Economics: Prosperity NOT Growth

I recently rented a video called The Vow. Though it is ostensibly a love story, it has a message for all who are confronted with transformational change.  In the story, a young woman suffers a brain injury in a car accident.  The doctors keep her in an induced coma for a few weeks while her brain recovers.  When she emerges from the coma, she has lost any memory of the past five years of her life.  The significance of this is that those five years had been a complete break with her past brought about by her own deliberate choices and rejection of her earlier life.  Now, as her eyes blink open, she is back in her past life with no knowledge of the new life she had chosen, which included a husband and a whole new career as an artist.  All gone.

 As I thought about this, I saw the analogy with the issue of shifting from a society fixated on growth to one embracing sustainability.  When you are in the growth society, it is very hard to see how any other kind is possible.  What The Vow tells us, however, is that a person can break with the past and live a happy fulfilled life in an entirely different way.  But when that new life is violently wrenched from her memory, and she goes back to the old, she cannot understand how that new life was possible for her.  The point, though—and this is important—is not only was that new life possible, but she lived in it for five very happy years with no desire to go back to what she had before.

 Admittedly there is a huge difference between a single individual life and a whole society, but, be that as it may, I think the analogy is worth considering.  It may seem impossible for those of us who have known no other economic system than one based on continuous economic growth, to imagine life in a society where there is little or no economic growth.  However, if we made the deliberate choices to create such a society and lived in it for a while, it would become the new normal.  The younger generations who grew up in that society would have no direct experience of the growth society that we have known all of our lives.  The main issue, of course, is do those of us (several generations alive at the same time) who would have to make the choice for change believe that an alternative to the growth model is necessary and  possible?  If we do, and we are successful in pulling it off, we will have made a huge contribution to the future of humanity.  Hopefully, it would not then be wrenched away from our grandchildren by some future violent trauma, as it was for the young woman in the film.

 I pose these thoughts at the beginning of this post as I turn to detailed consideration of an economic system not based specifically on the kind of material growth in output and production that we have known, particularly since the end of World War II.  My point is that we have to think very deliberately about the specific features of such a society if transition to it is to avoid chaos.  To simply let it happen by hitting the wall of environmental limits or energy shortages some time in the near future would surely be the worst strategy of all—yet that is the one our political and economic leaders are currently choosing to follow, mainly, I believe, because they don’t see any advantage to themselves in embracing the necessary changes.

 The issues are very subtle, as I was reminded when I read a column by Craig McInnes in the Vancouver Sun on May 30, 2012.  Under the headline, “Anticipated labour: There will be plenty of work in the future when boomers retire,” McInnes states the not unreasonable conclusion that if a lot of older people retire out of the workforce that will leave a lot of room for younger people coming along behind.  However, listen to McInnes’ both implicit and explicit assumption in this quote from the article: “With more baby boomers nearing retirement than young people entering the labourforce, there will be fewer people available to fill the jobs that come open and the new positions that an expanding economy will create.” (I added the italics for emphasis).  That is the current assumption.  The economy will expand.  That’s economic growth.  But what if Jeff Rubin (whose work I reviewed fully in the previous post, “The End of Growth”) is right: that triple digit oil prices will prevent the economy from expanding?  Not only will those jobs envisioned by McInnes not be there, but many of the baby boomers will be holding on to the jobs they already have because their retirement income has not materialized.

 McInnes is right when he adds a qualification later in his column that “the only thing certain about the future is that it isn’t here yet.”  Very true.  However, we owe it to the young people who will be looking for meaningful work to do some hard thinking about what kind of economy and future they might best be living in.  That is where I am going in this post.

 The Road Not Taken

 Previous posts have described how mainstream macroeconomic models have left the natural world out of their description of how an economy operates.  Their main concern is to keep the economy running at full capacity by maximizing the flow of money and products with no serious concern about how that impacts on the depletion of natural resources or despoliation of the environment.  As long as the economy is going flat out and people are employed, that’s all that matters.

