April 16, 2012

Prosperity Without Growth 3

Tim Jackson

The Independent on Sunday:
We do not agree with the anti-capitalists who see the economic crisis as a chance to impose their utopia, whether of a socialist or eco-fundamentalist kind …
Most of us in this country enjoy long and fulfilling lives thanks to liberal capitalism: we have no desire to live in a yurt under a workers’ soviet.
(2008)

The Economist:
As every hunted animal knows, it is not how fast you run that counts, but whether you are slower than everyone else.
(November, 2008)

Contents


Prosperity Without Growth


The Myth of Decoupling

Confronting Structure

Keynesianism and the 'Green New Deal'


Tim Jackson (1957)


Professor of Sustainable Development, University of Surrey.

  • Prosperity without growth?, Sustainable Development Commission, 30 March 2009.

    The Myth Of Decoupling


    The conventional response to the dilemma of growth is to appeal to the concept of ‘decoupling’.

    Relative decoupling refers to a decline in the ecological intensity per unit of economic output.
    [Resource] impacts decline relative to the GDP [but] don’t necessarily decline in absolute terms. …

    In the case of climate change … absolute reductions in global carbon emissions of 50-85% are required by 2050 in order to meet the IPCC’s 450 ppm stabilisation target.


    Relative decoupling


    [Relative] decoupling is about doing [things more efficiently]:
    • [More] economic activity with less environmental damage;
    • more goods and services with fewer resource inputs and fewer emissions. …
    [The] amount of primary energy needed to produce each unit of the world’s economic output [ie] global ‘energy intensity’ is now 33% lower than it was in 1970. …

    Energy intensity in both the US and the UK is some 40% lower today than it was in 1980. …
    [In] some southern European countries (Greece, Turkey, Portugal e.g.) energy intensity has increased in the last twenty five years. …
    Across the Middle East, energy intensity more than doubled between 1980 and 2006 …
    [In] India it increased at first but has declined slowly since the peak in 1993.
    In China, energy intensity fell by over 70% to the turn of the 21st Century but has now begun to climb again.

    Overall … energy [and material] intensities declined significantly during the last three decades, [particularly in] OECD countries … (p 48)

    [There have been] steady improvements across the OECD countries [in carbon intensity.]
    Significant [worsening] across the Middle East and during the earlier stages of development in India.
    China witnessed some striking improvements early on … partly offset … in recent years.
    (p 49)

    [The] declining global trend in carbon intensity has also faltered in recent years, even increasing slightly since its low point in 2000. …

    For decoupling to offer a way out of the dilemma of growth, resource efficiencies must increase at least as fast as economic output does. …


    Absolute decoupling


    Despite declining energy and carbon intensities carbon dioxide [actual] emissions from fossil fuels have increased by 80% since 1970.
    Emissions today are almost 40% higher than they were in 1990 — the Kyoto base year — and since the year 2000 they have been growing at over 3% per year [due to a] surge in [the] world consumption of coal … What’s true for fossil resources and carbon emissions is [also] true for material throughputs more generally. …
    (p 50)

    [Modern] developed economies [typically move] away from domestic manufacturing [to relying on] more and more [on] finished and semi-finished goods … imported from abroad. …

    In the case of carbon dioxide … recent studies for the UK have confirmed that national accounts systematically fail to account for the 'carbon trade balance'. …
    An apparent reduction in emissions of 6% between 1990 and 2004, as reported under UN FCCC guidelines is turned into an 11% increase in emissions, once emissions embedded in trade are taken into account. …
    (p 51)

    Extraction of iron ore, bauxite, copper and nickel is now rising faster than world GDP …

    As the emerging economies build up their infrastructures, the rising demand for structural materials … put an upward pressure on commodity prices during 2007 and the first half of 2008 …
    Worldwide cement production has more than doubled since 1990, surpassing growth in world GDP by some 70 percentage points. …

    [History] provides little support for the [notion that] decoupling [is viable a] solution to the dilemma of growth. …
    • A massive technological shift;
    • a significant policy effort;
    • wholesale changes in patterns of consumer demand;
    • a huge international drive for technology transfer to bring about substantial reductions in resource intensity right across the world …
    [These are the] changes … that will be needed to [avoid an] inevitable collapse in the resource base [in the not too distant] future. …

    [Could] relative decoupling really proceed fast enough to achieve real reductions in emissions and throughput, and allow for continued economic growth? …

    It’s far too easy to get lost in general declarations of principle:
    • growing economies tend to become more resource efficient;
    • efficiency allows us to decouple emissions from growth;
    • so the best way to achieve targets is to keep growing the economy.
    (p 52)

    [Air] pollutants such as sulphur dioxide and particulates … sometimes show an inverted-U shaped relationship with economic growth [ie] emissions grow in the early stage of growth … then peak and decline.

