December 10, 2012
by BY MICHAEL HLINKA
I’ve been writing for PurchasingB2B magazine for several years now. But this is the first time—to my recollection—that I’ve entitled my column in the form of a question. That’s because it strikes me that there are two differing economic visions: a sustainability vision and a growth vision. The sustainability vision argues that we shouldn’t be thinking about growing the economy; our focus should be on protecting the environment and preserving resources. The growth vision argues that the prime directive for any society should be on improving the standard of living and quality of life of its citizens, and some environmental degradation and resource consumption are costs of doing business.
There doesn’t have to be this tension. It’s a false one. If you understand growth theory, you quickly realize that there is nothing mutually exclusive about a sustainable economy and one that grows steadily over the years. This can be demonstrated. Growth theory starts with the proposition that real GDP will grow for one of two reasons, either an increase in aggregate hours worked or improvements in labour productivity. The increase in aggregate hours is clear enough—you work more, you get more done. Labour productivity is more nuanced and depends on physical capital growth, human capital growth or advances in technology.
Physical capital growth is all about using more machines in the production process. Machines allow us to be more productive. Human capital growth refers to the accumulated skill and knowledge of human beings and is a source of both increased labour productivity and technological advance. Technological advance is key. “Technology” is an expansive definition that speaks to both new and improved technologies (smart phones allow us to do more work than cell phones did) and improved production
processes. We’re seeing an explosion in technological growth in developing countries like China and India where those nations are learning how to run their plants more
effectively—and it explains why so many international students continue to study at North American business schools.
I hope that this brief overview of growth theory has convinced you that there is nothing inconsistent with economic growth and sustainability. It’s true that there are some non-renewable resources that might suggest that this will limit our ability to grow. But consider energy progression through human history. Wood was once the primary fuel. Wood was replaced by coal, which was both cleaner and more efficient. Then oil came along, which was even cleaner and more efficient. I can’t predict what the next dominant energy source will be, but history tells me that whatever it is, it will be both cleaner and more efficient…and as long as technological advance doesn’t come to a stand-still, sustainable growth is in our future. b2b
Toronto-based Michael Hlinka provides business commentary to CBC Radio One and a column syndicated across the CBC network.