The International Journal
of INCLUSIVE
DEMOCRACY, Vol. 6, No. 4 (Fall 2010)
De-growth – is not enough
TED TRAINER
It is
immensely encouraging that the issue of growth has begun to gain more
interest. For decades a tiny
few have been trying to draw attention to it, with negligible success.[1] The
“Declaration from the 2008 Paris Conference”[2]
is an excellent statement of grounds for scrapping the growth economy. For many years Herman Daly[3]
has been arguing for a steady-state economy and more recently Tim Jackson’s
Prosperity Without Growth[4]
has gained considerable attention.
As with the
rapidly emerging Transition Towns movement I think we are dealing with
extremely important initiatives, which are heading in directions that are
admirable…but which are unfortunately mistaken regarding the nature of the
global problem and the way out of it. If I am right the task is to try to persuade these potentially
planet-saving movements towards more comprehensive visions and goals and
more effective strategies. I
think Takis Fotopoulos is basically right in his commentary on the de-growth
initiative[5]
and my comments are mostly intended to elaborate and reinforce the Inclusive
Democracy analysis.
The integrated role of growth in the
economic system
As Takis
Fotopoulos recognizes the fundamental issue Latouche raises (inadvertently)
concerns the structural relationship between growth and the rest of the
socio-economic system. Is it a
component like the air conditioning unit in a house which can be removed if
it causes undesirable effects leaving the rest of the house functioning more
or less as before? Takis
shows that Latouche sees growth this
way.
The first and
less important point is that if the many undesirable effects of the growth
imperative were to be remedied this would require such drastic and
widespread action that we would then have a quite different kind of economic
system. Latouche, Daly and
Jackson call for changes such as having productivity gains taken as leisure
rather than consumption, phasing out wasteful production and boosting
environmental restoration, getting rid of unemployment, and curbing CEO
salaries. Obviously these
changes would involve vast reduction in business activity and apart from
being intolerable to corporate and banking elites could not be achieved
without unprecedented levels of state regulation, involvement and coercion
in running the economy. This in
turn would not be possible without a very different political situation and
climate of opinion, enabling the state to do these things.
It is
important to recognize the extent of the implications that stopping growth
would have for the economy. The
aforementioned authors sometimes seem to give the impression that it is
little more than a matter of downshifting or “right-sizing” consumption. Consider the matter of interest payments. In a zero growth economy these would cease to exist, or at most be
negligible. (The belief that productivity growth would enable interest and
indeed the survival of capitalism is rejected below.)
If money can be lent and more paid back than was lent, then at the
end of the year the amount available to invest will have grown. Thus in a zero-growth economy there would have to be only a fixed,
stable amount of producing going on all the time, so “investment” could only
replace the depreciating constant stock of productive capital, or adjust
priorities within that stock (e.g., increase shoe production while reducing
hat production).
This has many
profound and far-reaching implications. Retirement incomes could not derive from invested superannuation
funds. We would have to work
out how to provide for security in old age by some completely different
process.
Governments
could not control the economy through interest rate policies, i.e., by
varying them to stimulate or dampen economic activity, which is the main
lever they have now. This
mechanism allows governments to be relatively non-interventionist, as
neo-liberal doctrine demands. Without it governments would have to take less indiscriminate, economy-wide
decisions in order to stimulate some selected industries while deliberately
phasing others down and keeping the gross output constant. In other words, without growth it is difficult to see how governments
could avoid being predominantly “socialist” in the sense of far more state
planning and control.
Without growth
many industries would be seriously depleted or eliminated, because producing
more is what they do. Construction and its financing and insurance would be confined to
maintaining a constant stock of productive plant (or varying its
components.) The same would be
true for the production of machinery, appliances, vehicles, etc. where sales
per annum (p.a.) would not be increasing. There would be no need for money creation because only a set amount
of money would suffice in circulation to enable the constant amount of
buying and selling going on. This would mean an extremely radical transformation of the banking industry
as it would be the end of the process whereby vast sums are constantly
raised for investment in expanding productive plant. It would also mean the end of the present incredible and comical
bonanza whereby commercial banks are allowed to create new money, lend it to
corporations and governments and draw interest on these loans. (Australians pay about $1000 p.a. per capita in interest payments on
the money their governments borrow from banks, and more via corporate
interest charges added to the cost of their purchases.) Thus the effects on the finance sector would be astronomical, cutting
it from its present bloated status (making 40% of corporate profits) driven
by armies of screen jockeys speculating on where most growth can be
engineered, to a relatively few and simple functions such as holding savings
and enabling only that amount of investment needed to maintain a fixed
amount of productive plant.
