By Marie Perriard
All economic production depends on our scarce natural resources and we can apply insights from physics and ecology to help us examine our economic system.1 As resources are depleted, waste is generated, and the continuous loop regenerates itself as long as 1) throughput is within capacity of the system and 2) the scale of the economy is relative to the size of the ecosystem. This “steady-state” economy strives for balance because, otherwise, growth beyond its limits will lead to instability and destruction of the very ecosystem that supports all economic production.
But what is this system of natural resources that, when combined, form the elements of structure and purpose in our economy? Ecological economics provides insight into the ecosystem functions that create value for human beings from an economic perspective. It is the ecosystem services that help maintain stable climates for agriculture growth, ensure clean drinking water, or provide recreational opportunities that contribute to growth in the economy and GDP. The many inputs come together to produce multiple outputs, but we must be reminded that there are limits to the inputs and outputs that are produced.
This thinking led me back to Donella Meadows recently published book, Thinking in Systems, where she notes that at any given time, the input that is most important to the system is the one that is the most limiting.2 From a business perspective, early economics evolved out of the need to efficiently allocate labor and capital resources, the two most limiting factors in production at the time. Neoclassical economics strives to balance these two factors in order to achieve growth. However, as our economy begins to grow in higher proportions relative to our ecosystem services, our limiting factors shift to natural resources and waste absorption capacity leaving factors such as labor and capital to become less helpful. It doesn’t depend on the number of employees you have hired to make widgets, or the amount of money you have available to invest in more widget factories, or how many customers you have lined up to buy widgets outside your retail outlets. In the end, it all boils down to the amount of material and natural resources you have to actually produce the widgets that count. The chain is only as strong as its weakest link.
Ecological economics teaches us about shifting our limits in response to change in growth. It gives us the insight to acknowledge which factors are limiting and, more importantly, teaches us that growth itself can both deplete and/or enhance limits. Businesses can learn to recognize that the most important input is the most limiting one and by self-imposing limits through government or societal regulation, we can continue to keep growth within the capacity of our ecosystem. However, if business and government cannot, then the system will impose its own limitations, perhaps to our own detriment.
1 Daly, H. & Farley, J. (2004). Ecological economics: Principles and applications. Washington, D.C.: Island Press.
2 Meadows, D.H. (2008). Thinking in systems. White River Junction, VT: Chelsea Green Publishing Company.
Marie Perriard is a marketing and brand strategist with over 12 years experience in helping companies create innovative communication strategies and brand positioning platforms. She is currently a full-time student in the Presidio School of Management MBA program.