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Megacities: Economic Growth, Ecological Crisis

Presidio Economics | Friday May 13th, 2011 | 2 Comments

This post is part of a blogging series by economics students at the Presidio Graduate School’s MBA program. You can follow along here.

By: Jenny Hoang

The May 2011 Forbes Magazine cover story is titled, Megacities: The World’s Greatest Opportunity. The article, part of The Global 2000 special report that showcases the world’s biggest companies, delves into Siemens’ growth into emerging markets. While principles of sustainability have eked out a presence in the business realm, the article is a reminder that the movement still has a ways to go before mainstream business ideology truly incorporates sustainable practices. More specifically, this article indicates how economic imperialism is deeply engrained in mainstream business strategy.

Economic Imperialism…

Economic imperialism, as defined by ecological economists Daly and Farley, is the neoclassical understanding of the relationship between economics and ecology. The relationship is simply one of economic dominance: ecological resources are dedicated to economic production and have no inherent value of their own. Further, the theory assumes exponential economic growth without acknowledging ecological limits. The goal of economic imperialism is endless growth of the economic sphere and ever increasing consumption of goods and services.

MNCs Growth in Megacities

Megacities by 2015

Using Siemens’ strategy to frame the story, the article is focused on growth in the urban centers known as megacities. The viewpoint for multinational corporations (MNCs) is clear in this quote, “mass migration from rural to urban areas worldwide is creating unparalleled opportunity.” Having saturated much of the markets in the developed worlds, MNCs see emerging markets as the new economic frontier. The tone of the article exudes almost breathless excitement about this newfound ability to meet ever increasing sales goals. For example, when describing Siemens’ long term outlook, the article explains that “explosive growth of new megacities, including their outer rings of slums, favelas, barrios and shantytowns, will power Siemens’ sales and earnings for the rest of this century.”

Environmental Impact of Economic Growth

The article does not discuss the potential negative impacts of this rapid growth, which, when operating under the belief of economic imperialism, is no surprise. However, the ecological impacts should be of great concern. According to the 2010 Living Planet Report, we are already living beyond our ecological means. The growth of megacities will put more pressure on space and resources that lead to increased air pollution, lack of access to clean water and disease outbreaks.  “A study of air pollution in 20 megacities shows that air pollution concentrations are at levels where serious health effects are reported and exceed health protection guidelines.” Moreover, deteriorating urban air quality impacts ecosystems in the region, ultimately contributing to climate change. The Global 2000 report indicates that there are currently 21 megacities with populations of 10 million or more, which will grow to 29 cities by 2025. Pairing the knowledge from these reports reveals a picture of an increasingly overwhelming burden on an ecologically constrained world.

As scary as this picture is, stopping all economic growth is neither possible nor the answer. Economic development is still desperately needed for billions of people around the world. Many developing countries welcome MNCs because their presence has enhanced the well-being of its citizens, even when most of the profits remain in the developed countries in which the MNCs reside. MNCs also help to create infrastructure and job opportunities that otherwise would not exist.

Steady-State Subsystem

The answer then is a compromise between the two, known as the steady-state subsystem. Borrowing from John Stuart Mill, Daly and Farley explain that the steady-state subsystem sees the relationship between economy and ecology as collaborative, where the economy functions at a rate by which the earth can sustainably replenish its resources. While this may not be the type of growth MNCs want, sustainable development that incorporates economic, environmental and social considerations enable economies and people to thrive in the long run. Otherwise, the trend of rapid growth will exacerbate our issues and only serve to move us faster into environmental degradation that will surely result in economic and social crises.


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  • http://www.geswales.co.uk Ross Walters

    The steady-state subsystem is a great theory. The problem, as the author says, is that it is not the type of growth that MNC’s want. It makes perfect sense to see ecology and the economy as collaborative, but the harsh reality is that competitive pressures encourage a more short-termapproach. Forests get chopped down, fisheries exhausted, etc. MNC’s not only look to the developing world for markets but also for the lowest stndards vis-a-vis the environment, workers rights, taxes, etc.

    • http://www.triplepundit.com/2011/05/megacities-economic-growth-ecological-crisis/comment-page-1/ Bhanu Prabhakar

      I concur with Ross. However, there is another aspect that needs to be looked into – while the classical model of doing commerce advocates maximum benefits for the trader (read MNCs), growth and PROFITS would need to be disseminated in the emerging markets on an even keel with the countries where the MNCs reside. While I am not one for taking away what is MNCs’ due, I am all for an equitable and just distribution of wellness. The growth and profits that i mention need not necessarily be in terms of economic mobility alone; they could given back through caring for the host nation’s ecology. As always, live and let live for me!