The limits to environmentalism 4

Welcome to the second of two posts discussing Tim Jackson’s Prosperity without Growth (PWG), which has become a Bible of the environmentalist movement in the UK over the last year. In the previous post, I questioned the way Jackson focused on an end to growth in the rich world, which would not provide anything like a solution to the problems of breaching ecological limits and, on Jackson’s own numbers, is less important than questions about exactly how much growth the poor world will be possible and how we can accelerate the decoupling of growth from carbon emissions.

For me, this is probably the major problem with the no-growth argument. But I think there are also two others.

The first of these is exactly how a steady state economy might work. The best way into this issue is to consider how our current economy works. Most of us (I’m including the Chinese here) live in capitalist economies. What is capitalism about? Jackson (following the economist William Baumol) chooses to define capitalism as being about private ownership or control of the means of production. Defined in this sense, a steady state economy could be capitalist or it might not, it doesn’t seem to matter much.

But this is surely an inadequate definition of capitalism. The keenest observers of capitalism, from Marx to Schumpeter to Solow, say that what matters is not ownership but accumulation. Capitalism is about investing capital to increase productivity, earn profits and then re-invest those profits in turn. Crucially, it is this process that underlies economic growth. Growth is inherent in capitalism, which means you can’t have capitalism without growth, and you can’t have a capitalist steady state economy.

For the Austrian economist Joseph Schumpeter, the key driver of this process was innovation, both in technology and in business organisation. As he put it, ‘Innovation is the outstanding fact in the economic history of capitalist society’

Technical change produces a trend of increasing productivity (for the US, for example, of an average of about 2% per year since the Second World War), and increases in labour productivity mean shedding labour (a very visible current example is the way that checkout workers in supermarkets and other shops are being replaced by self-service machines). In economies like the UK and US, this general trend means that unemployment increases when economic growth falls below around 2-2.5% a year.

Jackson does recognise this trend (although he underplays the role of innovation in increasing labour productivity). But it poses a dilemma for the no-growth argument, and especially for an explanation of how a “steady state” economy is supposed to work.

The argument seems to fluctuate between two possibilities. One is that a steady state economy is one in which there would be no innovation and increases in labour productivity, except for exports, in order to maintain competitiveness, and areas like renewable energy and ecological services, where major effort is needed to reduce emissions and counter the loss of biodiversity. In this case you could have, in theory, steady income and full employment. This would be a “Cuban cars” economy, in which all technology and labour processes were frozen at the point in time that it stopped growing.

The exceptions mentioned above do raise some tricky questions. You need innovation and investment in low and zero carbon energy, to make radical decoupling cheaper, quicker and easier, but this would include the supply chain for technologies too (e.g. steel for wind turbines, silicon for solar PV etc). It is not clear how far into the wider economy such productivity increases would go, and so how big the labour displacing impacts would be. It is not clear if you can have rising productivity in just a few parts of the economy in the absence of technical change elsewhere, and if you can in theory, how you might organise it institutionally.

These issues are not really broached in the book. The reason why they matter is that such an economy, as argued above, would not be a capitalist economy as we know it. This might not matter in theory, but it raises the huge question (on which more below) of how the transition to such an economy might be organised politically.

The other possibility for a steady state economy seems to be allowing innovation and increasing labour productivity in the economy, but resolving the tension with economic growth not through rising unemployment, but by sharing the work around through labour sharing or a shorter working week. Presumably to avoid a collapse in demand (this is a steady state economy remember) total pay would remain the same even though hours of work would reduce.

The issue with this version of the steady state economy is that innovation and increasing labour productivity are long-term trends, which implies that over time, the working week would have to get shorter and shorter if economic growth is to be avoided. At a 2% increase in labour productivity a year, the working week would become the working day after 40 years, and the “working hour” after 180 years! This seems a little unrealistic, and it’s not clear that an economy organised like this would actually maintain increasing labour productivity. In any case, there is again no discussion of a political route to such a world (companies are liable to object as the fixed costs of employing people would go up and up as a proportion of their total labour costs, for example).

This brings us neatly finally to the third problem with PWG: politics. Jackson does have some discussion of the need for our old favourite “political will” towards the end of the book, and there are some examples of concrete ideas (e.g. shorter working week, ban advertising aimed at children), but there is basically no political strategy. Indeed, the argument is framed in terms of the need for “social and economic change” and “governance”, but not politics at all.

The key question is how we are supposed to get from where we are to where he wants us to be. Jackson acknowledges that at the moment, many people want growth (or more precisely, economic stability) and so demand it of politicians, who then have a political incentive to deliver it. The quandary (not really acknowledged) is which strategy to adopt in this situation.

