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.

Advertisements




The Faustian bargain that modern economists never mention

2 12 2013

Reblogged from http://www.resilience.org/

Probably not much new to regular readers of DTM here, but a thoroughly well put together article well worth the read…….  and sharing with those people you know who are still unconvinced.

Historically people have shifted their belief systems in various ways. The Greeks and Romans believed in numerous gods and goddesses and attributed all kinds of powers to them. Then the great monotheistic religions came along and people began to believe in just one god, though they honored him under different names.

Recently, beliefs have shifted again, with people worshipping just one part of a god, the invisible hand. Thanks to Adam Smith and those who followed him, especially the current neoclassical economic theologians, we have seen such an increase in the world’s wealth and sheer numbers that it is hard to imagine life before the industrial revolution, with its shift from mostly human and animal muscle power to the energy dense fossil fuels—coal, oil, and natural gas. It is also hard to imagine that humanity could someday slide back into another age of scarcer and more expensive energy, but that is a possibility that cannot be excluded from our thinking.

The Faustian Bargain

What about the Faustian bargain? It remains deeply hidden from view because its exposure by the high priests of modern economics would force us to rethink how we live and why we live this way, as well as what we’re planning to leave for future generations. The Faustian bargain goes something like this: Thanks to the discovery and exploitation of fossil fuels, humans (really just a small minority of them) are able to live richer lives today than even the queens and kings of yore could have dreamed of.

Furthermore, we’ve used some of those finite resources to increase food supplies and to expand the human population, which provides the economic system with both more workers and more consumers, a necessity to keep the economy growing under our current economic model. The world’s population increased from 1.6 billion in 1900 to 7 billion today, and we add about 80 million more each year. Humans have quickly become the most numerous megafauna on the planet.

The other side of the bargain, the side hidden from view and never mentioned in economics texts is this: At some undetermined time in the future, one that creeps ever closer, this economic system, fed by energy and other resources at ever increasing rates at one end and spewing out waste products at rates that cannot be absorbed by Earth’s ecosystems at the other, is unsustainable. What that means is simple enough: Industrial society as we know it cannot go on as it has forever—not even close.

Our economic system must exist within Earth’s finite limits, so recent and current generations have sold their soul to the devil for temporary riches, leaving the Devil to collect his due when the system falls apart under its own weight and the four horsemen of the apocalypse ride again across the world’s landscapes. None of this will happen tomorrow or this week or this year, but our economic system is faltering at both ends.

For many, if not most of the world’s population, life may become more difficult, incomes lower, and uncertainty greater. It does not mean the end of the world, as some predicted for 2012, but it will mean that future generations probably will not live like current ones. Rather than admit that the current system cannot be sustained, the affluent and powerful will do everything possible to maintain the status quo.

The Fallacy of Long-Term Economic Growth

Economic growth remains a mantra for politicians and corporate leaders, including the banksters who brought us the Great Recession. Even President Obama, like presidents before him, speaks regularly about “growing the economy.” But nothing in the real world suggests that economic growth can continue forever. Nor does much evidence support the notion that economic growth has been a good thing for either the planet or billions of its human residents. It looks more like a colossal Ponzi scheme.

One of the most optimistic supporters of modern economics and its marvels is Tim Harford, who wrote, in his book The Logic of Life, “The more of us there are in the world, living our logical lives, the better our chances of seeing out the next million years.” This may be the dumbest thing an economist has ever written and he shows not even the slightest understanding of the planet on which we live. Homo sapiens has only been around for about 200,000 years, so another 800,000 years at the rate we’re going seems absurd. If our population were to continue to grow at an annual rate of only 1.0 percent, slightly less than our current growth rate, then our numbers would increase to over 115 trillion in just the next thousand years. You can play with the growth rate if you wish, but you cannot escape the cold hard fact that human population growth must stop. Only economists seem to miss the fact that economic growth must stop.

Among the high priests of modern economic theology, Paul Krugman came closer than anyone to admitting that growth could not go on forever on our planet. In an Op-Ed piece in the New York Times (12-26-10) he wrote, “What the commodity markets are telling us is that we’re living in a finite world [my italics] ….” He went on to mention the possibility of peak oil production and even climate change, both of which threaten the modern economic system, but then, returning to the faithful fold, he wrote, “This won’t bring an end to economic growth….” He admitted that our lifestyles might have to change but gave no clue about where and how that might come about or where it might lead.

Economic reality and economic theology don’t fit together very well. In 1988 Edward Abbey wrote, in his book One Life at a Time, Please:

It should be clear to everyone by now that crude numerical growth does not solve our problems of unemployment, welfare, crime, traffic, filth, noise, squalor, the pollution of air, the corruption of our politics, the debasement of the school system (hardly worthy of the name ‘education’), and the general loss of popular control over the political process—where money, not people, is now the determining factor.

