Limits to Growth and the Next Kondratieff
Are all graphs the same? Expand the timeframe long enough, and history might lead you to believe so. The best word to describe the dynamic behaviour of the world economy and its impact on natural systems is ‘exponential’. In 2007 the first global-scale census of deep ocean ecosystems found a direct relationship between biodiversity in these ecosystems and their ability to function. Rapid biodiversity loss has hampered the ability of our oceans to break-down waste and provide nutrients. Resource use, production and population have grown at an increasing rate. This is adversely impacting not only the earth’s aquatic biomes but also its forests and grasslands. Anthropocentric mindsets have ushered the world into a new era dubbed as the Anthropocene: this is an era where man’s actions can affect the environment in profound ways that include desertification, climate change and biodiversity loss.
The phrase ‘limits to growth’ first entered public discourse in 1972 through a report commissioned by the Club of Rome. The concept is that exponential growth cannot continue unabated under a finite resource base. Eventually, the extractive effects of production and consumption will reach a threshold, beyond which damages to the environment outstrip the material benefits. At this point, systemic collapse becomes imminent.
Rapid industrialisation and advancements in technology (most notably the invention of the steam engine) allowed human society to extract resources for production and consumption at an unprecedented rate. An example is how British iron production increased by 2500 percent in a short span of years (between 1796 to 1854) due to the invention of the steam locomotive. Improvements in medicine, agriculture and sanitation enabled the world to support a much larger population. However, this growth, albeit remarkable, came with its share of negative externalities. Scientists have declared the current era as the sixth great mass-extinction event in earth’s history, with human activity as the sole cause. Yet if technology could bring us to this turning point, it is also technology that may help us escape the potentially disastrous consequences of the Anthropocene.
We have reached an inflection point where society must consciously endeavour to move away from its modus operandi of ‘business as usual’ to internalise, into its daily functioning, the existence of planetary boundaries which, if surpassed, threaten future living standards.
Using historical time-series data, economist Nikolai Kondratieff observed long-term fluctuations, typically between 40 to 60 years in economic activity. The boom-bust patterns begin with innovations in technology. These innovations spread across all sectors in the economy and lead to a surge in output. The switch between the recessionary period into the boom phase comes from the replacement of old, exhausted technologies which can no longer meet rising demands. New and unpolished versions of the technology require significant financial capital initially, after which society enters its latest ‘Kondratieff’, with increases in output and productivity.
The first Kondratieff was centred on the development of the steam engine and the explosion of industrial activity that followed. The most recent cycle stemmed from computers and Information and Communications Technology (ICT). We now appear to be on the cusp of the newest Kondratieff, one which is likely to focus on advancements in green technology, nanotechnology and healthcare.
Previous waves, such as the ICT revolution, resulted in massive increases in labour productivity. Climate change and pressures on other planetary boundaries have made the environment a scarce resource. The next Kondratieff will have to emphasise increases in resource and energy productivity. How – and how well – resources are used for production will be fundamental determinants of whether future economic growth can be sustained on a planet with finite natural endowments.
The Waiting Game
It is no guarantee that the next wave of innovation will be sufficient to combat the mounting pressure society has placed on the environment or if it will arrive on time in the absence of concerted human effort against climate change. Markets alone may not be able to steer society out of the ‘business as usual’ scenario. We will need to see different actors such as the state, the private sector and households act in unison to tackle this transboundary challenge. In the optimistic scenario, tackling climate change could represent one of mankind’s most profound, cross-country coordination efforts.
The longer the damage to our environment goes unabated, the greater the consequences. For, as shown, all graphs are the same; the damage that emanates from climate change is not linear but convex in emissions. And by the same token, abatement costs are also not linear, but exponential - meaning the longer we wait, the more expensive it becomes to mitigate climate change. The risk of a tipping point necessitates that loss aversion is at the heart of policy design.
The 21st century will see a flurry of innovations and advancements in technology as we enter our next Kondratieff. Much will change. If we are to avoid the limits to our growth as a collective species, advances in technology should be met hand-in-hand with changes in policy and social attitudes. A good starting point would be to truly internalise the cost of carbon emissions into energy prices and to implement such transitions in a phased manner. This will allow society the necessary time to innovate its way out of subsistence: something it has done before and it can do again, in the era of the Anthropocene.
"The sixth Kondratieff - long waves of prosperity", Allianz Global Investors, January 2010.