Do you first reshape the economy to deliver economic stability without growth (e.g. by a shorter working week), which then demonstrates to people socially and politically that growth isn’t necessary for a good life, or do you first have to bring about major social change, moving people away from consumerism, as a precondition for transforming the economy and making the end of growth politically feasible?

The discussion in chapter 11 of the book sort of implies that Jackson is thinking in terms of the latter route, but it actually has no strategy. He lays out (some quite conventional, even dare I say it, already proposed by economists) policies like carbon taxation and the aforementioned shorter working week but there is nothing on political narrative. The closest we get to a strategy for social transformation is banning advertising aimed at children (also a theme of Tom Crompton’s) and policies to drive greater durability of products.

A counterview might be that all these changes are needed, and it doesn’t matter so much what happens first, that they all reinforce each other etc etc. But I don’t think that’s enough. The political party in the UK that comes closest to offering the Jackson vision is the Green Party. They got 1% of the popular vote in the 2010 general election, and one MP. What stronger evidence can there be that the vision on its own is not enough?

A final point takes us back to equity (see previous post), but this time within rich countries. Certainly within the US and the UK, a large group of people in the low-to-middle part of the income distribution have seen their real incomes stagnate or fall over the last decade, as the rich have got richer. Telling this “squeezed middle” that economic growth is to end is not going to go down well unless there is a credible strategy for redistribution. That’s why a good initial step for a more sustainable economy might be a set of good old-fashioned social democratic policies on tax and spend.

Prosperity without Growth raises some very important questions, and Tim Jackson shows how tight a squeeze we are in. But the book leaves some even more crucial questions hanging. Of course ending economic growth in rich countries would make a solution to ecological limits a bit easier, but this would play only a small role. In the absence of radical technological change, only serious “de-growth”, what Kevin Anderson and Alice Bows call “planned economic recession” would be sufficient to bring about the cut in emissions needed. With rapid growth in poor countries this conclusion is even stronger.

So what we should be focusing on is achieving that technological change. Yes, it hasn’t materialised so far, but nor have the policies for low carbon innovation we need to produce it – like Gandhi’s Western civilisation, the low carbon revolution would be a good idea. And yes, getting those policies in place will require political effort. But that effort will be as nothing compared with the political challenge of replacing capitalism with a new steady state system either lacking innovation or with a disappearing working week.

Perhaps the most fundamental, indeed philosophical issue here is that, despite the fact that Jackson has made a good effort to make an argument about limits into an argument about quality of life, his underlying message is (pace Obama): “No, we can’t”. But beyond the environmentalist camp, this message will not work. In the face of the biggest collective challenge that humanity has faced, we need a narrative that has the human potential to solve problems, and overcome apparently unbeatable odds, at its heart.

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20 Comments

Filed under Decoupling, Environmentalists, Growth, Innovation

20 responses to “The limits to environmentalism 4

  1. Duncan Green

    Outstanding posts Matthew. I debated the politics of PWG with Tim Jackson last year and came away pretty alarmed. His preferred environmental solution may well be incompatible with democracy and human rights. See http://www.oxfamblogs.org/fp2p/?p=2920 for more

  2. Good post. Whilst I might want to debate some of the economics I would definitely agree with the main thesis – that proving that unending economic growth is not possible doesn’t mean that the politics become clear as to what to do about it. I wrote a blog post about transitions to degrowth last year – http://www.iied.org/sustainable-markets/blog/riding-bicycle-backwards – which looks at why any transition would be very messy. It is a catch-22 – degrowth causes the economic system to become very unstable, ever increasing growth causes the economic system to become very unstable. Whichever way it goes it looks like rapid and unplanned systems change (i.e. a revolution of sorts) is a more likely outcome than a planned, gradual adjustment to “sustainability” which extends neatly from existing economic, social and political systems. Furthermore, planning the structure and aims of a post revolution system is not possible – such rapid changes are by their nature unpredictable and to a large extent, chaotic. Again the problem is with this view is that it doesn’t produce a useful political narrative for today.

    As further reading and links to this subject I would recommend the original steady definitions of a state economy by Herman Daly (Steady-State Economics, 1977). These are physical in nature rather than monetary. How we choose to value and distribute the products of any economy is a separate issue from what physical parameters define environmental sustainability.

    On the issue of 2% increase in productivity going on for ever I would point you to the work of Joseph Tainter (e.g. The Collapse of Complex Societies, 1988). Everything, including scientific discovery, suffers from falling returns to investment. Early discoveries are easier than the more complex discoveries that build on them. Thus continuing to discover and invent new things to keep us getting more productive at this rate over several decades is probably also unlikely.

