THE CASE AGAINST GROWTH.
Almost all politicians, bureaucrats, journalists, ordinary people, and especially economists assume without question that economic growth is not just good, but essential. Economic growth is the supreme social goal. Nothing is anywhere near as important as raising material “living standards” and the GDP. If growth in production and consumption falters firms go bankrupt, unemployment rises, etc. Output must increase by at least 3% p.a. all the time if the economy is to be “healthy”.
For 50 years there has been an accumulating literature pointing out the contradiction between the pursuit of economic growth and ecological sustainability, although this has had negligible impact on economic theory or practice. A few, notably Herman Daly, have continued to attempt to get the notion of a steady-state economy, and the need to shift to it, onto the agenda but it has only been in the last few years that discussion has begun to pick up (e.g., in the valuable account by Jackson, 2009.) Now there is a substantial European ”De-growth” movement, and CASSE (2010) has emerged.
The argument in this paper is that the implications of this call for transition to a steady-state economy have not been understood at all well, especially by its advocates. Most proceed as if we can and should eliminate the growth element of the present economy while leaving the rest more or less as it is. It will be argued firstly that this is not possible, because this is not an economy which has growth; it is a growth-economy, in which most of the core structures and systems involve growth. If growth is eliminated then very different ways of carrying out many fundamental processes will have to be found. Secondly, the critics of growth typically proceed as if it is the only or the primary or the sufficient thing that has to be fixed, but it will be argued that the major global problems facing us cannot be solved unless several fundamental systems and structures within consumer-capitalist society are radically remade. What is required is much greater social change than Western society has undergone in several hundred years.
Before offering support for these claims it is important to sketch the general “limits to growth” situation confronting us. What is not generally appreciated is the magnitude and seriousness of the problem. Only when this is appreciated is it possible to grasp that the social changes required must be huge, radical and far reaching, i.e., that consumer-capitalist society cannot be reformed or fixed; it has to be largely scrapped and remade along quite different lines.
The “limits to growth” case; An outline.
The planet is now racing into a many massive problems, any one of which could bring about the collapse of civilization before long. The most serious are the destruction of the environment, the deprivation of the Third World, resource depletion, conflict and war, and the breakdown of social cohesion. The main cause of all these problems is over-production and over-consumption – people are trying to live at levels of affluence that are far too high to be sustained or for all to share. Our society is grossly unsustainable – the levels of consumption, resource use and ecological impact we have in rich countries like Australia are far beyond levels that could be kept up for long or extended to all people. Yet almost everyone’s supreme goal is to increase material living standards and the GDP and production and consumption, investment, trade, etc., as fast as possible and without any limit in sight. There is no element in our suicidal condition that is more important than this mindless obsession with accelerating the main factor causing the condition.
It is essential to grasp the magnitude of the overshoot. Consider the situation.
Š If the 9 billion people we will have on earth within about 40 years were to use resources at the per capita rate of the rich countries, annual resource production would have to be about 8 times as great as it is now.
Š If 9 billion people were to have a North American diet we would need about 4.5 billion ha of cropland, but there are only 1.4 billion ha of cropland on the planet.
Š Water resources are scarce and dwindling. What will the situation be if 9 billion people try to use water as we in rich countries do, while the greenhouse problem reduces water resources?
Š The world’s fisheries are in serious trouble now, most of them overfished and in decline. What happens if 9 billion people try to eat fish at the rate Australian’s do now?
Š Several mineral and other resources are likely to be very scarce soon, including gallium, indium, helium, and there are worries about copper, zinc, silver and phosphorous.
Š Oil and gas are likely to be in decline soon, and largely unavailable in the second half of the century. If 9 billion were to consume oil at the Australian per capita rate, world demand would be about 5 times as great as it is now. The seriousness of this is extreme, given the heavy dependence of our society on liquid fuels.
Š Recent "Footprint" analysis indicates that it takes 8 ha of productive land to provide water, energy, settlement area and food for one person living in Australia. (WWF, 2009.) So if 9 billion people were to live as we do about 72 billion ha of productive land would be needed. But that is about 10 times all the available productive land on the planet.
Š Footprint analysis shows that we would need 1.4 planet Earths to provide the quantity of resources we (...we few in rich countries) are consuming, at a sustainable rate. We are at this rate because we are using up stocks, e.g., cutting forest faster than it can maintain itself. How many planets to provide for 9 billion living as we expect to in 2050?
