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The global financial crisis, climate change, poverty and BP: the extent of the problem is clear. But what is the best way to solve it? This was the question asked at the first Steady State Economy Conference held in Leeds on June 19.
The conference was organised by Economic Justice for All (EJfA), a Leeds economics and sustainability debating group and the Center for the Advancement of the Steady State Economy (CASSE), with the aim of coming up with some concrete policy recommendations.
“If the leaders of the main political parties in the UK are not thinking seriously about an alternative to economic growth, then we the people must urgently start and develop the discussion,” Dr Lorna Arblaster, of EJfA, explained.
It was a discussion that was urgently needed. The conference attracted over 250 academics, economists, community organisations, activists, NGOs and business people who played as much a part in making the day a resounding success as the keynote speakers: Peter Victor, author of Managing Without Growth and Professor in environmental studies, York University, Canada; Andrew Simms, Policy Director at nef; Dan O’Neill, European Director of CASSE; and Tim Jackson, author of Prosperity Without Growth and professor of sustainable development, University of Surrey.
Peter Victor opened the conference by challenging our “fear of a no growth disaster” and reminding us that until 1950 there was no discussion of economic growth as something to strive for.
“Can we have full employment, no poverty, fiscal balance, and reduced greenhouse gas emissions without relying on economic growth?” he asked. “You bet!” was his resounding reply, which he backed up with a detailed computer model.
Participants were then asked to put forward alternative policy recommendations in expert-led workshops on how this could be done in the UK.
These included eight policy-focused workshops: limiting resource use; stabilising population; reforming the monetary system; maintaining low unemployment; distributing income more fairly; changing business practices; measuring quality of life and achieving a successful UK transition within a globalised economy, as well as two process workshops: changing consumer behaviour and engaging politicians and the media.
Well-being and work-life balance were key themes of the day as was reconnecting with ourselves, reconsidering what it means to be human and deciding what we really want from our lives. And as Andrew Simms reminded us, not forgetting to have fun.
The conference was just the start. The ideas and proposals which were discussed in the workshops will be collated into a manifesto, which will outline how to achieve a steady state economy in the UK and will form the basis for the movement’s next step.
So what of Leeds now that the steady state caravan has left? There’s a buzz in the city; people who missed the conference feel that they’ve lost out and others who had never heard of a steady state economy have seen the local media coverage. With all the crises and government cuts they may even be starting to question whether there is another, better way.
There are two rather encouraging things about Julian Huppert, the new Liberal Democrat MP for Cambridge. First of all, he’s got a Ph.D in biological chemistry, making him one of the few MPs with experience of science and hence a likely advocate of heeding scientific warnings on climate change and other environmental issues, no matter how inconvenient to politics. Second, Huppert’s maiden speech to the House of Commons yesterday contained these wise words:
…economic growth is not all that we should care about. We know that economic growth can lead to environmental damage, but the issue is broader than just that trade-off. We are too fixated on GDP, and make too much of whether it has gone up or down by 0.2%. It does not measure the things we ought to care about – education, health, or well-being. If there is an oilspill off the coast, which we then clear up, more or less well, GDP has increased, but I’m not sure any of us would be delighted with that outcome.
We need to focus more broadly on personal issues such as well-being and happiness. We need to develop rigorous metrics to measure this wellbeing throughout society, and then ensure that we bear them in mind when developing policy. For we already know a lot about well-being – it doesn’t change much with income, above a figure of around 7,000 pounds per annum. It changes with the quality of the environment, with the number of friends and other social bonds we have, with the activities we get involved in, with family and with community.
His words bring to mind those of Robert F. Kennedy, the celebrated US Senator and civil rights activist, when he addressed the University of Kansas in 1968. In fact, it was Kennedy’s words that inspired nef to develop National Accounts of Well-being, the first comprehensive international analysis of personal and social well-being. In other words, exactly the kind of rigorous metrics that Dr Huppert rightly calls for.
