The political trade-off between economic growth and environmental regulations

Economic growth is traditionally regarded as a net good for three main reasons. Firstly, when the economy is growing people are earning more money, and they can spend more on things they like and want. Secondly, a growing economy naturally has a growing labor demand, thus keeping employment high. Thirdly, growth makes businesses and investors optimistic, so they hire more people and spend more on innovation and the development of new products.

All of these things are good for companies, consumers, and the state. Most governments thus try to create growth through their economic policy. There are many ways of doing this, depending on what school of economics you come from, and what political beliefs you have about how society should look. Many however argue that liberalization and deregulation of the markets are crucial. The idea is that the fewer rules there are for companies, the more freedom they have and the cheaper they can thus produce and spend money. Comparatively, when companies are held back by complicated regulations of any type, it prolongs their innovation and production processes and makes them more expensive. This slows down growth because companies now have less money to pay their employees and products become more expensive. This slows down consumption and decreases growth. Governments thus face a tradeoff between effective climate regulation and creating growth. 

However, the idea that economic growth is an uncompromising good for society has been challenged both politically and academically, especially in the past 30 years. Ideas like the degrowth movement and other similar economic schools argue that economic growth should simply be one of several important goals such a s social welfare, biodiversity, and climate justice, which the government ought to pursue. 

Despite the general idea that growth is always good, and benefits everyone, there are groups of both economists and environmentalists who question this. One of the key criticisms is that growth doesn’t always benefit the broad population, but is concentrated with the already wealthy ones.

Proponents of this argument point to how most businesses are owned by shareholders, i.e. those who own stocks in companies, and the businesses thus aim to maximize their profits to pay to shareholders. In general, people who invest tend to be well off already because they have money to spare to buy stocks. Investors might not always like the idea that companies reinvest money into green innovation instead of paying it out to them through shareholder payments.

Others would argue that regardless of companies’ intent, growth does trickle down to the broad population. Things like increased hiring as firms grow, and increased taxes which the government can allocate to the broad population and spend on things like green development. This ensures that both workers and business leaders benefit from growth.

In contrast to this, some argue that mitigating the consequences of climate change is actually a prerequisite for economic growth. Frameworks like the UN’s sustainable development goals are developed with this idea in mind. They aim to get businesses on board with the green transition by showing how it is a way to grow and become more profitable as a business.

Climate change consequences are inherently unstable and unpredictable. Natural disasters can halt the production and shipping of goods and cost companies millions. It is thus more cost-efficient for companies to try and mitigate the harms of climate change to become economically sustainable. This might involve a short-term loss of profits, but the idea is that companies can adapt to climate change regulations and follow the path to climate goals, which will benefit them in the long run. If companies integrate the green transition into their corporate strategy they might even profit from it, thus making it in their interest to do so.

The bigger argument here is that if all companies do this, their collective action mitigates climate change and thus helps eliminate larger risks to the market in the future. 

Some schools of economics believe that the narrative that growth is always good is inherently false and that we should deliberately limit growth. The degrowth movement is about slowing down economic growth on purpose to protect the environment and focus on people's well-being instead of just making more money.

It argues that endless growth is harmful because it uses up resources, creates pollution, and worsens climate change. Degrowth suggests that instead of only looking for new technologies or market fixes, governments should make policies that reduce how much we consume, share resources more fairly, and support simpler, more sustainable ways of living to help fight climate change.

The degrowth movement suggests that governments can help by making policies that reduce consumption and promote sustainable living. This can include taxing pollution, investing in public transport and renewable energy, supporting local food systems, and promoting shorter work weeks.

Governments can also limit resource use and prioritize spending on social services, like healthcare and education, instead of pushing for more economic growth. These actions can help reduce environmental damage and improve quality of life while tackling climate change more directly and benefitting the broad population.

In contrast to the degrowth movement is the green growth movement. Proponents of green growth argue that growth is still good and compatible with climate goals as long as businesses and governments actively invest and redistribute this growth into green policies.

It follows the idea that the green transition is expensive and requires the development of new technologies and the implementation of big reforms. Businesses and states should thus encourage growth to fund these technologies and transformations of society.

The green growth movement and the degrowth movement often have spirited debates about the role of government and the private sphere in the green transition.

Technological optimism is the belief that technological innovation can solve all major challenges, including climate change, without needing to drastically change our way of life or reduce economic growth.

It suggests that advances in technology, such as renewable energy, carbon capture, and efficiency improvements, can drive "green growth," where economies can continue to grow while reducing their environmental impact.

This perspective supports the green growth idea that we can tackle climate change through innovation and smart technologies, making economic growth compatible with environmental sustainability.

Technological optimism believes that new technologies will eventually be created to meet market demands for sustainable solutions and often advocates for policies favoring innovation rather than policies that may potentially “overregulate” or limit companies.

Some argue that with the right technologies, we can grow the economy and protect the environment at the same time. These include proponents of green growth and technology optimists.

Others believe that focusing too much on growth can lead to the overuse of resources and environmental harm that technology alone can't fix. Growth encourages constant consumption and pollution. 

