How Do You Degrow an Economy, Without Causing Chaos?

16 05 2017

An article written by a Facebook friend of mine, Jonathan Rutherford, who is Coordinator of the New International Bookshop and a ‘Simpler Way’ activist. Originally published at the Resillience website.  The real challenge for those in charge is not ‘jobs and growth’, it is how to best manage the looming contraction……

‘Houston, we have a problem’. On the one hand, there is growing acceptance among environmentally conscious people that rich nations and affluent regions of the global economy must dramatically reduce overall resource and energy consumption levels – that is, undergo a process of ‘degrowth’ – if humanity is to bring about a sustainable world order. On the other hand, we have a growth economy that cannot go two steps in this direction without causing huge economic and social problems.

If you doubt the first part of this statement (i.e. the need for ‘degrowth’), consider just one metric – the material footprint (MF) indicator. This measures consumption of all natural resources (biomass, fossil fuels, metal ores and minerals) extracted from the environment. Humanity’s current MF is about 70 billion tonnes – a figure that has more than trebled since the 1970s. As we know, already this rate of consumption is generating waste, pollution and land-use change that are driving environmental problems such as global warming and species extinction. But now consider the fact that the per capita rich nation (i.e OECD) MF is about 30 tonnes. If the 9+ billion humans expected to be living on earth by 2050 rose to this level, we would need 270 billion tonnes per annum – that is, four times the present rate, which is unsustainable. Using similar figures in the 1990s Friedrich Schmidt Bleek estimated that rich nations need to make ‘factor 10’ reductions in overall resource use (renewable and non-renewable), if we are to move down to a globally fair share and at sustainable levels. And that estimate, it should be noted, does not factor in the likely increase in MF that, recent history suggests, will inevitably result from the continuous pursuit of economic growth by all nations, included the wealthiest.

Many people hope that we can make ‘factor 10’ reductions via technological advance and efficiency gains alone, without having to make cut overall rates of production, consumption (i.e. GDP). But, as argued in a recent peer reviewed article by Giorgos Kallis there are strong reasons to think that this will not be viable. Few want to admit it, but the kind of radical reductions we need to make will require GDP contraction i.e. de-growth.

But if we in the rich world need to degrow the economy, as it appears we do, how is that done without causing utter social chaos and breakdown?  The problem was recently illustrated in a series of articles run by the ABC. The first article highlighted the trend among some young Australians to adopt relatively frugal lifestyles of reduced income expenditure and increased savings. A follow up article, however, asked: what would happen to the economy if everyone did this? The answers were revealing, and implicitly revealed fundamental flaws in our existing economic system.

The article cited data which suggest every year Australians spend $955 billion on all forms of consumption. Of this about $416 billion (44%) is made up items such as ‘food, clothing, housing, utilities, health, transport, insurance’ which the article defined as ‘necessities’ (note: one, of course, may question whether i.e. all clothes consumption are truly ‘necessities’!). The other $523 billion was made up what the article defined as discretionary items. Economist, Saul Eslake pointed out that, even if we exclude from this discretionary figure the $100+ billion worth of imported goods & services, if  all Australian households ceased all the remaining discretionary spending, GDP would be immediately reduced by 25 per cent. But, as Eslake pointed out, the impact on the economy would eventually be far greater than this, due to knock-on effects. The reduced spending, for example, would result in firm bankruptcy and thus laid off workers which, in turn, would further reduce aggregate demand in a cycle of downward depression familiar to students of economic history.

But while all this is entirely correct, reducing societal consumption – degrowing the economy – need not necessarily result in chaotic economic breakdown, as the ABC article implicitly assumed. This is indeed an inevitable outcome within our present economic system, but possibly not others.

Our present system – both in Australia and now most of the world – is, of course, the capitalist market economy. This 500-year-old system has certain defining features that mark it out as unique compared to other economic systems humans have devised.  It is a system in which a) most (if not all) the major means of production are privately (these days corporately) owned by a small minority of the population; and b) where the fundamental economic problems (what, how, and for whom to produce) are solved “automatically”, through the price mechanism, rather than through conscious social decisions.

Importantly, for this discussion, the system is characterised by a growth compulsion. Due to competition, all firms – particularly large shareholder firms – are under constant pressure to invest in new techniques, methods of production and products, to improve competitiveness and their sales figures. If they fail to do this, they not only risk profits margins but also eventually being taken-over by other firms, or made bankrupt. Since no firm wants to perish, and since all must expand if they want to continue to exist, a general growth compulsion arises, not just for individual firms, but for the macro economy as whole. So, while almost everyone wants growth, it is also true that the system needs growth for its basic functioning.

