Economics: Managing Without Growth

 

For several posts now I have been weaving my way through the story of how economics is a driver of human destiny.  We have traversed the territory between the early days of capitalism as described by Adam Smith in the 18th century, when the world was rich with seemingly unlimited natural resources and the technologies of industrialization were breaking the rich horde open for human exploitation, through to the 21st century, when the shine is off the apple and we are staring into what could be a future of diminishing returns.  We know  from history  and archeology that past civilizations have been this way before us—the Egyptians, the Greeks, the Romans, the Mayans—all reaching great zeniths of wealth and power, then falling away as the combination of factors that had sustained them no longer worked so well.

So it was then.  Is it to be this way for us?  The answer would seem to be a qualified yes, for now there is one huge difference.  Those past civilizations rose and fell within bounded territory.  Other civilizations came after them, taking the best of their knowledge and refashioning it into a new orbit of power in another part of the world.  Today we are talking about the faltering of a worldwide industrial civilization so intimately interconnected that if they sneeze in China we catch cold in North America.

 Shakespeare said it well, writing in another context, when Brutus was contemplating his prospects for the future in a last ditch battle against Octavius Caesar:

 “There is a tide in the affairs of men: which, taken at the flood, leads on to fortune: omitted, all the voyages of their life is bound in shallows and in miseries.  On such a full sea are we now afloat, and we must take the current when it serves, or lose our ventures.”

 The tide is turning for industrial civilization, and national economies must position themselves for a different kind of future.  They are still afloat on a full sea of accumulated wealth, knowledge and power, but if they fail to see that the factors that made all this possible are now fundamentally and forever changed, they can strand all of humanity in the shallows of desperation and despair.

 The Fifth Great Turning

 Richard Heinberg writing in The End of Growth (2011) puts our current situation into historical perspective.  He describes it as the “fifth great turning in human history.”  The first was the harnessing of fire nearly two million years ago.  The second was the development of language.  Third was the agricultural revolution 10,000 years ago.  Fourth, the industrial revolution, only about two centuries old, liberated the energies of fossil fuels precipitating exponential economic growth, an explosion of scientific research, and a seven-fold expansion in human population.

“Now we are participating,” says Heinberg, “in the turning from fossil-fueled, debt-and-growth-based civilization toward a sustainable, renewable, steady-state society.”  But this turning is being massively contested by the governing authorities in all of the nations because it is perceived as a contraction—which indeed it is, and must be, in terms of quantitative output.  But it need not be a contraction in terms of qualitative improvement in the way human beings live together on the planet.  There, it could be a blossoming of unparalleled achievement, but only if we get it right and learn to manage without the need for economic growth.

 Between Two Worlds

James Gustav Seth, Dean of the School of Forestry and Environmental Studies at Yale University and founder of environmental institutions over the past four decades, describes our situation as being “between two worlds.”  His 2008 book, The Bridge at the Edge of the World, is, in the words of fellow environmentalist Bill McKibben, “an eloquent and no-holds barred brief for change large enough to matter.”  As an environmentalist Seth is gravely concerned about the ecological destruction that has already occurred across the planet.  “Behind is the world we have lost, ahead the world we are making.”  Put that way, unless we are so ideologically or selfishly blind that we can appreciate nothing about the severity of the human situation, we are forced to consider and re-consider and re-consider again everything and anything we might be doing that will produce a world ahead in more difficulty than where we are now.  It is the same point made by Bill McKibben in his book, Eaarth (2010), in which he changed the spelling of our planet’s name to signify that already it is no longer the bounteous planet we inherited only a few generations ago.  Seth is profoundly disappointed that the efforts of environmentalists over several decades have come up short in improving the prospects for the future.  They have failed to impact “the underlying forces driving such destructive trends and the economic and political system that gives those forces free rein.”  In his book Seth sets his sights on what he calls “modern capitalism” as the “operating system” that has produced “an economic and political reality that is highly destructive of the environment.”  I can do no better than to let Seth describe what he sees in his own words:

“An unquestioning society-wide commitment to economic growth at almost any cost; enormous investments in technologies designed with little regard for the environment; powerful corporate interests whose overriding objective is to grow by generating profit, including profit from avoiding the environmental costs they create; markets that systematically fail to recognize environmental costs unless corrected by government; government that is subservient to corporate interests and the growth imperative; rampant consumerism spurred by a worshipping of novelty and by sophisticated advertising; economic activity so large in scale that its impacts alter the fundamental biophysical operation of the planet—all combine to deliver an ever-growing world economy that is undermining the planet’s ability to sustain life.”

