As almost every societal movement, the sustainability movement has its personalized evils, its specific foes. One of them is Robert M. Solow, the famous creator of the growth model that supposedly is the source of all evils in this world. Moreover, a quote of his can often be encountered (including in the German Wikipedia article about him) that comes from a lecture he gave in 1974, where he said:
The world can, in effect, get along without natural resources, so exhaustion is just an event, not a catastrophe.
Well, for myself, too, Solow was one of the personalized evils. There once was an initiative called “Kick It Over!”, which I found very convincing, because it criticized mainstream economics as taught at economics departments all over the world. Among other things, the initiative provided one with print-ready posters and asked one to pin them somewhere at one’s university. Among those posters (I cannot find them on the internet any more, unfortunately), one in particular attracted my attention, on which pictures of three laureates of the Sveriges Riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne (also colloquially called the Nobel Prize in Economics): Milton Friedman, Friedrich Hayek and, yes, Robert Solow were depicted. The poster called upon the Prize Committee to take away the awards from those three economists. In the case of Solow, who had been awarded in 1987 “for his contributions to the theory of economic growth”, the call was rationalized by blaming his model, which omitted natural capital from the production function, for causing all the environmental problems we have to deal with today. Whether this particular model is to be blamed, may be debatable, but this is not my topic today.
Rather, I would like to focus on the widely quoted dismissal of the importance of natural capital that is allegedly hidden behind the statement that “The world can, in effect, get along without natural resources, so exhaustion is just an event, not a catastrophe.” I have become slightly sceptical of Solow’s demonization when I started encountering his name in debates on the economics of climate change (he was among the supporters of the controversial Stern Review) and the economic valuation of ecosystems (he was one of the authors of the influential “Blue Ribbon panel” report to the NOAA on contingent valuation). Recently, I decided to finally find the paper from which the quote originates and check whether it was not taken out of context. As you might already suspect–otherwise I wouldn’t be writing this post–it was.
The paper where the quote comes from is titled The Economics of Resources or the Resources of Economics. It is the script of a lecture given by Solow during at the 86th Annual Meeting of the American Economic Association and was published in 1974 in the prestigious American Economic Review. The paper starts by mentioning the Limits to Growth report to the Club of Rome, but it is mainly concerned with a classic of resource economics, namely The Economics of Exhaustible Resources by Harold Hotelling from 1931. It is quite interesting a paper, in which Solow makes many statements that would likely be embraced by most people sceptical of the infinite growth idea: he mentions thermodynamic limits to recycling (likely inspired by Nicholas Georgescu-Roegen’s seminal book The Entropy Law and the Economic Process, published in 1971); he reflects on the problem of the difference between the social and the private discount rates (which has been a crucial point in the debates of the Stern Review some 30 years later); mentions his own research on the modelling of sustainable consumption paths; and appears to be aware of the problem of Bertrand Russell’s turkey. Indeed, the paper might be interesting for anyone dealing with resource and/or environmental economics, but also for non-economists (there are no abstract mathematical formulas in it). Of course, some ideas invoked by Solow appear somewhat naive–for example his hope for nuclear fusion to become applicable soon or his general trust in the idea of backstop technology–but you have to take into account that the text is from 1974. Hardly anyone then were aware of of the huge looming problems of climate change or massive biodiversity loss, for instance.
But let us come back to the often-demonized quote. Yes, it appears on page 11 in exactly the same form as I quoted it above. But–and this is a large “but”–the context is what is missing. Let me quote the critical passage at length:
As you would expect, the degree of substitutability is also a key factor. If it is easy to substitute other factors for natural resources, then there is in principle no “problem”. The world can, in effect, get along without natural resources, so exhaustion is just an event, not a catastrophe. […] If, on the other hand, real output per unit of resources is effectively bounded–cannot exceed some upper limit of productivity which is in turn not too far from where we are now–then catastrophe is unavoidable. In-between there is a wide range of cases in which the problem is real, interesting, and not foreclosed. Fortunately, what little evidence there is suggests that there is quite a lot of substitutability between exhaustible resources and renewable or reproducible resources, though it is an empirical question that could absorb a lot of more work then it has so far.
I guess, it is obvious what my point is. While the last sentence indicates that Solow was quite technology-optimistic at that time, he certainly did not make the assertion that we don’t need natural resources at all! It is beyond the scope of this post (and possibly impossible) to trace back the quotation and find out who made such demagogic use of Solow’s words first. But the message should be clear–the demonization of Robert Solow by many, many growth critics has been based on a false premise. And a second, more trivial but perhaps more important lesson is: double-checking of sources is crucial. Tabloid newspapers all around the world prove every day that you can change the meaning of one’s words entirely just by taking them out of context.
- Robert M. Solow, 1974, ‘The Economics of Resources or the Resources of Economics’, The American Economic Review 64(2), pp. 1-14.