In fact, the system cannot possibly tolerate even a slow-down in the rate of growth, let alone a contraction. Richard Smith points out that even when capitalism approaches a ‘steady state’ of zero GDP growth, such as what happened in the USA in the wake of the GFC, the outcome for society at large is ugly. The situation is characterised by “capital destruction, mass unemployment, devastated communities, growing poverty, foreclosures, homelessness and environmental considerations shunted aside in the all-out effort to restore growth.” Obviously, nobody wants this, including advocates of degrowth.

What then would be required to contract the economy, in an orderly and fair way? The influential ‘Steady-State’ theorist Herman Daly argues that we can do so, while retaining a basically capitalist system, on the condition that the state steps in to play a far more active regulatory role than at present. Among other policy suggestions, Daly proposes that the state impose escalating resource depletion quotes, that can be traded in a market, while retaining private enterprise and the market system.

An emerging school of eco-socialists argue, however, that this will not work. Saral Sarkar points out three flaws with Daly’s plan.

“1) The contraction of the economies of the world must occur in an orderly way. Otherwise there will be unbearable breakdowns of whole societies. An orderly contraction can only take place in a planned economy, not in a capitalist market economy. 2) Only a socialist political order can achieve, by means of egalitarian distribution of the costs and benefits, a broad acceptance of the necessary contraction, 3) Only in a planned socialist economy can the problem of unemployment be solved, which would otherwise become more and more acute in a contracting economy. To this end, a planned economy can consciously use labor-intensive technologies and methods, which, in addition, result in less use of resources.” (Sarkar, 2012, 325)

Let me just briefly elaborate on the first reason given by Sarkar (for greater detail see Sarkar 1999) – the idea that contracting the economy within a capitalist market system would result in chaotic breakdown. Sarkar points out that the famed ‘efficiency’ of the market system only works well (if at all) when there is a buyers’ market, leading to strong competition between suppliers to meet customer demand. But in a contractionary scenario, most markets would be ‘suppliers’ markets, as there would be, in general, a shortage of supply relative to demand. This would mean even poorly run, high cost firms would be able to survive. And, as with any market economy, you would still have a situation where increasingly scarce resources were tended to be allocated to meeting the money backed demands of the already wealthy, rather than to meeting the vital needs for all – a recipe for social chaos in a context of heightened scarcity.

For these reasons, and as unfashionable as it is today, Sarkar argues that a socialist economic framework will be necessary if we are to contract the economy in an orderly, peaceful and socially just way. This would involve a process in which the state nationalises and/or shuts down most large-scale firms in the economy and actively plans the process of contraction via mechanisms such as quantitative controls, price controls, a quota system etc. But what about smaller firms and co-ops, operating at the local level? Here, it is plausible that a quasi-market economy – albeit operating within a very different no-growth culture and firmly under social control –  would be viable. Another eco-socialist Richard Smith elaborates:

“In arguing for large-scale industrial planning, I’m not saying that we should nationalize family farms, farmers’ markets, artisans, groceries, bakeries, local restaurants, repair shops, workers’ cooperatives, and so on. Small producers aren’t destroying the world. But large-scale corporations are. If we want to save the planet, the corporations would have to be nationalized, socialized, and completely reorganized. Many will need to be closed down, others scaled back, others repurposed. But I don’t see any reason why small-scale, local, independent producers cannot carry on more or less as they are, within the framework of a larger planned economy.”

Eventually the goal will be to move to a situation in which most (if not all) people live and work within highly localised economies, using local resources to meet local needs. As Ted Trainer argues, this is not optional if we want to reduce our ecological footprint to sustainable one planet levels that all can share. Gladly, there is a case that the quality of life could be very high within such communities.

But herein lies a problem for the eco-socialist, and wider degrowth movement. Trainer points out that these new local communities will not work well unless they are based on the active participation and cooperation of most, if not all, ordinary citizens in the locality. This will be necessary to ensure that all are provided for and the economy works within local eco-system limits. Active and inclusive participation by all (or at least most), Trainer argues, is ‘the crucial prerequisite… that will be needed if ordinary citizens are to eventually run highly self-sufficient local communities well.’ Widespread civic participation and cooperation simply cannot be imposed ‘top-down’ via states, even if they wanted to. In any case, Trainer argues, only if movements for localism and simpler living emerge first, is there any chance of building the eventual political will that will make a process of societal degrowth at the national and global levels possible.

For this reason, we ‘Simpler Way’ advocates tend to see the eco-socialist state directed process described above as ‘only’ a final, albeit necessary, step in a long multi phased transition towards sustainability. The first (and hardest) phase of the revolution happens when ordinary citizens, not states or corporations, take it upon themselves to start building today, even in small ways, the new self-reliant economies in the towns and suburbs where they live.