Š The most disturbing argument is to do with the greenhouse problem. It is very likely that in order to stop the carbon content of the atmosphere rising to dangerous levels we must totally eliminate emissions of CO2 by 2050 (Hansen says 2030), and probably by 2050. (Hansen, 2009, Meinshausen et al, 2009.) Geo-sequestration can’t do this, if only because it can only capture about 85% of the 50% of emissions that come from stationary sources like power stations.
These kinds of figures make it abundantly clear that rich world material “living standards” are grossly unsustainable. We are living in ways that it is impossible for all to share. We are not just a little beyond sustainable levels of resource consumption -- we have already overshot by a factor of 5 to 10. Most people have no idea about the magnitude of the overshoot, and therefore about the enormous reductions that must be made.
Now add the absurd implications of economic growth.
The above figures refer to the present situation, but that does not define the problem we face -– the problem is what will the situation be in future given the determination to increase production and consumption all the time and without limit?
At least 3% p.a. economic growth is demanded and usually achieved in this society. If Australia had 3% p.a. increase in output to 2050 and by then all 9 billion people expected had risen to the material living standards Australians would have, the world would be producing almost 20 times as much as it does today! Yet the present level is grossly unsustainable.
“Don’t worry, because technical advance will make it all possible.”
We come now to the crucial assumption most people make, i.e., that there is no need to even think about questioning growth, let alone reducing consumption or economic output, let alone cutting GDP by a factor of 5 to 10. The generally assumed view is, “We will all be able to go on buying lots of goods, living in gigantic houses, driving long distances, going away for holidays, jetting around the world, having elaborate wardrobes etc., and increasing our consumption of those things every year – because our wizard technologists will find ways of producing goods and running cars etc. without causing significant problems. Indeed the needed ways already exist; it’s just that our dull-witted politicians have failed to implement them.”
But the overshoot is far too great for any plausible technical advances to be able to reduce the problems to tolerable proportions. Perhaps the best known "technical fix" optimist, Amory Lovins, claims that we could at least double global output while halving the resource and environmental impacts, i.e., we could achieve a "Factor Four" reduction. ( Von Weizacher and Lovins, 1997. More recently a Factor Five reduction has been argued.) But this would be nowhere near enough to solve the problems.
Let us assume that present global resource and ecological impacts must be halved (and much more than that is needed.) It has been explained that if we in rich countries average 3% growth, and 9 billion rose to the living standards we would then have by 2050, total world output would be almost 20 times as great as it is today. Now do you think technical advance will make it possible to multiply total world economic output by 20 while halving impacts, i.e., enable a Factor 40 reduction?
“But what about renewable energy sources?”
No assumption in this area is more basic or more unexamined than that renewable energy sources can be substituted for fossil fuels, thereby enabling abundant energy affluence while eliminating the greenhouse and other problems. The reasons why I and others believe this faith is wrong were detailed in Renewable Energy Cannot Sustain A Consumer Society (Trainer 2007). A shorter revised and stronger case is given in Trainer 2012.) Following is an indication of the argument, dealing with the common claim that vehicles could be fuelled by biomass.
We will probably produce no more than 7 tonnes of biomass per ha from very large scale production, and 7 GJ of ethanol per tonne of biomass. Thus it would take 2.6 ha to produce the 128 GJ each Australian uses each year as oil plus gas. If 9 billion people were to live as we do now we would need 23 billion ha of forest…on a planet that has only 13 billion ha of land.
Similarly, the IPCC (2011) reports that the average figure from estimates of global biomass energy potential is about 250 EJ/y, corresponding to about 100 EJ/y of liquid fuel. For a global population of 9 billion that means around 11 GJ per capita per year...which is around 5% of the present Australian per capita transport plus electrical energy consumption.
This does not mean we should forget about renewables. They are the sources we should be moving to full dependence on as soon as possible. But they can’t fuel a consumer society for all. They have to be part of The Simpler Way.
The failure of the Greens.
Despite the overwhelming case against growth, and the obvious point that there is no possibility of solving the environment problem unless we shift to far lower GDP in a zero-growth economy, green movements and political parties have almost totally ignored the issue. The original German Green Party saw the need for vast and radical system change away from consumer-capitalist society. But now almost all green effort goes into merely trying to reform that society so that its damage to the environment will be reduced somewhat. Virtually no green parties of groups or political parties are working for transition to a kind of society that does not inevitably and increasingly destroy the environment. Almost none of their attention is given to the topic of growth. (For instance Geof Mosley’s recent book details the continued refusal over many years of the Australian Conservation Foundation to deal with it. Mosley, 2010.)