Today, 24 years later, virtually every word of Abbey’s statement is truer than ever, yet politicians and economic theologians continue to preach that if we can just grow the economy (local, state, national, and world) then all will be well again. You need not look far or deeply to see how wrong they are and what price we’ll pay when the Devil comes looking for our collective souls.

Among economists, Herman Daly is one of the few who has tried to reveal the Faustian bargain for what it really is, as is apparent in this statement from a Dec. 26 article, Rio+20 Needs to Address the Downsides of Growth:

Even though economies are still growing, and still put growth in first place, it is no longer economic growth, at least in wealthy countries, but has become uneconomic growth. In other words, the environmental and social costs of increased production are growing faster than the benefits, increasing “illth” faster than wealth, thereby making us poorer, not richer. We hide the uneconomic nature of growth from ourselves by faulty national accounting because growth is our panacea, indeed our idol, and we are very afraid of the idea of a steady-state economy. The increasing illth is evident in exploding financial debt, in biodiversity loss, and in destruction of natural services, most notably climate regulation.

As a geographer, I look for signs in my local cultural landscape that look ominous, from potholes in streets to for sale and/or for lease signs strewn around our city like leaves after a storm. Ours is a small city, with about 30,000 residents, yet our city manager, in an end-of-the-year report, pointed out that we would need some $80,000,000 to repair our current infrastructure, a figure out of all proportion to our physical and residential size. That amounts to nearly $2,700 for each man, woman, and child. He also pointed out that our city is operating with below necessary numbers of police, fire, and emergency responders. The potholes will get larger in 2012 and beyond.

Though these and other problems are widely distributed across the nation, I think the infrastructure issue alone is symbolic. The U.S. is becoming a “pothole culture,” one in which the pothole is a symbol of our inability to accomplish all kinds of things any more. (See recent New York Times article.) Other nations are on their way as well.

Despite the continued whirring of the world economy, most people here and elsewhere are not getting anywhere and are feeling jilted by the system they’ve depended on for decades because they thought it could be sustained forever. It cannot, but that doesn’t mean life cannot go on, it means, instead, that we need to move in new directions, but we won’t do that until we understand what is making so many people so unhappy. We need to realize that instead of believing bigger is better we need to decide to favor better over bigger, quality over quantity, less over more.

Two examples illustrate the point that the world economy has exceeded both Earth’s ability to provide ever more inputs and its ability to absorb and purify excessive wastes. Crude oil is a good example of the first; carbon emissions and global warming good examples of the second. Both were mentioned by Krugman, but he provided no details about how we might deal with either issue, nor did he say how economic growth would continue without confronting these and numerous other raw material and waste issues.

First Example of Limits to Economic Growth: Crude Oil

Given that most Americans have a knowledge of history that doesn’t go back much over a month or two, it is no surprise that they cannot conceive of a time without cars, gasoline (preferably cheap), and a pattern of settlement that requires the use of both—our modern suburban landscape. For many years the U.S. was the world’s largest producer of crude oil and the largest exporter of it as well. In 1970, however, our oil extraction reached a peak and then started down hill. We became an importer of oil and today import more oil than any other nation, even though we still produce lots of oil and our extraction has been increasing in recent years.

Since about 2005 the world’s extraction of crude oil has been almost flat, despite prices that rose at one point to around $147 per barrel. Though we may not know for a while whether the world has reached its peak oil production or not, we do know that it will. In the meantime we know that traditional oil fields are getting more and more difficult to find, are harder to get to, and will be more expensive to develop. Alternative sources of oil, such as the Athabascan tar sands, are abundant but also expensive to develop and environmentally undesirable. Substitutes for gasoline, such as corn ethanol, are not only nonsensical from either an environmental or an economic viewpoint, they are also diverting food from humans (mostly via animals) to SUVs, driving food prices upward.

Figure 1 below, by mathematician Tom Murphy on his Do the Math blog, in post called, The Future Needs and Attitude Adjustment, provides a deeper historical perspective on oil production and industrial societies.

Figure 1: Image by Tom Murphy. Original caption: “On the long view, the fossil fuel age is a blip, with a down side mirroring the (more fun) up side.”

You don’t need any knowledge of either deep history or the unpredictable future to get the point of this graph (unless, of course, you are an economist). Like Earth itself, the supply of crude oil is finite, even if we don’t know exactly how much is there, where it all is, or how much of it we can ultimately recover. Though we can tweak this curve, argue about its shape, and nibble along its edges, the basic fact remains: World oil extraction will reach a peak, probably sooner rather than later. After that, extraction will decline, though along what kind of curve we don’t know for sure. Just as the Stone Age did not end because of a lack of stones, the oil age will not end because of a lack of oil. Rather, it will end because what is left of the oil supply will at some point cost far more than it is worth; it will take more energy to extract it than we would get from it.