    Hope this is at least interesting, even if it doesn’t move the ball (or bicycle) on much further.

  3. Andrew Dorward

    Matthew
    Thanks for this, stimulating and useful stuff.
    I have a couple of questions about sustainable growth – or prosperity without growth – in the face of the the water / population / consumption / climate change / energy challenges we face.
    Growth is based on innovation, yes, but much (most? – of course not all) of growth has been based on innovation around cheap fuel and cheap food, with much cheap food itself dependent on cheap fuel replacing human and animal / photsynthetic energy. Indeed growth and development can be characterised largely in terms of falling food prices relative to incomes, particularly in the early stages of growth out of poverty (which ought to be our main priority). Much sustainability implies (with current technologies at least) more labour intensive activities (with labour substituting back for fossil energy) , which means lower labour productivity and lower incomes.
    Higher food and energy prices are upon us, and are predicted to rise. What are the implications for growth and equity? Incidentally, are our current UK inflationary problems with food and fuel a temporary growth problem, or are they a much more serious structural problem with growth and development to some extent going into reverse? – and what are the implications of that for investment in renewable technologies?
    Andrew

  4. Gerald Kapp

    Thanks Matthew, Duncan, Tom and Andrew for this food for thoughts.
    Growth & steady state will happen – simultaneously on different levels of society. Many enterprises and sectors of the economy will grow while others decline (what we already observed in the past will happen more dynamically in future) – important is that the overall impact on resources (exploitation and pollution) will level off. Innovation will continously grow and with it work productivity (partly driven by higher costs/taxes of labour than machines). Disconnecting income from work will be necessary (i.e. a basic income), as not everybody will find a paid work.
    Gerald

  5. Niaz Murtaza

    An SSE actually refers to an economy which is in physical steady state with the environment and not economic value steady state under Daly’s conceptualization. So, economic growth arising out of productivity increases, technological changes and from growth in non-material using industries is compatible with an SSE.

    Secondly, an SSE is something that can only emerge over a prolonged period of 2-3 decades and not overnight. Third, it can be achieved through three main strategies: technological changes, population stabilization and consumption reduction. None of these will be enough by themselves to achieve an SSE and the focus must be on all three. Given these three paths, the first step would be a per capita steady state and then an absolute SSE once population stabilizes (even earlier if the other two options make it possible). Additionally, at a country level, for some countries in Europe and Japan, an absolute SSE is perhaps possible even today or soon as their populations reach steady state.
    Market-based companies, normal profits and reinvestment is also compatible with an SSE as Philip Lawn shows in “Lawn, P., 2005, Is a democratic-capitalist system compatible with a low growth or steady-state economy?, Socio-Economic Review, 3, 209-232”.

    The political question is more complicated. Of the three options for achieving an SSE, the first two are already on the mainstream political agenda and in fact population stabilization is already expected to occur in the coming decades. It is the reduction in consumption option that will face the most political opposition. However, it is also the one that is arguably the most important one as it provides the greatest potential for achieving an SSE. Population stabilization will still leave us way above an SSE. Technological changes will be helpful but unless consumption reduces, any gains from technological changes will be lost due to ever increasing consumption. In fact, this is what is happening even now despite the significant reduction in material inputs achieved by so many technological changes.

    So, the political challenge related to consumption reduction has to be tackled somehow. Now, the nature of politics in a society depends on the prevalent societal values. So what first has to change are values within society, as a result of awareness-raising, advocacy, community mobilization and networking by those who already hold post-consumption values. And they have a powerful argument available to convince other people about reducing consumption. This has to do with the fact that a reduction in consumption makes sense primarily not as a sacrifice for the sake of the environment and future generations, but as a way of improving your own quality of life. There are numerous studies that show that people who move on to other non-material life goals after achieving a middle-middle class status lead a much more satisfactory life and enjoy better physical and mental health. I discuss this issue in more detail in my recent article “Pursuing self-interest or self-actualization? From capitalism to a steady-state, wisdom economy” in Ecological Economics Journal using an expanded version of Maslow’s hierarchy of needs. So while neoclassical economics claims that people can ensure the societal good by pursuing self-interest, I argue in the article that history over the last two years disproved this argument. Instead I argue that people can ensure the societal good by pursuing self-actualization.

    Once values start changing then an SSE will emerge out of the democratic process rather than being something that undermines democracy and human rights. Clearly, there is much more thinking that needs to go into working out the feasibility of an SEE, but equally clearly it represents the most promising , perhaps the only option, for sustainability and equity in the world.