    [This] relationship only holds [true, in some cases, with] visible environmental effects like smoke, river water quality and acid pollutants …
    [It] doesn’t exist at all for … carbon emissions, resource extraction, municipal waste generation and species loss.
    (p 53)

    Box 3: Unravelling the Arithmetic of Growth


    The Ehrlich equation states that …

    [Environmental Impact (I) = Population (P) × Affluence/Income (A) × Technological Intensity (T)]

    [As applied to] carbon dioxide emissions …

    [Total Carbon Emissions (C) = Population (P) × Income ($/person) × Carbon Intensity (gCO2/$)]

    {In 1990 [population was] 5.3 billion … average income was $4,700 [and] carbon intensity was 860 gCO2/$ …

    5.3 × 4.7 × 0.87 = 21.7 billion tonnes of CO2.}

    [Carbon intensities have declined on average by 0.7% per year since 1990. …
    Population has increased at a rate of 1.3% and average per capita income has increased by 1.4% …]

    [By] 2007 … global population was about 6.6 billion, the average income level … was $5,900, and the carbon intensity was 760 gCO2/$ …

    6.6 × 5.9 × 0.77 = 30 billion tonnes of CO2. …

    The cumulative growth in emissions between 1990 [and] 2007 was 39% (30/21.7 = 1.39) with an average growth rate in emissions (ri) of almost 2% (ri = (1.39)1/17 − 1 = 1.96%). …

    The Arithmetic of Growth


    The IPCC’s Fourth Assessment report suggests that achieving a 450 ppm stabilisation target means getting [emissions] below 4 billion tonnes per annum by 2050 [—] an average rate of [reduction of] 4.9% per year …
    [Australia's current target is a 5% reduction over the next 8 years]

    [The] world’s population is expected to reach nine billion people by 2050 — an average growth of 0.7% each year.
    Under business as usual conditions, the decline in carbon intensity [0.7%] just about balances the growth in population [so] carbon emissions [would grow] at about the same rate as the average income — 1.4% a year.
    [By 2050] carbon emissions [would be] 80% higher …
    [At the higher end of the UN’s population estimates [e.g.] almost 11 billion people — business as usual would more than double global carbon emissions …]

    To achieve an [annual] reduction in emissions of 4.9% with 0.7% population growth and 1.4% income growth [— carbon intensity] has to [fall] by approximately 7% [4.9 + 0.7 + 1.4] each year — almost ten times faster than [the current rate.]
    By 2050 the average carbon [intensity] would need to [36] gCO2/$, a 21-fold improvement on the current global average [768/36].
    (p 54)

    [However, if] we were … serious about fairness and wanted the [whole] world’s nine billion people [to enjoy incomes] comparable with EU citizens today, the economy would need to grow [6 fold by 2050 i.e.] at an average rate of 3.6% a year.
    Achieving the IPCC’s emission target [in this scenario means] pushing down [carbon intensity] by 9% [annually.]
    By 2050, the average carbon intensity would need to be 55 times lower [14 gCO2/$].

    [Factoring in] a 2% increase per annum in the current EU average income [for developed countries, the] global economy grows almost 15 times … and carbon intensity must fall by over 11% [annually.]
    By 2050 the carbon [intensity] has to be no more than 6 gCO2/$.
    That’s almost 130 times lower than the average carbon intensity today.
    (p 55)


    Stark Choices


    [The] International Energy Agency… has the demand for primary energy growing by 45% by 2030, on-track for the 80% hike in carbon emissions …

    [One can never] discount the possibility [of some unforeseen technological miracle.]
    But it’s clear that early progress towards carbon reduction will have to rely on options that are already on the table:
    • enhanced energy efficiency,
    • renewable energy and perhaps
    • carbon capture and storage. …

    Stern [estimated an annual cost of] 2% of GDP [would be needed to achieve] a stabilisation target of 500 ppm …
    The UK Climate Change Committee’s first report [2008] came up with costs consistent with Stern.
    … Price Waterhouse Coopers estimated the costs of achieving a 50% reduction in global carbon emissions at 3% of global GDp …

