by Rob Dietz
What’s going on with these students of economics? Perhaps they want an education that will help them build a better society. They are coming of age in an era when the economy isn’t working (see the daunting environmental and social problems described in Chapter 2), and they seem to crave a hopeful and credible vision for the economy. The orthodoxy they’re learning appears unfit for the challenge. The growth-centric economy explained in their classes and instituted around the world fails to address the environmental and social issues of the day. A different sort of economy is required, but what exactly?
Scholars and activists have attached a variety of names to this different sort of economy, names like green economy, ecological economy, sustainable economy, stationary state, dynamic equilibrium, eco-economy, biophysical economy, and even the “new economy.” Given the title of this book, we could conceivably call it the economy of enough (or, at the risk of diverging into absurdity, enough-o-nomics). But for the sake of clarity, we’ll stick with Herman Daly’s original name—the steady-state economy—at least until something catchier comes along.
WHAT IS A STEADY-STATE ECONOMY?
At its simplest, a steady-state economy is an economy that aims to maintain a stable level of resource consumption and a stable population. It’s an economy in which material and energy use are kept within ecological limits, and in which the goal of increasing GDP is replaced by the goal of improving quality of life.
A steady-state economy would require striking a balance between the stock of natural capital and the stock of built capital, with both remaining relatively constant over time. A constant stock of natural capital implies the preservation of wilderness areas and the maintenance of important ecosystem services, such as climate regulation. A constant stock of built capital means maintaining and improving the quality of infrastructure, such as buildings and roads, but not constructing more and more of these over time.4
It’s important to distinguish between what’s on and what’s off the list of things to hold steady in a steady-state economy. Only a few items need to be held steady—the number of people, the stock of artifacts (built capital), and the quantity of material and energy flowing through the economy (this flow, also called throughput, will be discussed in detail in Chapter 5). In contrast, the list of items that can change is long. It includes knowledge, technology, information, wisdom, the mix of products, income distribution, and social institutions, among other things.5 The objective is to have the items on this second list improving over time, so that the economy can develop qualitatively without growing quantitatively.6
In short, a steady-state economy is an economy with enough as a goal. It prioritizes well-being above consumption, and long-term health above short-term gains. It focuses on innovation and development instead of growth. The pursuit of endless economic growth, with all of its downsides, is clearly unsustainable in the twenty-first century. A steady-state economy is the sustainable alternative to perpetual economic growth.
Four main features characterize a steady-state economy. The first, and arguably most critical, is sustainable scale. As explained in Chapter 3, sustainable scale requires that the economic subsystem is able to function within the capacity provided by the earth’s ecosystems. The economy should grow only if the benefits of growth (e.g., more income, more consumer products) exceed the costs (e.g., climate change, species extinctions). However, as soon as the costs catch up to the benefits, growth becomes uneconomic.7 At this point, each additional dollar of growth actually makes us poorer, not richer. Uneconomic growth continues, in part, because the benefits accrue to a few rich and powerful people, while the larger costs fall increasingly on the poor and disem-powered. This circumstance provides the rationale for adopting the second feature of a steady-state economy: fair distribution of income and wealth.
Recall from Chapter 2 that Anne Krueger of the International Monetary Fund said, “Poverty reduction is best achieved through making the cake bigger, not by trying to cut it up in a different way.”8 But if the size of the oven prevents us from baking a bigger cake, then we’d better start considering how to slice the pieces and how big a slice each person is entitled to eat. The good news is that fair distribution of income and wealth may be the key to alleviating a wide range of social problems, such as violence, crime, and drug abuse.9 In addition, there’s a strong environmental argument for shrinking the gap between the rich and poor: high levels of inequality lead to status competition and associated increases in material consumption across society as everyone tries to “keep up with the Joneses.”
The third important feature of a steady-state economy is efficient allocation. The allocation of scarce resources among competing interests lies at the heart of conventional economics. The dominant thinking holds that free and competitive markets, where prices are determined by supply and demand, lead to the efficient allocation of goods and services (at least when consumers have access to good information about products). A steady-state economy includes a strong role for markets, but it is critically important to recognize where markets work and where they don’t, and to deploy the power of markets appropriately. A steady-state economy aims to strike the right balance between markets, the state, and civil society. In recent years, this balance has become skewed. We’ve put too much faith in the ability of markets to solve problems that they are not equipped to solve, including some problems they created in the first place (e.g., burning too much fossil fuel).
A steady-state economy works toward these first three features (sustainable scale, fair distribution, and efficient allocation) in order to achieve the fourth feature, a high quality of life for all citizens. Currently, GDP serves as the main measure of economic progress, but increases in GDP are not translating into increases in well-being for people in high-consuming countries. A steady-state economy would use different indicators of progress to assess whether quality of life is improving. It would shift the focus of measurement away from the production and consumption of goods and services, and toward things that really matter to people, such as health, well-being, secure employment, leisure time, strong communities, and economic stability. All in all, it would transform the goal of the economy from producing more stuff to enabling people to live better lives.