  6. emily mcglynn

    In addition to the two options of ‘no innovation’ and ‘shortening work week’ for meeting the constraints of ecological limits, what if preferences simply shifted (on a broad scale) towards lower-impact consumption, e.g. massages, local gardening, tennis lessons, etc. In theory, consumption on cars, flights, electricity could decrease or stay the same and consumption on local, service-based items could increase. Therefore we could see steady or decreasing environmental impacts and still see economic growth. After all, isn’t this shift in preferences what we are attempting to achieve through any pricing/internalization of environmental impacts? Of course this also the tendency of societies as they develop. The point is, the traditional view of ‘environmentalism’ needn’t be thrown away completely — it can be utilized as part of the political roadmap in developed countries, with innovation also playing a key role for both developed and developing countries.

  7. Pingback: From Poverty to Power by Duncan Green » Blog Archive » Limits to environmentalism; a fire in New York; best job in Florida; how to influence China; Rwanda and James Bond on women’s rights: links I liked

  8. Brian Davey

    Matthew makes much of innovation in his critique of Tim Jackson. But there are different kinds of innovation. With rising supplies of fossil energy available innovation over the last two centuries has been about substituting fossil fuel powered machines and chemical processes for human and animal muscle power. This has had two effects – one in regard to sinks (including the atmospheric one and hence climate change) and the other in regard to depletion of energy and non renewable resources.

    In my view some kind of “contraction” will happen in the developed countries whether we like it or not. The debate about “Steady State” and the Limits to Growth can be framed as being about “deciding as a society not to grow” or it can be framed differently – recognising that beyond a certain point it will be impossible to continue to grow and then looking at the consequences. That’s rather different. This is because the fossil energy will not be there to continue growing material production and fueled power services.

    The “Limits to Growth” narrative as formulated, for example, by the Club of Rome Report and its more recent follow up, was that it would be possible to continue to expand production for a time but an increasing proportion of resources would go into solving problems and less and less into increase production for increased human welfare . In this picture of the world “solving problems” is a far broader issue than merely coping with climate change (and its a problem of this critique to reduce the issues just to climate change, important as it is). Solving problems means the increasingly difficult and expensive process of getting energy and materials from depleting sources on the one hand AND dealing with problems caused by degradation in sinks on the other – the atmosphere, degraded oceans, erosion and toxity of soils, collapse of biodiversity, deforestation and so on. Thus the growth might continue but it would be a growth of a “gross” figure that yielded nothing additional “net”.

    This can go on for only so long in a period of “overshoot” where natural capital is run down and then the growth becomes negative – i.e. its a pure contraction. Look at Japan now – I suspect that in the area around Fukushima “growth” is not going to be an option.

    Now, back to the point…..all the way through this process “innovation” will be taking place – but it will be changing its character dramatically. Increasingly the focus of innovation will not be opimising and growing output but innovation strategies to increase not labour productivity but materials and energy efficiency and then, increasinly innovation focused on resilience, innovation focused on reducing risks, or simply surviving. I dare say there’s plenty of innovation. I don’t doubt too that there will be “innovation” in the psycho-social domain too. As people are confronted with huge challenges they will change not just their ideas but their psychological dispositions. That’s why I don’t like the debate about happiness – because its too much like an attempt to rescue utility theory. Its too superficial. I go along with Oliver James in his presentation of Affluenza – the goal is not happiness but to be authentic, to stay in touch with our emotions and the reality of what is all around us. That is likely to include some unpleasant things….but I go off on a tangent.

    At this moment in time I think there are then two paths possible. Let me illustrate one path with increased production of shale gas through fracking – sure there is more fossil energy, but there is also more polluted water. So the innovation is in the fracking and in the resources and changes required to cope with polluted and depleted water. This is a path of destructive innovation. It may still “increase GDP” of course – but only for a time. When people end up being poisoned on a large scale GDP will nose dive.

    Then there’s another path which is more healthy – as we reach the limits to growth the innovation will thus change from labour efficiency to materials and energy efficiency so as just to be able to stay still in terms of labour productivity – output per person terms. Indeed as energy prices rise that will likely lead to a substitution of labour and human muscles for fossil fueled power machines – eg growing an increasing quantity of food in your own garden. Innovation will then be using “smarter” techniques so that we are doing this with minimum effort.

    So “innovation” can take many different forms – including (spatial) design innovation that re-aligns growing spaces and buildings in relation to each other to minimise the energy and effort used in the relationship between our lives in our habitats and where food is grown (eg permaculture – an optimal alignment of the built and cultivated environment in terms of habitat and cultivated species).