In the present
economy growth is essential to prevent unemployment from rising, because
technical progress constantly improves productivity. In a zero growth economy a stable quantity of output would be
achieved with a declining workforce. If we moved the present economy in which labour is hired to a zero
growth economy then unemployment, poverty and social squalor would increase
as productivity gains accrued to capital. (At present all such gains are taken by capital. Over the past 30 years the real income of the bottom 90% of Americans
fell despite a 44% increase in worker productivity.
Meanwhile the real income of the top .01% quadrupled[6].
It would
quickly become glaringly obvious that there must be a completely different
way of allocating work, and it would be clear that this way must contradict
market principles.
Thus to
attempt to take growth out of the present economy would have so many huge
effects that one could only hope to deal with them by resort to such levels
of regulation and control that the resulting system would be best described
as an extremely heavy-handed big-state-socialism. This is hardly reflected in Jackson’s comment, “…this will mean
raising tough questions about the ownership of assets and control over the
surpluses from those assets.”[7]
Connections with the market system
Latouche, Daly[8],
and Jackson, along with many other critics of the present economy such as
Henderson[9],
Hawken[10],
Porritt[11]
and Korten[12],
explicitly assert their desire to see the market system retained, although
reformed. Fotopoulos rightly
criticises the de-growth school for not realizing that one cannot scrap
growth without scrapping the market. However, I believe the case for this claim is stronger than he makes
it seem. He can be taken to be
saying that growth and the market are separate things, for instance when he
says growth and the market are “…the two fundamental components of the
system.”[13]
and “…opposite sides of the same coin.”[14]
It seems to me more appropriate to say that there is basically only one
factor here, the market, because it logically entails a commitment to
growth.
Growth is
built into the notion of the market principle because you (must) enter the
market in order to maximize, to
sell for the highest possible price, to buy at the lowest, to invest where
returns will be greatest, and thus to make as much money as possible. If you do not you will be beaten by competitors. In the market you grow or die, because you are pitted in a
necessarily self-interested maximizing competition with all others. It might be useful to distinguish growth and market in discussion but
if you have a system that operates on market principles then you have a
growth imperative.
The critique
of society given by the above anti-growth theorists is deficient firstly in
proceeding as if it is possible to scrap growth but retain the market, and
secondly in not recognizing the profound unacceptability of the market
mechanism, and in not identifying it as a core cause of our global
predicament. Latouche’s
acceptance of it seems to be based primarily on the fact that in the near
future there is no possibility of the market being scrapped. Daly and Jackson (and people aligned with Henderson and Korten) seem
to be overly impressed by the merits of the market in generating production,
“efficiency,” innovation, etc. and therefore, want to retain a central role
for it. This is asserted by
Daly; “The market is wonderful for allocation”[15]
“Let the market determine efficient allocations.”[16]
Thus they reveal their astounding acceptance of the core conventional
economic delusion that markets are satisfactory allocation devices. How can they fail to grasp that the market is in fact the major cause
of the global economic injustice that condemns billions of people to
poverty, kills tens of thousands every day and is destroying the ecosystems
of the planet? Markets
inevitably allocate wealth to the rich and deprive the poor, because markets
inevitably allocate goods to the highest bidder, and develop in the Third
World mostly industries that will supply to the rich. (For detailed discussion and documentation see Trainer[17],
and many of Fotopoulos’ works[18])
Perhaps even
more damning are the moral considerations. In a market system by definition no attention is or can be given to
rights, justice, the public good, future generations or the environment. The inevitable outcomes include increasing inequality and damage to
social cohesion and to ecosystems. The market is in principle morally repugnant and destructive, being
at best only about self-interest, brutal indifference to the welfare of the
other or to the public good, limitless acquisitiveness, and at worst it is
about domination and predation. A marketing mentality contradicts the right human values and motives. You (have to) enter a market to maximize self-interest, be
indifferent to the plight of others, and ignore the public good, justice and
the environment, or you will be disadvantaged if not destroyed. Our vision should be to develop economic and other institutions which
can be motivated by, and which reinforce a concern for cooperating, helping,
nurturing and doing what is best for society and the environment. The market has of course generated astounding effort, innovation,
wealth and “development,” and there have been profound “trickle down”
benefits for the 1.5 billion who shop at supermarkets, (although these
benefits would not have been possible had market forces not geared the Third
World’s productive capacity to stocking those supermarket shelves.)
Polanyi is
rightly famous for his account of the relationship between economy and
society. In all known societies
before our own the economy was “embedded in” society and governed by social
rules, custom, religion and morality. One would approach decisions to do with production or distribution as
one would approach those to do with attending church or painting a picture, that is, by considering the general social rules and bonds governing
the way you must treat people and the environment.