We agree that when making policy, a broad account of flourishing — including autonomy, meaningful activities and strong relationships — is more useful than a narrow focus on happiness, which risks denoting merely momentary or passing pleasures (“The end of government”, leading article, Mar 27). But given the wide range of influences on our experiences of life, government policy — however it is shaped — will inescapably affect our wellbeing, for good or for ill.
This is very far from “forcing people to be happy”. The findings of an established body of research suggest that current policy, focused beyond all else on stimulating economic growth, crowds out from daily life the activities known to lead to wellbeing: connecting with others, learning new skills or giving our time.
Gauging government success, according to National Accounts of Well-being, would provide the incentives to create policy firmly focused on improving the lives of UK citizens. Our research, first published last year, shows how wellbeing, understood as a multifaceted, dynamic concept, could be robustly and systematically measured.
The inventors of gross domestic product (GDP) never intended it to become the compass that guides all policymaking. Today’s environmental crisis makes the shortcomings of GDP all too clear: it rises when forests are cut down or when money is spent cleaning up an oil slick. With both our natural and social support systems being pushed to breaking point, finding a better measure of progress has never been more urgent.
Juliet Michaelson and Saamah Abdallah
Centre for Wellbeing
nef (the new economics foundation)
The weekend papers reported that Vince Cable is in talks with HM Treasury about becoming Chancellor in the event of a hung parliament. Cable has been widely touted as the most trusted politician in the country, and would most likely to be a progressive choice for Britian’s economy, given his support for policies such as the Post Bank and the Robin Hood Tax.
But would Vince ever take the most radical step of all, and question whether economic growth is really the best compass to guide the progress of nations?
Sadly, it seems not. Speaking at a confrence last week, Cable took a swipe ‘environmentalists who advocate de-growth’. Explaining why environmental issues have slipped down the list of public priorities in recent months, the Shadow Chancellor for the Liberal Democrats said:
well, we’ve got zero growth in fact, we’ve got minus growth and it isn’t very nice. And I think people somehow wised up to this idea that all this puritanical non-consumption of resources we were being told was a good thing is actually really rather painful if you’re one of the people who was losing your job in the process. So recession has played very badly in terms of its environmental impact.
(Thanks to @adanylkiw for the transcript)
Herman Daly, professor of economics at the University of Maryland, is one of the very few voices within the economics profession who has the audacity to question the pursuit of economic growth at all costs. Of course, it wasn’t always that way: John Stuart Mill and John Maynard Keynes both thought that after a period of growth, economies would eventually reach a point of dynamic equilibrium. Professor Daly has just made his first excursion into the blogosphere with the brilliantly titled Daly News from CASSE, the Centre for the Advancement of a Steady-State Economy.
The term “economic growth” has two distinct meanings. Sometimes it refers to the growth of that thing we call the economy (the physical subsystem of our world made up of the stocks of population and wealth; and the flows of production and consumption). When the economy gets physically bigger we call that “economic growth”. This is normal English usage. But the term has a second, very different meaning – if the growth of some thing or some activity causes benefits to increase faster than costs, we also call that “economic growth” – that is to say, growth that is economic in the sense that it yields a net benefit or a profit. That too is accepted English usage.
Now, does “economic growth” in the first sense imply “economic growth” in the second sense? No, absolutely not! Economic growth in the first sense (an economy that gets physically bigger) is logically quite consistent with uneconomic growth in the second sense, namely growth that increases costs faster than benefits, thereby making us poorer. Nevertheless, we assume that a bigger economy must always make us richer. This is pure confusion.
That economists should contribute to this confusion is puzzling because all of microeconomics is devoted to finding the optimal scale of a given activity – the point beyond which marginal costs exceed marginal benefits and further growth would be uneconomic. Marginal Revenue = Marginal Cost is even called the “when to stop rule” for growth of a firm. Why does this simple logic of optimization disappear in macroeconomics? Why is the growth of the macroeconomy not subject to an analogous “when to stop rule”?
