Economic Development and the Environment

Free Essay about Interaction of Economic Development and the Environment


In the course of development of the environment, in the majority of countries of the world a technogenic nature and a capacious type of economic development based on consumption of natural resources and services have been created. Natural resources are among factors of economic development (the natural capital) along with manpower (the human capital) and created means of production (the artificial capital). The basis of any economic system is made by production, distribution, and consumption of goods and services. Within these processes, there is a constant interaction of the society and nature. Thus, it is necessary to study consequences of this interaction in order to find solutions of various environmental problems connected with the development of economy.

Ecology as a Part of the Economy

Ecological economics, as a part of the doctrine of national economy, is based on the analysis of external influences. A task of the economy is to show environmental problems by means of models, to develop a general mechanism of influence, and, having analyzed expenses and profits, to offer countermeasures, for example, in the form of economical and political tools (“"Economic development and environmental sustainability" resource policy,” 2014). Thus, it is necessary to aim for harmonization of various ecological purposes and set ecological and other political and economical goals and tasks. The basic contradiction between economy and ecology, which is often neglected, exists only to equate economy to aspiration to keep the modern structure of production and employment in which measures for environmental protection are often disregarded for the sake of productive and economic interests (Becker, 2013).

The Resources Deficiency Issue

In recent decades, pollution of air, water, and soil has showed that environment cannot be used infinitely as it was supposed at all times through the centuries. Modern production, which considers only the very first direct progress and does not pay attention to subsequent results, has ignored a resource depletion problem for a long time (Panayotou, 2003). The nature is still used as a free resource. Thus, among the used natural resources, it is necessary to allocate exhaustible (for example, iron ore, oil) and renewable (for example, the wood, fauna). The finiteness of the environmental resources is also evidenced by the use of the environment as a garbage container with its limited ability to accept waste, harmful substances, etc. (“"Economic development and environmental sustainability" resource policy,” 2014).

Limitation is a relative concept, as well as a problem of resources limitation in the environment. Thus, it is necessary either to reduce the level of requirements or to aim at the achievement of a certain level of provision with pure environment at this level of requirements. The fact that they should be used so intensively, as far as it is possible, refers to all resources; it means that the quantity of the goods intended for final consumption needs to be brought to a maximum (Harris & Roach, 2005). The available limited quantity of resources has to be used effectively. In other words, any waste is wasting of resources, especially if it is necessary to use resources for elimination of a dump again.

Environmental Pollution Consequences for the Society

Wellbeing of individuals or social groups can be caused by actions of other parties. The dependence occurs, for example, when the cost of free goods such as air and water is not included into the calculation of production expenses when producing goods. Thus, these costs are not included in the price and avoid the market mechanism since the growing demand associated with the resource depletion cannot be reduced due to a simultaneous increase in prices. The dilemma of this environmental problem exists because natural resources are considered as free resources though they have become limited meanwhile (Opp & Osgood, 2013).

The growing deficiency of some resources negatively affects not only consumption, but also production. If there is not enough good quality of the environment as a factor of production, costs of carrying out expensive actions for its cleaning can quickly exceed potential profits on refusal of preventive ecological measures. At the worst, environmental pollution by certain branches can do much harm to other branches, for example, uncontrollable chemical production can damage fishery (Jost, Quaas, & Schiller, 2006).

Such negative environmental influences exist if an individual or a group suffers a damage, which cannot be compensated by the party causing this damage. Therefore, this influence is called external because the individual's wellbeing is often affected not only by voluntary market relations (internal), but also by actions that do not depend on the market (external) (Jost, Quaas, & Schiller, 2006). External influence may occur in the process of production and consumption in the form of environmental pollution. The analysis of results of production external impact shows that it is, as a rule, negative and pollution of air, water, soil, or noise does harm the environment and exhausts irreplaceable natural resources. Negative external impact is shown in causing damage to the environment, for example, deforestation and its influence on fauna, flora, and quality of soils (Becker, 2013).

Preconditions for Resource-Saving Production

Shortage of natural resources leads to the emergence of a question about their allocation, i.e. their effective use. Criterion for the answer is technical, economic, and ecological efficiency of the application of various factors of production. Thus, environmental pollution represents a non-optimal use of resources from the economic point of view. In order to solve the problem of allocation, it is necessary to fix discrepancy between personal and social expenses (Harris & Roach, 2005). If costs of elimination of negative external impact were in the responsibility of consumers, resources could be used otherwise. However, redistribution of subsequent expenses does not occur and resources are spent for separate consumer purposes differently than it would occur at exact allocation of costs (Opp & Osgood, 2013). This circumstance describes wrong allocation, which means that market processes lead to the non-optimal decision. Environment as resource is very cheap and, therefore, it is used in large volumes and rather quickly (“"Economic development and environmental sustainability" resource policy,” 2014).

In terms of environmental management, allocation also uses and estimates alternative purposes of consumption. Environment can be used both for production and for rest. Thus, there is a rivalry in consumption of resources, i.e. these types of environmental management mutually exclude each other. Garbage, emissions, etc. appear as by-products of industrial production, which lead to strengthening of harmful effects on the environment since no counteracting measures are taken (Opp & Osgood, 2013). When using the environment for rest, the prerequisite to it, whenever possible, is its elimination from the production influence. At the competition in the field of consumption, the problem of economy consists in finding bases for the decision, which will make the maximum profit or will minimize expenses for the society (Jost, Quaas, & Schiller, 2006).

Elimination of the damage caused to the environment leads to expenses. The condition of non-optimal allocation of natural resources includes a loss since resources with a higher advantage or benefit could be used if it were possible to get closer to the optimum level. Today, relative shortage of the unspoilt natural areas allows to assume that environmental management inefficiently uses the competition (Jost, Quaas, & Schiller, 2006).

Economic Development and Gross National Product

Today, being in a dynamic balance, the economy grows exponentially. Such rate of economic growth is defined by the development of such factors of external influence as growth of the population and technical progress. For an increase in production, only accumulation of the real capital is important. Ecological investments influence the economy in general, but they have a small effect of capacity, i.e. these are the effects increasing demand and, thus, the opportunity to produce goods is very small. However, actions for environment protection protect resources, which are also an important prerequisite for economic growth (Panayotou, 2003).

Long accumulation of the capital has put technical innovations at a high level. Though mass consumption has an adverse effect on the environment, it includes growth of welfare, which the most part of the population will not be able to return. Therefore, general condemnation of economic growth is senseless, as well as the economic policy directed at the increase of the gross national product (GNP) only (Panayotou, 2003). However, in quantitative terms, the GNP is deceptive. If it included expenses arising during production in reality, the growth, in other words economic growth, would decrease considerably as such calculation of the GNP would include expenses like, for example, environmental pollution or deforestation (Harris & Roach, 2005).

Therefore, it is necessary to develop a coefficient for the national economy, which is better than the GNP, promotes the increase in welfare of the society, and considers environment as an important factor. However, the discussion on a common definition of the environmental and social product is still ongoing. It is based on the concept of universal net use. When calculating universal net use, positive factors include, for example, free time and work of housewives. In turn, environmental pollution and subsequent ecological expenses belong to expenses and reduce universal net use (Becker, 2013).


To sum up, it should be mentioned that huge negative economic and social consequences of ignoring ecological services by the economy have led to awareness of the need to include environmental services in the economic cycle. In this regard, limitation of interpretation of the natural capital as natural resources is more and more realized. For a successful long-term economic development, the accounting of all other ecological functions is obligatory. Moreover, it is necessary to consider the economic importance of all components of the natural capital and their ability to generate income and benefits as any capital needs.

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