Green groups are among those who make the strongest claims that better technology, especially renewable energy, can solve the problems and eliminate any need to face up to system change...if only the politicians would implement the available solutions.
Many well-known green gurus such as Jonathan Porritt, Paul Hawken, Lester Brown, Amory Lovins and Tim Flannery never suggest that to solve the problems we must change from consumer-capitalist society. Several explicitly argue that “green capitalism” will solve the environment problem while enabling us to go on getting richer and richer. It is not surprising that they are popular.
The reason for this failure/refusal is of course that if they spoke up against the pursuit of growth and affluence in a society that is fiercely and blindly obsessed with striving for growth and affluence, they would quickly lose their subscribers and electoral support.
The significance of growth in “development” theory.
The never-questioned conventional conception of development for the five billion poor people in the Third World is basically, “development = growth”. Just facilitate increase in the volume of production for sale and more wealth for all, jobs, income and will result...and someday they will have risen to rich world “living standards”.
This is absurd and morally repugnant. Firstly, the goal of development so conceived is utterly impossible; there are nowhere near enough resources for the Third World to ever rise to anything like the “living standards’ of the rich countries.
Secondly this approach to development guarantees that the rich few get most of the world’s wealth. The global economy delivers most of the world’s resource wealth, e.g., oil, to the rich countries. Why – how? Simply because it is a market system and in a market most scarce and valuable things go to the rich – because they can pay most for resources and goods. This principle ensures that the development taking place in the Third World is little more than development of the things that will enrich the corporations from the rich countries and the people who shop in rich world supermarkets.
Thus the global economy totally ignores the needs and the rights of people and ecosystems. It allows, guarantees that 850 million people starve while 600 million tonnes of grain are fed to animals in rich countries every year and most of the best land in many hungry countries is put into export crops. Conventional development, i.e., development determined by market forces and profit, is therefore clearly a form of plunder – it puts the productive capacity of the Third World into enriching us not them.
Conventional development theory and practice are based on the idea of “growth and trickle down”, i.e., the assumption that if we all enthusiastically pursue growth within the market place then this will be the best way to raise the Third World to satisfactory living standards. What a delight for the very rich! “No need to think about redistributing existing wealth, or producing what’s needed rather than what’s profitable…just produce whatever most enriches the already rich and wealth will trickle down to enrich all.” This is to say we should be content with an approach to development which delivers almost all of the Third World’s produced wealth to us in rich countries while a tiny fraction of it benefits Third World people.
“But look at China!” Yes there are places in the global economy where some people are winning spectacularly, and where significant benefits are going to poorer people. There is strong evidence that the ‘living standards” of large numbers of people in the Third World are indeed rising significantly. (See for instance Rosling,.) However this does not mean the Trickle Down approach is acceptable or that it could solve the basic problems.
Firstly the booming export markets the Chinese now enjoy have been taken from many in poor countries who once had them but now can’t earn from exporting the things they used to sell. Also it is easy to overlook the fact that 800 million Chinese are not sharing in the new wealth. (Hutton, 2007.) Market based systems mostly benefit the middle class and the rich, and create limited opportunities for some to rise to the middle class. Ask 500 million in Africa, or people in Haiti and Tuvalu about the miracles of growth and trickle down as the best way to improve things. Most of them are probably enjoying declining GDP per capita. (…which of course just means they need to work harder, cut their export prices, log more forest…) Very little ever trickles down to the poorest, and globalisation has increased the rate at which the resources of the very poorest are transferred to the rich. (For extensive documentation see Note 2.)
Even for those poor classes benefiting from the growth and trickle down approach to development, the rates evident show that it would take hundreds of years for them to rise to rich world “living standards”. Meanwhile the rich countries would have risen to statospheric levels...and resources would have been exhausted and the ecosystems of the planet would have collapsed long ago.
Even if the growth and trickle down approach was solving the most serious problems it is obviously a horrendously wasteful and unjust strategy. For every crumb it delivers to the poor majority great wealth is heaped on the already rich.
