Environmentally Sustainable Economic Growth

Brad, Stelian; Mocan, Bogdan; Brad, Emilia; Fulea, Mircea Article Environmentally Sustainable Economic Growth Amfiteatru Economic Journal Provided in Cooperation with: The Bucharest University of Economic Studies Suggested Citation: Brad, Stelian; Mocan, Bogdan; Brad, Emilia; Fulea, Mircea (2016) : Environmentally Sustainable Economic Growth, Amfiteatru Economic Journal, ISSN 2247-9104, The Bucharest University of Economic Studies, Bucharest, Vol. 18, Iss. 42, pp. 446-460 This Version is available at: https://hdl.handle.net/10419/169012 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. http://creativecommons.org/licenses/by/4.0/ AE Environmentally Sustainable Economic Growth 446 Amfiteatru Economic ENVIRONMENTALLY SUSTAINABLE ECONOMIC GROWTH Stelian Brad1 * , Bogdan Mocan2, Emilia Brad3 and Mircea Fulea4 1) 2) 3) 4) Technical University of Cluj-Napoca, Romania Please cite this article as: Brad, S., Mocan, B., Brad, E. and Fulea, M., 2016. Environmentally Sustainable Economic Growth. Amfiteatru Economic, 18(42), pp. 446-460 Abstract Economic growth and sustainable development are important issues for social prosperity. Sustainable development strives for moderate and responsible use within the economic activity of the limited resources of our planet, whereas economic growth does not limit the resource exploitation and energy, being mainly focused on productivity increase. From this perspective, both conceptual and operational contradictions occur between the two pillars of prosperity. This paper looks to these contradictions and proposes some streams of intervention such as economic growth and environmental sustainability to operate in harmony. A structured framework for innovative problem solving is considered in this respect. Results of this research show that it is possible to induce smart measures in the economic system for directing businesses towards new paradigms where economic growth is possible without negative effects on environmental sustainability. Keywords: economic competitiveness, economic growth, sustainable development, innovation policy, prosperity. JEL Classification: O47, Q01 Introduction Competitiveness is not only about economic performance of a nation, it is also about the environmental and social performance. The synergy between these three dimensions of performance is the path towards sustainable competitiveness (Herciua and Ogreana, 2014). According to the strategic document of the European Commission (EC) called Europe 2020 “A European strategy for smart, sustainable and inclusive growth” (European Commission 2010), European Union (EU) must act to be “smart in innovation, education, training and lifelong learning, as well as digital society; sustainable in competitiveness, combating climate change and using energy more efficiently; inclusive in employment, skills and fighting poverty” (European Commission, 2010, p.3). For achieving these goals EU countries must perform some steps forward (Herciua and Ogreana, 2014). * Corresponding author, Stelian Brad – [email protected]. Economic Interferences AE Vol. 18 • No. 42 • May 2016 447 Commitment is not enough, because in a highly volatile and competitive market environment, speed of action is also essential (Yang and Meyer, 2015). Nowadays, in the capitalist economic model, economic growth is considered as a basis for welfare of societies. Using the concept of gross domestic product, economic growth is currently treated as an aggregated growth of production of goods and services in various sectors of the economy. For example, the main source of economic growth in agriculture is efficiency improvement (Bezat-Jarzębowska and Rembisz, 2013). However, new definitions and new approaches to assess competitiveness of the EU countries have been recently discussed in the economic literature. The traditional approach of counties’ competitiveness evaluation oriented on cost-based measures such as unit labor costs, real effective exchange rate (REER) or unit labor productivity is not sufficient. Today’s Europe seeks for sustainable, smart, inclusive and environmentally friendly economic growth. From this perspective, the traditional cost-based approach of productivity assessment provides a limited perspective. For instance, potentiality of knowledge-based economy and firm-level perspective are not captured by the traditional approach (Rozmahela et al., 2014). Regardless of whether cognitive competence causes national wealth or whether there is a reciprocal relationship, aid directed at improving the cognitive competence of a population should have an economic payoff (Hunt and Wittmann, 2008). Following the same stream, it makes sense to highlight that, from the perspective of sustainable development, it is a strong correlation between reduction of corruption, economic prosperity and reduction of environmental degradation. While corruption will not be recognized as a global problem for the conservation of biodiversity, effective actions will not happen. Emerging studies have found that the level of corruption in a country is positively associated with environmental degradation (Krishnan et al., 2014). It is also important to notice that social conflict and slow growth are specific characteristics