Escaping the growth imperative

A friend recently expressed to me one of the essential conundrums of contemporary  capitalist society: “I can see growth can’t continue, [because of the environmental impacts] but I can’t see how we can stop it without the whole system falling over like a stack of cards.”

One good answer can be found in the recent report of the U.K Sustainability Commission, titled Prosperity Without Growth.  But I thought I might also give a much shorter answer that comes at it from a slightly different angle, in the hope my friend and others might find it helpful.

Let’s look at why economies grow, and why capitalism (as we know it) depends on growth, because then we will quickly discover our answer as to how – in principle – we might create a no/low growth economy that doesn’t collapse and doesn’t produce social disaster.

Economies – in a generic sense – mix together factors of production (Capital, Labour, Land/environment) with knowledge & constructive social relations to generate output. That output will usually grow when we add more factors of production, better knowledge, relations or some combination of all these.

Likewise, output will usually fall if we reduce the factors of production used. …just like baking a smaller cake using less ingredients…

So in a direct technical sense, we ‘simply’ need to reduce our productive inputs enough to slow or stop growth. Let’s call productive inputs the direct drivers of growth.

The reason this seems unthinkable in capitalism as we know it, is due to the operation of indirect drivers of growth:

1.  Political pressure to avoid unemployment – If adding more capital and knowledge makes the hourly output of each worker greater, the total economy has to grow, or unemployment will rise, unless the labour force shrinks, or workers reduce their average working hours.

2. Political pressure to ease conflict over distribution of production – Growth, by increasing the ‘size if the cake’, so everybody can have more,  helps soften – and to some extent mask – social conflicts over who gets to enjoy the fruits of all that busy production.

3.  Social expectations – Humans are social creatures and we are shaped by the expectations of our society. Economic progress ‘raises the bar’ about what we think are minimal material expectations. Particularly since the Great Depression, a whole industry – the marketing & advertising industry – has been devoting massive resources and huge amounts of (often very high impact) communications to the goals of raising material expectations in society, & undermining individuals’ sense of self in order to generate an emotional unease that consumption of evermore products and services claim to ease.

4. Debt – I suspect this is the one that most strongly gives many people that sense of capitalism as we know it being like “a house of cards”. If total debt is to increase in an economy, then – unless the overall economy grows (so that production rises to match the increased monetary claims on production) – either borrowers will become increasingly indebted, or inflation will occur and erode the real-value of the debt, or debtors will default and lenders will lose some of the loaned money (or some combination of of these). Growth is the only way out that doesn’t lead to an increase in total debt in the economy subsequently making someone worse off. And as we’ve seen with the global financial crisis, in a highly debt-leveraged society , a financial crisis can severely damage the real economy. But it is also important not to overstate the significance of money, which, in the end is just a (generally) useful socially constructed agreement about claims to real resources (see for e.g. this post)

So, looking at all of the above, we have effectively identified in principle the key elements of how we need to change capitalism as we know it to create a stable no/low growth economy:

1. Reduce average working hours – If we gradually reduce average working hours, we are gradually reducing one of the key productive inputs to an economy. If we do this by sharing the reduced total hours fairly, it can be a social benefit rather than a social scourge. The introduction of the 40 hour working week into economies where 60+ was the norm is one historical example of the successful introduction of such policies. More recently shorter working week policies have been tried (with less success) in France.  We can learn from where they went wrong. We can extend holidays and public holidays.

2. Develop a strong ‘social contract’ of inclusiveness – a strong political and social culture of inclusiveness and fairness around distribution of income would, in my opinion, reduce competitive pressures around income, and enable the ‘un-masking’ of some hidden social conflicts around the distribution of income. Specifically, it would address privilege and counter-balance the power that lies behind privilege. This would also enable us to make sure that reduced working hours don’t just leave workers poorer and owners of capital richer than ever.

3.  Change social expectations – Looking at history, we know that an expectation of rapid and continuous improvement in material conditions is an extraordinary aberration. We need to challenge the social expectations around growth -something the environmental movement is already doing – and constrain the actions of the expectations industry (marketing). Policies to reduce work time can reinforce this by shifting the work-life balance more to life for more people. A social contract of inclusiveness increases the social value placed on non-material values, and reduces social pressure to compete by consuming. History shows that deep change in social expectations can be achieved within a generation in the right circumstances. There’s plenty of evidence that intrinsic values can give people as much (even more) satisfaction as extrinsic values: less stuff doesn’t automatically equal “subjectively worse-off”. Human societies are, I would argue, inherently biased towards a social conservatism, but they are not automatically biased towards intensive and extensive materialism.

4.  Constrain the growth of debt –  Surely this shouldn’t be a hard sell in the post-global-financial crisis era? Reckless lending doesn’t help anyone much in the end. We need a more conservative approach to debt. We can regulate lending more strongly, and in various ways make it a bit harder to get into debt and perhaps a bit more expensive to take on debt.

A few final things:

Public investment could play an important role  in easing the transition to a more sustainable economy, both in terms of smoothing out the bumps (e.g. if private investment were insufficient due to uncertainty or political antipathy) and in directing resources to areas society wishes to see develop (investing in sustainability).

I think, of course, that the biggest challenges in practice would not be any technical economic or policy challenges, though they would be real enough, but rather the social challenges of numbers 2 & 3 above.

A small, open, trading economy like that of Aotearoa New Zealand faces some additional challenges in that we have to do all this while continuing to pay our way in the world. However, It’s worth repeating that some of our biggest external costs are things that a “green” economy would aim to use use rather less of: mineral fuel oils, cars, overseas travel (though that cuts both ways since tourism is a major export earner), and consumer & household  indebtedness. Also, as long as the productivity per worker hour in traded sector industries remains competitive, a fall in average hours worked shouldn’t affect export competitiveness.

Again, there is more depth in the discussion of actual policy ideas in the full Sustainability Commission report, but I wanted to keep this post short and focus on the conceptual framework.


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