Recovery without growth?
| Author | Jackson, Tim |
| Position | Economic growth |
One of the most striking features of the global financial crisis of 2008 was the consensus on the need to re-invigorate economic growth. From the International Monetary Fund to the United Nations Environment Programme (UNEP), from political parties across the political spectrum, and from within both liberal and coordinated market economies, the call was for mechanisms that would 'kick-start' consumer spending and get the economy growing again.
The reason is obvious enough. When spending slows down, unemployment looms large. Firms find themselves out of business. People find themselves out of a job. And a government that fails to respond appropriately will soon find itself out of office. In the short-term, the moral imperative to protect jobs and prevent any further collapse is incontrovertible. The clarion call from every side was to get the economy 'back on the growth path'.
The most interesting variation on this theme during 2008 was the call for a (global) Green New Deal. If the public sector is going to spend money to re-invigorate the economy, argued its advocates, wouldn't it be as well to spend it investing in the new technologies that we know we are going to need to address the environmental and resource challenges of the twenty-first century? (UNEP, 2008; Green New Deal Group, 2008)
Clearly, the Green New Deal advocates weren't proposing a return to the status quo. UNEP called for 'transformational thinking'. The call was for a different kind of growth--what Achim Steiner, Executive Director of UNEP, called a 'green engine of growth' (Lean, 2008). But growth nonetheless. 'Any public spending should be targeted so that domestic companies benefit, and then the wages generated create further spending on consumer goods and services', argued the UK group (Green New Deal Group, 2008, 27).
And yet, it is difficult to escape the conclusion that in the longer term, we're going to need something more than this. Returning the economy to a condition of consumption growth is the default assumption of Keynesianism. But this condition remains as unsustainable as ever. A different way of ensuring stability and maintaining employment is essential. A different kind of economic structure is needed for an ecologically-constrained world.
Macro-economics for sustainability
Put bluntly, the dilemma of growth has us caught between the desire to maintain economic stability and the need to remain within ecological limits. This dilemma arises because stability seems to require growth, but environmental impacts 'scale with' economic output: the more the economy grows, the greater the environmental impact--all other things being equal.
This article focuses on the economic structure that locks us into the 'iron cage' of consumption growth, and explores the need for a different kind of macro-economics. One in which stability no longer relies on ever-increasing consumption growth. One in which economic activity remains within ecological scale. One in which our capabilities to flourish--within ecological limits--become the guiding principle for design and the key criterion for success.
In a sense, it's surprising that such a macro-economics doesn't already exist. There's something distinctly odd about our persistent refusal to countenance the possibility of anything other than growth-based economics. After all, John Stuart Mill, one of the founding fathers of economics, recognised both the necessity and the desirability of moving eventually towards a 'stationary state of capital and wealth', suggesting that it 'implies no stationary state of human improvement' (cited in Daly, 1996).
Though Keynes' macro-economics was largely concerned with the conditions of prudent growth, he also foresaw a time when the 'economic problem' would be solved and 'we prefer to devote our further energies to non-economic purposes' (Keynes, 1930).
And it's now more than three decades since Herman Daly made a case for a 'steady state economy'. He defined the ecological conditions for this economy in terms of: a constant stock of physical capital, capable of being maintained by a low rate of material throughput that lies within the regenerative and assimilative capacities of the ecosystem. Anything other than this, he argued, ultimately erodes the basis for economic activity in the future (Daly, 1973).
Admittedly, this terminology doesn't roll off the tongue easily for economists, who are schooled in a language that rarely even refers to natural resources or ecological limits. And that is clearly one of the points. Economics--and macro-economics in particular--is ecologically illiterate.
Daly's pioneering work provides a solid foundation from which to rectify this. But what we still miss is the ability to establish economic stability under these conditions. We have no model for how common macro-economic 'aggregates' (production, consumption, investment, trade, capital stock, public spending, labour, money supply and so on) behave when capital doesn't accumulate. We have no models to account systematically for our economic dependency on ecological variables such as resource use and ecological services.
Macroeconomic basics
Macro-economics is a scary terrain for the uninitiated. But the main parameters can be set out easily enough. The principal macro-economic variable--the one all the fuss is about, so to speak--is the Gross Domestic Product (GDP). Whether it deserves pride of place in a new ecological macro-economics is an open question. But it's a key element in the macro-economic vocabulary. So it's useful to set out some of its basic characteristics.
Broadly speaking, the GDP is a measure of the 'busy-ness' of the economy. All it does really is count up--as expenditure, income and output--the economic activities going on within a particularly geographical boundary, usually a nation.
Notice straight away that there's something very formulaic about the GDP. It is literally a measure of different kinds of activity. It makes no explicit normative judgement about the nature of those activities. On the other hand, it has implicitly already made some normative judgements. Firstly, by counting only the monetary value of things exchanged in the economy. And also by assuming that all of these monetary values are equivalent.
These implicit judgements give rise to some of the criticisms raised against the GDP. There's lots of things that happen outside of markets that result from or impact on economic activity. Some of these are positive things like the value of household work, caring and voluntary work. Others are negative things, such as the ecological or social damage from economic activities. (These kinds of costs are called 'externalities' in the economic jargon.) No attention is paid by the GDP, for example, to the health or environmental costs of pollution or the depletion of natural resources.
By contrast, there are all kinds of things included in the GDP--the costs of congestion, oil spills, and clearing up after car accidents, for example--which don't really contribute additionally to human wellbeing. These 'defensive expenditures' are incurred because of economic activities that are also counted positively in the GDP. But to count both sets of activities as contributing meaningfully to economic welfare seems perverse.
A more general criticism of the GDP is its failure to account properly for changes in the asset base, even when it comes to financial assets. Gross fixed capital investment is measured. But depreciation of capital stocks goes unaccounted for and the GDP is almost completely blind to the levels of indebtedness that preceded the financial crisis. (This is one of the reasons why it was so easy not to see the crisis coming.) Perhaps even more importantly from our perspective, the depreciation of natural capital (finite resources and ecosystem services) is missing completely from this macro-economic account.
These perversities have generated a long-standing critique of conventional macro-economic accounting. Numerous suggestions have been made for supplementing or adjusting the natural accounts to rectify the situation. For instance, there is a strong argument in favour of including some account of positive benefits from things like household work, adjusting for the depletion of capital (both human-made and natural), subtracting external environmental and social costs, and taking account of defensive expenditures (Common and Stagl, 2005; Daly, 1996, Ekins, 2000; Costanza, 1991; for an overview see Jackson and McBride 2005; see also the interim report of President Sarkozy's newly established Commission on the Measurement of Economic Performance and Social Progress (CMEPSP, 2009)).
There is not the space to go into all the policy implications in this article. The main aim here is to outline how the principal macro-economic variables relate to each other. A key element in that understanding is the balance between supply and demand, and the importance of this balance for labour employment.
Demand depends mostly on people (and government) spending money on goods and services in the economy. How much people spend depends partly on their income. But it also depends on how much of their income they decide to spend rather than save and on how much they're prepared to borrow in order to spend. These things in their turn depend on their confidence in the economy and their expectations about the future.
Supply is determined, in conventional macro-economics, by a 'production function', which tells us how much income an economy is capable of producing with any given input of the 'factors of production'. The most important factors of production (in the conventional model) are capital and labour. Output is calculated by multiplying the factors of production by their 'productivity'. Broadly speaking, productivity captures the technological efficiency with which inputs (factors) are transformed into outputs (1).
Again, critics argue that this form...
To continue reading
Request your trialCOPYRIGHT GALE, Cengage Learning. All rights reserved.