Professor Daly has contributed to nef‘s Other Worlds are Possible and wrote the foreword to National Accounts of Well-being. Read nef‘s own critique of economic growth in Growth Isn’t Possible and Growth isn’t Working.
Hat tip to Jeremy Williams for spotting this.
The notion that growth cannot continue indefinitely is still a young idea. Yes, it’s been around since the 70s, with the book The Limits to Growth. But it’s had little resources to really develop answers to the challenge of how to achieve a successful economy that does not depend on growth. Duncan Green, Head of Research at Oxfam GB, has written a blog criticising a recent event on Rethinking economic growth (also see my blog on it) which nef supported last month. He obviously agrees with the alarm call (that growth is not sustainable) – you can see that in his presentation of his to the Quakers Zero Growth Economy conference last year. But Duncan seems to expect solutions to these problems already and was disappointed at the scarcity of them at this event.
I shan’t attempt to stand up for all the speakers, but I would suggest that two of their publications at least (Tim Jackson’s Prosperity without Growth and nef’s Great Transition) do start to touch on some of the solutions to what is very admittedly a difficult problem. André Reichel’s suggestions for companies that do not require constant throughput of material production were also real practical solutions. Here are three parts of the solution. Just three:
- Steadily reducing working hours. Increases in labour productivity have typically meant that economic growth is required to keep steady employment. If productivity gains were taken as more free time, this would resolve this challenge. Take a look at our new report, 21 hours.
- Re-structured ownership. An economy dominated by shareholders who only take a stake in firms so as to make a quick profit is driven relentlessly to growth (see the work of Mathias Binswanger on this). It doesn’t have to be like this. Many forms of ownership, including small family businesses, co-operatives, communities, and the state, are not predicated on ever increasing returns on investment.
- Re-focussing measurement. Of course I mention that partly because at the centre for well-being we’ve been working on alternative measures of progress such as the Happy Planet Index and how they might help shift us away from the folly of the constant pursuit of growth. But also, Duncan himself has highlighted this as a key part of the shift away from a growth focussed economy.
Of course, these three solutions alone won’t solve all the world’s problems, and of course there are many interests who would oppose such changes, but they’re a start. More research is needed to better understand how a no-growth economy would work. And more advocacy is needed to promote the ideas around a stable economy. But until recently, this is not been something that big money was likely to get behind. However, things are beginning to change and there are signs of some forward thinking governments starting to invest in exploring alternatives to growth. Maybe then we’ll be able to have a few more answers for the man from Oxfam.
Like a patient waiting for hospital scan results, this week the government nervously anticipates new growth figures for the economy. Any sign of an increase and relief could quickly lead to self-satisfaction about its handling of the recession. Approving nods may be seen later this week in Davos at the World Economic Forum. Why? Because among political and business classes, growth, measured by rising GDP, is considered always a “good thing”. But is it?
The banking crisis taught us that when things look good on paper, if the underlying accounting system is faulty, it can conceal high risk and imminent disaster – as Jared Diamond put it in Collapse, his book about societies throughout history that fell by wrongly estimating the resilience of their environmental life-support systems. What looks like wealth might just be a one-off fire sale of irreplaceable natural capital. Ecologically speaking, he writes, “an impressive-looking bank account may conceal a negative cashflow”.
To avoid collapse the economy has to operate within thresholds that do not critically undermine the things that we depend on on a daily basis. They’re often interconnected, like a sufficiently stable climate, productive farmland, fresh water and a healthy diversity of plants and animals.
On climate change, a new piece of research by the New Economics Foundation thinktank looks at which rates of global economic growth are compatible with prevention of a dangerous level of warming.
It shows that, even with the most optimistic likely uptake of low-carbon energy, it is seemingly impossible to reconcile a growing global economy with a good likelihood of limiting global temperature rise to 2C, the agreed political objective of the European Union, and widely considered the maximum rise to which humanity can adapt without serious difficulty.