    Well, perhaps I have gone off on a lot of tangents here – but that is really connected to the point I want to make. The discussion above is framed too much in terms of convential economic assumptions. Conventional assumptions of what innovation is (labour productivity increase). Conventional assumptions about where iut happens (in the organised sector and not in the household and non market community sector). Conventional assumptions that we have a choice to contunue growing or not. Assumptions that increased production arises from the application of more capital to less labour – rather than labour…outside of their employed relationships often….re-designing their spatial and land relationships.

    All of these things are likely to produce a change in politics and a change in what equality actually means. Equality is likely to be rooted much more in land (Robert Schiller predicts in an article in Al Jazeera that the next bubble will be in farmland and food). And how. This will change how we think about equality profoundly. Also politics will change. Clearly the Japanese government is not preoccupied with growth – it is pre-occupied with public health and safety. Because current politics have no ideas on this they are not doing very well. I think tells us a lot about future politics too. I think future politics will be about those wedded to destructive growth and those committed to public health. Which advances or protects public health or what attempts to keep the growth juggernaut on the road? Which risks public health? Resilience, as in collective risk management taking a holistic should become the key economic policy priority….

    Safe innovation is endogenous rather than exogenous – a greater proportion of production closer to home, reducing the need to purchase from afar and reduces market size, employment replaced increasing by self employment and market labour increasing replaced by household and neighbourhood focused labour.

    This would then have to involve a huge amount of sharing – using the library principle in relation to tools, shared use of vehicles/public transport, common cultivated spaces to get mutual support and make the process enjoyable and sociable etc. (Not in terms of absolutely self sufficiency but in the sense of general direction). This entails a rebirth of “commons” – both in the sense of shared access to and management of limited natural resources and shared co-creation of intellectual and knowledge commons – where innovation is essentially an open source peer to peer process….but that opens up all sorts of new issues which are actually very relevant to the issues of equality and inequality.

  9. Looking at the case of Japan, with little or no growth through the 1990s and into the 2000s, it’s interesting to note that emissions intensity was also stalled at 0.36 kg/$ from 1987-2004. And this was a period of green innovation in Japan (Toyota Prius etc). Tim notes that levels of life satisfaction saw little movement (PWG, p.40). So Japan had, until the tsunami, a steady state economy delivering some jobs and stable well-being, but not delivering radical emissions intensity reductions or investing in enough upgraded infrastructure, or sustainable pensions?. Japan’s reconstruction will be a tragic but fascinating lab for what is possible to improve on that equation.

  10. As a business economist, it can be both infuriating and humorous to read articles like this and the comments. First and foremost: more than a few folks are talking past each other because they fail to understand that terms have different meanings. The comment of Niaz Murtaza that steady state economies really mean steady state resource use, not steady state economic growth, underscores this: this makes it thoroughly possible to discuss what such an economy might look like, which would be driven by innovation, rather than factor usage. The idea that many appear to understand – and I include myself here – that the environmentalists mean that there should be no economic growth whatsoever is heavily detrimental to their cause and is an abject failing on their part not to be precise in what they mean.

    Further, the fundamental problem facing the environmentalists – and indeed a problem that should make them great friends of economists, rather than alienating them – is the allocation of scarce resources. That is the core tenet of economics – the study of how scarce resources are allocated – and both analytical and empirical work shows that markets are the only way to match supply and demand with efficiency. Nothing else works as efficiently in determining who gets what for how much. Now, for those who immediately want to point out that markets didn’t work over the last several years, let me correct you: they did work, just not the way that you wanted them to. They were also manipulated and defrauded: no market can work without the rule of law and police powers to back those laws up, and the financial crisis of the last several years has been one of fraud and deceit in markets, not the failure of markets per se. The failure to prosecute those responsible is the greatest scandal of our times.

    Command economies invariably fail because those making the decisions cannot make the allocation of capital – aka resources – as efficiently as markets do, and indeed markets spring up spontaneously in command economies to re-allocate goods to meet actual demand, invariably at greater cost than would have happened under a market economy. The environmentalists, with all their talk of needing to force changes in human behavior – and it will necessarily come down to force, just as socialism requires the thuggery of the police state in order to function (badly) – repeatedly fail to understand this. When a command economy makes a mistake, the people suffer, but not the decision makers: when the decision makers also share the malus as well as the bonus, decisions made are invariably more efficient, and, as well, vastly more conservative in terms of risk-taking. The allocation of capital, however, is then made on the basis of economic grounds, not political ones, and for this reason we see the calls for command economies to “get the job done”. Any student of economic history can see parallels with the intra-war period.