The rich countries go to a lot of trouble to keep the unjust global economy in place. They use aid, support for nasty Third World regimes, World Bank Structural Adjustment Packages, and provision of arms, and they resort to military invasion, in order to maintain the governments and systems that ensure that our corporations and shoppers continue to get most of the world’s resource wealth and to take most of the markets. The rich countries deliberately prevent appropriate development, i.e., the application of the Third World’s productive capacity, its labour, land, skills and capital, to developing the simple things that would do most to quickly increase the welfare of its people. The conditions written into the World Bank’s Structural Adjustment Packages explicitly decree that productive capacity must be free for market forces to determine what it will be put to -- that is free for corporations to use in whatever way will maximise their global profits.
Our high material “living standards” can not continue to be provided unless these appallingly unjust systems and processes remain. We could not live anywhere near as well as we do if you were not getting most of the available tin, coffee, oil etc.
Thus growth is a major cause of all the big global problems.
This “limits to growth” analysis is crucial if one is to understand the nature of the environmental problem, the Third World problem, resource depletion and the problem of armed conflict in the world. Although there may also be other causal factors at work, all these problems are directly and primarily due to the fact that there is far too much producing and consuming going on.
For instance, we have an environment problem because far too many resources are being drawn out of nature and far too many wastes dumped back in, at rates technical advance cannot cut to sustainable levels. We have an impoverished and underdeveloped Third World because people in rich countries insist on taking most of the resources, including those in the Third World that should be being used by Third World people to meet their own needs. And how likely is it that we will ever have peace in the world if resources are very scarce and all cannot have them at the rate a few do now, yet all insist on getting richer and richer all the time without limit? If you insist on remaining affluent then you should arm yourselves heavily, you will need arms if you want to continue to take far more than your fair share. Do you think that “terrorism” has nothing to do with the intense hatred and resentment within the Third World at the long history of rich world greed and brutality in the theft of Third World resources?
Reflect on the overproduction, the waste.
The growth imperative creates and magnifies waste. Again, we are already far beyond levels of production and consumption the planet can sustain, and this is causing all our big problems. Yet this economy forces everyone to struggle to produce, sell, earn, buy, invest more all the time. Obviously we could provide everyone with idyllic lifestyles with a tiny fraction of the amount of work and production going on now, but everyone has to work harder, find something to sell, compete harder, innovate and find new products to put on sale, and spend huge sums “marketing” (i.e., trying to get people to buy things they otherwise would not buy.) In other words, despite the extreme overproduction and waste, we are obliged to accelerate these, or there will be recession and depression. Any increase in sales is applauded as ”good for the economy”. An economic system with these characteristics is absurd.
Consider the comparison between the US and the Cuban health systems. Both countries have a life expectancy of 78 years, so the general level of health is about the same in the two. The Cuban national health expenditure per capita is $193. The US figure is $4,500! ...and until Obama’s reforms 30 million Americans could not afford any health insurance. No one in Cuba goes without health care...and Cuba sends about one-third of its doctors to serve for a time in poor countries.
The US system is loaded down with wealth siphoning mechanisms, lots of rules and arrangements whereby corporations, professionals and bureaucracies get their snouts in the trough and force people to pay vast sums for high-profit services that could be avoided or provided far more cheaply. The system is a delight for many of drug companies, medical testing services, specialists, high-tech hospitals and aged care facilities, all out to maximise their profits rather than provide the best or most needed care. Above all little is spent on preventing illness and keeping people healthy while vast sums are spent on the far more profitable business of attending to people when they become ill. But to scrap the system and replace it with a Cuban-style system would cause economic chaos; there would be a leap in unemployment and bankruptcy. Again, in this economy it is crucial to multiply and magnify sales; overconsumption and constant growth in consumption are essential. Eliminate waste and you ruin the system.
How is it that over the last three or four decades the GDP per capita has doubled in rich countries, yet we are working harder than decades ago, and rates of unemployment, homelessness, poverty are in general not been reduced. We could now have the same per capita “living standards” we had in 1970 on a two to three day working week. Where has all that increased wealth gone. Just take a glance at the inequality distributions; it has gone to the rich and super rich. The real income of 80-90% of US workers has not increased in decades! Yet they all believe it is crucial to work harder, innovate, invest in order to grow the economy as fast as possible.
The quality of life.