In Medieval times everything a person did was in accord with God’s
expectations, including producing and exchanging. Polanyi stresses that only our society has made the transition to a
situation in which the economic sphere has been separated from society and
allowed to proceed according to a set of rules which are not subject to
control by social rules. The
new rules are the rules of the market. In this arena you can seek to maximize wealth through buying and
selling without any concern for loyalty, friendship, the welfare of others,
the effects on the environment, the damage to social cohesion, the
enrichment and impoverishment that results, whether outcomes are just or
respect human rights. In a fire
sale you can pay far less than the goods are worth, you can receive in
interest far more than you lent, and you can drive a rival into bankruptcy
and poverty. All that needs to
be considered are your own monetary costs and benefits. Thus the economy is freed from social control.
Indeed so far down this path have we now gone that it is not accurate
to talk of separation; marketing has become the dominant mode, determining
most of what happens and it is now appropriate to refer to this, not as a
society which has a market, but as a marketing society.
The core evil
here would seem to be simply gain. Polanyi helps us to appreciate the huge distinction between
“subsistence” economies and the market economy.
In “primitive” economies exchange was “equal”. The “markets” were places where goods were exchanged in transactions
that enabled participants to leave with items they did not bring, but items
of equal value to those they brought to exchange. Those who had yams but no bananas could exchange some yams for some
bananas, and go home with things of the same “value” as those they came with
(e.g., things requiring as much work to produce). There was, in other words no concept of gain.
Markets were therefore not driven by “market forces” and might be
better described simply as the locations or events where equal exchange
could take place.
The contrast
with our society could not be more stark. Just about all our economic relations are driven by the intention to
gain. People operate in the
market with the intention of coming out with more wealth than they had. The point of investing and trading is to accumulate, to end up with
more than one had in the first place, and over time to get richer with no
limit in sight. This is the
root evil which has now generated the global sustainability predicament. An economy driven by this motive soon creates insufferable inequality
as the fittest grab more and more, it uses up and devastates resources and
environment, and it shreds social cohesion as all are pitted in dog-eat-dog
struggle to survive. Markets
are the things which enable gain. The point is that there can be no place in a satisfactory society for
gain. Such a society must have
and control an economy which provides that low but sufficient and stable
quantity of goods and services that enable a high quality of life for all.
Again it should be obvious that such a society can have no place for
growth or the market, and that there cannot be a market without growth.
Thus Polanyi’s
recommendation[19]
that the market must be “re-embedded” in society is clearly unsatisfactory. Of course it is preferable that the market should be subject to much
social control if that is possible (and the extent to which present society
is tolerable is largely a function of the extent to which regulation
prevents the market from operating), but as Fotopoulos insists the ultimate
goal must be to get rid of it altogether.
Thus the
serious inadequacy of the critical social analysis underlying the de-growth
position is again evident. It
is far from sufficient to target growth. We are dealing with a socio-economic system that is fatally flawed in
many ways yet the de-growth camp focuses only on the growth mistake and
proceeds as if that is the only thing that has to be fixed if we are to
avoid the coming global crisis.
We need less than zero-growth
Another huge
oversight in the de-growth literature is the failure to recognize that if we
in rich countries immediately adopted zero growth economies the planet would
still be headed for catastrophic ecological
breakdown. The problems
cannot be solved unless there is a vast reduction in the amount of economic
activity taking place on the planet. The many basic ecological indicators are making it clear that we are
so far beyond sustainable levels of production, consumption, resource use
and consequent ecological impact that sustainability cannot be achieved
unless these rates are reduced to small fractions of their current levels.
The
“Footprint” measure drives the point home. The average Australian now requires 8 ha of productive land to
provide food, habitat, energy and water.
By 2050 the amount available on the planet per capita, (assuming no
land loss until then) will be .8 ha. We are ten times over a
sustainable figure. Add the
fact that Australians are fiercely determined to increase their consumption
all the time, and the fact that at the standard 3% p.a. rate of increase our
level of production and consumption will be four times as great as it is now
by 2050. This of course means
multiplication of present levels of consumption of minerals, fish stocks,
phosphorus, etc. Clearly if you
are serious about sustainability and justice you cannot avoid the conclusion
that we in rich countries must reduce levels of production and consumption
to small factions or their present levels. To call for a steady-state economy is clearly far from sufficient. None of the de-growth advocates deal with this point adequately.
Latouche’s comments seem to recognize that there is overshoot, but
does not focus on its magnitude. Jackson’s call for “right-sizing with no idea of what that means, and
Daly’s recommendations suggest that we can in future taper to stability and
that will be sufficient.