In this context, Adair Turner, chair of the Financial Services Authority and the Committee on Climate Change, refers to the pursuit of growth for its own sake as a “false god“. Other work by Professor Kevin Anderson of the Tyndall Centre for Climate Change Research at Manchester University concludes that: “Economic growth in the OECD cannot be reconciled with a 2C, 3C or even 4C characterisation of dangerous climate change.”
The problem is that growth drowns out the gains from increased efficiency and technological innovation. The New Economics Foundation study looks at by how much growth would need to be delinked from fossil fuels – the so-called carbon intensity of the economy – to reach the mark of climate safety suggested by Nasa climate scientist James Hansen.
Having improved steadily in the late last century, “carbon intensity” changes flatlined over the last decade and even worsened in some years. Against this trend, to avoid dangerous climate change the fall in carbon intensity would need to improve by more than two hundredfold. The economic doctrine of growth collides headlong with the laws of physics and thermodynamics. Only so much energy efficiency can be squeezed from a system. The other problem is the counter-intuitive rebound effect spotted by William Stanley Jevons in 1865 when he wrote, “It is a confusion of ideas to suppose that the economical use of fuel is equivalent to diminished consumption. The very contrary is the truth.” Increased efficiency tends to lower costs and perversely drives up overall resource use.
Writing in the science journal Nature last year, a multidisciplinary group of scientists identified nine key safe-use planetary resource boundaries, three of which had already been transgressed (climate change, biodiversity and the nitrogen cycle to do with farming). We are on the cusp of several others.
So, this week, if you find yourself cheering a return to growth, you may be inadvertently celebrating our acceleration toward an ecological cliff edge and an opportunity missed to find a new, better direction. For example, the economist Herman Daly points out that full employment could be easier to achieve in an economy not addicted to growth because it would reverse “the historical trend of replacing labour with machines and inanimate energy”.
Both the desirability and possibility of never ending growth goes unquestioned in mainstream economics. It’s odd, because the world would be a very strange place if the same was applied in nature. For example, from birth until around six weeks old, a hamster doubles its weight each week. If, it didn’t stop and continued doubling each week, on its first birthday, you would be looking after a very hungry nine billion-tonne pet hamster. There is of course one thing in nature that grows uncontrollably. It’s called cancer and tends to kill its host. So when those growth figures come out, let’s hope the government scans the results for what they really mean.
nef‘s new report Growth isn’t Possible was published today.
Although you wouldn’t have known it from the media coverage at the time, President Sarkozy did something far more remarkable in January 2008 than get engaged to the singer and model Carla Bruni. While angry French leftists were burning Bruni’s CDs on public bonfires, her new fiancé announced his intention to challenge our most intractable economic orthodoxy: Gross Domestic Product.
Soon enough, the President had set up an impressive commission of Nobel Prize-winning economists and social scientists to address the question of how to move beyond GDP as a measure of economic performance and social progress. The group was to be led by former chief economist at the World Bank, Joseph Stiglitz, and would include development guru Amartya Sen, psychologist Daniel Kahneman and the economist-turned-climate-change-hero Lord Stern.
A year and a half on and the Commission has published its final report. The vision is bold – it recognises that “new political narratives are necessary to identify where our societies should go” and advocates “a shift of emphasis from a ‘production-oriented’ measurement system to one focused on the well-being of current and future generations”. Specifically, it recommends that governments should measure subjective well-being – people’s experience of their quality of life – and recognises that these should be textured and multi-dimensional.
These calls are admirable, and echo what nef has long been calling for, particularly in our National Accounts of Well-being report from January 2009.
But there’s a problem. The report carries many recommendations, and there’s a risk that politicians will latch onto the easier ones, without really taking home the big message: namely, that we need to radically shake up our understanding of progress and success. For example, the report shies away from suggesting an overall measure of progress, such as nef’s Happy Planet Index, leading to the risk that GDP will remain unchallenged as the de facto indicator of overall success, despite it never being intended that way.
