March 18, 2012

Prosperity Without Growth: Part 3

Sustainable Development Commission

Adam Smith (1723–1790):
A linen shirt, for example, is, strictly speaking, not a necessary of life …
But in the present times, through the greater part of Europe, a creditable day labourer would be ashamed to appear in public without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty which, it is presumed, no body can well fall into without extreme bad conduct. …
(The Wealth of Nations, 1779)

Amartya Sen:
[To lead a] life without shame [is] to be able to visit and entertain one’s friends, to keep track of what is going on and what others are talking about … requires a more expensive bundle of goods and services in a society that is generally richer …
(The Living Standard)

Gerhard Bosch:
One of the fundamental preconditions for the working time policy pursued in Germany and Denmark … was a stable and relatively equal earning distribution.

Governance for Prosperity


[That it is legitimate] for the state to intervene in … the social logic of consumerism is far less problematic than [it is generally] portrayed.
[The] task is to identify (and correct) those aspects of [the] social structure which [incentivize] materialistic individualism and [by so doing] undermine the potential for a shared prosperity. …
[Balancing] individual freedoms against the social good.
[Exercising] prudent choices … between the present and the future. …

[To] prevent ourselves from trading away [long-term wellbeing for] short-term pleasures, society has evolved a [range] of 'commitment devices': social and institutional mechanisms which [tip] the balance of choice away from the present and in favour of the future. …

[Affluence has progressively eroded and undermined] these commitment devices [through] the relentless pursuit of novelty [and increasing] family breakdown and [declining community trust has been the result].
(p 95, italics added)

[The current schizophrenia of the state has been induced by an] unsustainable macroeconomics.
[To heal both itself, and society more broadly, government must:]
  1. develop and [implement] a robust macro-economics for sustainability
  2. redress the damaging and unsustainable social logic of consumerism [and]
  3. establish meaningful resource and environmental limits on economic activity.
(p 99)


Contents


Macroeconomics for Sustainability

Flourishing Within Limits

Governance for Prosperity


SUSTAINABLE DEVELOPMENT COMMISSION

  • Prosperity without growth?  30 March, 2009.
    Tim Jackson: Professor of Sustainable Development, University of Surrey.

    MACRO-ECONOMICS FOR SUSTAINABILITY


    Growth induces technological efficiency as well as increases in scale.
    [To] achieve environmental goals [efficiency needs] to outrun … scale.
    [However, it] shows no signs of doing so. …

    [A kind] of macroeconomics is [needed] in which stability no longer relies on ever-increasing consumption growth. …


    Changing the 'Engine of Growth'


    … American academic Robert Ayres argues that
    [A] new growth engine is needed, based on non-polluting energy sources and selling nonmaterial services, not polluting products.
    [A model which reduces] the requirement for personal ownership, [improves] the utilisation of capital resources and [lowers] the material intensity of the economy. …
    Growth continues, while resource throughput declines.

    [The] founding concept [of this model] is the production and sale of de-materialised ‘services’, rather than material products.
    [Not] the ‘service-based economies’ that have … been achieved [in the advanced economies] by reducing manufacturing, [while] continuing to import consumption goods from abroad and expanding the financial sector to pay for it.
    (p 76)

    [But] can you really make enough money from these activities to keep an economy growing?
    [We] just don’t know.
    [That we have never] lived in such an economy … doesn’t mean we couldn’t.
    [However, the structural and psychosocial dynamics of growth] don’t seem amenable to [this kind of] moderation …
    Social logic, questions of scale, and the laws of thermodynamics are [significant stumbling blocks to] continued growth with drastic reductions in material intensity. …

    [What about a] steady state economy [in which] a constant stock of physical capital [is] maintained by a low rate of material throughput that lies within the regenerative and assimilative capacities of the ecosystem?
    [How would we] 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.
    Nor do [existing] models properly account for the dependency of [these] aggregates on ecological variables [resource use, reserves, emissions and ecological integrity].

    In short, there is [currently] no macro-economics for sustainability …
    (p 77)


    Macro-economic basics


    The expenditure-based GDP [‘aggregate demand’] is made up from private consumer expenditure, public (government) expenditure, gross investment in fixed capital and net exports.