The political implications
The ID project
recognizes that transition to a satisfactory society must involve radical
change on a number of major dimensions, and that one of these is the
political dimension. In failing
to see this the de-growth school again reveals the insufficiency of its
analytical scope. In my view
the case for radical political transition derives primarily from an
understanding of our ecological/sustainability problem and it is necessary
to outline the connection here.
Despite their
significant differences, Fotopoulos, Bookchin, the Eco-feminists and Chomsky
centre their critique of society and their recommendations for a
satisfactory society on power and the domination by elites, and thus they
argue for what Fotopoulos refers to as “direct democracy”. This seems to be simply the classical Anarchist conception of
radically participatory democracy, whereby all citizens have an equal say in
decisions, no individuals or agencies have power over the citizen level, and
issues involving larger regions or groups are dealt with via delegations and
federations without citizens relinquishing power. From The Simpler Way perspective the crucial need for this political
form can be seen when the coming ecological situation is understood.
In the
conditions of intense scarcity ahead a viable and satisfying society will
have to be based on principles of
frugality, self-sufficiency, simplicity, localism, mostly small firms and
farms, cooperation, many low-technologies (hand tools, earth building,
crafts, gardening…) and non-material satisfactions. It will have to have per capita GDP and consumption of resources that
are a small fraction of those
taken for granted in rich countries today.
It will have to be made up of mostly small local economies drawing on
local resources to meet local needs. None of this will be viable unless the
economy is under local control and run to meet needs as distinct from being
run to make profits.
Such a
community is not going to work satisfactorily unless it is intensely
cooperative, cares for and provides for all, generates conscientiousness and
good will, makes the technically and socially right decisions, monitors
itself accurately, etc., and these processes and conditions are not going to
be unless there is radically participatory democracy. This is not optional or a matter of ethical preference. Only the
citizens of the town know the history, soils, values, needs and therefore
what will work best. The
technically and socially right
decisions cannot come from any other source than local consensus seeking
processes including citizen assemblies in which everyone has an equal right
to participate. Without these conditions the working bees and committees will not be fuelled
by the necessary conscientiousness and good will and the local commons and
systems and infrastructures will not be maintained well enough.
In other
words, if the new communities are to be viable they
will have to govern themselves,
with some but relatively minor assistance from remnant state and federal
governments. (There will not be
insufficient resources to run big centralized and bureaucratized states.)
Thus the social-ecology of a viable and thriving community in the coming era
of intense and irremediable scarcity will determine that participatory
democracy will not be optional; it will be a necessary characteristic of a
community that is viable, resilient and good to live in.
However, when
one focuses on the sustainability problem one realizes that much more has to
be done than just get rid of elite power and we could eliminate elites and
domination and have a perfectly just and equitable world economy, while
still destroying the planet. We
would do so quickly if everyone in our new, just society insisted on living
affluently, and it is not the case that by getting rid of the dominant elite
or the disposition to dominate we would have got rid of the obsession with
affluence. Bookchin, Daly, and
most greens and Marxists tend not to see that a good society cannot be an
affluent and industrialized society but most be based on far lower
per capita levels of production and consumption than we have now in rich
countries. The de-growth school
does not seem to recognize this and might best be regarded as merely a
zero-growth school.
Again the
integral nature of the problem and the insufficiently of the de-growth
vision is evident. Among the
far reaching implications of a more thorough critique of consumer-capitalist
society is the inescapable need for scrapping representative democracy, as
well as the market, as well as growth, and as well as current levels of
affluence. There are additional
realms in which there are similarly profound implications but which will not
be considered here, including the radically new localized geography of
settlements, and especially the very different culture, values, ideas and
preoccupations that must prevail. (Latouche does recognize the need for a “cultural revolution”).
Also beyond
the present discussion is the issue of transition strategy. The de-growth
school says little on this topic but the impression given is, as Takis
recognizes, that a voluntary consumption “downshifting-by-individuals”
strategy is assumed. Godoy says
Latouche “…calls for a renouncing of the uncontrolled consumerism of
contemporary capitalist society.”[20]
Again Takis Fotopoulos is right in insisting that moves by individuals and
groups towards ecologically and socially desirable practices, including
community gardens and eco-villages, are essential elements in the required
revolution, but in themselves are doomed to failure. They must become parts of an overarching political movement focused
on scrapping the system.
Can capitalism survive de-growth?
Some of the
best known critics of growth believe that it is quite possible to continue a
capitalist economy without growth. Jackson’s case is clearly unsatisfactory.
After less than half a page of discussion, he concludes that the new
economy will be “less capitalistic”…and that the question “probably doesn’t
matter”.[21]
These conclusions derive from his mistaken definition of capitalism, which
is solely in terms of the private ownership of capital. It will be argued below that if capitalism is defined in terms which
add competition, free markets, labour treated as a commodity, production
determined by profit, and above all by the drive to accumulate surplus and
reinvest it in a limitless spiral, then an economy which did the things
Jackson desires might retain private ownership of productive means but it
could not be a capitalist economy.
