Why we need to limit growth and why it needn’t make us less happy

May 11, 2009

     By Duncan Green     

Can you have prosperity without growth? Yes and what’s more, we have no choice, argues the UK’s Sustainable Development Commission in a new report. As you would expect from the UK’s first ‘Professor of Sustainable Development’, author Tim Jackson is a bit of a heretic – particularly impressive because the SDC is an independent advisory body to the UK government. Here’s how his argument goes.

First, reclaim the notion of prosperity: ‘Prosperity is about things going well for us – in accordance with (pro- in the Latin) our hopes and expectations (speres)…. Until quite recently, prosperity was not cast specifically in terms of money at all; it was simply the opposite of adversity or affliction.’

Then, show that growth has diminishing returns in terms of delivering wellbeing in rich countries (see my recent review of The Spirit Level on this). Whereas the Spirit Level then concentrates on equity as an alternative goal to growth, Jackson pushes a bit further, asking ‘if growth doesn’t deliver wellbeing, why is it so important to politicians?’ ‘Growth is functional in maintaining economic and social stability.’ Why? Because technology and competition generates productivity improvements, which in the absence of growth means job losses. Growth is needed to create new jobs and keep people consuming. Moreover: ‘Recession has a critical impact on the public finances. Social costs rise with higher unemployment. But tax revenues decline as incomes fall and fewer goods are sold. Lowering spending risks real cuts to public services. Cutting spending affects people’s capabilities for flourishing – a direct hit on prosperity.’ i.e. ‘The capitalist model has no easy route to a steady-state position. Its natural dynamics push it towards one of two states: expansion or collapse.’

As for the public, prosperity is all in the mind. ‘Why is it that material commodities continue to be so important to us, long past the point at which material needs are met? Are we really natural-born shoppers?… The clue to the puzzle lies in our tendency to imbue material things with social and psychological meanings…. Consumer goods provide a symbolic language in which we communicate continually with each other. And crucially, these social conversations provide, in part, the means to participate in the life of society. Prosperity itself, in other words, depends on them.’

What to do? First dispense with the idea of an easy technological fix. Jackson goes over the numbers to take apart the argument that ‘Technology will save us. Capitalism is good at technology. So let’s just keep the show on the road and hope for the best.’ Although per dollar of output the global economy has become less carbon intensive – by about 23% since 1980, this improvement has been dwarfed by growth itself. As a result, ‘evidence of absolute decoupling is much harder to find… Despite declining energy and carbon intensities carbon dioxide emissions from fossil fuels have increased by 80% since 1970 – and since the year 2000 they have been growing at over 3% per year.’ Extremely implausible rates of improvement would be required to meet the 450 parts per million of greenhouse gases that he sees as necessary to prevent catastrophic climate change (see chart).

Looking forward he sees no grounds for assuming technology can deliver on sufficient scale to allow trend rates of growth to continue (the global economy is almost five times the size it was half a century ago. If it continues to grow at the same rate the economy will be 80 times that size by the year 2100). He is sceptical of Nicholas Stern’s analysis, approvingly quoting energy economist Dieter Helm ‘The easy compatibility between economic growth and climate change, which lies at the heart of the Stern Report, is an illusion.’

Instead, Jackson argues that the only alternative is to ‘confront the structure of market economics’. ‘Two interrelated features of economic life are central to the growth dynamic. On the one hand, the profit motive stimulates newer, better or cheaper products and services through a continual process of innovation and ‘creative destruction’. At the same time, the market for these goods relies on an 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.’

Breaking out of that cage requires a new macroeconomics of sustainability ‘in which stability no longer relies on ever-increasing consumption growth. One in which economic activity remains within ecological scale.’ Alas, few details on what that might look like.

The second step is to break the social logic of consumption. He quotes Gandhi: ‘live simply, that others might simply live’, but thinks that ‘simplistic exhortations for people to resist consumerism are destined to failure. … Structural changes of two kinds must lie at the heart of any strategy to address the social logic of consumerism. The first will be to dismantle or correct the perverse incentives for unsustainable (and unproductive) status competition. The second must be to establish new structures that provide capabilities for people to flourish, and particularly to participate fully in the life of society, in less materialistic ways.’ Um, like what? Don’t stop there! As is often the way with such broadsides, the diagnosis is much more detailed and convincing than the proposed cure.

One possible answer is provided by the Spirit Level: ‘Greater equality gives us the crucial key to reducign the cultural pressure to consume.’ As Henry Wallich, a former governor of the Federal Reserve and economics professor at Yale, noted: ‘growth is a substitute for equality of income. So long as there is growth there is hope,a dn that makes large income differentials tolerable.’ So a focus on equity and redistribution might make growth less necessary in the long term (although it’s often easier to make the necessary initial reforms in a growing economy).

Jackson believes ‘sustainability doesn’t come naturally to us’ and the state will have to play a central role, but the state too is caught in the ‘dilemma of growth’: ‘policy-makers struggling with competing goals. On the one hand government is bound to the pursuit of economic growth. On the other, it finds itself having to intervene to protect the common good from the incursions of the market. The state itself appears deeply conflicted, striving on the one hand to encourage consumer freedoms that lead to growth and on the other to protect social goods and defend ecological limits. The reason for this conflict is clear once we recognise the critical role that growth plays in macro-economic stability. With a vital responsibility to protect jobs and to ensure stability, the state is bound (under current conditions) to prioritise economic growth. And it is locked into this task, even as it seeks to promote sustainability and the common good. Government itself, in other words, is caught in the dilemma of growth.’

But there is no choice – species survival depends on governments and citizens resolving the dilemma before the planet cooks. Jackson concludes with ‘12 steps to a sustainable economy’ which pursue the triple aims of developing a new macroeconomics for sustainability, freeing people from the ‘iron cage of consumerism’ and respecting ecological links.