 In the last post I reviewed Jeff Rubin’s thesis that the growth nurtured by this kind of economic thinking was achieved only because energy (particularly oil) was cheap.  With oil over $100 a barrel that kind of growth will wind down, says Rubin, because it will not be affordable.  He speculates that industrialized economies might take a turn back towards the past and become a whole lot smaller.

 It’s possible that Rubin’s thesis might be confounded by the discovery of some other form of cheap energy, such as oil from algae in commercial quantities—just as we are currently seeing  a resurgence of cheaper energy courtesy of improved means of releasing natural gas from vast fields of shale around the world.  Currently lower oil prices that have nothing to do with production are also throwing a lot of energy forecasts out the window.  The energy game is hard to predict.

 However, if we regard the continuing availability of cheap energy as a blessing, our grandchildren are in for a hard time, because we are still heading down the road of non-sustainability.  The road not taken back in the 1970s was the road to sustainability, and that is the road we have to get back on, fast.  To do so we must shift economic thinking away from a pre-occupation with growth as a proxy for well-being.  We have to focus on the notion of prosperity and decouple it from the necessity for continuous economic growth.

Defining Prosperity

 To get started on this kind of thinking we need to be having good discussions within society about what it means to be prosperous.  Is it just about being well-off financially, having the trappings of the so-called “good” life, being able to buy the things that we believe make us happy?  If we can do all of those things today, but a huge part of the world’s population can’t do them, and our children and grandchildren are increasingly less likely to be able to do them because of our extravagance in using up their resources and despoiling their environment—if this is the case, can we say we are living in a prosperous society? 

 It seems we need to be just as thoughtful about the concept of prosperity as we need to be about the concepts of development and growth.  I have already argued for development as qualitative improvement rather than quantitative expansion (which is growth).  If we aim for development of this kind, can we argue that such a society would be prosperous, even if its GDP was not increasing?  I would answer “yes”—but I would have to clarify what I mean by prosperous.

 Tim Jackson in his book Prosperity without Growth (2009) is helpful in trying to think this through.  He uses an essay by Amartya Sen to provide some clarity.  Sen distinguishes between three ideas about prosperity with regard to “the living standard.”  One has to do with opulence, the second with utility, and the third with capabilities for flourishing.

 Prosperity as Opulence 

 Prosperity as opulence is about having a lot of material wealth.  It can be understood in terms of the concept of throughput discussed in previous posts.  Opulence is high throughput: continuing increase in the volume flow of commodities.  From this point of view, the more we have the better off we are.  Jackson points out that this kind of logic of abundance goes all the way back to Adam Smith in the 18th century: “In those days providing material commodities to meet the necessities of life was a priority.”

 However, once you have a lot of something, providing more of it has diminishing returns.  After all, how many strawberries can you eat, or how many cars can you drive, or how many homes can you live in?  How much more happiness do you get from each new increment?  It seems we need something better to guide us than the belief that more is better, that prosperity is just about opulence or abundance of material commodities.

 Prosperity as Utility

 Prosperity as utility brings in the notion of usefulness or meeting a practical, desirable purpose.  It shifts the focus from the quantity of goods to the satisfaction that they provide us.  Of course, satisfaction is hard to measure, so the economists’ answer is to say that price is the best indicator of satisfaction.  The price you are prepared to pay for something is an indicator of the satisfaction it will bring you—whether it is the latest iPhone, a new car, or an overseas holiday.  If you think the price is too high, you don’t buy it, because at that price it won’t bring you enough satisfaction to justify the expenditure.  Throughout society people everywhere are continuously making these kinds of price decisions, and if you add up all the purchases they make within the economy you get a total that economists call the Gross Domestic Product or GDP.  Here’s Tim Jackson on this point: “Broadly speaking it [GDP] measures the total spending by households, government and investments across the nation. Spending is taken as a proxy for utility [satisfaction].  And this, in a nutshell, is the case for believing that the GDP is a useful measure of well-being.” But there is a problem with this view.

