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Dematerialization vs. growth: is it possible to have our cake and eat it?

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Economic growth for the past two centuries has been accompanied by rapid growth in the extraction, processing and consumption of physical resources, especially fossil fuels. There is compelling circumstantial evidence that this correlation is not accidental; in fact, that falling prices of useful work from natural resource exergy (resulting from technical progress) have been the primary driver of growth. This paper proposes a single variable (exergy) as a measure of natural resource inputs and a single intermediate output (useful work) as a common measure of exergy services. The ratio of useful work output to exergy input is equivalent to a resource conversion efficiency. This efficiency closely correlates with "technical progress" (or the so-called 'Solow residual' as that term is understood in standard growth theory). It can be interpreted as a measure of dematerialisation, in the sense of obtaining more GDP output for less input, event though material input per capita continues to increase. The authors show also that (1) introducing useful work as a third factor of production in a production function provides a remarkably good fit between calculated and actual past GDP growth for the US (with almost no unexplained residual) and (2) that an extrapolation of trends in technical progress, as defined above, implies a near-term slowdown in US economic growth. The paper concludes with a brief discussion of the implications for sustainability.

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp2004/2004-18.pdf

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Copyright INSEAD. All rights reserved