    [These] numbers may underestimate the economic impact of addressing climate change. …
    [Carbon] abatement policies [could] interfere more seriously with productivity than many macro-economic assessments suggest [and] early climate change impacts could themselves reduce potential growth.
    (p 56)

    [No] attempt is made to develop scenarios in which incomes are distributed equally across nations. …
    [There] is as yet no credible, socially-just, ecologically-sustainable scenario of continually growing incomes for a world of nine billion people.
    [Simplistic] assumptions that capitalism’s propensity for efficiency will allow us to stabilise the climate or protect against resource scarcity are nothing short of delusional. …
    [It] is entirely fanciful to suppose that ‘deep’ emission and resource cuts can be achieved without confronting the structure of market economies.
    (p 57)


    Confronting Structure


    With a massive policy effort and huge technological advances, perhaps we could reduce resource intensities the two or three orders of magnitude necessary to allow growth to continue — at least for a while.
    And yet, the idea of running faster and faster to escape the damage we’re already causing is itself a strategy that smacks of panic. …

    [Two] interrelated features of economic life … are central to the growth [dynamic:]
    • the profit motive [which] stimulates newer, better or cheaper products and services through a continual process of innovation and ‘creative destruction’ [and]
    • expanding consumer demand, driven by a complex social logic.
    These two factors combine to drive ‘the engine of growth’ on which modern economies depend and lock us in to an ‘iron cage’ of consumerism.


    Economic structure


    [Firms] employ labour (people) and capital (buildings and machinery) to produce the goods and services that households want and need.
    Households (people) offer up their labour and capital (savings) to firms in exchange for incomes.
    Revenue from the sale of goods and services is what allows firms to provide people with incomes.
    People spend some of this income on more consumer goods [and rest is saved. …]
    (p 60)

    Missing from this over-simplified ['circular flow'] picture of the economy are …
    • the public sector (government),
    • the foreign sector (overseas firms, households and governments) and
    • the financial sector — which mediates the financial flows of the circular economy. …
    Global credit markets facilitate one of the most fundamental features of capitalism: the dual role of saving and investment. …

    [Household] savings are invested — either directly or through an intermediary [back into] businesses to generate profits.
    (p 61)

    Firms … seek profit [to:]
    • [provide] them with working capital (cash) …
    • pay off the company’s creditors — people who’ve lent the firm money in expectation of a return. …
    • pay dividends to shareholders — people who’ve bought a share in the company. …
    • maintain its capital stock [buildings and equipment] and invest in new processes and technologies. …
    • improve efficiency — in particular labour productivity. …

    The driver for efficiency is … the need to increase the difference between revenues from sales and the costs associated with … factor inputs — capital, labour and material resources. …

    [Capital] investment is [needed] to achieve [such cost reductions in] labour and materials. …
    This … motivates the search for low-cost credit and highlights the dangers of credit drying up …

    In a growing economy, wages rise in real terms.
    Until very recently … material costs have been falling in real terms.
    So … companies have invested preferentially in technologies that reduce labour costs even if this increases material costs …

    [Higher] labour productivity lowers the cost of its products and services.
    Foregoing that possibility runs the risk of the company [delivering] lower profits to its shareholders, and [risking] capital flight from the company.

    [Producing] the same quantity of goods and services with fewer people … creates a downward pressure on employment that’s only relieved if output increases. …

    Labour productivity more than doubled in the UK between 1976 and 2005.
    But the GDP grew even faster (by 133%) and this allowed for the unemployment rate to fall by half a percentage point over the period. …

    By reducing labour (and resource) inputs, efficiency brings down the cost of goods over time … stimulating demand and promoting growth.
    [Technological progress thus] serves to increase production output by reducing factor costs. …

    Money saved through energy efficiency, for example, gets spent on other goods and services.
    These goods themselves have energy costs that offset the savings made through efficiency, and sometimes wipe them out entirely (a situation described as ‘backfire’). …
    (p 62)

    [This is why] efficiency will never be sufficient to achieve the levels of decoupling required for sustainability.
    [Relative decoupling may perversely] decrease the chances of absolute decoupling. …

    [Novelty,] the process of innovation, is vital in driving economic growth {— even successful companies cannot survive simply through cost-minimisation.}
    Capitalism proceeds … through a process of ‘creative destruction’.
    New technologies and products continually emerge and overthrow existing technologies and products.