Herman Daly’s
case is much more substantial and is based on an issue which warrants
careful attention. He argues that even though the throughput of resources in
a steady state economy would be stable, productivity growth would still
provide scope for increasing income, wealth, and investment, and therefore
for the continuation of capitalism. Productivity gains would enable more and more “value” to be got out
of that constant amount of inputs, and this could go on motivating
initiative and investment and enabling the accumulation process which is
essential to the concept of capitalism.
The following
argument is that this claim is true but trivial, and would soon cease to be
true. The first question here
is what are the sources of productivity growth? It is commonly assumed that it derives from smarter technology, and
that there are no limits to this. The relevant index for our purposes is not “Labour “Productivity” but
“Multifactor Productivity,” which refers to that proportion of GDP growth
that is left when the contribution of labour and capital inputs are
subtracted. It is assumed to
include the effects of efficiency gains and technological advance. Australian Bureau of Statistics[22]
and the Australian Productivity Commission[23]
figures show that over the past ten years MFP accounts or under 25% of GDP
growth. This means that the
scope for increases in investment of capital, incomes, GDP, etc. in an
economy with no increase in inputs could be no greater than one-quarter of
what it is now.
However the
situation is much more restricted than that figure suggests, due to the
characteristic failure of conventional economists to attend to anything but
dollars and prices. Several
studies have pointed to the crucial role of energy in productivity and GDP
growth, and this is completely ignored when productivity is assumed to be a
function of capital, labour and technology. A strong case can be made that economic growth in general, and
technical advance in particular, are primarily due to increasing inputs of
energy, especially to the substitution of energy and energy-intensive
machinery for labour. Several
studies have discussed the considerable and at times overwhelming role of
energy growth in economic and productivity growth.[24]
Ayres[25]
presents detailed analyses of the role of energy in economic history and
draws rather alarming conclusions regarding the close relationship. He finds that growth depends heavily on the availability and price of
energy, and that in the likely near future of sharply increased energy
scarcity and cost dire consequences for growth can be expected. “Economic growth depends on producing continuously greater quantities
of useful work.”[26]
Ayres actually concludes that because of coming energy problems, growth “…is
more than likely to end within a few decades.”[27].
Berndt[28]
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.[29]
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. Finally, the “Productivity Paradox” seems to reinforce the
significance of energy. If
technical wizardry was the major determinant of productivity growth then how
can we explain the fact that US productivity growth has slowed in the 1970
to 1990 period when computers have revolutionized just about all
technologies?
Agriculture is
a realm where technical advance has been predominantly a matter of increased
energy use. Over the last half
century productivity measured in terms of yields per ha or per worker have
risen dramatically, but these have been mostly due to even greater increases
in the amount of energy being poured into agriculture, on the farm, in the
production of machinery, in the transport, pesticide, fertilizer,
irrigation, packaging and marketing sectors, and in getting the food from
the supermarket to the front door and then dealing with the waste packaging. The “Green Revolution” has depended largely on ways that involve
greater energy use. Less than
2% of the US workforce is now on farms, but agriculture accounts for around
17% of all energy used (not including several of the factors listed above.) Unconventional measures of agricultural productivity, such as food
energy produced per unit of fossil fuel used, have actually plummeted.
In an economy with no increase in resource use and therefore in
energy use, this major source of productivity gain, i.e., using more energy,
would not be available.
Thus we can
see the inadequacy of conventional economic indicators of productivity as
sheer “disembodied” or “angelised” technical progress. The above Multifactor Productivity figure, saying that all
contributors to growth other than labour and capital only account for
one-quarter of growth, fails to indicate the extent to which that small
contribution is due to increased energy inputs.
The declines
after oil price rises and the general serious decline since 1990 indicate
the possibility that any productivity gains due to pure technical advance
are probably very low now, might indeed be negative, and probably soon will
be overwhelmed by the effect of energy price rises (which is what Ayres, and
Stern and Cleveland are saying.).
It should not
be assumed that in general rapid, large or continuous technical gains are
being routinely made in areas such as energy efficiency. Mackay[30]
reports that little gain can be expected for air transport, and Ayres notes
that for many decades there have been plateaus for the efficiency of
production of electricity and fuels, electric motors, ammonia and iron and
steel production. The
efficiency of electrical devices in general has actually changed little in a
century[31]
“…the energy efficiency of transportation probably peaked around 1960”,
partly due to greater use of accessories since then.[32]
Ayres’ Fig. 4.21a shows no increase in the overall energy efficiency of the
US economy since 1960.[33]
Ayres notes that reports tend to publicise particular spectacular technical
advances and this can be misleading regarding long term average trends
across whole industries or economies.
