07 November 2010

The Ecology of Growth

Reposted in full from the new economics foundation, 15 October 2010

'One of the few good things about the current financial crisis is the extent of serious soul-searching about the right way to deliver economic success. Britain has been among the worst-affected countries, losing perhaps five years of economic growth following the pricking of the credit bubble – predicted with precision by Ann Pettifor in her 2006 classic, The Coming First World Debt Crisis. Unemployment has soared, public-sector deficits have ballooned and a new age of austerity beckons. Business, politicians and the media are all calling for a rapid return to growth to create jobs, repair public finances and pay for a creaking welfare state.

Yet this regrowth option lacks conviction. It’s not just that finance – the vanguard sector of the last wave of growth – is still structurally challenged, or that debt-burdened consumers look unlikely to act as economic shock-troops once again. More profoundly, there is a dawning recognition that the growth model adopted by the industrialised countries over the past half-century no longer works. Our model of growth has simply become uneconomic, with more stuff not only failing to bring additional wellbeing in the so-called rich world, but also storing up impending environmental shocks, most notably peak oil and runaway climate change.

In his latest book, A Blueprint for a Safer Planet, Nick Stern calmly sets out the reasons why “high-carbon growth will eventually destroy itself”, as fossil fuel prices rise and the physical impacts of climate change start to bite. In spite of Copenhagen, a new economic race is under way: to deliver low-carbon growth. According to Climate Solutions 2 (a pioneering report on low-carbon industrialisation), some 20 clean energy, energy efficiency, low-carbon agriculture and sustainable forestry sectors will need to grow by 20–24% every year for the next four decades if greenhouse-gas concentrations are to be stabilised. Only three of these sectors are currently on track.

Yet one paradoxical outcome of the current economic crisis is the degree to which key governments have recognised low-carbon growth as one of the key routes out of recession. South Korea, for example, is investing 2% of its gross domestic product (GDP) over the next five years in its ‘green growth’ plan, with a clear intention to gain the economic and employment benefits of these emerging sectors.

Simply painting growth green doesn’t do the trick, however. We know that growth in GDP is a lousy measure of performance. It fails to distinguish between income and capital, thereby enabling both the liquidation of natural resources and the build-up of unsustainable levels of credit to be treated as growth. It fails to capture the social dimensions of economic activity, thereby enabling vast gulfs in inequality to be masked by per capita statistics. And it takes market valuation of prices as its touchstone, something that the credit crunch has taught us to be deeply wary of.

Tim Jackson’s Prosperity without Growth is perhaps the most elegant exposition of a route out of this maze. The spectre of growth has haunted environmentalism since the publication of The Limits to Growth in 1972, with sustainable development emerging in the 1980s as an uneasy way of reconciling economic expansion, social justice and environmental resilience. Jackson helps break through some of the entrenched positions that have encumbered this debate, by placing his attention squarely on the ends of economic activity: expanding our capabilities for flourishing as human beings. Growth in incomes and consumption still remains an important component of such prosperity for most of the world’s peoples. But Jackson questions whether growth is still “a legitimate goal for rich countries”, for reasons of human happiness as much as ecological necessity.

Jackson challenges the belief of technological optimists that strong policies can effectively decouple growth from environmental impacts. Taking climate change as a case in point, he demonstrates that average global carbon intensity would need to be 130 times lower by mid-century to meet climate goals in an equitable world of steady population and economic growth – falling from around 770 grams of CO2 per dollar of output today to just 6 grams by 2050. The apparent absurdity of this scenario should not cloud our minds to the theoretical possibility of this ‘super green growth’ scenario. As Paul Ekins has argued, “the sacrifice of the environment to economic growth is not ineluctable”.

Jackson’s focus on an extended notion of prosperity means that he is at least as interested in the weakening connection between rising incomes and wellbeing as he is in environmental limits. A range of international surveys show that beyond an annual income level of US$15,000 per head, life satisfaction barely changes between countries with quite different levels of GDP. There appears to be a clear point beyond which extra income does not deliver extra wellbeing.

In their inspirational book The Spirit Level, Richard Wilkinson and Kate Pickett argue that “we have got close to the end of what economic growth can do for us” in terms of quality of life. Within the industrialised world, it is income inequality rather than absolute levels of GDP that explains differences in a range of health and social outcomes (such as trust, the status of women, mental health, drug use, educational attainment, murder rates, life expectancy and obesity). And inequality even constrains the time we have to ourselves: “People in more unequal societies do the equivalent of two to three months’ extra work a year. A loss of the equivalent of an extra eight or twelve weeks’ holiday is a high price to pay for inequality.”

If growth is to be dethroned as the primary goal of policy in the rich world, what should take its place? Jackson’s book is a brave attempt to develop a new ecological macro-economics, setting out a framework for scaling up investments in resource efficiency, clean technologies and ecosystem enhancement. Just as the welfare state of the 20th century – with its investments in health and education – laid the foundations for today’s knowledge economy, then investing in the quality of our natural resource base will form the basis for the next wave of innovation, employment and, yes, growth.

Rich countries dedicate at least 15–20% of their GDP on investments in human capital through spending on health and education; absurdly, spending on the entire environmental foundation of our wellbeing is less than a tenth of this. The problem with current discussions of the green economy is not that the proposals are too expensive, but that they are not expensive enough as a share of economic output.

The task of confronting the human costs of growth has barely begun, however. For Wilkinson and Pickett, this means consciously focusing on reducing inequality as a way of improving wellbeing for everyone. For Jackson it also involves dismantling the culture of consumerism (for example, through controls on advertising). Perhaps the clearest strategy of all comes in the new economics foundation’s The Great Transition, ably supported by its subsequent reports Growth Isn’t Possible and 21 Hours, its call for a 21-hour working week.

One of the great failures of the past three decades has been how the enormous improvements in labour productivity generated from new technology have been reaped by a very small part of the population, increasing inequality and stress. Cutting the amount of working time is a way of sharing these benefits, breaking the cycle of work and spend, and liberating that most non-renewable of resources, time: for family, friends and sheer enjoyment.

What is refreshing about this crop of books is the shared confidence that an economics that puts growth in its place will be more prosperous, healthier and sustainable. Some of the specific recommendations may not be especially new, but taken as a whole, a clear strategy for social and environmental transformation is starting to emerge. As T.S. Eliot wrote in Little Gidding in the middle of the Second World War, “we shall not cease from exploration, and the end of all our exploring will be to arrive where we started and know the place for the first time”.'

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