What is Sustainable Economic Growth? - Definition & Overview

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  • 0:01 What Is Sustainable…
  • 1:51 The Debate
  • 3:08 Growth vs. Sustainable Growth
  • 3:56 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley

Shawn has a masters of public administration, JD, and a BA in political science.

Sustainable economic growth is a hot issue in economics. In this lesson, you'll learn about sustainable growth and some of its important concepts. You'll also have a chance to take a short quiz after the lesson.

What Is Sustainable Economic Growth?

Sustainable economic growth is economic development that attempts to satisfy the needs of humans but in a manner that sustains natural resources and the environment for future generations. An economy functions in the ecosystem. We cannot separate the economy from it. In fact, an economy cannot exist without it. The ecosystem provides the factors of production that fuels economic growth: land, natural resources, labor, and capital (which is created by labor and natural resources). Sustainable economic growth is managing these resources in a manner that they will not be depleted and will remain available for future generations.

While many economists and people disagree about the importance of the environment regarding economic activity, the following facts are seldom disputed:

1. The extraction and depletion of natural resources, as well as pollution and permanent changes made to the landscape, are caused by economic activities and can do harm to the environment.

2. Many of the costs of the harm created by economic activities are not borne by those who cause it but by other people who neither obtain the benefits from the economic activity or agree to pay the costs related to it. Pollution is a perfect example. Businesses are permitted to pollute to a certain degree (less now than in the past). They don't have to pay for the pollution, but society does by dirty air, water, and contaminated soil that affect the quality of our air, water, and food. This pollution can lead to serious health effects, which may reduce the quality of life and health of the population. We call a cost borne by someone who did not agree to bear it an externality.

3. Humans live in an ecosystem and cannot survive without it. If we destroy the environment, we will eventually destroy ourselves.

The Debate

A large majority of traditional economists don't believe sustainability is a problem. They believe that we can replace depleted natural assets with manufactured assets. Plastic can be used instead of wood, for example. They also argue that since prices are a good indication of resource scarcity, there is no sustainability problem because the prices for natural resources have been fairly stable.

Ecological economists counter that this argument of traditional economists is flawed. They argue that price is not a good indicator of the need for sustainability. The market does not include goods and services that are not priced, such as air, nature, healthy populations, and equality. Additionally, markets do not account for the reality of externalities—the costs society bears but does not agree to do so. In other words, price does not truly reflect the real cost of economic activity.

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