    The ability to adapt and to innovate — to design, produce and market not just cheaper products but newer and more exciting ones — is vital. …
    [And when] credit dries up, so does innovation. …

    [Is] there a point at which enough is enough … ?

    [Apart from] the structural reliance of the system itself on continued growth … proponents also point to [advances in medical science] which have contributed to increased longevity; or the sheer variety of experience which now contributes to our modern quality of life.

    [But] there is something even more deep-rooted at play here, conspiring to lock us firmly into the cycle of growth.


    Social logic


    [Material] artefacts constitute a powerful ‘language of goods’ that we use to communicate with each other — not just about status, but also about identity, social affiliation … our feelings for each other, our hopes for our family, and our dreams of the good life. …

    [Stuff] is not just stuff. …
    Material things … facilitate our participation in the life of society. …
    (p 63)

    [Material possessions form] part of the ‘extended self’ [and] we even feel a sense of bereavement and loss when they are taken from us.
    Some of these attachments are fleeting. …
    Others last a lifetime. …

    New products are inherently expensive [and] may even be launched at premium prices deliberately to attract those who can afford to pay for social distinction.

    After distinction comes emulation. …
    [The] sheer wealth and enormous variety of material goods has a democratising element to it, [allowing] more and more people to go about inventing and reinventing their social identities …
    [This] continual re-invention of the self [is arguably what] distinguishes consumer society from its predecessors. …
    [It is] because material goods are flawed, but somehow plausible, proxies for our dreams and aspirations, that consumer culture seems, on the surface, to work so well.
    [And] it is this social dynamic, rather than physiological flourishing, which [explains] why our desire for material goods appears so insatiable.


    Novelty and anxiety


    [The] extended self is ultimately an ‘empty self’ …
    (p 64)

    [There is a] perfect fit between the continual consumption of novelty by households and the continuous production of novelty in firms.
    The restless desire of the ‘empty self’ is the perfect complement for the restless innovation of the entrepreneur. …

    [Unsurprisingly] this restlessness doesn’t necessarily deliver genuine social progress. …

    Thrive or die is the maxim of the … the consumer society.
    Nature and structure combine [to lock us] into the iron cage of consumerism.

    The relentless pursuit of novelty may undermine wellbeing.
    But the system remains economically viable as long as liquidity is preserved and consumption rises.

    [Such is the] enormity of the challenge [of] delivering a truly sustainable form of prosperity.
    [To] develop a different kind of economic structure. …
    [And to escape] the institutional and social constraints that lock us into a failing system.
    [We] need to identify opportunities for … changes in values, [lifestyles and social structure] that will free us from the damaging social logic of consumerism.

    Only through such changes will [we get] ‘unhooked’ from [our addiction to] growth …
    [Will we] free ourselves from the relentless flow of novelty that drives material throughput and [achieve a] lasting prosperity … within ecological and social limits.
    (p 65)


    Keynesianism and the "Green New Deal"


    Kick-starting the economy

    • [Stimulate] credit to businesses and consumers (for example by cutting interest rates),
    • [Increase] people’s spending power (for example by cutting taxes) or
    • [Increase] public spending on jobs and infrastructure. …


    Stimulating credit increases the availability of investment capital to firms and at the same time reduces the cost of debt to consumers. …
    But making credit … cheaper also played a critical role [in creating the] crisis …
    Reducing the interest rate also reduces the incentive to save …

    One of the dangers of [putting more money in people’s pockets] is that [they] are more inclined to save during a recession.
    (p 68)

    … Keynes called [this] the ‘paradox of thrift’. …
    It’s entirely rational for each individual (or firm) to save a bit more in a crisis.
    But [increased] saving reduces high street spending still further, deepening and lengthening the recession. …


    Green New Deal


    Targeting that investment carefully towards energy security, low-carbon infrastructures and ecological protection offers multiple benefits. …
    • freeing up resources for household spending and productive investment by reducing energy and material costs
    • reducing our reliance on imports and our exposure to the fragile geopolitics of energy supply providing a much-needed boost to jobs in the expanding ‘environmental industries’ sector
    • making progress towards the demanding carbon emission reduction targets needed to stabilise the global atmosphere
    • protecting valuable ecological assets and improving the quality of our living environment for generations to come. …

