such as workers or hours worked.
- Technological advancement.