    However, and this is where we will be seeing more failings, trying to create new markets for carbon trade are doomed as long as there is no carbon that is actually traded, i.e. the government makes up the numbers and financiers and speculators exploit the system for their own purposes. Artificial markets do not work, as the goods traded there are not scarce: they can be created at will.

    Your series of articles is a great start, not the least for the rather rabid reaction you got from those you have criticized. :-)

  11. Brian Davey

    John P Opie writes

    “both analytical and empirical work shows that markets are the only way to match supply and demand with efficiency. Nothing else works as efficiently in determining who gets what for how much”

    Oh come on!

    “who gets what for how much” doesn’t include environmental problems as the environment isn’t a person or a collection of persons. In the case of climate change the point at issue is a ‘scarcity of the earth’s atmosphere’ that can be used safely for burning fossil fuels with considerable implications for a few decades hence and for future generations – and these generations are not currently active in the market, or in politics either to make “their preferences felt”.

    What’s more – how scarce the atmosphere is for more burning of fossil fuels is fiercely contested in the political arena – which is nothing like a market as described in the economic textbooks – with a lot of powerful vested interests operating through PR companies and leaning heavily on governments, using their money influence, working through the old boy networks and professional lobby organisations.

    In the terminology of economics (which privileges the business viewpoint) environmental problems arise because markets do not automatically price “externalities” . (External to businesses – internal to communities, nature and the eco-system). So some means has to be found to put a price on everything else that isn’t included in the private cost calculations of the business. That’s the cosy theory anyway.

    But there are a number of real issues before that occurs that economists, who usually take the point of view of businesses, rather than of communities, rarely, if at all consider. That is that there has to be knowledge of the extent of the environmental toxicity or problems and its effects as they evolve through time. Finding out those things is actually often quite difficult especially when business tries hard to prevent investigation – and uses their money muscle in court actions and through leaning on officialdom. Then, if you know the damage in phsyical terms there is still the political issue of what price to put on it – in the mainstream that’s supposed to be “what people are prepared to pay not to be polluted”. Of course, if you put polluting plants next to poor communities they can’t afford to pay much at all – nor afford to pay lawyers, researchers etc. In fact there’s a social justice issue here – and markets are crap on social justice. How has the market worked for the people of Bhopal for example? Or the communities poisoned as shown in the film Gaslands?

    In regard to climate change, no one has any idea what the social cost of carbon is to fix a price and nor could they. That’s why the price mechanism in a market is theoretical idea from text book economics that is useless garbage. The best you could do in principle is impose a physical cap on the amount of fossil fuels/carbon that you let into the economy – and then see what price the market set for that.

    That’s not the way you see it and you write “financial crisis of the last several years has been one of fraud and deceit in markets, not the failure of markets per se.”

    You write as if it were possible to have markets without fraud and deceit, as if fraud and deceit were somehow not intrinsic to markets. Well, I can accept that, perhaps, in local markets where traders and customers are personally acquainted and in long term relationships this might sometimes be true over periods of time. But the entire history of market economies over the last few hundred years shows a clear and regular pattern. At the end of each economic cycle, following a speculative euphoria of overinflated bank credit chasing up property values (usually in the real estate and land market) there is a crash and the crash reveals large scale fraud. This has happened with such regularity that you cannot say that the pattern doesn’t tell us something about motivations and the ethics of big traders. Read Philip J Anderson’s “The Secret Life of Real Estate and Banking” Shepheard Walwyn – that should put you right on the fairy tale of markets without fraud and deceit.

    Even better read “Treasure Islands” by Nicholas Shaxon for example – it shows that the Foreign and Commonwealth Office and the Bank of England in promoting tax havens and secrecy jurisdictions knew that they were promoting places that were being used for money laundering and crime. Read “Treasure Islands” and tell me that fraud and deceit are somehow not mainstream.

    So why should that be so? In a small market the trade is of the kind where money is a means to an end. In large scale markets money is the end. And the love of money, as someone said, is the root of all evil. The pursuit of money leads to a particular kind of mind set and structures of life goals and motivations which have been analysed by psychologists though most economists are totally ignorant of the consequences of this material on motivations.

    http://p2pfoundation.net/Intrinsic_vs._Extrinsic_Motivation

    This matters because while economists have a narrative about the efficiency of markets leading to optimal welfare – the assumptions behind it – that people are all motivated by extrinsic motivations and incentives doesn’t correspond to most people’s reality at all.