In that one paragraph Seth hits all the drivers that are destroying the future of our grandchildren: unwavering commitment to economic growth; investment in destructive technologies for profit; corporatism blind to everything but its own self-interest; markets that fail to give the right signals; governments subservient to corporate interests; misguided consumerism distorted by irresponsible advertising; and a world economy  so large in scale that it is overwhelming the ecological limits of the planet.  At the end of his sweeping indictment, Seth bluntly describes the dilemma facing industrialized society and asks the hard question underlying much that I am writing in this blog: “The fundamental question becomes one of transforming capitalism as we know it.  Can it be done?”

 A No or Low Growth Alternative

Put in the stark terms in which Seth has described modern capitalism, the answer to his question seems less than hopeful.  The sorry mess is so tangled and the players so intransigent that they seem certain to take themselves and all of us along with them to perdition.  But what if you ask the question another way?    What if you take one of the central givens of capitalism, namely, that the economy must grow in order for society to be successful, and sort out the factors on which that assumption is based, then recombine them theoretically in different ways so that the end result is no growth or low growth?  Would that give you some ways to think about other options for the future than would seem possible from Seth’s stark assessment of capitalism’s failures?

This is what Peter Victor, a Canadian economist in York University’s Environmental Studies, has done and reported the outcome in his 2008 book, Managing Without Growth.  After concluding that “economic growth in Canada since around 1980 has not eliminated unemployment or poverty” and “has exacerbated . . .environmental problems,” Victor asserts that “growth is a clumsy way to meet important social, economic and environmental objectives . . . Canada and other rich countries can keep pursuing it, but the global biophysical constraints increasingly in evidence  will just make it harder for poorer countries to get their share.”

Victor then asks several important questions: “Is there an alternative for a country such as Canada?  Could we manage without growth or with a much slower rate of growth?  Could we make a significant contribution to improving the global environment and leave room for poor nations to improve their living standards without giving up the goals of abolishing unemployment and poverty at home?”

LowGrow: An Interactive Computerized Model of the Canadian Economy

Victor and his associates addressed the above questions by building a computerized model of the Canadian economy and running several alternative scenarios.  This is the strength of computer models.  You can look at the possible outcomes of different policy options in a rigorous way before you try them out in the real world. Victor points out that when economists like E.F. Schumacher (1973) and Herman Daly (1996), whose insights I have referred to in previous posts, questioned the desirability and feasibility of continual economic growth, they did so “without the use of a formal, explicit model of a modern economy.”  They were therefore unable to make their case by manipulating quantitative information in interactive ways.  Computer modelling was used by Dennis Meadows and his colleagues in their work on Limits to Growth (1972), but their model was based on systems theory rather than economics, and this was one reason why their conclusions (which showed the likelihood of economic collapse in the early 21st century if economic growth was continuously pursued) were met with vigorous disapproval from economists.

Victor, by contrast, uses a quantitative model based more squarely on standard economic theory and practice.  It is called LowGrow.  It is designed to make it easy to explore different assumptions, objectives and policy measures.  For example, what happens to factors like green-house gas emissions, unemployment and poverty, if you project Canadian GDP per capita to rise at an average annual rate of 2.5 percent to 2035—as compared to what happens if you reduce growth by manipulating such other factors as investment, productivity and government expenditures?

There are, of course, a whole range of assumptions built into such models, and they can be, and are, criticized by the dictum “garbage in, garbage out.” Nevertheless, mathematical models like these are widely used by different agencies in making economic projections we hear every day on the daily news.  The difference with LowGrow is that Victor and his colleagues used it to explore territory where other economists and the politicians who follow them refuse to go.

In his book Victor reports on several different scenarios produced by their model.  One was Business as Usual (continuing with the same pattern as for the previous 25 years), another was No Growth, and the others were variations of Low Growth followed by No Growth with different policy initiatives.

To cut a long story short, this is what they found:

    ·   If business as usual continues to 2035, GDP per capita will more than double over the base year of 2005, while green-house gas emissions go up by 77 percent; unemployment increases from 7.2 percent to 8.8 percent; and poverty increases by 36 percent.  In short, Canada is richer, but no better off in eliminating unemployment and poverty and has made conditions for climate change much worse than they were in 2005.