The ultimate paradox is that for decades it has been clear in the scientific literature that increasing the GDP of rich countries does not increase the quality of life. (Eckersley, 1997.) In fact we are now probably seeing a falling quality of life in the richest countries. What then is the point of striving for economic growth?
“But growth will make us so rich we will be able to afford to save the environment.”
This statement reveals the warped of thinking the conventional economic mind typically comes up with…just create more monetary wealth and we can solve all problems with it. The fatal mistake in the argument is transparent. If we don’t reduce “wealth” production dramatically and quickly the environmental consequences will soon eliminate our capacity to produce any wealth at all!
To repeat, the point of the foregoing sketch has been to make clear the magnitude of the problem. The volumes of producing and consuming going on in the world are already many times beyond levels that might be sustainable. It is not just a matter of getting to an economy that does not grow any further; the imperative is to reach a steady state economy in which production, consumption, investment, trade and GDP are very small fractions of their present quantities. The following discussion seeks to show that this means that most of the core structures and systems in this society will therefore need to be remade.
The far reaching and profoundly radical implications of zero-growth.
The growth problem is not just that the economy has grown to be too big, now depleting resources and damaging ecosystems. The more central problem is that growth is integral to the system. Most of the systems basic structures and mechanism are driven by growth and cannot operate without it. It is not that this society has a growth economy; it is that this is a growth society. Growth cannot be removed leaving the rest of the economy more or less as it is. Unfortunately people in the current “De-growth” movement tend to think growth is like a faulty air conditioning unit on a house, which can be taken away and the house will function the way it did before.
o If you do away with growth then there can be no interest payments. If more has to be paid back than was lent or invested, then the total amount of capital to invest will inevitably grow over time. The present economy literally runs on interest payments of one form or another; an economy without interest payments would have to have totally different mechanisms for carrying out many processes.
o Therefore almost the entire finance industry has to be scrapped, and replaced by arrangements whereby money is made available, lent, invested etc., without increasing the wealth of the lender. That is utterly incomprehensible to most current economists, politicians and ordinary people.
o Among related problems is how to provide for old age, when this can’t be done via superannuation schemes relying on returns on investment?
o The present economy is literally driven by the quest to get richer; this motive is what gets options searched for, risks taken, construction and development underway, etc. The most obvious alternative is for these actions to be motivated by a collective effort to work out what society needs, and organise to produce and develop those things at a stable rate. This involves an utterly different world view and driving mechanism. We would have to find another way to ensure innovation, entrepreneurial initiative and risk taking when people can’t look forward to getting richer from their efforts. (This is not a difficult problem; See Trainer 2010, Ch 5.)
o The problem of inequality would become acute and would demand attention. It could not be dealt with by assuming that “the rising tide will eventually lift all boats“. In the present economy growth “legitimises” inequality and defuses the problem. Extreme inequality is not a source of significant discontent because it can be said that economic growth is raising everyone’s “living standards”. But if the pie remains at a constant size, and everyone is driven by a competitive struggle to get richer all the time, before long the most energetic/talented/ruthless few will have taken most of the pie. Thus inequality would have to be addressed and dealt consciously and deliberately, involving social decisions regarding distribution and fair shares...and again if that happened it would be a very different kind of society
o Above all, if there is to be no growth there can be no role for market forces. Many people who oppose growth do not realise this. The market is about maximising; i.e., about producing, selling, and investing in order to make as much money as possible over time, and then seeking to invest, produce and sell more, in order to make as much money as possible. In other words there is an inseparable relation between growth, the market system and the accumulation imperative that defines capitalism. If we must cease growth we must scrap the market system. (This is not the main reason why the market system must eventually be scrapped. See The Case Against the Market.)
o The above changes could not be made unless there was also a profound cultural change, involving nothing less than the abandonment of the desire to gain. For more than two hundred years Western society has been focussed on the quest to get richer, to accumulate wealth and property. (This is a point focal in the writings of Polanyi, and Tawney.) This is what drives all economic activity, such as the innovative and investment behaviour of firms and the behaviour of individuals and firms in the market, and it is at the core of national policy. People work to get as much money as possible. Firms strive to make as much profit as possible and to get as big as possible. People trade in order to end up richer than they were. Nations strive to increase GDP.
o But the logically inescapable point here is that in a zero-growth economy there could be no place whatsoever for this psychological motive or economic process. People would have to be concerned to produce and acquire only that stable quantity of goods and services that is sufficient for a satisfactory quality of life, and to seek no increase whatsoever in savings, wealth, possessions etc. It would be difficult to exaggerate the magnitude of this cultural transition. A zero-growth economy cannot exist unless there is enormous change from the mentality that is typical in consumer society and that has been dominant in Western culture for several hundred years.
o It should be obvious that in the new conditions the focus must be on cooperatively sharing the available resources and organising to produce what all need for a good quality of life, in a collectivist climate of care for each other and for the public good...whereas present society is driven by individualistic, competitive acquisitiveness. Unless we achieve this historically enormous value change we will not, cannot, make the new local and cooperative economies work in the coming era of intense scarcity.