    Whatever….most economics is frankly bunk. It doesn’t help us understand the world at all. (Read David Orrell’s “Economyths. Ten Ways that Economics Gets it Wrong” Icon Paperback)

    It also wasn’t markets who decided who gets what for how much in the case of carbon markets. BP used its connections with the British Cabinet Office to influence the kind of carbon market set up in Europe (the EU ETS). The carbon revenue in this market was set up to go to the polluting companies themselves on a pay the polluter principle. The alternative idea that the earth’s atmosphere is a commons that belongs to us all, including future generations, and that therefore the carbon price ought to go to ever adult in the world never even occurred to the people who set up the carbon markets. It was self evident to them that the carbon revenues (actually a rent because arising out of an adminstratively created scarcity) must belong to them or the state.

    Well, surprise surprise.

    Actually large corporate influence over the state is entirely normal and is how the system works.

    So what do you do about it? You have a poke at command economies but I didn’t notice anyone defending command economies so this is rather beside the point.

    In ecological economics you (a) first set ecological capacity limits (b) you ensure that the distributive consequences are socially just and then, and only then, (c) you let the market allocate resources

    In relation to climate that would mean that (a) you would require companies producing fossil fuels to have permits for the greenhouse gas content of those fuels when burned. The number of permits would be limited and reduced year by year. (b) the companies would have to buy the permits and the carbon rent thus raised would be distributed justly to everyone in the world – or you would try to achieve that and (c) you would let the market do much of the rest – although you would recognise that there would be a need for complementary policies to help and support people make a change…

    The trouble with this view is that it doesn’t take into account the way our entire political system has been taken over by the money junkies and the corporate-political elite….what to do about that? I’ve posted elsewhere on that – but for goodness sake let’s cut the delusion about the wonderful market. The market is what has brought us to this place…

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  13. In Part I, Matthew, you accused the new economics foundation report, Growth isn’t Possible of being economically illiterate. Presumably you meant the report’s authors. You cited its “reproducing the lump of labour fallacy” as an example of that alleged “economic illiteracy”. In the current installment you present the following scenario:

    “At a 2% increase in labour productivity a year, the working week would become the working day after 40 years, and the ‘working hour’ after 180 years! This seems a little unrealistic, and it’s not clear that an economy organised like this would actually maintain increasing labour productivity”.

    At a 2% increase in labour productivity, with no change in population and no decrease in working hours, you would have a global GDP 35 times larger than the current total. This, too, “seems a little unrealistic”. If we throw in another 1% annual population increase, the total becomes 204 times current GDP. That seems even more than a little unrealistic. Well looky here: in a mere 500 years, with no population growth, the economy will be 20,000 times bigger. In 1000 years it will be 400 million times bigger (everyone will be a billionaire!). For that matter, “A shilling put out to 6% compound interest at our Saviour’s birth” (presumably in the Temple of Jerusalem) “would … have increased to a greater sum than the whole solar system could hold, supposing it a sphere equal in diameter to the diameter of Saturn’s orbit.”

    What you’ve done is merely extrapolated an exponential trend willy-nilly with no reasonable basis for doing so. And that’s your argument? That’s what you consider “economic literacy”?

    But let’s take a step back to that “lump of labour” claim of yours. You obviously don’t know the first thing about the history of the Lump of Labour fallacy claim, the fact that it originated in a violently anti-union propaganda tract of the 1830s; that the claim was originally grounded on the wages-fund doctrine — which has been described as “formed from the facts of a perfectly exceptional time, and on the strengths of two truths misapplied, the doctrine of Malthus (on Population) in its most unripe form, and of Ricardo (on Value) in its most abstract”; but that in the course of its strange career the fallacy claim reversed itself and came to be directed against a “fixed Work-Fund theory” analogous to the discredited wages-fund doctrine.

    In short the lump-of-labour fallacy claim is nothing but ideological bluster on stilts. Taking these two instances as evidence of your research and reasoning capabilities, I see no incentive to expect that the rest of your case has any more current relevance than Edward Carleton Tuifnell’s 1834 pamphlet on trade unions or Richard Price’s 1774 treatise on national debt.

  14. Here’s an exercise that might help you sort out your exponential fancies and lump of labour fallacies, Matthew. Read Chapter 7 of Stanley Jevons’s The Coal Question, “Of the Economy of Fuel”. I mean read the actual chapter, not somebody’s recap of the “rebound effect”. In the chapter, Jevons explicitly links his hypothesis about the relationship between efficiency and demand for coal to the standard argument in economics about labour productivity and employment.

    As a rule, new modes of economy will lead to an increase of consumption according to a principle recognised in many parallel instances. The economy of labour effected by the introduction of new machinery throws labourers out of employment for the moment. But such is the increased demand for the cheapened products, that eventually the sphere of employment is greatly widened. Often the very labourers whose labour is saved find their more efficient labour more demanded than before.

