06 May 2007

Economic Development versus Economic Growth

There's actually a substantial body of literature on "sustainable development," although occasionally it's noted that the phrase is redundant: expansion that isn't sustainable isn't development, it's merely growth. Careful readers will notice the objection is not valid: a country can indeed be developed in an unsustainable way, if that development requires an unmanageably large ecological footprint.

Economic growth is easy to observe and measure: usually it involves measures of the total output of goods, at market prices. If a country produces mostly oil for export, and imports nearly everything it consumes, then economic growth is almost wholly the result of changes in relative prices. Efficiency or capital accumulation has nothing whatever to do with growth. And it's not unlikely that our imaginary country is not developing at all; or it may at any rate remain underdeveloped decades after the oil boom began.

Development requires economic growth, of course, since something has to pay for the increased stock of capital (fixed and human). Other inputs, like solar panels and wind farms—instead of fossil-fuel electric generation—could enhance the stream of permanent energy, or even replace metal used copiously in autos with metal used sparingly in mass transit systems. However, development is slower, and requires a steady build-up of local inputs. If the inputs are dependent on a local oil field, mineral seam, or real estate boom, then that might be recorded as development. But the depletion of the field, seam, or view is inevitable, and will of course undo any "development" that occurred.

At this point, we reach the controversial nexus of "sustainable development" with the economist's notion of "development." Economists have toiled mightily to paper this controversy over: the World Bank, IMF, and other advocates for the money power have spared little effort to propagate the notion that there's a harmony between their desires and the well-being of the rest of the human race.
Fiscal Dimensions of Sustainable Development (IMF, 2002): Fiscal policy is central to the work of the IMF. The IMF’s mandate is to promote international monetary cooperation, the balanced growth of international trade, foreign exchange rate stability, and orderly foreign exchange arrangements among countries. Fulfilling this mandate is the IMF’s primary contribution to sustainable development. Within this general setting, fiscal policy plays a key role in all three main aspects of the IMF’s work: IMF-supported programs, surveillance, and technical assistance. In IMF-supported programs in countries facing balance of payments crises, the IMF often finds that reestablishing the credibility of the government’s fiscal position is key to restoring sustainable growth.
Economists usually try to suppress the notion that there's any difference at all between "socially sustainable development," ecologically sustainable development, and economically orthodox notions of development. This is pure public relations.
  • Socially sustainable development: development in which resources are channeled into future economic production in a way that distributes benefits meritoriously. "Meritoriously" implies that free market systems of distribution still prevail, and there is not a class-based or regionally-based favoritism. Please not that, defined this way, "socially sustainable development" is not the same thing as socialized control of resources. A market economy, for example, can manage socially sustainable development provided development does not lead to insuperable barriers of class. Frequently, the elites are able to "buy" a friendly, and interventionist, political system that expropriates wealth from other classes. SSD seeks to avoid this.
  • Ecologically sustainable development: development which does not exhaust resources faster than they can be replaced, preferably locally. Desirable because modes of development favor substitution of labor or prior output (capital) for non-renewable resources.
  • Economically orthodox notions of development: development driven by the market; defined purely on the basis of whether or not annual rates of capital depreciation is heteroskedastic. If depreciation is heteroskedastic, i.e., the pool of capital stock experiences annual rates of depreciation with variances that change over time, then accumulation is not leading to development; expenditures on capital stock are actually not being consumed at stable rates, and could conceivably become useless en masse.
Assuming readers are adamant about the superior virtues of a market economy, SSD requires the concept "meritorious" in its definition. "Fair" could mean anything, but "meritorious" means that, given social norms of ownership, a person can achieve more wealth by market-favored behavior. Capital accumulation can occur, and hence, disparities in income; but the son-in-law of the dictator ought not to inherit ownership of the coastline (when it previously was part of the national commons).

Economists pay lip service to ESD because of growing political pressures to do so, but privately are hostile to the notion that massive global trafficking in industrial resources or wastes should cease. Usually, they claim that such trafficking is an immutable part of "free" trade, but suppress the fact that it requires massive violations of the principle of SSD: corporations, after all, are surrogates of state power and constitute a political class. It's false to assume that whatever corporations do is consistent with the ideals of free enterprise. It's false to assume that a government controlled by its industrialists, landlords, and bankers is always (or even sometimes) going to make laws that are consistent with free market principles. This is a point almost uniformly ignored in modern discussions of public policy. Of course, when it ends badly, the former cheerleaders of "free enterprise" will always remember this; but never before.

Goods: usually economists refer to "goods and services." In this case, the term really is redundant: services are an economic good. However, the national income and products account (NIPA) treats the two separately.

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