Markets, Not Mandates, Are the Key to Sustainable Development

Markets, Not Mandates, Are the Key to Sustainable Development

August 09, 2012
Originally published in Real Clear Markets

What exactly is sustainable development? Former Norwegian Prime Minister Gro Brundtland, speaking at the United Nations' Stockholm Conference in 1972, described it as "development that meets the needs of the present without compromising the ability of future generations to meet their own needs."

Today's advocates of sustainable development, however, take a more short-sighted view of the concept. They believe resources are necessarily finite; thus, they call for caps on human activity. These advocates are asking for a return to a pre-industrial mindset - a path that will result in massive depopulation, poverty, and inequality.

The conventional interpretation of sustainability, proposed long ago by the Reverend Thomas Malthus, has since been translated into the simple equation I = PAT. Man's Footprint, I, equals P times A times T. P is population (the more people, the more stress); A is affluence (the more wealth, the heavier the footprint per person); and T is technology (the risks of innovation, which are greater than the risks of stagnation).

This Malthusian perspective is spectacularly wrong. Population growth is addressed through technological advances. More people do not increase the stress on resources since human advancement in technology makes us more efficient in our resource use. That is the ultimate resource - people's ability to adapt and innovate, which leads to an actual decrease in stress on the planet despite population increases.

Affluence frees individuals' time through technological breakthroughs. "Work-time" is the amount of time that people have to work in order to afford goods. As W. Michael Cox and Richard Alm of Southern Methodist University concluded, "over just the past 27 years, consumers have benefited from work-time declines of 60% for dishwashers, 56% for vacuum cleaners, 40% for refrigerators and 39% for lawn mowers." These tools increase our wealth and cost less time to obtain. Of course, new materials were required for these tools, but the result was more, not fewer overall resources.

Dr. Indur M. Goklany has noted that to produce the same amount of food in 1993 with the agricultural technology of 1961, we would go from using 34% to 61% of the Earth's land surface. Were that to occur, much of the world's wildlife and flora would be gone. The various green revolutions - mechanization, pesticides, and bio-engineered crops - all made the world far more productive, better fed, and more environmentally diverse, even as population exploded.

Economic growth and technological progress have lightened our environmental footprint in important ways. People do more than simply consume resources; they also create new wealth and resources where none previously existed. Sustainability emerges from these social interactions, which encourage firms and individuals to use existing resources more efficiently and find new ways of meeting human needs.

True sustainability comes from capitalism. Consider the role of energy over the last few centuries. Few companies will invest if they could only make a profit for one year. Firms owe their shareholders the responsibility to ensure energy will remain available as years progress. Therefore, firms continuously hunt for new resources while avoiding activities that might deplete all the oil at once.

Because energy is integrated in the global market, firms have steadily improved their energy efficiency. According to the International Energy Agency, energy efficiency grew 0.9% annually from 1990 to 2005. That trend resulted in fuel and electricity cost savings of at least $180 billion by 2005 - despite massive increases in energy use during the preceding decade and a half. While experts continue to predict we've reached "peak production" of energy sources like coal, oil, and natural gas, these "peaks" have yet to materialize.

Multinational corporations often happily carry the mantle of sustainability. It buys positive public relations, and, more importantly, it sometimes communicates publicly what the firm is already attempting to achieve. In markets, people cooperate and innovate to create sustainable supply for consumer demand. True sustainability has nothing to do with Malthusian doomsday predictions. Sustainability means progress: the onward and upward movement of a society that is making itself healthier, wealthier, faster and stronger.