    The economy is said to be in equilibrium when the aggregate demand matches the aggregate supply ['national income'].
    [National] income is estimated through a ‘production function’ [ie] how much [an economy can produce] with any given input of the factors of production [capital, labour and technological efficiency]. …

    [This] form of production function [takes no] account of material resources and [assumes] that it’s possible to substitute different factors of production indefinitely.
    One way of rectifying this would be to include energy (or other material resources) explicitly within the production function and also to constrain substitution possibilities. …

    No attention is paid in the GDP to the costs associated with the degradation of natural capital from economic activity, either through the impacts of environmental emissions or through the depletion of natural resources.
    [By contrast all kinds of things] are included in the GDP [that are detrimental to human wellbeing such as: congestion, oil spills, and car accidents].
    (p 78)

    Is [there a configuration of] conventional macro-economic variables [that would] reduce the imperative for growth and yet maintain economic stability?
    (p 79)


    In search of the low-growth economy


    [What] kinds of assumptions and policy interventions distinguish the ‘Collapse’ scenario … from the ‘Resilience’ [scenario?]

    The most influential factors are changes to investment and the structure of the labour market.
    Net business investment is reduced … and there has been a shift in investment from private to public goods, implemented through changes in taxation and public spending.
    The labour force has been stabilised, partly through demographic change and partly through [stabilisation of] the overall population.

    [Unemployment is avoided] by reducing both the total and the average number of working hours [and sharing the work equally across the workforce]. …
    Labour productivity is assumed to increase. …
    Reducing the working week is the simplest and most often cited structural solution to the challenge of maintaining full employment with non-increasing output.
    (p 80)

    [Economists] Simone d’Alessandro and Tommaso Luzzati [have explored] the transition from fossil fuels to renewable energy.

    [Such a] transition [would] require substantial [and balanced] new investment. …
    If we invest too slowly, we run out of resources before alternatives are in place.
    Fuel prices soar and economies crash.
    If we invest too fast, there’s a risk of slowing down the economy to the extent that the resources required for further investment aren’t available.
    [There] is a narrow ‘sustainability window’ through which the economy must pass …

    Crucially … this 'sustainability window' is widened if the balance between consumption and investment in the economy is changed.
    [If] the savings ratio is increased and more of the national income is allocated to investment, the flexibility to achieve the transition is higher …


    Beyond the consumption-driven economy


    Public sector spending is often regarded as a ‘necessary evil’ [for correcting market] failures [and providing] a basic [social] safety net …
    Investment is needed now, [not] to stimulate ever higher levels of consumption in the future, but to … effect the transition to renewable energy and to deliver key environmental and social goals.
    [The] public sector, far from being a ‘distortion’ of the free market, has an absolutely crucial role to play in …
    • protecting macro-economic stability,
    • delivering public goods,
    • investing in and managing long-term infrastructure assets, and
    • co-creating the climate for sustainable consumption …
    (p 81)

    [New] macro-economic variables [need to be brought into play] to reflect
    • the energy and resource dependency of the economy [and]
    • the value of environmental services or stocks of natural capital. …
    [It is likely that the] balance between consumption and investment [between the] public and private [sectors], the role of different sectors, [and] the nature of productivity improvement, the conditions of profitability [will all need to be renegotiated. …]

    The traditional function of investment [to boost labour productivity] is likely to diminish in importance.
    Innovation will [need to be targeted] towards sustainability goals. …
    • resource productivity,
    • renewable energy,
    • clean technology,
    • green business,
    • climate adaptation and
    • ecosystem maintenance and protection. …

    [The] nature and scale of investment for sustainability is very different [from driving up productivity in order to stimulate consumption]. …
    [Some] investments in renewable energy [require] much longer time frames than traditional financial markets expect.
    [Investments] in ecosystem protection and maintenance might not bring conventional financial returns at all, even though they are protecting vital ecosystem services [and] contributing to employment. …

    Simplistic prescriptions in which investment contributes to future productivity won’t work here. …
    Investment in long-term infrastructures and public goods will have to be judged against different criteria. …
    [For example, investments] in ecosystem maintenance [may] appear to ‘soak up’ income without increasing economic output. …
    In a conventional growth-based economy this is problematic.
    In a sustainable economy this kind of investment [is] an essential component of macro-economic structure.
    [At] the moment, the tools to analyse this dynamic properly don’t exist, even if the political will to implement such a strategy were in place.
    (p 82)

    A sustainable economy must be capable of
    • resisting … exogenous shocks and [avoiding] the internal contradictions [that caused the recent financial] chaos …
    • [addressing] distributional equity,
    • [imposing] sustainable levels of resource throughput, and
    • [providing] for the protection of critical natural capital.
    (p 83)