Then there is
the general issue of diminishing returns. In the short run the greater emphasis on for instance finding ways to
save energy will probably yield significant results, after an era of fairly
cheap and abundant energy when little effort to conserve was prompted. But before long the “low hanging fruit” will have been picked.
Studies of energy and carbon saving potential for instance seem to
indicate the possibility of 25-50% savings (although more for electric cars
and buildings), but reaching these levels will become increasingly
difficult. The IPCC[34]
finds that to double carbon emission reduction from what a $20/t price would
achieve would require multiplying expenditure by 5.
In addition these kinds of achievement predictions always assume
present energy prices and resource availability, and these will soon be
significant underestimates of the costs and difficulties determining
technical and productivity advance.
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.[35]
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. This would seem
to rule out any hope that getting more value out of energy inputs is likely
to enable the owners of capital to go on doubling their invested capital
every 7 years, i.e., making say 10% p.a. profits.
Perhaps the
most meaningful indication would come from comparing the rate of GDP growth
with the rate of growth of material inputs into the economy.
In a normal/good year GDP increases 3% p.a. (For the last decade or
so the Australian average has been closer go 2.2% p.a.) However, Australian energy use is increasing at around 3% p.a. and
electricity use at 3.15% p.a. with transport energy close behind. In other words if national income is increasing no faster than the
rate of increase in use of energy, then the productivity of energy is not
increasing, and whatever the other sources of growth are, including
technical wizardry, they are likely to be overwhelmed in the near future if
and when energy prices take off.
But is not the
energy-intensity of the economy falling, and does not this show that the
significance of energy in productivity is falling? Crude measures of the amount of energy used per unit of GDP have
shown long term falls in rich countries but there are a number of reasons
for not accepting the common interpretation that it shows energy has been
“decoupled” from economic growth, and that more product is being got out of
each unit of energy. Firstly
the rate of fall has been declining and might by now have ceased as the
above crude indications suggest. Secondly the GDP figure includes vast amounts of dubious “output,”
especially by the finance industry (so big now that it makes 40% of
corporate profits) where hedge funds etc. shuffle ever-increasing quantities
of electronic dollars, much of it “wealth” that does not exist (most
obviously the mountains of debt) but the paper value of “sales” and the
brokerage and consultation fees, are all accounted as increased business
turnover and GDP. Also, as Daly
stresses, GDP includes the expenditure required to remedy damage caused by
the production of GDP, and in view of the falling indices of sustainable
economic welfare in rich countries, energy inputs per unit of valuable or
welfare-yielding GDP increase are surely falling.
In addition
the economies of the developed economies have shifted from energy-intensive
production to services, significantly reducing the amount of energy used
within their borders.[36]
They have thereby greatly increased the amount of energy-intensive
materials, agricultural products, manufactured and capital goods imported
and consumed but these quantities do not show up on their books. The energy
that goes into producing these things overseas should be added to the figure
for energy used per unit of GDP, but it does not feed into the common
measure of the energy-intensity of the economy. Of course on the opposite side of the ledger the energy content of
exports should be taken into account, but the US mostly pays for its
imports, not by exporting goods it uses energy to produce, but by accruing
debt and selling assets. The
economists are therefore keeping the books in ways that show much lower
energy use than is actually going into producing what is consumed in rich
countries.
Finally it has
long been understood that gains in the energy intensity of the economy have
been significantly due to “fuel switching,” i.e., moving to sources which
are of “higher quality” and enable more work per unit of energy.[37]
For instance a unit of energy in the form of gas enables more value to be
created than a unit in the form of coal, because gas is more easily
transported, switched on and off, or converted from one function to another,
etc.
These are some
of the reasons for not being overly impressed by apparently declining
figures for energy intensity per unit of GDP. They certainly cannot be taken as showing that energy will not be a
major negative factor determining future productivity trends, if only
because the price of energy is likely to rise significantly in the near
future.
To summarise,
it seems that the gains in productivity that can be anticipated in an
economy with constant inputs of energy would be very small and probably
negligible, even assuming that future input costs are similar to present
costs. This is very likely to
be a quite invalid assumption as we are probably entering an era of
scarcity, especially bringing dramatically higher energy prices. This will impact not just on energy used in production but on all
other inputs such as machinery and indeed labour, because everything
requires energy in its production and maintenance. Fossil fuel prices are likely to escalate in the near future as the
cost of dealing with emissions is added, and the price of renewable energy
forms will be significantly higher than current prices for fossil fuels. It is most likely, as Ayres warns, that energy price rises alone will
overwhelm the productivity gains deriving from sheer technical wizardry and
determine that the dollar output value per unit of energy will fall
dramatically, i.e., that productivity gains in future will be negative.
