Global Forum

Prosperity without growth…?

Munch Munch

“It seems fanciful to suppose that ‘deep’ resource and emission cuts can be achieved without confronting the nature and structure of market economies.”

 

By Tim Jackson
Economic growth is supposed to deliver prosperity. Higher incomes should mean better choices, richer lives, and an improved quality of life for us all. That, at least, is the conventional wisdom. But things haven’t always turned out that way.

Growth has delivered its benefits, at best, unequally. A fifth of the world’s population earns just 2% of global income. Inequality is higher in the OECD nations than it was 20 years ago. And while the rich got richer, middle-class incomes in Western countries were stagnant in real terms long before the current recession. Far from raising the living standard for those who most needed it, growth let much of the world’s population down. Wealth trickled up to the lucky few.

Fairness (or the lack of it) is just one of several reasons to question the conventional formula for achieving prosperity. As the economy expands, so do the resource implications associated with it. These impacts are already unsustainable. In the last half century, the global economy has expanded five times. But an estimated 60% of the world’s ecosystems have been degraded. Global carbon emissions have risen by 40% since 1990. Significant scarcity in key resources – such as oil – may be less than a decade away.

A world in which things simply go on as usual is already inconceivable. But what about a world in 2050 where nine billion people all aspire to the level of affluence achieved in the OECD nations? Such an economy would need to be 15 times the size of this one by 2050 and 40 times bigger by the end of the century. What does such an economy look like? What does it run on? Does it really offer a credible vision for
a shared and lasting prosperity?

These are some of the questions that prompted a recent report from the UK Sustainable Development Commission to engage in a critical examination of the relationship between prosperity and growth. The report acknowledges at the outset that poorer nations stand in urgent need of economic development. But it questions whether ever-rising incomes for the already-rich are an appropriate goal for policy in a world constrained by ecological limits. In short, it challenges the assumption of continued economic expansion in rich countries and asks: is it possible to achieve prosperity without growth?

Clearly, the recession throws this question into sharp relief. The banking crisis of 2008 led the world to the brink of financial disaster and shook the dominant economic model to its foundations. It redefined the boundaries between market and state, and forced us to confront our inability to manage the financial sustainability – let alone the ecological sustainability – of the global economy.

Unique opportunity
If this seems like an inopportune moment to question growth, it’s not. On the contrary, the current crisis represents a unique opportunity to address financial and ecological sustainability together. And as the report argues, the two things are intimately related. The growth imperative has shaped the architecture of the modern economy. It motivated the freedoms granted to the financial sector. It stood at least partly responsible for the loosening of regulations and the proliferation of unstable financial derivatives. Continued expansion of credit was deliberately courted as an essential mechanism to stimulate consumption growth.

This model was always unstable ecologically. It has now proven itself unstable economically. The ‘age of irresponsibility’ – as British Prime Minister Gordon Brown called it – was not about casual oversight or individual greed. If there was irresponsibility, it was systematic, sanctioned widely, and with one clear aim in mind: the continuation and protection of economic growth.

The trouble is that doing without growth is also deeply unpalatable for all sorts of reasons. The most pressing is the structural reliance of capitalism on growth. The reasons for this are complex. But the most important dynamic is the high emphasis placed on labour productivity. Continuous improvements in technology mean that more output can be produced for any given input of labour. But crucially this also means that fewer people are needed to produce the same goods from one year to the next.

As long as the economy expands fast enough to offset labour productivity there isn’t a problem. But if the economy doesn’t grow, there is a downward pressure on employment. People lose their jobs. With less money in the economy, output falls, public spending is curtailed and the ability to service public debt is diminished. A spiral of recession looms. Growth is necessary within this system just to prevent collapse.

This evidence leads to an uncomfortable and deep-seated dilemma: growth may be unsustainable, but ‘de-growth’ (planned reductions in economic output) appears to be unstable. At first this looks like an impossibility theorem for a lasting prosperity. But ignoring the implications won’t make them go away. The failure to take the dilemma of growth seriously may be the single biggest threat to sustainability that we face.

Decoupling
The conventional response to the dilemma of growth is to call for ‘decoupling’: continued economic growth with continually declining material throughput. Since efficiency is one of the things that modern capitalist economies are supposedto be good at, decoupling has a familiar logic and a clear appeal as a solution to the dilemma of growth.

Evidence for declining resource intensities (relative decoupling) is relatively easy to identify. The energy required to produce a unit of economic output declined by a third in the last thirty years, for instance. Global carbon dioxide intensity fell from around one kilo per dollar of economic activity to just under 770 grams per dollar between 1980 and 2008.

But evidence for overall reductions in resource throughput (absolute decoupling) is virtually absent. The improvements in energy (and carbon) intensity noted above were offset by increases in the scale of economic activity over the same period.

