A Zero Growth Economy - The Dilemma of Growth

Briefing Paper Number 1

Introduction

While many Friends and others recognise the need to reduce the environmental impact of their lives, an increasing number of commentators are arguing that all the actions taken by individuals in terms of recycling, reducing energy consumption etc will be useless unless we fundamentally reshape the global economy. The big question is can we, and what must/could/should we do to assist this – what do we want in its place?

The global economy is almost five times the size it was 50 years ago, a growth that has been accompanied by the degradation of an estimated 60% of the world’s ecosystems. “Growth is good” has been the mantra at the heart of economic policy. Growth has been seen as the route to prosperity for all and the only way to lift the poor out of poverty. Has it worked? 20% of the world’s population earns only 2% of global income. We are seeing increasing disparities of wealth, increasing political and social problems and an increasing awareness that having more stuff is not the same as leading meaningful, happy lives.

In March 2009, the Sustainable Development Commission published the report “Prosperity without Growth?”[1]. This clearly states that “the myth of growth has failed us”. Prosperity is not just about income or material possessions, it’s about the quality of our lives, our relationships and our ability to participate in and contribute to our communities in a meaningful way –in other words our ability to flourish. However, the report also identifies what it calls the “dilemma of growth”. Put simply the dilemma is this:-

“To resist growth is to risk economic and social collapse. To pursue it is to endanger the ecosystems on which we depend for long term survival”

This briefing summarises what the report says about this dilemma. Our next briefing will attempt to look at some of the proposals to address this dilemma via alternative economic strategies/structures.

How the economy works 

At its simplest level the economy works as follows. Firms use people, buildings and materials to produce goods and services. The revenue from the sale of these goods and services allows firms to provide people with income. People offer their labour in return for income which allows them to buy goods and services and to save. The savings are used to invest in companies either directly or indirectly (through banks etc) on the understanding that there will be a return on this investment. 

Investment is necessary to improve or replace worn out buildings and equipment and to improve efficiency – generally through labour productivity, i.e. producing the same quantity of goods and services with fewer people. This means fewer jobs unless output increases which at a national level means growing the economy. Efficiency also leads to cheaper goods which in turn stimulates demand and promotes growth. 

The driver of efficiency is the profit motive, ie. a desire to increase the difference between revenue from sales and the costs associated with production. This enables a better return on investment which in turn attracts more investors thus enabling greater efficiency up to a point. After a while the optimum efficiency is reached and what is required is innovation. Novelty – the production of newer, better more exciting goods – then becomes the goal of firms, driven by demand from consumers. 

Why is growth necessary? 

Proponents of growth focus on three factors. 

Economic Growth is closely correlated with certain basic entitlements e.g. health and education

The argument states that basic entitlements such as life expectancy, health and education depend upon rising income levels – fuelled by economic growth - and that therefore without growth our access to these entitlements would be endangered.

The report tested this assertion using data collected by the UN Development Programme. It found that, while in general, a lower income means less access to health care and education, lower life expectancy and higher infant mortality, there were nevertheless a number of significant anomalies. These include Chile having a greater life expectancy than Denmark whose average income is almost three times higher, and Kazakhstan scoring higher on the Education Index than Japan, Switzerland or the US all with income levels four or five times as great. These anomalies require greater study but they do point to the possibility that the structure of our societies and the allocation of resources within them are also an important factor in terms of entitlement to these basic requirements. Finally, the data also revealed that as income rises, the additional benefits (in terms of greater access to these basic entitlements) begin to reduce. Indeed there is a substantial diminution of returns when income grows beyond $15000 per capita.

Consumerism

­Material goods are essential for our basic needs such as food and shelter. Beyond these basic requirements however, they also have a symbolic role in our lives. They are a language that we use to communicate with each other about things such as status, identity, social affiliation and they are connected to our hopes and aspirations. Some experts have suggested that there is a vital psychological process of attachment that leads us to think of material possessions as part of our “extended self”. Further, it is suggested that possessions allow us to identify what is sacred in our lives.

Novelty is central to this because it carries information about social status. New products are often only available first to the rich. They are inherently expensive because they are produced on a small scale and may even be launched at premium prices to attract those who can pay for social distinction, Emulation is also important – having what others have – and it drives demand for the mass production of what were once luxury goods at affordable prices. The down side to novelty and emulation is increasing anxiety. We are all subject to social comparison and the need to keep up, to have what others have. Over time however, this destroys satisfaction and leads to anxiety. 