Subsistence, gift, reciprocity...sufficiency.
The alternative to a growth economy is in fact a subsistence economy, that is one in which people produce to meet stable needs, to exchange with equity and do not trade to accumulate wealth. In tribal, peasant, ancient and Medieval societies and in many communes today items are not made to sell in order to gain, to accumulate money over time. (See Polanyi’s discussion.) They are produced to exchange for other needed items of equal “value”. “Market” day enables all to get the things they needed, in exchange for a contribution to meeting the needs of others. No one intends to gain from the exchange; they just intend to exchange items of a certain “value” for others of the same “value” (usually measured in labour time needed to produce them.) People do not go into the market to get rich. (Merchants visiting the town, usually with non-necessities, luxuries, to sell, did trade to gain, but in Medieval Europe they were an almost irrelevant minority on the fringe of the mainstream economy, and were not respected.)
In these subsistence economies the basic operation was not getting, it was giving...knowing that others would give to you. In other words the key economic mechanism was gift and reciprocity. In tribes elaborate rules govern the giving and receiving, ensuring that all are provided for. (No one in tribal society is poor or hungry, unless times are difficult for all.)
These are the economic principles that will have to exist, whether we like it or not in a satisfactory, viable economy in the coming era of scarcity, in which we must develop mostly small local cooperative economies focussed on meeting needs, and without any growth. The focal concerns must be organising local resources and productive capacities to provide well for all, without any notion of gain or getting richer over time. The basic mechanism must be giving to others and the community, knowing that you will be given what you need. (...for instance contributing to voluntary working bees that maintain the community orchards.)
History can be seen in terms of the damage that the drive to gain eventually does. Often a civilization emerges and for a while has considerable equity, but in time some people become more wealthy and powerful, and develop into a class with increasing power and privileges and then dominate the rest. Their desire to gain drives a quest for more and more land, opulence, slaves...and foreign sources of wealth. An imperial phase begins. The wealth of other regions is plundered. Because there is no concept of enough, before long there is over-reach; it becomes impossible to maintain the empire, there is increasing resentment of the rich, and the civilization self-destructs. At present the West is passing through the over-reach phase into decline, while China is rising past us, driven by the same old single-minded obsession with getting richer and more powerful. This sorry story will not cease until humans learn to be content with enough.
Again we are dealing with a core theme in The Simpler Way analysis -- this society cannot be fixed; its major elements must be scrapped and replaced. Most obviously, you cannot reform a growth economy to be a zero-growth economy, and you cannot remove the growth element from the economy while leaving the rest of it as it was; you have to build a completely different economy, and society. Above all, you will not solve the many problems the quest for growth is causing until people in general come to be content with what is sufficient, and design and run economies that are about subsistence, giving and reciprocity.
Is capitalism compatible with a zero-growth economy?
It should now be obvious that a stable or zero-growth economy cannot be a capitalist economy. Capitalism is by definition about accumulation, making more money than was invested, in order to invest the surplus to have even more...to invest to get even richer. It would be possible in a stable economy for a few to still own most capital and factories, and live on the income from these investments, but they would be more like rentiers or landlords who draw an income from their property, rather than entrepreneurs. They could not be driven by a desire to accumulate, get richer, increase the amount of capital they have and invest to get even richer. If they were driven by competition to maximise then a very few would quickly take almost all of the fixed amount of income and wealth available...and the system would soon self-destruct.
Some people, such as Herman Daly believe that “productivity” growth would enable capitalism to continue in a zero-growth economy, i.e., getting more product measured in dollar value from a given amount of inputs to production. There would be a tendency for this to happen, but the effect would be trivial and short lived. At present productivity growth would only enable less than a .8% p.a. increase in the Australian dollar value of output, far from the 3% our system requires if serious problems are to be avoided.