    FLOURISHING — WITHIN LIMITS


    Social recession


    [Western] society appears to be in the grip of a ‘social recession’ [marked by]
    • rising rates of anxiety, [depression and problem drinking] …
    • [declining] morale at work …
    • [a] breakdown of community …
    • a loss of trust across society and
    • rising political apathy. …

    [For the political left] the main culprit is the increasing commoditization of public goods and the rising social inequalities that are engendered by capitalism itself.
    [For the political right] it is the overbearing influence of ‘big’ government …

    [One reason] for the breakdown in trust [is] the erosion of geographical community.
    A study by Sheffield University [revealed that while incomes] doubled [over a 30 year period their] ‘loneliness index’ increased in every single region measured. …
    [Even] the weakest communities in 1971 were stronger than any community now.
    The increasing number of people living on their own has [several] causes, including a [rise] in the divorce rate …
    … and improved access to transport …
    [Mobility of labour being] one of the requirements for higher productivity in the growth economy.
    (p 86)


    Alternative hedonism


    Small scale initiatives … are springing up across the country [in response to a sense] that consumer society has [reached a] point, where materialism is now actively detracting from human wellbeing. …

    [There is evidence that] materialistic values such as popularity, image and financial success are psychologically opposed to ‘intrinsic’ values like self-acceptance, affiliation, a sense of belonging in the community.
    [And] that people with higher intrinsic values are both happier and have higher levels of environmental responsibility than those with materialistic values. …
    Some people (up to a quarter of the sample in a recent study) have even accepted a lower income so that they could achieve these goals. …

    ‘Voluntary simplicity’ [draws on the teachings of] Mahatma Gandhi who encouraged people to
    live simply, that others might simply live.
    (p 88)

    [A survey] in Australia found that 23% of respondents had engaged in some form of downshifting in the five years prior to the study [and] 83% felt that Australians are too materialistic.
    [In the US] 28% had taken some steps to simplify and 62% expressed a willingness to do so.
    (p 88)


    The role of structural change


    Examples of the perverse effect of dominant structures are legion:
    • private transport is incentivised over public transport;
    • motorists are prioritised over pedestrians;
    • energy supply is subsidised and protected, while demand management is often chaotic and expensive;
    • waste disposal is cheap, economically and behaviourally; [while] recycling demands time and effort …
    • business salaries are higher than those in the public sector …
    • nurses and those in the caring professions are consistently lower paid;
    • private investment is written down at high discount rates making long-term costs invisible …
    (p 89)

    These kinds of asymmetry [penalise] pro-environmental behaviour, and making it all but impossible even for highly-motivated people to act sustainably without personal sacrifice. …
    [It is because of these structural barriers that] changing the social logic of consumption cannot simply be [left to] individual choice.

    [Two kinds of structural changes are needed] to address the social logic of [consumerism:]
    1. [Dismantling the] incentives for unsustainable (and unproductive) status competition.
    2. [Establishing] new structures that provide capabilities for people to flourish [in less materialistic ways, and to] participate [more] fully in the life of society, .
    Social innovation [must be balanced against] continuity and cohesion …
    (p 90)

    [More] unequal societies systematically report higher levels of distress than more equal [ones]. …

    [Greater] recognition for those engaged in child-care, care for the elderly or disabled and volunteer work would shift the balance … away from status competition and towards a more cooperative [and] altruistic society.

    Increased investment in public goods and social infrastructure [fosters] economic resilience [while sending] a powerful signal about the balance between private interests and the public good. …

    A less materialistic society will be a happier one.
    A more equal society will be a less anxious one.
    Greater … participation in the life of society will reduce [loneliness and anomie].
    Enhanced investment in public goods will provide lasting returns to the nation’s prosperity.
    (p 91)


    GOVERNANCE FOR PROSPERITY


    Two specific components of change have been identified.

    The first … is the need to develop a new macro-economics for sustainability. …
    A resilient economy – capable of resisting external shocks, maintaining people’s livelihoods, and living within our ecological means …

    The second … in shifting the social logic of consumerism …
    [Providing] capabilities for people to participate fully in the life of society, without recourse to unsustainable material accumulation and unproductive status competition.