of many developing economies. For these economies, the importance of deeprooted institutions of property rights and conflict management that provide a foundation for individuals in the enforcement of their property claims is increasingly recognized. In this context, some researchers have found that maximization of economic efficiency may call for a reduction in growth in order to mitigate the problem of diversion, even though the economy's growth is inefficiently slow in the absence of taxation (Gonzalez and Neary, 2008). The development of an increasingly globalized economy adds new urgency to humanity’s efforts in order to anticipate the challenges ahead and the opportunities for further prosperity. Calamities that once were regional in nature, such as endemic diseases, economic boom and bust cycles, or local social and political conflicts, now can rapidly spread to unravel the fabric of previously far-flung places. However, globalization can also help mobilizing distant resources to address local challenges. The uncertainty about possible outcomes of ever larger numbers of interactions among ever larger numbers of people, businesses and institutions, keeps increasing, and the prospects for true surprises keep rising (Ruth et al., 2011). Recent contributions to ecological economics and related social sciences indicate that issues such as climate change, resource depletion and environmental degradation cannot be effectively addressed under conditions of continued economic growth. Indeed, in the absence of evidence for absolute decoupling of gross domestic product (GDP) growth, AE Environmentally Sustainable Economic Growth 448 Amfiteatru Economic material resource use and carbon emissions, it is remarkable that most policy approaches do not question the priority placed on GDP growth (Fritz and Koch, 2014). Since economic growth is intrinsically linked with an increased production of goods and services, and on its turn this is linked with resource depletion and environmental impacts such as global warming, the assumption of continued economic expansion in rich countries challenges the possibility to achieve prosperity without growth (Jackson, 2009). As example, for developing sustainable products, design engineers need to foresee diverse interrelations between a product’s characteristics and it’s economic, social and environmental impacts (Buchert et al., 2015). In this context, the present paper treats the complicated aspect of balancing two contradictory dimensions related to prosperity of civilization: economic growth and sustainable development. In this respect, the paper includes a background section where the meaning of economic competitiveness is analyzed in relation with prosperity from a niche angle. It is shown that economic growth does not necessarily lead to social prosperity in any conditions. Further, in the next two sections of the paper the perverse effect of economic growth in relation to social prosperity is analyzed. Major conflicts are identified, too. They are afterwards tackled from an innovative problem solving perspective, revealing several lines of action towards ensuring economic growth with lower or low impact on sustainable development. Examples of public policies in relation to this issue are also highlighted. Paper ends with conclusions and insights on future researches. 1. Basics on economic competitiveness Economic competitiveness is a major indicator for nations, regions and companies in terms of capability to operate in the global market with success. There is no unanimous definition of economic competitiveness (Huggins, 2003). For example, the Irish National Council of Competitiveness considers economic competitiveness as the ability of a nation to be successful on the international markets in order to improve the quality of life of the whole nation (National Competitiveness Council, 2014). The World Economic Forum sees economic competitiveness as the ability of a nation to get high and sustained rates of the GDP/capita (World Economic Forum, 2014). At Harvard Business School, the recent definition of economic competitiveness considers social aspects incorporated. Thus, a nation or a region is competitive in the limit in which companies that operate within that space are capable to compete with success in the regional and global economy improving in the same time wages and living standards of the ordinary people (Harvard Business School, 2013). There are several other similar definitions of economic competitiveness, but they are not mentioned here because frankly speaking do not bring new perspectives on this concept. An important issue that is not captured by any definition of economic competitiveness is the ethics of governments and multinational corporations (MNCs) in the international politics. This aspect is graphically captured in Figure no. 1. According to this, several aspects generate barriers for economic development of a nation. They include protectionism of national markets, health of national economic environment, national and international legislation, commercial wars, as well as the ethics of strong governments and MNCs on the international politics. These barriers require extra-innovations to be considered by the Economic Interferences AE Vol. 18 • No. 