So even if
Daly is correct as far as the initial situation is concerned, what matters
is the greatly reduced scope there will soon be as time goes by for
increased output in terms of the dollar value of sales and the increased
opportunities for investment. To summarise, a) that (probably very large) proportion of the present
one-quarter of GDP growth that is due to increased use of energy will not be
achievable, b) the scope for getting more out of energy due to improvements
in efficiency of use is probably not large, c) the cost of energy inputs is
very likely to rise significantly, adding to production costs and to the
cost of technical advance and thus reducing productivity gains from
non-energy related sources and quite probably outweighing them, d)
diminishing returns will operate on new technologies. Even if these factors left a zero-input growth economy with some
increasing scope for more production, sales and investment every year, these
would clearly be tiny fractions of present amounts, and nothing like what
would be needed to sustain a capitalist class of anything like the present
scale.
But the
overwhelmingly important factor here has yet to be taken into account and it
is not recognised by Daly, Jackson or most of the anti-growth school. As has been made clear above the need is not just for zero-growth, it
is for dramatic reduction in the amount of producing and consuming going on. These must be cut to probably less than one-fifth of the levels
typical of a rich country today, because the planet cannot sustain anything
like the present levels of producing and consuming, let alone the levels 9
billion people are going to generate. This means that
most
productive capacity in rich countries, most factories and mines, have to be
shut down. Again the
de-growth school, let alone conventional economists, seem unable to grasp
that this is what the limits to growth analysis has been telling them for at
least fifty years. How much
scope would there then be for capital accumulation?
Capitalism is
by definition about growth. Its
essential characteristic is the investment of capital in order to make as
much profit as possible, to re-invest next year in order to make as much
profit as possible … in a never ending spiral of
capital accumulation.
The Monthly Review school has continued to show the crucial
significance of this process in the nature, functioning and crises of
capitalist society, especially in pointing to the chronic “problem of
surplus” that it generates. In
other words the system’s most serious problem is finding investment outlets
for that ever-accumulating volume of capital. In the last few decades this has been the major force pushing
globalization through, as protection, regulation and state ownership have
been swept aside to enable corporations and banks to get into previously
inaccessible profitable fields. The volumes of capital now sloshing around the planet franticly seeking
outlets are astronomical, much of it in the form of un-repayable debt, much
in the form of wild speculation, and much of it cannibalistic (i.e., often
profits can only be made through the carve up of the assets of gamblers who
lose, including the meager savings of bankrupt home loan borrowers.)
The figures on
accelerating inequality also indicate the rate at which capital available
for investment is being accumulated. The incomes and wealth of the super rich 1% have skyrocketed. They do not store that ever-increasing wealth under the bed; they
want to invest it. Similarly
the mountains of debt that now exist represent capital that has been lent,
often with reckless desperation in an effort to find profitable “investment”
outlets. (Hence the mistake in
attributing the GFC to the stupidity or greed of the bankers; they have only
done what the system requires.)
Daly and the
others who think capitalism and zero-growth are compatible seem to have no
idea of the gulf between these sums of ever-accumulating capital now seeking
investment outlets, and the opportunities for this that would be available
in a materially stable economy functioning under the above savage conditions
and limits. The present
capitalist economy plunges into difficulties if the growth of its GDP falls
below 3% p.a. How likely is it
that such an economy could continue to function, driven by the investment of
capital by its private owners in order to increase their wealth, when the
productivity growth rate is negligible if not negative, and it applies to a
GDP maybe one fifth of its present value? It would seem that there is a rather strong case that, as Smith
concludes in his powerful critique of Daly, “…a steady-state capitalism is
impossible.”[38]
(This does not
mean that in a satisfactory, zero-growth economy there could be no private
firms. The Simpler Way vision advocates mostly small family farms and firms
and co-ops, operating within a local, community-controlled economy geared to
meeting local needs[39]).
Conclusion
The de-growth
initiative is to be hugely congratulated for helping to get the issue on the
agenda. As with the Transition
Towns movement I think it is entirely understandable, indeed inevitable,
that at first such initiatives tend to be reformist reactions or only aimed
at limited goals based on limited analyses of the situation.
Our task is to try to deepen the vision, so that participants
increasingly realize that what they are upset about is part of a complex and
flawed integrated system and that what they want cannot be achieved unless
they greatly extend their goals to include nothing less than scrapping and
replacement of the basic elements in consumer-capitalist society.
[1]
My first attempt to contribute, originally titled
Abandon Affluence and Growth
(London: Zed Books,1985) was rejected by sixty publishers.
