Curriculum debate

The notion of environmental capital is thoroughly entrenched in policy discussions but largely missing from mainstream economic curriculums. This column argues environmental externalities, climate change, and constraints on natural resources will constantly and deeply affect humankind’s future. The teaching of economics, especially growth economics, should stop ignoring them.

Soon after the inception of the financial crisis, The Economist published an article on the split the crisis had brought about among macroeconomists and on the self-criticism some of the most renowned names of academia were applying to the discipline they have been teaching. The last 30 years of apprenticeship in American and English universities have been ‘a costly use of time. Most macroeconomics of the last 30 years runs the risk of having been ‘spectacularly unproductive at best, and positively harmful at worst’. In many countries a debate broke out among university macroeconomics professors concerning the way the functioning of the economic system is presented to students and how economic problems are discussed in terms of causes and possible remedies.

It took the deepest economic and financial crisis since the Great Depression to provoke an open debate amongst macroeconomists as to whether the ‘economic model’ taught in economics programmes is adequate. We do hope it will not take the full realisation of the adverse consequences of climate change for the profession to come to its senses regarding environmental economics and the way natural capital is ignored in most macroeconomic work. 

The key difference between the financial and environmental crisis is that we actually do have a good body of work that incorporates natural capital in models of growth. The problem is that it has remained to a large extent the restricted domain of environmental economists. The vast majority of us were able to get degrees in economics without ever reading a single paper on environmental economics or encountering natural capital as an argument in the production functions we studied. 

Environmental economists have long modified growth models to account for the role of the environment, thus revisiting the conditions that ensure growth, whether sustainable or sustained. 

Hencet, environmental economists tend not to talk about economic growth per se, but about sustainable economic growth. When macroeconomists refer to sustainable growth, however, they usually mean sustained growth. When growth economists study the role of externalities in the growth process they almost exclusively refer to technological and knowledge externalities, and generally ignore environmental ones, even though the latter are likely to become largely more relevant in the coming decades. Even social capital, a relative newcomer in economics, appears better integrated into the growth literature.

Why such disregard for an issue that epitomises market failures from externalities, common property issues, and whose importance in both growth processes and human well-being is well documented? Sheer ignorance, likely – or a vague notion that innovation will come to the rescue. But why would markets generate the technology to solve a problem that combines both knowledge and environmental externalities?

Here is a recommendation for an urgent change in the economics curriculum, at both introductory and advanced levels. Growth chapters in today’s macroeconomics textbooks make no reference to the environment – whether as an input into the production function or as a limiting factor affecting the productivity of human or physical capital. 

Requirement is not simply that more environmental economics be offered, but rather that the macroeconomics courses teach that natural capital is a key input into production processes, and that the environment – through massive mismanagement and a chronic failure to apply the basic principles of economics – has now become a serious macroeconomic problem, one that requires a profound and dramatic change in our model of growth. The development model of the industrial revolution (‘grow now and clean up later’) partly worked for a world of 1.5 million people; it simply won’t do for a global population approaching 9 billion.