3. Growth, Employment and Sustainability: an Environmental Macro Economic Perspective

The interaction between the economy and the environment as embodied in the use of resources and the flows of wastes has been referred to as the "industrial metabolism", and this metabolism is to take place at a rate that is compatible with the need to at least maintain the capital base, That is, either the level of environmental capital must be maintained, or the reductions in environmental capital must be offset by equivalent increases in produced and/or human capital. In a precautionary approach to the economic process, this means that important parts of the environmental capital itself are to be maintained as they cannot be substituted by either produced or human capital. This implies that the levels of materials extraction and waste generation are to remain within the range of environmental pressures that the ecosystems concerned can cope with; this range of ecologically viable environmental pressures has been referred to as the "environmental utilisation space" (Opschoor 1987, 1992) or "ecospace". Thus, if it is to be sustainable, an economy's metabolism is to be within the ecospace, and this may imply that an economic process is limited in terms of its scale (Daly), given its endowment with factors of production including S&T and natural environment.

3.b  Growth and Welfare

Since Pigou (1920) it was clear that growth (as normally measured by Net National Income or Gross Domestic Product, GDP) and welfare (as defined above) would not have to be positively related and since Mishan (1967) economists have recognised that they may diverge, as a consequence of pressures on the environment inherent in the process of economic growth.

If one takes a reductionist's economic approach, one could reduce welfare to something called "sustainable income", or: the maximum amount of consumption in a given period, under the assumption that future consumption prospects would not be less than those at the beginning of the period. This would in fact mean, that any reductions in the availability of factors of production would have to be accounted for by deducting in the form of depreciation for depletion. Traditionally, economic bookkeeping extends to the market values of net additions to production plus the labour costs of government services; the total of this GDP is corrected for some mutations in the stock of produced capital (and not, or hardly, of human and environmental capital), which makes both NNI and GDP incorrect welfare measures.

To be more explicit, NNI fails to incorporate welfare dimensions other than those captured in the produce of firms and government. Other welfare determinants such as participation or employment, satisfaction with the prevalent distribution of income, and environmental quality are not taken into account. Moreover, goods and services provided by other agents (e.g. volunteers, domestic labour) are ignored. Thirdly, external effects (the costs to others) of production and consumption are overlooked (or, if indirectly valued - e.g. via the so called 'defensive expenditures' - are incorporated with the wrong sign). And, finally, there are the depreciation failures already referred to above: if environmental capital deteriorates or diminishes, this should be depreciated for, but this is not (yet) done.

Several attempts have been made to address these accounting problems. They will not be discussed or assessed here. One approach is presented in a little detail, so that we gain some understanding on how welfare and production are linked quantitatively.

Already some years ago, Cobb and Daley developed a technique for incorporating in a crude way several of the elements of welfare omitted in the calculation of NNI or GDP. They have taken the levels of personal consumption (1950-1990) as their point of departure, correcting this for changes in the income distribution and the costs of unemployment, adding the value of house work, deducing the costs of commuting and car accidents, pollution related costs, depreciation of resources, etc, They plotted the development of GDP and their corrected Index of Sustainable Economic Welfare (ISEW), to find that where the GDP-line kept moving up, the ISEW-line levelled of and even dropped since the mid-1970s. Similar results have since then been found for countries such as the UK, Germany, Austria and the Netherlands. The implication is, that welfare may be decreasing now, while GDP still moves up. Of course the validity of this conclusion hinges upon the robustness of the underlying valuation methods and very much can be said to qualify these. But nevertheless this approach makes more transparent the already older notion of a discrepancy between welfare and growth.

Can this be turned around: will more growth mean less welfare? To the extent that less growth means lower levels of metabolism: yes. But will less 'growth lead to more jobs? to a less unequal income distribution? So again, we are faced with ambiguities: more growth may mean more consumption but also more environmental deterioration, without many more jobs; but less growth would reduce consumption and most certainly employment. What this means ultimately is, that no categorical statements one way or the other can be made about the growth-environment relationship (at least for a period of some decades) and that even the growth-employment relationship is complex. And purring these two together: it is even less likely that anything sensible and categorical can be said on a priori grounds, about the environment-employment relationship. We shall proceed with a closer look at the latter link.

3.c Sustainability and Employment

As we have seen, making economic growth ecologically viable and sustainable, will require substantial "dematerialisation" of our production and consumption. That is, a given product or service will be made of, or use up, drastically less materials and energy and generate significantly less waste and pollution, that is the case at present This will generate new and additional activity in repair, reuse and recycling. And these activities often are relatively labour-intensive. Hence there is a likelihood of a positive link between sustainability oriented development policies and employment. A second tendency is that sustainable development technologies and products will be developed by S&T that are inherently cleaner and leaner, which will often imply using more labour than, e.g. fossil fuels or materials. Thirdly, preferences may shift favouring the consumption of services over material products. This will lead to a drop in the overall degree of materialisation over and above the dematerialisation due to more efficient use of resources and the environment in specific products. Finally, there will be more demand for environmental management and restoration, leading to the emergence of new sectors of economic activity also generating new employment. Generally, services are more labour intensive than material products Growth may be jobless, sustainable development doesn't have to be.

But before these new equilibria have been reached, that is: in the transitionary period, sustainable development my indeed induce pressure on employment. To begin with, the reductions in the consumption of certain environmentally intensive products will lead to reduced levels of activity in certain economic activities, and hence to drops in the levels of employment there. Eating less meat for instance, or curbing mat production in environmentally sensitive regions, may affect employment in intensive animal farming (pigs, poultry, etc), as is shown by calculations on the impacts of more stringent environmental policies in the Netherlands on the agricultural sector there. The new activities indicated above will take time to emerge and the initial rate of growth in these may not be adequate to absorb the release of labour from the sectors that are stirring. This phenomenon is likely to manifest itself primarily in the North, especially when it is linked to a redistribution of economic activity to developing countries in an effort to achieve a fairer balance between the per capita claim on natural resources in North and South.

3.d  Towards a more empirical approach

The analysis so far has been in qualitative terms and we have found that growth, sustainable development and employment related to one another analytically in a complex way. Below, we will have a look at the empirical evidence on growth-employment linkages (Section 4), before we move on to a discussion and assessment of one of the most fundamental proposals to positively link environmental policy and employment: through a shifting of the tax base by the introduction of "ecotaxes" (Section 5).

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