But for now the Commission, and indeed, dare we say it, Sarkozy, deserve plenty of praise for their boldness. Let’s see if he and other politicians put into practice the advice they are given by the world’s best economists: to move beyond GDP and measure well-being.
This article first appeared at Policy Innovations.
Governments around the world are caught between the proverbial rock and a hard place: We are now nearly two years into what is widely heralded as the worst global economic crisis since the Great Depression, and the ecological crisis of global warming threatens the foundations of human civilization. Should countries stimulate their economies at any cost? How should they prioritize the health of global and local ecosystems? The debates about whether government money should be used to shore up struggling car industries neatly encapsulate these sorts of dilemmas.
Many in government may feel that the best overall path is far from clear. Part of the problem is that they lack tools for making these sorts of policy decisions. The common yardstick since the 1940s has been GDP growth. Gross Domestic Product reflected the wartime concern with increasing economic productivity, and since then it has become synonymous with progress. As the United Kingdom’s Sustainable Development Commission notes, “The state has become caught up in a belief that growth should trump all other policy goals.”
Yet intrinsic to growing GDP is the need to produce more stuff. This is exactly what our planet cannot sustain. More stuff requires more of the Earth’s dwindling fossil energy supplies, with waste products that threaten the climate.
The kernel of the solution to resolving these competing demands lies within the structure of the problem itself. The fact that economic growth can be conceived of in opposition to the health of the planet suggests that neither can claim to be regarded as the true overall measure of success in human society. A much more convincing case is made by the concept of well-being. The experience of well-being is about feeling that your life is going well, something which is universally important to people everywhere. The concept of well-being enables us to define the ultimate aim of human endeavor to be healthy, happy, and meaningful lives.
The Earth’s resources are the fundamental input to this system. A well-regulated economy is just one means to produce well-being—along with others including community, technology, values, and governance. Systems thinking also shows us that using planetary resources so that they can be sustained into the future is vital to ensuring that human well-being can also be maintained in the long term.
The updated Happy Planet Index (HPI), published last month by nef (the new economics foundation), uses this view of society to formulate an indicator of overall progress. Scores on the HPI represent the amount of human well-being a country produces relative to its resource use. It is measured in terms of long and happy lives. The HPI is thus an efficiency index, measuring how much well-being is achieved per unit of environmental impact:
HPI ≈ (Life expectancy x Life satisfaction) / Ecological footprint
The financial druids are all a flutter. Their worst fears have come true. It’s not only that we can now see the other side of the reckless credit boom: a long legacy of high unemployment, bankruptcy and wrecked public finances. The darkest fear of the priests of high finance is that we will never again trust and follow their sermons. Any faith faces disaster when people stop believing.
The “call to prayer” of conventional economics has been the incantation of economic growth figures: the accumulated monetary value of all the exchanges that take place in the economy. When it heads south, the system knows it has a problem.
Now, it has a real problem. Global economic growth is at its lowest level since shortly after the second world war, and the UK economy is shrinking fastest.
But here’s the problem. The fact that so much went so wrong, so quickly says that the long period of preceding growth hid a deep malaise. Growth conceals more than it reveals. It is about as informative as saying that when it rains things get wet. Yet the indicator retains an unbreakable grip on the imaginations of politicians and policymakers. Over 30 years of critique from the few dissident economists and environmentalists have not shifted its privileged position.
Growth tells us if things are happening, but not whether they are good or bad. Growth can be boosted by war, pollution and all kinds of social breakdown, from divorce to ill health and vandalism. That’s because they all require money to be spent, which shows up in the growth figures. This matters right now because the government is spending money simply to reboot growth, rather than to achieve particular, desirable outcomes, like creating green jobs to rebuild energy security, and tackle fuel poverty and climate change. It needs to get smart.