42 • May 2016 449 smaller firms operating in a given economic environment in order to ensure and maintain attractive levels of productivity and wages for workers. Figure no. 1. Barriers in the equation of economic competitiveness Having ethics in mind, this paper proposes a more nuanced definition of economic competitiveness. It defines economic competitiveness of a nation as a measure of happiness, welfare, health, morality, ethics and social statute of the ordinary people and the capacity of preservation, renewal, diversification and sustainable development of human, natural, financial and technological resources of that nation through the prism of social entrepreneurship initiatives and medium and long term commercial viability of autochthon companies in the national and international competition constrained and distorted by “zero sum result” egoistic interests, corruption, imperialism, economic stability treaties and political manipulation. This perspective on economic competitiveness highlights the fact that a high growing GDP/capita does not necessarily mean an automatic increase of the population welfare. A durable economic growth, which allows high rates of workforce productivity and employment, requires capabilities from the public and private socio-economic entities to produce and/or sell products and services with high value added, as well as to attract sufficient external resources (human, financial, etc.) to sustain development. Is thus possible to define a framework in the global competition such as all countries to win? In theory, this requires smart ways to increase GDP/capita, considering both moral, social and ecological perspectives, as well as optimal approaches from economic point of view (i.e. to maximize effects in the given constrain space of action). Thus, to ensure social prosperity, extra-innovations are necessary in the equation of economic competitiveness. AE Environmentally Sustainable Economic Growth 450 Amfiteatru Economic Association of economic growth with economic competitiveness has a dark side. There is a perverse effect of economic growth in relation with social prosperity; that is, economic growth strictly seen from the restrictive view of GDP/capita might neglect – and facts shows that it actually neglects – sustainability both from social, ecological and economical perspectives. This is mainly because, the conventional models of economic growth mostly operate with traditional resources that are energy intensive and quantitatively limited. 2. A brief literature review on sustainable economic growth Analysis of economic growth from the perspective of its implications to environmental degradation is in the attention of researchers from more than two decades. There are research works whose theory is that the environmental limited endowments do not constitute a concern for economic expansion (Radetzki, 1992). Radetzki bases his theory on human behavior in response to tendencies towards environmental degradation, claiming that people will adapt and “will assure the compatibility of continued economic growth with the maintenance of satisfactory environmental standards”. Beckerman is another researcher that considers environmental resource constraints do not represent a limitation for economic growth (Beckerman, 1992). He also claims that sustainable growth is a concept that is morally vulnerable or nonoperational. Other early work on this topic says no evidence was found that environmental quality deteriorates continuously with economic growth (Grossman and Krueger, 1994). Their researches concluded that economic growth comes up with an initial degradation of environment, but there is a turning point (around the income of 8000$ per capita) where economic growth brings improvement in the quality of environment. To a similar conclusion comes up another work (Panayotou, 2000), which introduces the concept of inverted-U relationship between environmental degradation and economic growth, also known as the “Environmental Kuznets Curve”. Despite the above mentioned conclusions, if no coordination exists between industrial growth, environment and resource, high unbalances occur (Zhengge, 2008). This statement is the result of researches done in five regions of China. It brings a major message; that is, economic growth should be seriously balanced with an adequate structure and technological progress of the industrial sectors in an ecosystem such as to lower the environmental footprint. A valuable documentation resource is the work of Brock and Taylor, which reviews various theories and empirics related to the binome “economic growth-environment sustainability” (Brock and Taylor, 2005). They conclude that still several theoretical questions exist, especially in relation with the limit of growth such as to avoid the “tipping point” from where the environment cannot compensate consumption of raw resources. Another advocate for a well-controlled economic growth to limit environmental pollution stands in the work done by Anastasios Xepapadeas. He highlights significant deviations between market outputs and social optimum, as well as between environmental quality and economic development in non-controlled socio-economic ecosystems (Xepapadeas, 2005). He considers crucial to find