Markets and capitalist incentives have great strengths in promoting economic efficiency, growth and innovation; and, as Ben Friedman of Harvard University argued persuasively in his 2006 book The Moral Consequences of Growth, economic growth is good for open and democratic societies. However, markets and capitalist incentives have clear weaknesses in ensuring stability, equity and sustainability, which can adversely affect political and social cohesion.
Obviously, abandoning market-capitalist systems, and implicitly growth, is not really an option. Collectively, we have little choice but to try to adapt the system to changing technological and global conditions in order to achieve stability, equity (in terms of opportunity and outcomes alike) and sustainability. Of these three imperatives, sustainability may be the most complex and challenging.
For many people, sustainability is associated with finite natural resources and the environment. The global economy will probably triple in size in the next quarter-century, largely owing to growth in developing countries as they catch up to developed-country incomes and adopt similar consumption patterns. Thus, there is a well-founded fear that the planet’s natural resources (broadly defined) and recuperative capacities will not withstand the pressure.
To some, this logic leads to the conclusion that growth is the problem, and that less growth is the solution. However, in developing countries, where only sustained growth can lift people out of poverty, limiting it cannot be the answer. The alternative is to change the growth model in order to lighten the impact of higher levels of economic activity on natural resources and the environment.
However, there is no existing alternative to which we can all switch. Changing the growth model means inventing a new one over time, step-by-step, from complementary parts. The two key ingredients seem to be education and values. Everyone, not just policymakers, needs to understand the consequences of our individual and collective choices. We need to be aware for example, that population growth and rising consumption levels have intergenerational consequences, and that how we conduct ourselves will affect the lifestyles and opportunities of our children and grandchildren.
Thus far, the quality of our choices has been unimpressive, reflecting little sensitivity to sustainability and the impact of our choices on future generations. As a result, many developed countries have built up dangerously large public debts and even larger non-debt liabilities, owing to unsustainable growth patterns.
Most of us, I believe, do not knowingly make choices that adversely affect future generations. So perhaps incomplete knowledge of the consequences of our choices is responsible. Moreover, an unfunded liability path, once taken, is hard to leave, because at the point of departure, some generation is paying for past commitments and at least beginning to fund future ones. That seems unfair, because it is.
Most people might agree that living beyond our means in the aggregate, via unfunded social services and insurance, or disproportionate use of resources, imposes a burden on our offspring. However, we might still fail to reach agreement on who should pay for funding these programs, or for reducing our consumption of resources. Too often, it is easier to deal with the distributional problem by shifting the burden to those who are not present and who are insufficiently represented by those who are.