 The Problem of GDP as a Measure of Well-Being

 GDP is essentially a measure of a nation’s economic growth.  In Canada, for example, the Federal government defines economic growth as “the expansion of the national income—the total production of the goods and services of a country over a given period.”  If there is no expansion, then economic growth can be negative, and that is usually considered to be a bad thing.  But the important question for us here is this: Is GDP as defined above a good measure of well-being within the nation?  If you say yes, then you will argue that the more economic growth you have the better off citizens will be.  But before you jump to that conclusion you should know something about what is and is not included in GDP.

 Peter Victor in Managing without Growth (2008) says that GDP is a poor measure of improvement in well-being because it includes many items that grow when things are or might be getting worse—like money spent on cleaning up pollution or fighting crime.  Of course, if by spending money on cleaning up pollution and fighting crime meant those things were getting better, that would be good, but increased spending on them usually means that they are not improving and probably getting worse.  If you want to be perverse about it, you could say the more pollution and crime you have the better off society is because spending money on dealing with them will increase the GDP.

 “Equally problematic,” Victor goes on to say, “is what is left out of GDP”—like voluntary work, unpaid housework, leisure time, damage to the environment and the depletion of natural resources.  What this means is that you could have a country running flat out with constantly rising GDP while it is using up its natural resources, destroying its ecosystems and spending massive amounts of money on cleaning up the messes it has created.  Does this sound like any country you know?  Is this a good measure of well-being, particularly for the now little ones coming along to live in the future of that kind of economic management?

 With such an odd mixture of what is included and excluded from GDP, one might wonder where the idea of using it as a measure of progress came from in the first place.  For those of us who have grown up hearing little else than constant quarterly reporting on the health of the nation as determined by GDP measures, we could be excused for believing that this preoccupation with economic growth has been around forever.  However, we would be wrong.  Peter Victor points out that “there is hardly a trace of interest in economic growth as a policy objective in the official or professional literature of western countries before 1950.”  Now, that’s an eye-opening piece of information!

 And where and when did this idea of measuring national income come from?  Victor says it came out of the economic depression of the 1930s and was given a boost during World War II when “knowledge of how much could be produced in economies working flat out was regarded as critical information for the conduct of the war.”

 So measures of GDP and their use as indicators of progress are a relatively recent idea.  This leads one to ask how well they have done, or, putting it another way, what do people say about how well-off, or happy, or satisfied they are as the GDP of their country has increased since the 1950s? 

 Here’s what Jackson has to say on this point: “If GDP really does measure utility [satisfaction], it’s a mystery to find that reported life satisfaction has remained more or less unchanged in most advanced economies over several decades in spite of significant economic growth.” (Emphasis added).

 Jackson includes in his book a very interesting figure, which displays how life satisfaction of individuals in many countries correlates with the GDP per person.  Here is the chart:

 What the chart shows is that after a GDP per person of about $15,000US reported life satisfaction does not increase much as GDP rises further.  That’s rather astonishing, don’t you think?  However, the chart displays another very important point, that at very low levels of GDP per person “there is a huge spread in terms of life satisfaction, but the general trend is a quite steeply rising curve.  A small increase in GDP leads to a big rise in life satisfaction.” (Emphasis added).

 These data underline one of the key messages Jackson wants to get across in his book, Prosperity without Growth (2009): We have to look at the concept of growth selectively.  There is good reason to want to enable poorer countries to expand economically and raise their GDP in order to raise life satisfaction of their citizens.  But on the measure of life satisfaction, there is no good reason for developed countries to continue to push to raise GDP.  In a finite world the developed countries need to make room for growth in poorer countries.

 What all this suggests is that for developed countries we need to be thinking about prosperity in terms of something other than an ever increasing GDP.  For such countries, Richard Heinberg in The End of Growth (2011) puts it bluntly: “Calculating a nation’s overall health according to its GDP makes about as much sense as equating the quality of a piece of music solely by counting the number of notes it contains.”

We should therefore turn to the third way of looking at prosperity outlined by Amartya Sen and discussed by Tim Jackson: Prosperity as capabilities for flourishing.

