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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Making America great again, and other bullshit……

21 01 2017

nafeezIt appears Nafeez Mosaddeq Ahmed has been making lots of waves lately…. The New York Observer has just run his warning of the probability of a converging oil, food and financial crash in or shortly after 2018 which I discussed here on DTM a few days ago. Not only that, it went viral, hitting the top 20 stories on Medium for several days (at one point hitting number one), and giving him ‘Top Writer’ status on ‘energy’ and ‘climate change’ there….. is the word finally getting out…..?

It gets better….. Nafeez then wrote this via Insurge intelligence in solidarity with the arising people’s movement in the form of the worldwide women’s marches, tying together how the Trumpian inauguration represents at once the culmination of a global war on women, while simultaneously starting a war on the planet.

Nafeez thinks “there is a deep, fundamental but little-understood connection between white supremacist patriarchy and misogyny, and the interlinked environment-economic crisis.” This piece is perhaps the most important – because it highlights the real symbolic meaning of the women’s marches: a planetary declaration of intent to build bridges, not walls.

Then yesterday, Nafeez  wrote another piece for VICE anticipating the Great Orange Face’s ‘America First Energy Plan’, bringing together cutting edge science on why Trump’s fossil fuel madness is doomed to kill the economy.

It simply won’t work, cannot work….. It will backfire. Big time. And it will backfire economically before it even has time to “backfire planetarily” as he so well puts it…… We are already hearing a lot of outrage, rightly so, about the cleansing of the Wipe House website of climate information, and the promotion of this madcap anti-science scheme to burn our planet to hell. We’ll hear less about the science of global net energy decline, which proves decisively that this scheme can simply never work – but you’ll find it here: 

Nafeez begins…..:

As President-elect Trump spearheads plans to boost oil, coal and gas, a major new study by one of the world’s foremost energy experts shows just how dangerous this path would be—not just for the planet, but for the economy.

The new study, just published in January as part of the SpringerBriefs in Energy series, suggests that as long we remain dependent on fossil fuels, economic contraction is inevitable. And while renewable energy offers the only potentially viable future, it is also unlikely to sustain the sort of mass consumerism we are accustomed to—like three or more cars per household, SUVS or massive military projects like aircraft carriers.

The bottom line is that we can’t sustain our present rate of consumption no matter what energy source we rely on. And clinging to oil, gas and coal in the hopes of keeping the endless growth machine alive will be even worse: leading to a spiral of debt and economic recession that has already begun.

Nafeez then introduces his readers to the concept of thermodynamics….. yes, really…!

It all comes down to physics: the laws of thermodynamics. Economies need energy to function. And to grow, they need extra energy to fuel that growth in production and consumption. But as more energy is required just to extract new energy from fossil fuels, there is less “energy surplus” available to continue driving economic growth—to ramp up even more production and consumption. And increasingly, more and more energy is being used just to maintain the existing infrastructure of society as it is, leaving less room for further growth.

“Of perhaps greater concern than the quantity of oil and other energy sources is their declining EROI [energy return on investment]”, writes study author Charles Hall, ESF Foundation Distinguished Professor of Environment Science at the State University of New York. Hall is the founder of the concept of EROI.

Hall’s ground-breaking methodology is now used by scientists around the world to measure the total value of energy a resource can generate. It works by comparing the quantity of energy extracted to the quantity of energy inputted to enable the extraction.

He points out that throughout the energy literature “there is widespread concern that net energy returns (e.g. EROI) for oil and gas are declining and likely to continue declining.” This has economic implications:

We (as in DTM followers) all knew that of course, but it’s interesting that this stuff is actually starting to go viral…..

wheredidgrowthgo

Yes indeed, where did all the growth go…… down the Limits to Growth plughole, that’s where…..

Charlie Hall’s study, Energy Return on Investment: A Unifying Principle for Biology, Economics halleroeibookand Sustainability, clearly shows a correlation between the declining abundance of resources, “as reflected in lower production and EROI for oil and other important fuels”, and the decline of economic growth.

And that gets to the crux of the problem. We need more energy to get more stuff to grow the economy. So what happens when we can’t get as much energy as before? Growth slows.

That’s why Hall fingers the declining EROI of fossil fuels as the key culprit in decreasing rates of production, which in turn has played a key role in the economic slowdown: “Past investments— over the past century— were made at a time when the production of high quality fossil fuels was increasing at rates as high as 5% a year. At the time of this writing they have declined to no more than 1% a year, and the US (and global) economies show similar pattern.”

Hall argues that modern developed economies, with their enormous infrastructures, roads and cities, are rapidly approaching “a stage where all of the available energy is used in ‘maintenance metabolism’ to support the infrastructure that exists.” This leaves less and less energy “available for net growth.”

As I have been saying for a very long time now, the 20th Century was built one brick at a time, as and when it was required, using very cheap and very dense fossil fuels with very high ERoEI. Now we have to replace all the old stuff, more or less all at once (it is getting old now…), and simultaneously build all the new stuff, with low ERoEI energy that is literally costing the Earth.

Make no mistake, America will never be great again………. Trump or no Trump.