CAN WE REALLY DO THIS?
The vision of a steady-state economy described above is a profoundly positive one. It promises that the transformation of the economic system from growth to stability, from more to enough, would allow us to solve critical environmental problems, while maintaining (or even improving) quality of life. It almost seems too good to be true. Can such an economy really work in practice? Is it possible to have full employment, no poverty, fiscal responsibility, and reduced environmental impacts without relying on economic growth?
To help answer this question, economist Peter Victor created a model of the Canadian economy to test what would happen in various growth scenarios over a thirty-year period (from 2005 to 2035).10 Although a computer model doesn’t serve as a substitute for experience in the real world, it can help us understand what policy changes are required to achieve various economic outcomes.
If the model is run under a business-as-usual scenario in which past trends continue, then the economy will continue to grow (Figure 4.1).11 Between 2005 and 2035, GDP per capita roughly doubles, the unemployment rate goes up slightly and then comes back down, government debt falls (as a percentage of GDP), and greenhouse gas emissions increase. Despite the large expansion of the economy, however, poverty (as measured by the United Nations Human Poverty Index) continues to rise, with more Canadians living in poverty at the end of the period than at the beginning.12
While the business-as-usual scenario is appealing in many ways, it is unrealistic because of environmental constraints that are not part of the model. Leading climate scientists have warned that the current concentration of carbon dioxide in the atmosphere (let alone a higher concentration) poses a danger to maintaining a stable climate.13 Victor, who teaches environmental mana
gement courses, is keenly aware of the downsides of the business-as-usual scenario. In fact, his motivation for developing the model was to see if he could find a safer path for the economy. He has taken up the challenge put forth by Larry Elliott, the economics editor of The Guardian, who wrote, “The real issue is whether it is possible to challenge the ‘growth-at-any-cost model’ and come up with an alternative that is environmentally benign, economically robust and politically feasible.”14
FIG. 4.1. Computer model 1: Peter Victor’s business-as-usual scenario for the Canadian economy assumes that past growth trends continue. GDP per capita doubles, but greenhouse gas emissions reach dangerous levels, while poverty still increases. SOURCE: see note 11.
If increases in all of the sources of economic growth (i.e., consumption expenditure, investment, government expenditure, trade, population, and productivity) are eliminated over a ten-year period beginning in 2010, a very different scenario emerges from the model: a no-growth disaster (Figure 4.2). Poverty skyrockets, unemployment actually climbs off the chart, and the level of government debt becomes completely untenable. As GDP per capita levels off, so do greenhouse gas emissions, but at the cost of economic collapse.15
Fear of this nightmare scenario keeps nations chasing economic growth. It has prompted them to respond to the global recession by propping up the existing system and trying to return to something resembling the business-as-usual scenario.
Fortunately, the model also demonstrates that it is possible to achieve a no-growth success (Figure 4.3). If growth slows over time and the size of the economy stabilizes under the right set of policies, unemployment drops to historically low levels, leisure time increases, poverty is virtually eliminated, greenhouse gas emissions decrease, and government debt falls to a healthy level—all without the need for continuing economic growth.16 This scenario offers hope that it is possible, at least in a technical sense, for a national economy to make the transition to a successful nongrowing economy.
FIG. 4.2. Computer model 2: Peter Victor’s disaster scenario for the Canadian economy is based on eliminating traditional sources of economic growth, but without adopting steady-state policies. Skyrocketing unemployment, poverty, and debt are the result. SOURCE: see note 15.
FIG. 4.3. Computer model 3: Peter Victor’s scenario for a successful transition to a steady-state economy in Canada. With the right policies in place, a low-growth or no-growth economy can achieve important social and environmental goals. SOURCE: see note 16.
WHAT NEEDS TO HAPPEN IN THE TRANSITION?
Significant changes are required to achieve the economic results shown in Figure 4.3. According to Victor and other economists, these changes include:
• New meanings and measures of progress
• Limits on material and energy consumption, waste production, and conversion of natural lands
• A stable population and labor force
• A more efficient capital stock
• More durable, repairable products
• Better pricing, including a carbon price
• A shorter work year and more leisure time
• Reduced inequality
• Fewer status goods
• More informative and less deceptive advertising
• Better screening of technology
• More local (and less global) trade of goods and services
• Education for life, not just for work
But the transition to a steady-state economy will require more than just the important policy changes listed above, as economist Tim Jackson points out.17 It will also require rethinking some of the core ideas underpinning the economy, such as investment, productivity, ownership, and environmental values. Let’s examine each of these ideas.