    ·  The business as usual model is not a good option and almost certainly would not be allowed to happen in the real world anyway.  But if a sudden switch is made to no growth the outcome is much worse.  In fact, it is disastrous: unemployment shoots up to 25.7 percent and poverty more than doubles.  The good news is that green-house gas emissions go down, but that would likely be seen as a poor achievement in the face of so much economic and social misery.

    ·   As Victor points out, there are major hazards in deliberately and drastically slowing the rate of growth in an economy such as Canada’s.  “But the outcome is a lot better if a reduced rate of economic growth (Low Growth) is cushioned by using the government’s tax and expenditure system in various ways.  In subsequent runs of the computer model, the best result is obtained when a variety of measures under the control of government are introduced, such as reduced hours in the work week, increased government expenditures on educations and health care, reduction of corporation tax, and introduction of a green-house gas tax on emissions.  In this scenario unemployment falls to 4 percent, the poverty index drops by 50 percent and green-house gas emissions are reduced by 30 percent below 2005 levels. Certainly a lot better outcome than by pursuing business as usual with an emphasis on economic growth no matter what.

Victor is quick to point out that we should not rely too much on the specific numbers that come out of models like this.  There are too many variables in the real world that no one can anticipate that would change the numbers.  However, the real value of a model like LowGrow is “the insights we gain into our current and possible future circumstances and the ideas we might develop for solving problems for ourselves and others.”  How much better is this than flogging some outworn ideology of “growth no matter what,” or back-of-the-envelope calculations as a basis for economic policy!

Slow Down by Design, Not Disaster

In the concluding chapter of his book Victor explores many policy alternatives that might be considered on the basis of the outcomes developed by the LowGrow computer model.  In the end, however, it comes down to what a well-informed public would choose as the future.  Policy changes around living more simply, purchasing locally, enhancing communities, investing in activities that improve the quality of life rather than increased material consumption—these kinds of policies “must be wanted and demanded by the public because they see a better future for themselves, their children, and the children of others.”  Policies for managing without growth require dramatic changes in mindsets and societal values.  No democratically elected government could implement the required policies without broad-based public support.

“There are indeed feasible economic alternatives,” says Victor, “but getting to them will be beyond us unless we change how we think . . . and develop a readiness to rethink and transform much of what we have come to take for granted.  If we can do that, then we may indeed, slow down by design, not disaster.”

A New Operating System

Having heard from Peter Victor, and seen what possibilities exist for humanity “to slow down by design,” let’s go back to James Gustav Speth.  His concern, you will recall, is that “modern capitalism” as the operating system of industrialized society is broken.  Its inability to live within limits and sustain the environment is perhaps the biggest threat to its future.  His question, where we left him, was: Can capitalism as we know it be transformed into an operating system for sustainability?

In seeking an answer he surveys the work of many writers and eventually zeroes in on the issue of who owns and controls the means of production as being the key determinant of the future of capitalism.  The debate should no longer be around the emotionally charged dichotomy: capitalism versus socialism.  That gets us nowhere.  Rather, he suggests that we might see new patterns of ownership—such as employee ownership, co-operatives, public trusts—begin to erode the current dominant model, particularly in America, of private ownership.  Other patterns of ownership would include pension funds, municipal development corporations, charities and non-profit organizations.  Many examples of such non-private enterprises already exist.  “Collectively they signal the emergence of a new sector—a public or independent sector—that has the potential to be a countervailing center of power to today’s capitalism.”

When the Politically Impossible Becomes Politically Inevitable

Speth is by no means sure that the changes in capitalism that he sees to be necessary will in fact take place before things are so bad that even the most intransigent opponents will see that a new direction must be taken.  In that regard he quotes an unlikely source for an important point to keep in mind.  Milton Freidman, an economist from the so-called Chicago School of the 1960s was one of the chief architects of monetarism, an economic theory that favours control of the money supply and fiscal prudence, as opposed to the ideas of British economist, John Maynard Keynes, who argued in the 1930s that governments should use their powers of expenditure and taxation to regulate the level of spending in the economy and thereby maintain full employment.

It is not my intent here to discuss the relative merits of Keynesian economics and monetarism.  Both have been found wanting on the main point being raised in this post.  Both relied on continuously rising economic growth as the chief measure of progress in society throughout most of the 20th century, and that policy imperative is what is driving industrial societies towards economic and environmental collapse in the 21st century.  New ideas are now needed.

