Last week Maine Biz [a business focused newspaper in Maine] published a short piece asking five prominent Maine economists about challenges and opportunities facing Maine in the upcoming year. For the most part I agree with them: the demographic ”winter,” the decline in manufacturing, the restructuring of our labor market. But one issue stood out for me: the rhetoric surrounding “greenwashing” (aka sustainability) and economic freedom. Both issues were clearly on the mind of Dr. Reisman, one of the contributors. They are on my mind too, but for different reasons.
Dr. Reisman states that sustainability advocates rarely define the term. Sustainable economic development, in the term’s current usage, was defined by Gro Harlem Brundtland and the World Commission on Environment and Development in 1987 as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” Economists (and yes, there are economists, including me, who advocate for sustainable economic growth) differ on how best to achieve that goal. Nonetheless, it is an important guide for economic policy.
Sustainable economic development can best be considered as balancing a portfolio. We have certain assets which can be used to heighten our economic productivity, including manufactured capital and financial capital, but also including natural capital (our forests, fisheries, and clean air and water), and human capital (our workers and their skills). So sustainable economic development involves increasing the productivity of our overall economy without compromising the value of our assets.
When economic growth, narrowly defined as increases in GDP, is pursued without thought to sustainability, the consequences can be devastating, even deadly. Take the Flint water crisis. A decision was made to lower costs by switching from Detroit’s water system to the Flint River, a water source that was so corrosive General Motors stopped using it months before the government admitted there was a problem. (Untreated river water is much more corrosive than the treated water from Detroit that Flint had been using for decades. Flint, like Maine, has old, lead-containing pipes, and corrosive water can cause the lead to leach into the water. When Flint started pumping the untreated water from the Flint River, it did not follow federal regulations to implement a corrosion control program.)
This short term “cost cutting” measure is going to end up costing billions -that’s billions with a “b”- of dollars to fix. Hundreds of children and adults may have been exposed to high levels of lead contamination for more than a year. Speaking as a feeling person, this is a human disaster. Speaking as a dispassionate economist, many of our “assets” may have been irrevocably damaged.
The irony? Advocates of “economic freedom” despise the environmental regulations that are put in place to prevent such disasters, as unwarranted intervention in the “free market”. Now, the National Guard has been called in, and President Obama has declared a state of emergency – a much more intrusive “government intervention.”
The even stronger irony? GDP in the Flint area is likely to go up in the coming months, as the economic activity surrounding the recovery efforts ramp up. The money spent on bottled water, visits to the doctor, infrastructure repair – all that will add to GDP. The possible brain damage and loss of economic potential does not show up on the national accounts. GDP increased after the Deepwater Horizon. After Hurricane Sandy. After virtually all environmental and natural disasters. But is this economic growth? Not in my book.
So, yes. We may need to worry about the loss of economic freedom and crony capitalism, as Dr. Reisman points out. But we also need to take care of our assets, including natural and human capital. It’s not greenwashing. Just good economic sense.
[An edited version of this letter appeared in Maine Biz, January 25, 2016]