ways of decomposing total factor productivity into its sources and controlling economic growth from an environmental perspective, as long as evidences clearly show an economy produces not only the desired output, but also undesirable environmental pollution. An important consideration on economic growth is about its moral consequence in society. Seeing economic growth in direct relation with the living standards of citizens, empirical studies observed that people move towards democratization, tolerance, diversity and Economic Interferences AE Vol. 18 • No. 42 • May 2016 451 mobility in growing economies, whereas stagnation of economy works against these values (Friedman, 2005). Thus, the challenge is not about building prosperity without economic growth, but about finding solutions to grow without affecting sustainable development. The key issue stands in the direct correlation between economic growth and energy needs for mobility, production, living, education, etc. With conventional energy sources, dataset show environment is degrading and CO2 are increasing (Rania and Chaker, 2015; Xiong et al., 2015). Therefore, most scientific papers that treat the conflict between economic growth and environmental degradation are focused on technological issues (e.g. new energy sources, inclusive development, waste management through technology, etc.), area planning and fight against the corruption reflected in savage exploitation of raw materials. 3. Research methodology In this research, the methodology to approach the conflict between economic growth and sustainable development is formulated around the scheme from Figure no. 2. On one side, classical paths for economic growth generate more complications in society, including negative effects on sustainable development. On the other side, the issue is about the possibility to ensure social prosperity without economic growth. Figure no. 2. Dilemma between ecologically sustainable economic growth and social prosperity AE Environmentally Sustainable Economic Growth 452 Amfiteatru Economic In this context, this paper considers a method for innovative problem solving in management called TRIZ-M (Brad and Brad, 2013), which is actually the adaptation to managerial issues of a well-known method called TRIZ (theory of inventive problem solving) (Altshuller, 2004). The TRIZ-M method works like this: (1) identifies a conflict between two parameters (e.g. more energy supply needed is in conflict with lower raw minerals consumption); (2) associates to each particular parameter a generic one from a limited list of 39 generic parameters (e.g. energy consumption is associated with parameter “quantity of substance” and raw material consumption is associated with “waste of material“ or/and “secondary harmful factors acting on the system”); (3) uses a so-called TRIZ-M matrix of contradictions to identify generic directions of intervention (also called vectors of innovation); (4) ideates around the generic directions of intervention to formulate innovative solutions to the particular problem. In order to find out more about the TRIZ-M method please consult the web link: http://193.226.17.76:8080/sts291-mvc/tool_cmx.do?aProject=1&aSet=1&aAct=1&aTarget =1&aActivityName=1 that introduces a software tool developed by the authors for easy application of TRIZ-M. In the framework of TRIZ-M, economic growth is associated with the parameter “amount of substance (e.g. money, know-how, output, etc.)”, and sustainable development is associated with the parameter “secondary (side) harmful effects on the system”. The following generic vectors of innovation are proposed by TRIZ-M in the case of conflict “economic growth-environmental sustainability”: (a) Vector 1: actions to increase local quality; (b) Vector 2: actions to transform system properties; (c) Vector 3: actions to create composite structures; (d) Vector 4: actions to introduce inert environment. This is suggestively illustrated in Figure no. 3. Economic growth Inert environment New properties Figure no. 3. Vectors of innovation towards environmental sustainable economic growth Each generic vector of innovation has several guidelines. Vector 1 (actions to increase local quality) is detailed into the following patterns:  Actions to transform a homogeneous structure into a heterogeneous structure or vice versa;  Actions to ensure that different parts of the system will perform different functions; Economic Interferences AE Vol. 18 • No. 42 • May 2016 453  Actions to ensure that each part of the system will be placed in the most favourable position for its operation. Vector 2 (actions to transform system properties) consists of the following directions of investigation:  Actions to change the state of the system;  Actions to change the concentration of the state;  Actions to change the conditions;  Actions to change the degree of flexibility;  Actions to change the volume. Vector 3 (composite structures) means to replace a homogeneous system with a composite one. Vector 4 (inert environment) is about replacing the normal environment with an inert one or about introducing a neutral element in the system. The vectors of innovation and their guidelines are sources of inspiration for the policy makers to formulate solutions to the problem under consideration. This issue is treated in the next section of the paper. 