However, the reference to Milton Freidman by James Gustave Speth was not in reference to Friedman’s monetary theory, but rather to this notable statement:

“Only a crisis—actual or perceived—produces real change.  When the crisis occurs the actions that are taken depend upon the ideas that are lying around.  That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.”

Clearly the world is now running headlong into crisis and the writers I am reviewing in this blog are contributing a valuable set of ideas that are already “lying around” waiting for political leaders to seize them.

Managing Contraction, Redefining Progress

Another writer with many ideas to contribute, who also references the Friedman statement above, is Richard Heinberg.  He comes at humanity’s predicament from the perspective of “peak everything”—the world running out not only of cheap energy from fossil fuels, but also of many of the natural resources on which our current consumptive lifestyles depend.  This concern led him, with some trepidation, to tackle the issue of growth in his best-selling book of 2011, The End of Growth.  (He used this title before Jeff Rubin gave the same name to his latest book, which I discussed in Post #17). 

Heinberg focuses for much of his book on the failure of the financial system to bring stability and sustainability to industrial society.  I will be discussing this topic in detail in following posts and reviewing the work of several other writers who see reform of the financial system as a necessary precondition to sustainability.  In closing out this post on “Managing Without Growth,” I would, however, like to share some of Heinberg’s insights on what can be done to improve prospects over what they might otherwise be.  He sees no alternative to abandoning economic growth as a driver, but argues that “economic contraction need not entail catastrophe and sorrow if the process is managed well.” (Emphasis in the original). 

Besides specific financial reforms in how money is created and spent into society, Heinberg argues along with Tim Jackson, whose work I reviewed in Post #18, “Prosperity NOT Growth,” that humanity has to redefine its sense of what constitutes progress.  Instead of measuring economic growth, we need to be measuring economic well-being.  The Genuine Progress Indicator (GPI) is one such measure developed in the 1990s in California.  It takes into account such undesirable factors as environmental damage and income inequality as well as giving recognition to the value of voluntarism, housework and leisure time.

Another measure is Gross National Happiness (GNH) developed by Canadian epidemiologist Michael Pennock and based on the concept that comes out of the tiny Himalayan country of Bhutan.  It looks at factors such as time use, psychological well-being, community vitality, culture, health, education, and ecology.

The Happy Planet Index (HPI) is another measure developed by Britain’s New Economics Foundation to show “that it is possible for a nation to have high well-being with a low ecological footprint.”  Needless to say, the “developed” countries of the world with their consumptive lifestyles do not do very well on the Happy Planet Index.

In summarizing all of these efforts and more to redefine progress, Heinberg says: “But at this moment in history, as GDP growth becomes an unachievable goal, it is especially important that societies re-examine their aims and measures.  If we aim for what is no longer possible, we will achieve only delusion and frustration.  But if we aim for genuinely worthwhile goals that can be attained, then even if we have less energy at our command and fewer material goods available, we might nevertheless increase our satisfaction in life.”

Let us keep such sentiments in mind as we consider in subsequent posts other factors that keep driving industrial society along the road of non-sustainability.  We can get on the other road, the road not taken, but it will take a supreme effort of human will, along with some clear-headed ideas about what can be done—ideas that need to be “lying around” for policy makers and our grandchildren to seize on when the going gets really tough in the years ahead.

 

 

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2 Responses to Economics: Managing Without Growth

  1. Geraldine Schwartz says:

    Thank you as usual for the invaluable synthesis of ideas that allows your readers to think creatively about what can be done with knowledge rather than conjecture. As I read about low growth with intention, I wonder about strategic growth or smart growth. In my work in Education I see so much waste of everything: of time, of busy work, of wrong-headed approaches in teaching reading, for example, based on ignorance of the most basic science, on political unwillingness to be open to more effective approaches, etc. Smart growth could produce incredible gains in every field of human endeavor, but intransigent thinking prevents it from taking hold. Somehow, our cultural norms build in mediocrity. We appear scared to death of excellence, especially excellence in thinking. Yet in every nation and field, good ideas abound that would strategically make a difference. Someone should write a book about that, which would be required reading by every educator, every politician, every economist, and every thinking person on the planet. Then you could write about it, and have a more positive response to the questions about the future. Thank you again for the profound insights and the education you are providing.

    Gerri

    P.S. To see a perfect example of smart growth read Elizabeth May’s essay http://www.elizabethmaymp.ca/news/publications/island-tides/2012/09/20/the-good-things-that-are-happening/

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