Knowing this, the prudent course would be to wean ourselves from this energy source as soon as possible, in order to treat our addiction before it is too late. However, we live in one of the most competitive periods in world history. Not only do Americans not want to be parted from their cars but millions of Chinese, Indians, and others are lining up to get their first taste of “the freedom of the road.” That is one of the reasons why, despite a sagging world economy and lower crude oil consumption in the U.S. in recent years, the price of crude oil has hovered around $100 per barrel through most of 2011 ($98.83 on Dec. 31).

Second Example of Limits to Economic Growth: Carbon Emissions and Global Warming

Burning fossil fuels to provide energy at the input end of our economic system results in a combination of outputs or waste products that cannot be removed or neutralized quickly enough by our ocean and atmosphere. That leads to an increasing amount of gases and particulates gathering in both, changing the chemistry of both the ocean and our atmosphere. Among the gases is carbon dioxide, a greenhouse gas that we know plays a role in how Earth’s atmosphere is warmed. Adding more carbon dioxide to our atmosphere is analogous to turning our heater up a little—we get more heat.

We know that the carbon dioxide content of the atmosphere has gone from about 280 parts per million around 1850 to 390 parts per million in 2011, an increase of just over 39 percent. Though we did not discover how to measure the atmospheric content of carbon dioxide directly before the mid-1950s, we do have a careful record of what it has been doing since then, as shown in Figure 2 below (from Wikipedia):

Figure 2. The Keeling Curve of atmospheric CO2 concentrations measured at the Mauna Loa Observatory. (From Wikipedia)

It is hard to miss the upward trend in the carbon dioxide content of the atmosphere since 1958. Few scientists would identify a source for this trend outside of humans and our burning of fossil fuels. Figure 3 below shows how much more carbon dioxide humans are adding each year through the burning of fossil fuels, setting a new record for emissions in 2010 (source):

Figure 3. Greenhouse Gas image from Yahoo News

It also shows the major contributors, China and the U.S. The failure of the U.S. to lead the world toward an economic system less dependent on fossil fuels is monumental. Modeling shows that rising carbon dioxide emissions can be expected to lead to global warming.

Conclusions

Though causes and effects may be difficult to connect, the outbreak of protests around the world in 2011 doesn’t seem coincidental. From the Arab Spring, to Greece and other European countries, to the Occupy Wall Street movement in the U.S., and even to demonstrations in Russia, people have taken to the streets to protest governments, corporations, and policies that are affecting their lives in negative ways. TIME magazine in 2011 chose “The Protestor” as its person of the year.

The are several reasons for people to be angry and upset. High oil prices and more extreme weather conditions have been driving food prices upward and high gas prices act as a tax on consumers, slowing modern economies. In addition, in the U.S. awareness has grown that most of the gains of economic growth are going to the top one percent (or less) of the population. Figure 4 below from Mother Jones (“It’s the Inequality, Stupid,” by Dave Gilson and Carolyn Perot, March/April 2011) says all one needs to know about inequality in the U.S. today.

Figure 4. Average Income Per Family Distributed by Income Group. (From Mother Jones)

Figure 5 below from the Congressional Budget Office shows how things have changed for different income groups in recent decades in the U.S. Citizens who are not in the top 1% are coming out very much worse than those at the top, whether they realize it or not.

Figure 5.

Even as nations continue to prop up banks and the Fed plays games with trillions of dollars, the general feeling seems to be that the “pothole culture” or its equivalent is spreading, that the benefits of what economic growth there is are not being shared equitably, and that many places cannot even maintain what they have in terms of infrastructure. Frustration is widespread, and much of it seems connected to what may be first signs that our modern industrial economy is breaking down. An analogy might be those first tiny pools of oil that you start to see under your car, warning you softly that things may be going wrong.

Unless humanity recognizes the bargain we’ve made with the Devil, and soon, we’ll saddle ourselves or posterity with paying the Devil his due. We cannot treat our current addiction to fossil fuels and economic growth until we admit we have them. Perhaps the best advice I’ve seen lately came from John Greer, who wrote:

Right now, as the limits to growth tighten around us like a noose and an economy geared to perpetual expansion shudders and cracks in the throes of decline, one of the things that’s needed most is the willingness, in a time of gathering darkness, to locate what lamps can still be found, and light them.

Is anyone out there listening? You can bet the Devil is!