Managing without Growth; Slower by Design, not Disaster
Peter Victor, Edward Elgar, 2nd edition 2019, (1st edition 2007)
Victor’s book was pushed through my letter-box in the middle of UK’s coronavirus lockdown. The book’s subtitle seemed particularly apropos given the lockdowns many of us are experiencing. These establish an enforced slowdown on the world economy - an unfortunate natural experiment to test out some of the book’s ideas.
The book’s early chapters will be fairly familiar to people that have read ecological economics books by Robert Costanza, Herman Daly or one of the founder members of Green House, Molly Scott Cato. Victor does incorporate some newer material particularly in chapter 4 which includes recent thinking on natural capital which has arisen since the landmark Millennium Ecosystem Assessment, and also draws on Piketty’s treatise on wealth inequality Capital in the 21st Century.
Victor has an enjoyable economy of expression with nice one-liners like: “The incessant search for profits is one of the defining characteristics of capitalism”. The book explains conventional economists’ view that growth is needed to counter the productivity trap: as businesses exploit new technologies and automation labour is displaced requiring ever greater production to maintain full employment. By the 1970s academic disillusionment with the focus on growth began to set in with books like Limits to Growth, and Arndt’s The Rise and Fall of Growth which states it was unlikely “people will voluntarily forgo opportunities for higher standards of living” which succinctly summarises the dilemma faced by politicians in a democracy between the social arguments for reigning in an ever expanding economy and people’s desire for greater consumption possibilities.
The following chapters set out the argument: instead of managing growth, why not instead manage without growth. It rehearses arguments that natural ecological systems provide vital services like supplying resources to and metabolizing wastes from the economy but its capacity to provide such services is finite and an ever growing economy is not sustainable. There is a fascinating diagram showing the growth in extraction of physical resources over the past 100 years. Currently 90 billion tonnes a year, more than ten per human being, is withdrawn from nature, half of which is construction materials and a quarter biomass.
Victor warns against relying on the invisible hand to direct optimal use of resources. Market prices of goods fail to include information about the ecological damage from pollution, or resource scarcity because of myopic social discount rates. Efforts to ‘correct’ prices through ecological tax reform flounder both for political reasons like lobbying by businesses, and methodological practicalities: should values be based on willingness to pay (itself constrained by unfair differences in capacity to pay), willingness to accept, or the cost of replacing the service. Problems arise for inter-generational environmental impacts like climate change or using up high-grade mineral ores. There is an interesting aside that just correcting some price distortions is no use since “…the second best theorem tells us that piecemeal eliminations of optimality conditions is not necessarily helpful.” This throw-away statement basically tells us that unless we correct the huge existing distortions in the economy like not taxing resource depletion or carbon emissions then a few one-off subsidies to renewables or small businesses won’t put us right. The mis-pricing of nature is a particularly egregious problem with natural ecosystems where conventional economics does not even distinguish between whether a resource is a stock item like a forest that is materially transformed by economic utilisation, or a fund item that produces a continuous service, like a river ecosystem that detoxifies organic wastes.
The book makes a puzzling assertion that a “like any perpetual motion machine a completely circular economy running on its own waste is unattainable”. But clearly the economy is not, and never will be a closed system; energy from the sun adds energy to overcome the entropic losses from economic wastes identified by Georgescu-Roegen. Our challenge is therefore to re-establish circular material flows as existed before the fossil fuel age.
Around a third of the way into the book, Victor engages with the “Jevons paradox” also known as the rebound effect. This posits that improvements in resource efficiency will not yield absolute reductions in resource use since “improvements in efficiency brought about by technological advance that reduce material requirements per unit of output can result in lower prices” and the lower prices lead to increased demand and therefore consumption of resources (see also our Green Read on There is no Planet B). Jevons’ argument is made at the macro-level by Victor, and his collaborator and the author of Prosperity Without Growth, Tim Jackson when each observes that absolute decoupling of economic growth and resource use is impossible.
Victor is perhaps best known for his research on macro-environmental models that are used for scenario analysis of industrially and regionally disaggregated interactions between the economy and the environment. The book features some discussion about the system dynamics model, Energy Emissions TRAP that he co-developed, which includes information about the energy return on investment of different technology-scenarios. Much of this work is now being undertaken by larger modeling teams working with public agencies like the International Energy Agency. The book does hint at some interesting work being undertaken with Tim Jackson on a stock-flow consistent (LowGrowSFC) model which looks not just at how the real economy and the environment interact, but also includes the balance sheets of banks financing it. Such work is complex and data hungry but it allows the inclusion of the behaviours of banks and their regulators to manage the financial risks of climate change on the financial system.
To my mind the most interesting new idea was the discussion about segregating consumption goods not just between public and private goods, but within private goods between useful goods and status goods. People derive pleasure from the latter not because they fulfill an intrinsic need but because they signal their wealth or taste to others. There was an effort to codify various assumptions into a “HappyGrow” growth model which allows government to vary consumption taxes between classes of goods and deter over-consumption of status goods, and use these to finance the provision of public goods.
The book makes many cogent arguments on the need for a managed decline and contraction of the economy and ends with some policy recommendations organized in terms of population (less points based immigration), environment (taxing externalities), poverty (taxing wealth), time (reducing work time), investment (more green investment – my organization Climate Bonds Initiative gets a plug), technology (more directed innovation), trade (less of it) and consumption (tax status-seeking goods more).
As I said earlier, this review is being written at a time of massive decline in growth as a result of a disaster not design. What we are seeing with the current epidemic is that the costs of the disaster do not fall on different groups in an even handed way. Countries in South Asia and Africa are seeing a huge reduction in foreign earnings from foreign migrant remittances, tourist income and the export of manufactured goods: globalization has effectively been put on hold. Within the North, the sudden downturn has impacted most heavily on small and medium sized businesses and the self-employed. Within society, the lowest paid, most insecurely employed workers like waiters, cleaners, casual taxi drivers have the greatest difficulty in accessing support schemes while those on salaries and working in big firms are best protected. This surely reminds us that a managed contraction of the economy may or may not be to everyone’s liking, but an unmanaged contraction caused by pandemic or physical climate risks is ruinous for us all.
The eBook version of Managing without Growth is priced from £22/$31 from Google Play, ebooks.com and other eBook vendors, while in print the book can be ordered from the Edward Elgar Publishing website.