Investment. Investment has come to mean using money to make money. Capital flows to enterprises that generate financial returns, often by means that are not necessarily in society’s best interests. But investment is not about—or should not be about—throwing over the old in favor of the new, simply because it sells. Investment represents a simple relationship between the present and the future. It entails forgoing present-day consumption and using the resources saved to build a better future. A steady-state economy would require us to embrace this deeper view of investment.18 Instead of viewing investment only as a way to generate financial returns, we must also see it as a way to generate social and environmental returns.
Productivity. The current economic system seeks to maximize labor productivity—to produce more output from each hour of work. But the assumption that increasing productivity furthers the best interests of society is not always valid. In a service-based economy, for example, pursuing labor productivity makes little sense; it simply leads to job losses. Instead of seeking to maximize productivity, the economic system should work toward optimizing it. It’s worth pursuing productivity gains to minimize unpleasant work, but we need to take care not to displace work that brings joy and meaning to people’s lives.19 As E. F. Schumacher wrote: “If a man has no chance of obtaining work he is in a desperate position, not simply because he lacks an income but because he lacks this nourishing and enlivening factor of disciplined work which nothing can replace.”20
Ownership. Ownership of the means of production has been the subject of fierce debate for generations. The debates have largely regressed to shouting matches about the merits and drawbacks of capitalism. But ownership is not limited to the black-and-white choice between the public and private realm—there are many shades of gray in between, along with opportunities to design new ownership structures that achieve better results for society.21
Environmental values. Perhaps the most important thing we need to rethink is our relationship to nature. Across all sectors of the economy, it’s easy to find environmentally unsustainable practices. In the agricultural sector, for example, many farms around the world are consuming groundwater supplies faster than they can be replenished. Groundwater depletion in California’s Central Valley has become severe enough that researchers are concerned it may impact U.S. economic and food security.22 In the energy sector, drilling for oil in offshore areas provides another example of an unsustainable practice. BP demonstrated the volatility of this practice in 2010 when the explosion of its Deep-water Horizon rig cost the lives of eleven workers and spilled a massive amount of crude oil into the Gulf of Mexico.23 Such practices have become commonplace because of a worldview that sees the economy and its institutions as somehow independent of the natural world. Technology has given us a false sense of separation from our environment. In reality, we are part of nature, and we must respect and abide by its laws. The sooner we begin to reconnect with the natural world around us, the sooner we can begin building an economy that fits on the planet.
Reconfiguring our ideas about investment, productivity, ownership, and the environment would unravel and reweave the current economic tapestry. But the transition to a steady state requires another change—one that would reverse the current economic dogma by 180 degrees. As explained in the preceding chapters, for an economy to last over the long run, its footprint must fit within the capacity of the ecosystems that contain it. Recognizing that our collective footprint now exceeds available biological capacity, many scholars maintain that the scale of the global economy needs to contract. Instead of managing economic institutions to achieve growth, we need to manage them to achieve degrowth.24
Although the exact meaning of the term “degrowth” is subject to debate, it is increasingly interpreted as a socially sustainable and equitable reduction of society’s material and energy throughput.25 However, as with perpetual growth, perpetual contraction of an economy is neither possible nor desirable. Degrowth is a process of transition, and the ultimate goal of this process is a steady-state economy. The declaration from the first international conference on degrowth, held in Paris in 2008, makes this point while providing a more detailed definition:
We define degrowth as a voluntary transition towards a just,
participatory, and ecologically sustainable society. … The objectives of degrowth are to meet basic human needs and ensure a high quality of life, while reducing the ecological impact of the global economy to a sustainable level, equitably distributed between nations. … Once right-sizing has been achieved through the process of degrowth, the aim should be to maintain a “steady state economy” with a relatively stable, mildly fluctuating level of consumption.26
Degrowth may very well be necessary to make the transition to a sustainable economy, but the remainder of this book focuses on the ultimate goal of a steady-state economy. There are three reasons for this focus: (1) it is critically important to establish a working model for the steady state, because this is where the economy must end up; (2) if we can determine how to make a steady-state economy work, then the steps required in the degrowth transition will become clearer (it’s easier to get someplace if you know where you’re going); and (3) the economic policies needed to achieve a steady-state economy, and to manage the degrowth transition to one, appear to have much in common.
One final factor must be considered for an economic shift from more to enough—politics. Although Peter Victor’s model offers hope that a steady-state economy is technically achievable, it says little about whether it is politically feasible. Political feasibility is certainly increased by demonstrating (with the model) that such an economy can work. However, a wide gap still exists between a successful computer model and real-world implementation, especially considering the needed changes. Victor himself says, “The dilemma for policy makers is that the scope of change required for managing without growth is so great that no democratically elected government could implement the requisite policies without the broad-based consent of the electorate. Even talking about them could make a politician unelectable.”27