 Prosperity as Capabilities for People to Flourish

 It’s important to stress again that what we are talking about in this discussion of prosperity is communal well-being.  What kind of societies should we be aiming to build so that people living within them have the capability to flourish—to do well, feel fulfilled, be safe from persecution and threat of violence, have access to justice and fair treatment?  We all know the list and could add many more items.

 The question to ask is this: Are we likely to get these kinds of societies by equating well-being with individual self-aggrandizement and the pursuit of opulence?  Will we get there by forever expanding the economic base without taking into account the ecological limits within which everything we do is contained?  If we answer no to these questions, then we have to start thinking hard about how to change direction and radically shift the objectives of economic policy.

 For those of us thinking about the future and what lies in store for our grandchildren, Tim Jackson paints a stark picture: “(T)hose who hope that growth will lead to a materialistic Utopia are destined for disappointment.  We simply don’t have the ecological capacity to fulfil this dream.  By the end of the century, our children and grandchildren will face a hostile climate, depleted resources, the destruction of habitats, the decimation of species, food scarcity, mass migration and almost inevitably war.”  What makes this picture even more appalling is the realization that those in charge of the world’s economic and political future probably don’t have any illusions about where things are going for the general population.  They have the data, but for ideological or other reasons they choose not to act on the information, and focus on maintaining control over their personal access to wealth and power.

 For the rest of us, if we think that the future described above is the future our current economic policies are guaranteeing by default for our grandchildren, then the only real choice for us is to work for change.  “To transform the structures and institutions that shape the social world,” says Jackson. “To articulate a more credible vision for a lasting prosperity.”  In a small blog like this I can’t get into the myriad of details required to shift institutional behaviour, but I can sure have a shot at articulating the vision.

 Vision of a Prosperous Society

 Taking the cue from Tim Jackson’s argument that a prosperous society is one in which people have the capability to flourish, we need to engage in public discussion about what the conditions are for those capabilities to exist.  Surely at the top of such a list would be the confidence that the place where you live will continue to have throughout your life and the lives of your loved ones the physical attributes for life: a good supply of nutritional food at a price everyone can afford; an abundance of good clean drinking water; clean air and an environment free from contamination.

 When you understand that the requirements for the above physical necessities for life include the preservation of forests and maintenance of natural habitats for fish and wildlife, then you would look for signs that such conditions are well protected.  If you thought the weather patterns that have sustained life for thousands of years before you might be under threats that would cause them to change, you would want to see those threats addressed in very determined ways, even if it meant impinging on some so-called individual freedoms.

 On the social side we know a basic requirement for people to flourish is to have good affordable housing, which means designing an economic system that maintains a sufficient level of equality that no one is squeezed out of a basic entitlement to good shelter.  Opportunities to maintain good physical and mental health and having access to affordable health services when needed are important.  A well-run educational system is essential, where the focus is on the nurturing of students to learn the values, skills and knowledge needed to flourish in the larger society.

 In a prosperous society people will be proud of their democratic institutions and have confidence that political leaders understand the need to preserve and sustain local communities where people live, work and play.  Great store will be placed on fostering relationships of trust.  Meaningful well-paid employment is essential.  The ability to participate fully in the life of society that includes an understanding of obligations and responsibilities to others will be seen as the foundation of prosperity.

 A vision like this sets out a coherent notion of what a prosperous society is.  It focuses on the requirements for prosperity rather than defaulting to questionable assumptions that if people consume ever increasing amounts of material products life will somehow be good.  This is an intentional society, where children grow up knowing their responsibilities and obligations to serve the greater good.

 Are such societies possible? We know they already exist at least in part in many places around the world.  Can they be sustained in the face of ecological threats and a still increasing world population?  Can humanity as a whole raise its level of compassion to bring something like this level of prosperity to the places where we know people live in deprivation and oppression?

 To be able to answer yes to such questions requires us to address what Tim Jackson calls “an urgent need to fix the illiterate economics of relentless growth.”  How we might do that, to “manage without growth,” will be the subject of the next post.

This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s