Growth is necessary to maintain economic and social stability

This is based on the assumption that producers always seek to maximise profits via continual technological improvements that increase outputs and require reduced labour input – in other words fewer people. In an expanding economy new jobs are created to offset those lost due to “labour productivity”. If the economy is not growing or its growth has slowed then there are no new jobs, unemployment increases, consumer demand decreases and the economy slows further. In addition to jobs losses, recession impacts on the provision of public services. The need for these rises, but as unemployment rises, revenues collected through taxation fall leading to a real risk of cuts in public services and thus impacting on our ability to flourish.

Material possessions are necessary for us to flourish

In other words the more we have the better off we are. Obviously, we all need food, shelter and access to health care and education etc. But this is about something more intangible. Those of us whose basic needs are met continue to require material possessions – why? Well in general, the things we have say something about who we are, they are badges of our identity, they reflect our lifestyle and they place us in our community. Status, power and authority matter to people. A recent study by the Department of Environment Food and Rural Affairs (Defra) revealed that those in higher social grades reported a higher level of satisfaction than those in lower grades – in other words higher status matters in terms of happiness and well being.

The Myth of Decoupling or Can Technology Save Us?

Given that the market strives for greater efficiency via constantly improving or innovatory technology, can't we rely on this to solve the dilemma? Surely economic growth can continue while technology finds ways of reducing and eventually abolishing the impact of growth on the environment?

The technical term for this is decoupling but we need to be careful to distinguish between relative and absolute decoupling. Relative decoupling means that the environmental impact of producing each economic unit declines relative to GDP. This means that impacts could stay the same but if GDP increases there is seen to be a relative decoupling. Absolute decoupling means impact declines in real terms and it is this that is necessary if economic growth is to continue without further damaging our planet or exhausting its natural resources. Can it be done? The examples given below tend to focus on measurements around energy use and carbon emissions but this is not the whole story. Environmental degradation is not limited to carbon emissions but is much wider, including habitat loss, pollution etc. For reasons of space however we have focused the examples on carbon emissions and energy use.

At first sight there appears to be some evidence to show that some relative decoupling has worked. For instance the amount of energy needed to produce an economic unit has declined by one third since 1970. Similarly, global CO² intensity (the amount of carbon emitted per unit of energy consumed) has declined by almost a quarter since 1980. However, this trend has halted in recent years. Total carbon emissions from fossil fuels have increased by 80% since 1970. And we are consuming more of everything – particularly raw materials mined from the earth,. Another problem with relative decoupling is the difficulty of measuring the resources used to manufacture and finish products abroad. A number of studies in the UK have shown that the numbers the UK reports to the UN under the Climate Change Convention do not deal with the “hidden” carbon emissions from trade. So an “apparent reduction in emissions of 6% between 1990 and 2004….turned into and 11% increase in emissions, once emissions embedded in trade are taken into account”.

More specifically the maths doesn't add up. Forty years ago an equation was developed which explains in mathematical terms how the environmental impact of human activity can be measured. (the Ehrlich equation) This impact results from the combination of the size of the population, its level of affluence and the impact of each dollar we spend. As long as this latter is going down then we have relative decoupling. But in order for there to be absolute decoupling, it needs to go down faster than the rate that population and affluence go up – and both these have increased substantially in the last 50 years and are continuing to grow. The UN estimates that the world’s population will grow to 9 billion by 2050 with average income growing by 1.4% per year. Using this equation and these figures and assuming business as usual, by 2050 carbon emissions alone will be 80% higher than they are today.

Gross Domestic Product (GDP)

GDP is measure of national income; a way of measuring the total value of economic activity going on within a country’s borders.. It is seen as a proxy for the value which we ascribe to things and through this as a measure of wellbeing. There are many criticisms of GDP – in particular it does not account for contributions to the economy by things like household or voluntary work, nor does it account for environmental degradation. It does not separate the costs of economic activity from the benefits – for instance it deems positive both the “desirable” growth that causes pollution and the costs of cleaning up this pollution. Doubts have also been expressed about its value as a measure of happiness given that reported life satisfaction has remained about the same over the last few decades despite significant economic growth.

Briefing produced by Quaker Peace & Social Witness as part of joint programme of work with Woodbrooke Quaker Study Centre

June 2009

Available in large print