Productivity growth is commonly thought of in terms of technical advance, but it also depends on four factors that are problematic.
Š It is significantly reliant on access to abundant cheap energy. A considerable literature links economic growth to energy availability. ABARE estimates that 25% of productivity growth is due to energy. Berndt  says that by the 1970s it was clear that at least 50% of apparent technology gains were due to increased energy use. He endorses the expectation that rising energy prices will cut productivity growth.  US productivity has fallen following oil price shocks, as managers substitute other and less efficient factors for energy. Productivity has shown a long term decline since 1990, which is likely to be a consequence of energy problems. In future energy is certain to become much more scarce and costly.
Most decisive would seem to be the predictions by the Australian Bureau of Agricultural Economics that the energy efficiency of energy-intensive industries is likely to improve by only .5% p.a. in future, and of non-energy-intensive industries by .2% p.a.  In other words we can expect it to take 140 years for the energy efficiency of the intensive industries to double the amount of value they derive from a unit of energy.
Underlying these trends lies the falling Energy Return On Investment (EROI) of energy in energy production. Over the last three decades this has more or less halved. Again it seems that the future contribution of energy to productivity growth is not likely to be significant.
Š Probably even more important, rich world economies are heavily dependent on inputs imported from extremely low-wage Third World countries. US wages are more than 20 times the Chinese average. What would the ratio of output to costs look like if the denominator included the cost of decent wages for the production of the input materials and machinery?
Š In addition the numerator, GDP includes the vast and largely meaningless growth in financial industry “output”, all the fees and interest earnings etc. derived from the speculative shuffling of ,large numbers around screens, representing no growth in the output of the real economy.
Š In the US the cost of a major input into production, labour, has stagnated for 30 years. What would the ratio of output value to input cost look like if the cost of labour had increased at an acceptable rate?
This means that in the required new zero-growth economy the dollar value of output could only be increased over time due to sheer technical wizardry, i.e., finding more efficient ways. There will be some but relatively little scope for this, especially in an economy with a GDP perhaps one-tenth the present level.
It is therefore very likely that even in the present growth economy productivity growth will become permanently negative in the near future. Ayre believes the energy factor alone will probably send GDP down.
Clearly it would not make sense for the new societies to allow large amounts of capital to be privately owned and invested in whatever would make most profit for them. It might be satisfactory if small amounts of savings were free to be invested in the little firms people wanted to run, e.g., trying their hand at baking for a while, but it would seem inevitable that in the new conditions the community would have to be able to oversee and control the use of its resources. The Simpler Way vision involves most of the economy being in privately owned and run firms...under careful social monitoring and ultimate social control to ensure that the public good is being served. The community will have to decide collectively what the main uses of its capital, the savings in its town bank, are to be (which is what happens in Mondragon.) Remember dollars are not important; what matters are the limited resources, the land, timber, labour, skill, factories the local economy has and investment decisions are decisions about what these are to be applied to producing. Communities must be able to make these decisions cooperatively in the interests of the public good.
Many in the emerging “De-growth” movement don’t want to face up to the conclusion that if you get rid of growth then you have got rid of capitalism and you must accept (some kind of) “socialism”. That is, if growth is eliminated then the economy cannot be left to competition between people who own capital operating in free markets and investing their capital to get richer all the time.
It is crucial to immediately stress that this does not have to mean a big, centralised, authoritarian, bureaucratic state trying to run everything...which no one is likely to want. The new economy of The Simpler Way is sketched below. In it the main decisions are made by all people within small community economies via participatory democratic procedures (and most of the economy could remain in the form of very small, e.g., family, private firms.)
What is the alternative?
If we must abandon growth and greatly reduce production and consumption then there is no alternative but to develop an economy which is basically under social control, i.e., in which we discuss, decide, plan and organise to produce that stable quantity of the basic things we need to enable a high quality of life for all. In the coming conditions of intense resource scarcity viable communities will have to be mostly small, self-sufficient local economies using local resources to produce what local people need. Such economies can only work well if control is in the hands of all citizens, via participatory-democracy exercised through whole town assemblies. This vision would enable most of the firms and farms to be privately owned or community cooperatives, and would involve little role for councils, state or federal governments. (For the detail see http://ssis.arts.unsw.edu.au/tsw/12c-TheALT.SUS.SOC.long.html, and The New Economy.)
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