There are rising trends in the global throughput of a number of other resources – a range of different metals and several non-metallic minerals for example. Worryingly, in some cases, even relative decoupling isn’t happening. Resource efficiency in the use of some structural materials (iron ore, bauxite, and cement) has been declining globally since 2000, as the emerging economies build up physical infrastructures, leading to accelerating resource throughput.

The scale of improvement required in the future is daunting. In a world of nine billion people, all aspiring to a level of income commensurate with 2% growth on the average EU income today, carbon intensities would have to fall on average by over 11% per year to stabilize the climate – 16 times faster than it has done since 1990. By 2050, the global carbon intensity would need to be only 6 grams per dollar of output, almost 130 times lower than it is today.

Capitalism’s delusion
The reality is that there is as yet no credible, socially just, ecologically sustainable scenario of continually growing incomes for a world of nine billion people. And in these circumstances, simplistic assumptions that capitalism’s propensity for efficiency will allow us to stabilize the climate and protect against resource scarcity are nothing short of delusional.

In fact, it seems fanciful to suppose that ‘deep’ resource and emission cuts can be achieved without confronting the nature and structure of market economies. In particular, we’re drawn inevitably towards the role of two inter-related features of modern economic life that together drive the growth dynamic.

On the one hand, the profit motive stimulates a continual search by producers for newer, better or cheaper products and services. This process of ‘creative destruction’, according to the economist Joseph Schumpeter, is what drives economic growth forwards. For the individual firm, the ability to adapt and to innovate – to design, produce and market not just cheaper products but newer and more exciting ones – is vital. Firms who fail in this process put their own survival at risk.

But the continual production of novelty would be of little value to firms if there were no market for the consumption of novelty in households. Recognizing the existence, and understanding the nature, of this demand is essential. It is intimately linked to the symbolic role that material goods play in our lives. The ‘language of goods’ allows us to communicate with each other – most obviously about social status, but also about identity, social affiliation, and even – through giving and receiving gifts for example – about our
feelings for each other.

Novelty plays an absolutely central role here for a variety of reasons. In particular, novelty has always carried important information about status. But it also allows us to explore our aspirations for our selves and our family, and our dreams of the good life.

Perhaps the most telling point of all is the almost perfect fit between the continual production of novelty by firms, and the continuous consumption of novelty in households. The restless desire of the consumer is the perfect complement for the restless innovation of the entrepreneur. Taken together these two self-reinforcing processes are exactly what is needed to drive growth forwards.

Despite this fit, or perhaps because of it, the relentless pursuit of novelty creates an anxiety that can undermine social wellbeing. Individuals are at the mercy of social comparison. Firms must innovate or die. Institutions are skewed towards the pursuit of a materialistic consumerism. The economy itself is dependent on consumption growth for its very survival. The ‘iron cage of consumerism’ is a system in which no one is free.

Government’s role
Government is in conflict with itself here. On the one hand, it has a role in ‘securing the future’ – protecting long-term social and ecological goods. On the other, government holds a key responsibility for macro-economic stability. For as long as macro-economic stability depends on economic growth, government will have an incentive to support social structures that undermine collective behaviour and reinforce materialistic, novelty-seeking individualism – particularly where that’s needed to boost high street sales.

Conversely though, freeing the macroeconomy from a structural requirement for growth will simultaneously free government to play its proper role in delivering social and ecological solutions and protecting long-term interests.

The narrow pursuit of growth represents a horrible distortion of the common good and of underlying human values. It also undermines the legitimate role of government itself. At the end of the day, the state is society’s commitment device, par excellence, and the principal agent in protecting our shared prosperity. A new vision of governance that embraces this role is urgently needed.

In fact, there is now a unique opportunity for governments in advanced nations both to demonstrate economic leadership, and at the same time to champion international action on sustainability. This process must start by developing financial and ecological prudence at home. It must also begin to redress the perverse incentives and damaging social logic that lock us into unproductive status competition.

Above all, there is an urgent need to develop a resilient and sustainable macroeconomy that is no longer predicated on relentless consumption growth. The clearest message from the financial crisis of 2008 is that our current model of economic success is fundamentally flawed. For the advanced economies of the Western world, prosperity without growth is no longer a utopian dream. It is a financial and ecological necessity.

TIM JACKSON is Professor of Sustainable Development at the University of Surrey in the United Kingdom. He is the author of a new, groundbreaking book, Prosperity without Growth: Economics for a Finite Planet (Earthscan).


December 7th, 2009 at 12:34 comment 1 Comment »

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Sender:         Carl-Fredrik
Comments: more people ought to read, even though it was quite tough to read that there isn't a practical way of prosperity without grwoth.