[2]
S. Latouche, “Degrowth; An electoral stake?,”
The
International Journal of Inclusive Democracy,” Vol. 3, No. 1 (Jan., 2007).
[3]
H. Daly, For The Common Good
(Boston: Beacon, 1989), pp. 1-2; Steady-State Economy
(Washington: Island Press, 1991), pp. 75, 100, 102, 103;
Beyond Growth (Boston:
Beacon, 2008), pp. 10 ff., and “A steady state economy,” Sustainable
Development Commission (UK, April 24.)
[4]
T. Jackson, Prosperity
Without Growth, Sustainable Development Commission (EU,
Brussels, 2009).
[5]
Fotopoulos, “Is de-growth compatible with a market economy?,”
The International Journal of
Inclusive Democracy, Vol. 3, No. 1 (Jan., 2007).
[6]
D. Monkerud, “US Inequality Continues to Grow,”
The Capital Times
(Wisconsin, 17th July, 2009.).
[7]
Jackson, op. cit., p. 178.
[9]
H. Henderson, Ethical
Markets; Growing the Green Economy (London: Chelsea Green,
2006).
[10]
P. Hawken, Ecological
Commerce (New York: Harper Collins, 1993), pp. 11-13.
[11]
J. Porritt, Capitalism As If
The World Mattered (London: Earthscan, 2005), p. 84.
[12]
D. Korten,
Agenda for a New
Economy (San Francisco: Berrett Koehler, 2009).
[13]
0p. Cit., (2007),
p. 7.
[14]
Fotopoulos, (2007, print version), p. 13.
[15]
H. Daly, Steady State Economy,
op. cit., p. 51. See
also For The Common Good,
op. cit., pp. 14, 19, 44-47, and
Beyond Growth, op. cit.,
pp. 13 – 14, 17.
[16]
H. Daly, Beyond Growth,
op. cit., p. 17.
[18]
see e.g. T. Fotopoulos, Towards an Inclusive Democracy
(London: Cassell,
1997).
[19]
G. Dalton, (Ed.), Ancient,
Primitive and Modern Economies; Essays of Karl Polanyi (Boston:
Beacon Press, 1968).
[21]
Jackson, op. cit., pp. 201-202.
[22]
Australian Bureau of Statistics
[23]
Australian Productivity Commission
[24]
E. R. Berndt, “Energy use, technical progress and productivity
growth: a survey of economic issues,”
The Journal of Productivity
Analysis, 2: (1990), pp. 67-83; S. Schurr, and B. Netschert,
Energy and the American
Economy, 1850-1975
(Baltimore: Johns Hopkins University Press, 1960); D. I. Stern and
C. J. Cleveland, Energy and
Economic Growth (2004); R. K. Kaufmann, “A biophysical analysis
of the energy/real GDP ratio: implications for substitution and
technical change,” Ecological
Economics 6: (2004), pp. 35-56; R. K. Kaufmann, “The mechanisms
for autonomous energy efficiency increases: A co-integration
analysis of the US energy/GDP ratio,”
Energy Journal 25(1)
(2004), pp. 63-86; C.
J. Cleveland, R. Costanza, C. A. S. Hall, and R. K. Kaufmann “Energy
and the U.S. economy: A biophysical perspective,”
Science,
225: (1984), pp., 890-897;
Office of
Technology Assessment, Energy
Use and the U.S. Economy, US Congress, OTA-BP-E-57, U.S.
Government Printing Office, Washington DC. (1990).
[25]
R. U., Ayres, The Economic
Growth Engine, (Cheltenham: Elgar, 2009), p. 54.
[26]
Ayres, op. cit., p. 297.
[27]
Ayres, op. cit., p. 306.
[28]
Berndt, (1990), op. cit.
[29]
Berndt, (1990), op. cit.
[30]
Mackay, (2008), op. cit.
[31]
Ayres, op. cit., Figs. 4.1 and 4.19, p. 127.
[32]
Ayres, op. cit., p. 126.
[33]
Ayres, op. cit., p. 128.
[36]
E.g., P.
Mulder and H.
de Groot, (2003), “International Compatrisons of Sectoral Energy and
Labour Productivity Performance,” DCB Discussion Paper Netherlands
Bureau of Economic Policy Analysis.
[37]
Stern and Cleveland, (2004), op. cit., p. 33; Cleveland et al.,
(1984), op. cit.; Kaufmann,
(2004), op. cit.; Office of Technology Assessments, (1990), op. cit.;
Berndt, (1990), op . cit.; Schurr and Netschurt, (1960), op. cit.
[38]
R. Smith, “Beyond growth or beyond capitalism?”,
Real World Economics Review,
53 (2010), pp. 28 –42.