    Making these changes may well be the biggest challenge ever faced by human society. …


    The role of government


    [Governments] intervene constantly in the social context, whether they like it or [not:]
    (p 94)
    • by the way in which education is structured,
    • by the importance accorded to economic indicators,
    • by public sector performance indicators,
    • by procurement policies,
    • by the impact of planning guidelines on public and social spaces,
    • by the influence of wage policy on the work-life balance,
    • by the impact of employment policy on economic mobility (and hence on family structure and stability),
    • by the effect of trading standards on consumer behaviour,
    • by the degree of regulation of advertising and the media, and
    • by the support offered to community initiatives and faith groups. …
    (p 95)


    Selfishness and altruism


    [Each] society strikes the balance between altruism ["self-transcendence"] and selfishness ["self-enhancement"] and [between novelty and tradition].
    When … self-enhancement and novelty [predominate], then selfish sensation-seeking behaviors prevail over … altruistic ones.
    Where social structures favor altruism and tradition, self-transcending behaviors are rewarded and selfish behaviour may even be penalized. …

    [Do] the institutions that characterize modern society … promote competition or cooperation?
    Do they reward self-serving behaviour or [sacrificing one's] own gain to serve others? …

    The individualistic pursuit of novelty [is the key driver of the] consumption growth [upon which] economic stability depends …
    The erosion of commitment [is both] a structural requirement for growth [and] a structural consequence of affluence. …


    Varieties of capitalism


    Liberal market economies (specifically the UK, the USA, Canada and Australia) led the march towards competition and deregulation, particularly during the 1980s and 1990s.
    Coordinated market economies (such as Japan, Germany, Austria and the Scandinavian countries) depend more heavily on strategic interactions between firms – rather than competition – to coordinate economic behaviour. …

    [It is] in liberalised market economies [that inequality tends to be higher and where, in recent years,] savings rates have fallen [dramatically while] consumer debt has soared.
    … Germany [on the other hand, has struggled with] the opposite problem [- trying] to persuade its citizens to save less and consume more.
    (p 96)

    [Liberalised] market economies tend to have:
    • higher per capita carbon emissions,
    • higher infant mortality,
    • higher teenage pregnancies and
    • a greater percentage of people reporting that they ‘feel like an outsider’.
    [However, there] is some suggestion that the distinctions between liberalised and coordinated market economies are not as profound as they were through the 1980s and 1990s [and neither variety of] capitalism is immune from the … global recession.
    [Ultimately, both are dependent on] the pursuit of economic growth. …


    The conflicted state


    The principal role of government is to ensure that long-term public goods are not undermined by short-term private interests.
    [And yet] governments across the world [have championed] the pursuit of individual freedoms [coupled with the] expansion of the market into [all] areas of people’s lives.
    (p 97)

    [Paradoxically, the] UK, one of the most fiercely liberal market economies, has also been a vociferous [proponent] of sustainability, social justice and climate change policy. …
    [With] one hand to [encouraging] consumer freedoms that lead to growth, [while simultaneously using] the other to protect social goods and defend ecological limits. …
    [It is because of its] responsibility to protect jobs and to ensure stability, [that] the state is bound (under current conditions) to prioritize economic growth … even as it seeks to promote sustainability and the common good.
    Government itself … is caught in the dilemma of growth.

    [Without] strong leadership, change will be impossible.
    Individuals are too [susceptible] to social signals and status competition.
    Businesses operate under market [imperatives].
    [Any transition] from narrow self-interest to [pro-social] behaviors …
    [From] relentless novelty to [considered conservation … would be contingent upon structural] changes … that strengthen commitment and encourage social behaviour.
    [Only government has the capacity to institute such changes.] …

    [The] state is society’s commitment device, par excellence …
    [The principal agent for securing] shared prosperity. …
    [This role] entails shifting the balance of existing institutions and structures away from materialistic individualism [and towards] real opportunities for people to pursue intrinsic goals of family, friendship and community. …
    [Releasing] the macro-economy from the structural requirement for consumption growth [would] simultaneously free government to [deliver] social and environmental goods and [protect] long-term interests.
    [This common goal is essential to both] a macro-economics of sustainability [and] a governance for prosperity.
    (p 98)

    [The current schizophrenia of the state has been induced by an] unsustainable macroeconomics.
    [To heal both itself, and society more broadly, government must:]
    1. develop and [implement] a robust macro-economics for sustainability
    2. redress the damaging and unsustainable social logic of consumerism [and]
    3. establish meaningful resource and environmental limits on economic activity.
    (p 99)

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