    [The UN Environment Program's] global Green New Deal [extended investment to include] sustainable agriculture and ecosystem protection.
    Ecosystems already provide tens of trillions of dollars worth of services to the world economy. …
    (p 69)

    The IEA has estimated that energy investment needs between 2010 and 2030 will be in excess of $35 trillion.
    Bringing forward some of this investment and targeting it … at renewable energy, low-carbon technologies and energy efficiency could pay massive dividends later. …

    [The] Political Economy Research Institute … identified six priority areas for investment:
    • retrofitting buildings,
    • mass transit/freight rail,
    • smart grid,
    • wind power,
    • solar power and
    • next generation biofuels.
    [Spending $100 billion] over a two year period would create [an estimated] 2 million new jobs.


    Strategies for job creation

    • [The] direct creation of public sector jobs,
    • financial support to boost employment in specific sectors, or
    • indirect support for jobs through measures to stimulate demand.

    [Public] sector employment … benefits to the economy from investment in productive infrastructure (roadbuilding, for example, in the New Deal).
    [It generates] a part of what has been called the ‘social wage’ — a return to households from government spending in the form of wages, health and education benefits and social services. …

    [Enormous] sums of money were committed to the direct support of the financial sector.
    By the end of 2008, an estimated $7 trillion had been spent globally in underwriting toxic assets, recapitalising banks and attempting to restore confidence … and stimulate lending. …
    [The] car industry received direct support in both the UK and the US. …

    [Broader] fiscal recovery packages [included] a mixture of tax cuts, social spending and public investment. …
    (p 70)

    [The] Obama administration brought in a fiscal stimulus package equivalent to 5% of US GDP …
    The $787 billion package [included] around $290 billion in tax cuts …
    (p 71)


    The potential for "green" recovery


    In the UK [the] ‘green stimulus’ element [of the 2008 budget was] a little over 1% of the GDp …

    [The] US ARRA explicitly identified about $130 billion of spending (16% of the total stimulus) in environmental investment. …
    • $32 billion investment in the electricity grid,
    • $22 billion on energy and carbon saving in homes …
    • $31 billion in the public estate,
    • $19 billion in ecosystem maintenance and flood protection and
    • $10 billion on public transport.

    [The] likely annual investment needed to achieve a low carbon society could be as high as 3% of GDP per annum.
    For the US, this would [amount to] over three times the size of the environmental investment outlined in the ARRA.
    [In] the UK, [about] £45 billion a year [would be needed], massively higher than anything proposed so far … The SDC has … identified a range of possible investment targets. …
    • [a] 20 year plan to retrofit the existing housing stock to high energy performance standards
    • substantial investment in renewable energy …
    • the reinforcement of the electricity grid to facilitate decentralised energy technologies, support renewable energy companies and improve control
    • to reduce car use through a combination of better public transport, investment in walk-ability, cyclability and the roll-out of personal travel planning …
    • massive investment in the energy efficiency of the public estate with the aim of delivering low carbon public services across the country.

    [Green] investment packages … offer the potential for direct financial returns [most obviously] in the form of fuel and resource savings.
    [Improvements in] the energy efficiency of the domestic housing stock have payback times of less than two years. …

    {[The] UK Department for Transport has estimated that each £1 spent in reducing car use saves up to £10 in the economy through a combination of fuel savings, reduced congestion costs, and lower pollution levels.
    (p 71)

    [The] recovery packages put forward in the immediate response to the 2008 crisis … were based on deficit spending over the short term in the hope of stimulating sufficiently robust growth that national debt can be reduced [over] the longer term. …
    [Kick starting the cycle of business] innovation (creative destruction) and consumer demand (positional spending) [to drive] consumption forwards.
    And with employment depending on it, [no means of] getting off the treadmill.
    (p 72)


    Beyond recovery


    Massive investment is required to achieve sustainability.
    The current crisis is exactly the right time to commit to that investment.
    And … the employment and resource saving benefits might be considerably better than for other kinds of spending. …

    The poorest [are] hardest hit [by] recession …
    Income inequality is higher in the UK today than it was in the mid-1980s.
    (p 74)

    An unequal society is [one readily given] to ‘positional consumption’ that adds little to overall happiness …

    [In] the longer term, we’re going to need something more …
    [The] systemic drivers of growth push us relentlessly towards ever more unsustainable resource throughput.
    A different way of ensuring stability and maintaining employment is [needed in] an ecologically-constrained world.
    (p 75)

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