4. Results and discussions The guidelines revealed in the previous section are important pillars towards formulating innovative solutions to balance economic growth with environmental sustainability. The four vectors and their related directions of intervention actually show to what constrains should be subjected economic activities in a given regional/national ecosystem such as environmental-friendly innovations to be promoted for growth and social prosperity. Thus, instead of trial-and-error approaches to discover the proper patterns of evolution for the complex ecosystem, policy makers would know in advance where to direct their efforts. Beyond this, having known the set of directions of intervention, it is possible to determine the motricity and dependency of each direction, as well as the correlations between these areas of manifestation. With such information, policy makers can define priorities of their policies. The third important aspect is the balancing mechanism between the economic growth and environmental sustainability. Researches presented in the introductory sections of this paper highlight that environmental degradation can be avoided in the equation of economic growth if a clear control acts on the industry structure and proportion, as well as on the technology used. These researches reveal that at a certain level of economic prosperity industry structure and economic activities are such as they support environmental protection (please revisit the Environmental Kuznets Curve); the challenge is in the developing and emerging economies, with low productivity rates and economic activities that stands on basic factors (natural resources, human resources for physical work). The smart use of the vectors of innovation proposed in the “Research methodology” section can bring valuable ideas for adequate policy design in order to balance the evolution of economy in good harmony with environmental preservation, too. Figure no. 4 illustrates the matrix for determining the motricity and dependency of the 11 generic directions of intervention. In Figure no. 4, motricity decreases from 1 to 7, and dependency also decreases from 1 to 7. The best areas of intervention are those with high motricity and low dependency (the best case is motricity 1 and dependency 7). AE Environmentally Sustainable Economic Growth 460 Amfiteatru Economic Jackson, T., 2010. Prosperity without growth? The transition to a sustainable economy. Journal of Cleaner Production, 18(6), pp.596-597. Krishnan, S., Teo, T. and Lim, V., 2014. Examining the relationships among e-government maturity, corruption, economic prosperity and environmental degradation: a crosscountry analysis. Information & Management, 50(8), pp.638-649. Molina-Azorín, J.F., Tarí J.J., Pereira-Moliner, J., López-Gamero, M.D. and Pertusa-Ortega E.M., 2015. The effects of quality and environmental management on competitive advantage: a mixed methods study in the hotel industry. Tourism Management, 50(4), pp.41-54. National Competitiveness Council, 2014. Ireland’s Competitiveness Challenges 2014. [online] Available at: <http://www.competitiveness.ie/> [Accessed 3 April 2015]. Panayotou, T., 2000. Economic growth and the environment. Harvard University Working Paper No. 56. Cambridge, MA. Porter, M.E. and Kramer, M.R., 2011. Creating shared value. Harvard Business Review, 89(1-2), pp.62-77. Radetzki, M., 1992. Economic growth and environment. International Trade and Environment, 3(1), pp.121-134. Rania, J. and Chaker, A., 2015. Environment degradation, economic growth, and energy consumption nexus: a wavelet-windowed cross correlation approach. Physica A: Statistical Mechanics and Its Applications, 436(3), pp.110-125. Rozmahela, P., Grochováa, L.I. and Litzman, M., 2014. Evaluation of competitiveness in the European Union: alternative perspectives. Procedia Economics and Finance, 12, pp.575-581. Ruth, M., Kalnay, E., Zeng, N., Franklin, R.S., Rivas, J. and Miralles-Wilhelm, F., 2011. Sustainable prosperity and societal transitions: long-term modelling for anticipatory management. Environmental Innovation and Societal Transitions, iss. 1, pp.160-165. World Economic Forum, 2014. The Global Competitiveness Report 2013-2014. [online] Available at: <http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_ 2013-14.pdf> [Accessed 3 April 2015]. World Wide Fund, 2006. Living Planet Report 2006. [online] Available at: <http://wwf.panda.org/about_our_earth/all_publications/living_planet_report/living_pla net_report_timeline/lp_2006/> [Accessed 3 April 2015]. Xepapadeas, A., 2005. Economic growth and the environment. Handbook of Environmental Economics, 3(1), pp.1219-1271. Xiong, C., Yang, D., Huo, J. and Zhao, Y., 2015. The relationship between energy consumption and economic growth and the development strategy of a low-carbon economy in Kazakhstan. Journal of Arid Land, 7(5), pp.706-715. Yang, W. and Meyer, K., 2015. Competitive dynamics in an emerging economy: competitive pressures, resources, and the speed of action. Journal of Business Research, 68(6), pp.1176-1185. Zhengge, T., 2008. The coordination of industrial growth with environment and resource, Economic Research Journal, 2(3), pp.125-130.