Economic growth can reduce poverty and improve access to resources like healthcare and education for vulnerable communities. This is because economic growth is associated with higher employment and increased government spending on things like welfare. 

Others argue that environmental damage from unchecked growth often hits vulnerable communities hardest, especially in the developing world, with pollution and loss of natural resources affecting their health and livelihoods. These vulnerable communities include farmers and lower-skilled workers who have less mobility overall. 

Some argue that a strong national economy can provide a country with the resources needed to invest in green technologies and thus make it a leader on the world stage in innovation and green transition. 

In contrast to this, others would argue that the economic growth needed for this comes with high emissions and pollution, which can undermine global efforts to combat climate change and damage the country's ability to reach its climate goals

It can be argued that economic growth is necessary to improve living conditions, and we can deal with environmental issues later when we have better technology. Governments primarily have a responsibility to current living generations and deprioritizing their well-being by slowing growth is unethical.

Others would argue that Irreversible damage means once certain environmental thresholds are crossed, we can’t go back, which could lead to severe consequences for future generations. The sustainability goals governments have committed to, such as the UN sustainable development goals, are all about ensuring future generations' ability to live safe and healthy lives. 

World Economic Forum (2022)

Background article on degrowth

Andreessen Horowitz (2023)

“The Techno Optimist Manifesto” by tech billionaire and prominent techno-optimists Andreessen and Horowitz.

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United Nations Development Programme (2023)

A UN articlediscussing and critiquing the merits of techno-optimism

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Point 1
‍Strict regulations alienate firstly large companies, who often prioritize profit and economic growth. Secondly, consumers will likely have to pay the price for corporate adaptation to these regulations, in the form of higher prices or limited access to certain products . The likely outcome of this is decreases in support for crucial climate policies from both the average voter and large corporate lobbyists.

Counterpoint 1
‍Neither governments nor the majority of citizens have any say over what technological growth looks like. Comparatively, governments are directly elevated by and accountable to the citizens who vote them in. Regulations are a much more democratic tool to decide what the green transition will look like. 

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Point 2
‍Corporations already are focused on being up to date with climate change and society's needs. That is the reason why they will invest in green innovation. This way, solutions to environmental issues come from the main stakeholders and it is not forced by the government, thereby enabling green innovation and not hindering it.

Counterpoint 2
Strict regulations will bring change quickly, compared to green innovation which might take years to be innovated and then implemented. Regardless of how successful a development is, it is difficult to guarantee that any new technology will be adapted quickly and successfully. On the comparative, regulations have wider and instant impact.

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Point 3
‍By relying on technological innovations to combat climate change, we enable a continuation of economic growth rather than a stifling of that growth. This growth is not only positive for individuals who reap the benefits of increased growth, but it also allows for increased job security and for the ability of organizations to develop at steady rates towards a greener and prosperous future. This strategy also allows developing countries to continue their path towards specializations in sustainable fields, such as electric vehicles and extraction of rare earth materials, and thereby increases the development of national industries.

‍Counterpoint 3
‍The development of technologies tends to include a lot of research, trials and errors, and long periods of testing. All processes from conceptualization to marketing of new technologies are polluting and increasing emissions. The introduction of each new technology comes at a pollution cost that is unlikely to be offset. New technologies produce waste, including harmful and non-recyclable waste. Many new technologies also rely on the extraction of rare materials such as lithium and cobalt. The extraction of these materials is not only expensive and time consuming, it is also damaging to local environments. Finally, corporations increasingly safeguard their investments into new technologies by conducting methods of purposeful obsoletion of older or more traditional products or technologies. This increases waste and encourages overconsumption.

Point 1
‍It promotes immediate economic development. Prioritizing economic growth can lead to quicker improvements in living standards, create jobs, and reduce poverty in developing countries. Economic growth can provide the resources needed to address basic needs such as healthcare, education, and infrastructure.

Counterpoint 1
It can lead to severe environmental degradation. Focusing solely on economic growth might result in neglecting environmental protections, leading to issues like deforestation, pollution, and loss of biodiversity. This environmental damage can undermine long-term development and harm communities’ health and livelihoods. This is especially damaging in developing countries where many people still live off the land through farming, resource extraction, etc. 

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Point 2
‍It attracts foreign investment. By prioritizing economic growth, developing countries can create a more favorable business environment, attracting foreign investment. This influx of capital can further boost economic development and provide additional resources for infrastructure and public services.

Counterpoint 2
‍It may lead to unsustainable practices. The pressure to attract investment might encourage practices that are harmful to the environment, such as lax regulations on resource extraction and industrial pollution. These practices can have long-lasting negative effects on the environment and local communities. 

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Point 3
‍It can enhance the overall quality of life for people in the country. Economic growth can provide the means to address various aspects of quality of life, including better housing, transportation, and access to goods and services. This improved quality of life can create a foundation for future environmental policies.

Counterpoint 3
‍Environmental health is crucial for quality of life. Without environmental regulations, the quality of life might deteriorate due to pollution, unsafe living conditions, and reduced access to clean water and air. Delaying environmental regulations can lead to irreversible damage. Waiting until after significant economic growth to address environmental issues might result in irreversible damage to ecosystems and resources. This could make future environmental improvements more difficult and costly.