P-K4 Project Editorial
Published as part of a series in commemoration of the Rio+20 summit from 20th – 22nd June on sustainable development
We should kick-start this discussion with a rhetorical question – how far should progress in health-and climate-preserving technologies feature in a country’s productivity, and ultimately growth? The answer is – they are an essential function of productivity and growth. We will show why it is so.
Endogenous growth is growth in the long run which is determined by internal forces within the economy. It challenges the neoclassical growth theory of Solow and Swan (1956) which states in contrast that technological progress is determined by scientific progress outside the economic system, and therefore, long-term growth rate can be determined exogenously from outside the economic system.
Endogenous growth theory challenges the neoclassical view by proposing that economic factors can influence rate of technological progress and ultimately, influence economic growth. Innovation leads to technological progress, which manifest in the form of new and novel products, processes and markets, all of which are influenced by economic factors. Firms can derive more experience on how to produce efficiently and giving the latter more production experience can raise the level of process innovation. Research and development (R and D) initiatives undertaken by firms can also raise the level of innovation; such initiatives are contingent on factors such as science and technology policies, highly educated workforce, laws protecting intellectual properties, etc.
There are few incarnations of endogenous growth theories. The first is the AK model, or better known as the innovation-based theory. One version by Romer states that innovation causes productivity growth by creating new varieties, but not necessarily better versions of the product. The other version is based on Joseph Schumpeter’s popularised concept of “Creative Destruction” , which is based on the notion that quality-improving innovations render old products obsolete, meaning it is a process which aims at creating improved versions of old products.
It is mentioned within the title of this piece “health and climate change” as determinants of productivity. The question is how do these two issues connect to the topic on productivity in a way that the former are determining factors of the latter?
One of the costs that come with production is the production of negative externalities, which basically means unwanted products which affect the environment, and in some cases, have an impact on human health. They can be air and noise pollution or other forms of environmental hazards. Some forms of air pollution not only impact on human health, but also have a consequential effect on the climate, for instance, leading to increasing emissions that accelerate climate change. Such negative outcomes of production need not only come from production process, they can also come from the product itself, which can lead to increased pollution or emissions.
Negative externalities can either have local, global or both effects. The effect can be felt in the short or long term, and within the vicinity of its location of production, or spread more globally and affect many more within a wide area. Increased levels of emissions for example, have an appreciable impact on the climate after this many years. Ultimately, climate change will affect human health. Short term effects, for instance, are impurities or irritants that are produced during the production process or by the product itself, which have an immediate impact on human health, for example, certain chemical substances which irritate the lungs. Other toxic substances lead to manifestation of health problems after a long time – they will accumulate in the body in small amounts and ultimately manifest as diseases if sufficient damage has been caused to the organ or organ systems affected. Productivity is ultimately affected if health of the labour force is affected by disabilities caused by the diseases as a result of exposure to such negative externalities, or the impact of climate change, or both.
Hence, when we consider the economic growth of a country using endogenous growth models, innovations play a big part as mentioned earlier, and one area that could affect productivity of workforce are the presence or absence of climate- and human health-preserving technological innovations in production process and end products. Therefore, a key aim of the innovative process is to come up processes and products that are not only productive, but are also health- and climate-preserving in nature.
The health and climate-preserving paradigms are relevant in both AK and “Schumpeterian” models of endogenous growth. In the AK model, newer varieties of products can be explored, and certainly those that are environmentally and health- friendly can be included. Similarly, for the “Schumpeterian” model, “Creative Destruction” should favour the destruction of health- and climate-damaging products in favour of alternatives that are friendly to human health and climate.
When we reflect on what constitutes growth (of the endogenous kind) or development of an economy, innovation and continued Research and Development have an important part to play in its progress. For the past decade or so, the topic of climate change has become an international agenda as the realisation began to hit home with regards to its adverse impacts. Hence, a fresher perspective of analysing endogenous growth is to factor in the concepts of health and climate change, which will ultimately impact on the country’s productivity. Thus, where productivity is concerned, innovation and Research and Development into human health- and climate-preserving processes and products will affect the nature of its standing. If we compare two countries, with all other variables and factors being equal, the one that tries to innovate and come up with productive, human health- and climate-preserving processes and products will ultimately fare better in terms of productivity. However, it is assumed here that the climate change is local to the area concerned. In reality, it is a global phenomenon, where emissions contributed by an area can affect the climate of a wider region.
Unfortunately, at this point of time, there is not much economics literature out there that explores or/and models the health- and climate-preserving modes of production as factors of endogenous growth. A number of such models on currently available literature focus more narrowly on energy use and endogenous growth in relation to climate change. However, the outcome of production processes and products themselves will ultimately affect the health outcomes of workforces and the productivity levels, and much depends on whether the production processes and even the products themselves are health- and climate-preserving in nature.
For policy makers who swear by the “growth at all costs” mantra, even at the expense of health and climate, they are ultimately committing “hara kiri” in the long-term. With disabilities caused by diseases due to exposure to health hazards and climate change, future productivity could be placed on the sacrificial altar in the name of “growth at all costs” at the present moment. Therefore, the way to go is to explore pink (of health) and green (environment) approaches simultaneously together with more efficient means of production within the innovative process.
Photo courtesy of artizone, Flickr Commons