Having said that, the above sets a parallel challenge for participants within existing localist movements such as Transition Towns, eco-village, permaculture, simpler living etc. For it is equally true that we will not make a successful transition to sustainability – and the new local communities and economies will not function well – unless participants within these movements become aware of, and begin advocating for, the eventual need for an orderly process of ‘de-growth’ – a process that, for reasons mentioned briefly above, is only likely to go well within an eco-socialist framework. Ultimately, unless both these local and national-global processors occur, will not make a successful transition to a sustainable society.

Of course, today, across the world we are miles away from the necessary political and cultural awareness needed for such a transition. It is likely that the coming oil crunch and global financial contraction will aid our cause and encourage more people to see the sense in localism and de-growth – but, until then, activists must doggedly go on raising awareness wherever they can. Even if it does not feel like it, every conversation counts!

Reference:

Saral Sarkar, Eco-Socialism or Eco-Capitalism? – A Critical Analysis of Humanity’s Fundamental Choices. London: Zed Books. 1999.

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10 responses

16 05 2017
Glenn

Mike

Nice piece … nice thought … but civilizations seldon contract gracefully do they?

IMO … if we cant get our shite together now … while things are good … what chance do we have of getting it together in the thick of it?

Seems like false hope to me.

Our local council is barely functioning . Just imagine when Canberra stops handing out pocket money?

In the mean time might as well enjoy life.

16 05 2017
rabiddoomsayer

WordPress is eating comments again. Have to agree with Glenn, the answer to the title question is we don’t. And now out of the ether comes my original comment.

16 05 2017
mikestasse

Bloody annoying, means I have to do more work!

17 05 2017
Glenn

Planned socialist economy? IMO … a great thought exercise but not much more. No existing corporation would want to do this. None of the majority of indebted urban Aussies … working for such corps would ever vote for a leader advocating such things. For the best part greed is god down under. Take a trip to the Gold Coast.

I reckon the relocalization side of the argument stands a chance BUT again out of necessities not choice. We think we are proactive … but it seems we are just retroactive like all other creatures … Overshoot … collapse .. balance … repeat.

Me thinks our best chance is massive economic collapse … on the soon side …(ugly i know) triggered by … well take your pick … followed by relocalization because we have to.

I read something once which made perfect sense to me. “Its simply too early and at the same time too late”

I mean really Mike … knowing the huon council … and state gov is it really worth entertaining such ideas at this stage of the game?

17 05 2017
Chris Harries

Although people talk up an exciting new, ‘sharing economy’, we have an impossible conundrum in that if I choose not to waste resources I destroy jobs. I destroy the jobs of struggling workers who depend on making those things that we don’t need. Even if we change our consumer habits to more sustainable products, our wealth enables us to consume much more stuff than we can even handle. Even invisible computer bytes – part and parcel of the information economy – require huge amounts of hardware and energy generation. Arguably even more so that the resources that are used to make trashy products that we don’t really need.

We need to become so impoverished that we are reduced to manual, self sufficient food production. That’s not going to happen. Will be interesting to see what does.

17 05 2017
king1394

Some positive changes being made but most people will not act until after disaster strikes. When you can’t get the average Australian to take his/her own bag to the shop, or take home from a picnic area the empties that he/she brought in full, it’s hard to see how more radical changes in lifestyle will occur. On the up side, there’s plenty of room for improvement.

17 05 2017
wshawngray

Great article. The aim of eco-socialists degrowth of the world economy to a sustainable steady state of zero GDP growth is a big ask particularly from within the current unethical neo-liberalism capitalism.

That challenge brought to my mind. E.F.Schumacher’s classic text “Small is Beautiful” A study of economics as if people mattered. (Copyright 1973)

17 05 2017
Shane Simonsen

The phrase that comes to mind is “belling the cat”. A clever and convincing idea to fix a problem, but utterly impossible to execute in real life.
Degrowth is already happening in places like Japan where the population shrunk by a million people in the last census. Most industrialised countries are facing a similar demographic collapse in the next generation. We became so focused on productivity and wealth that we made it impossible for young people to have families at even the replacement level. We made education so dysfunctional that it became easier to import doctors from third world countries. Australia is unusual in keeping up high levels of immigration, but this is only feasible due to being a petro-state in disguise (selling low value iron ore and coal).

18 05 2017
Harquebus

In my opinion, there is only one solution and that is population reduction and control. It appears that we are going to let this happen naturally rather than in a controlled degrowth scenario.
For the natural world, the collapse of the human population can not come soon enough.
Cheers.

20 05 2017
MM

This plan is about 100 years old and it can be looked up here:
https://en.wikipedia.org/wiki/New_Economic_Policy
It worked quite well for a while but “the state” is a huge problem!!
The state must die anyway with the corporations. We call it Anarchy!

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