    If you had been paying attention, you would have noticed that this principle is the basis of the refutation of fears about technological unemployment. It is what makes the lump of labour a “fallacy” (or more precisely what would make the assumption of a fixed amount of work a fallacy if it wasn’t ignoratio elenchi and a straw man).

    You can either accept or reject this principle. Either it applies to labour AND energy or it doesn’t apply to labour OR energy. You don’t have the option of picking and choosing where you want it to apply and where you want it to not apply. Jevons thought that principle applies “with even greater force and distinctness, to the use of such a general agent as coal. It is the very economy of its use which leads to its extensive consumption.” Whether Jevons was right or not with regard to the relative intensities is an empirical question. But the linkage between employment and energy consumption, efficiency and total demand is not something that can be waved away with vague references to heretofore unimagined technological possibilities.

    By the way, we have been here before. Prior to the 16th century, charcoal was the main fuel used for smelting metal. Coal mining was generally restricted to easily accessible seams near or at the surface. It was the depletion of forest wood that led to more intensive use of coal and new technologies of extraction, not the least of which was the invention and use of the steam engine to drain the mines.

    The political economy of the 1950s is no more suitable to the next technological revolution than was the political economy of the 1550s suitable to the industrial revolution. “Economic growth” is a muddled concept, akin to the wages-fund doctrine of nineteenth century political economy. Like that doctrine, it is an amalgam of “two truths misapplied”: accounting practice and bastard Keynesianism. The accounting part of it is wrong from a social accounting perspective, as Kuznets pointed out in 1947. The Keynesian part of it is only the one-third of Keynes’s “intellectual theorem” most palatable to financiers and CEOs. No euthanasia of the rentier class for us, please and no far-reaching income redistribution, either.

  15. J.P. Katigbak

    I suspect the idea of growth skepticism prevails over logic and reason. That is really bad news for us, ordinary people around the world.

    Therefore, it is time to challenge those who are misunderstanding the important socio-economic concepts: economic growth and stability, and social welfare improvements. Time to keep up the good fight, shall we?

  16. Dear Matthew,
    Allow me to question two aspects of the argument you make against stationary (and a fortiori de-growth) economics. In much of this discussion, as elsewhere, there seems to be a tautological assumption that innovation creates growth, which in turn creates innovations. Yet, growth (as is currently measured) is not about innovation, but about increased creation of exchange value. While innovation often happens along that process, and is greatly fuelled by the logic of capital accumulation (as noted in the blog post), it is not inherent to growth itself. Conversely, innovation has not only happened because of private imperatives of capital accumulation – public funded research such as the oft cited Manhattan Project is a telling example.
    By confusing growth and innovation, as you do here along many more anti-de-growth critiques (notably Prof. Richard Lipsey, Simon Fraser U., in a recent debate with Prof. Jackson and others: http://www.sustainableprosperity.ca/debate), one wrongly presumes that de-growth would stifle innovation, thus undermining any chance of developing the post-carbon energy and agriculture (or even geo-engineering, for the hyper-modernist faithfuls) that humanity may need to maintain a liveable planet.
    Yet, there is no reason to believe that de-growth would in fact stifle innovation, if the fall of R&D investments from shrinking opportunities of accumulation are replaced by commensurate, and in fact much larger, ‘socially’ (in Polanyi’s sense, counter-current to capital’s market logic) funded research initiatives on priority areas in green energy, conservation, agroecology, and other sectors that will in fact need to grow tremendously. The end of fossil-fuel subsidies, and taxation of greenhouse externalities, would be a good place to start sourcing such funds.
    The second element to criticise from your argument is that of teleological faith in innovation. You end your second post with an up-beat call for mobilizing on Obama’s “yes we can” slogan. Yet there is no certainly at all, nor can you make the case, that innovations will necessarily deliver. It might, if we are lucky, but the odds are that they won’t – as Jackson and others extensively substantiate. In such uncertainty, opting for continued growth and hoping for a techno-fix is tantamount to gambling, with the highest possible stake for humanity.
    I do agree however on your aversion for ‘political will’ – a vague allusion to, and insipid euphemism, for political struggles that are needed but not likely to ever materialise. The inescapable conclusion of de-growth is that capital accumulation needs to contract and change in substance – neither of which is likely to happen under a capitalist political economy. It will take more than ‘political will’ to get there.

  17. Pingback: Massen wollen Tim Jacksons “Wohlstand ohne Wachstum” « Klima der Gerechtigkeit

  18. Bronwyn Hayward

    Matthew and also Duncan Green (first comment), aren’t you both overlooking two key points about political transitions and transformation?

    Firstly, around the world, as a result of a complex interaction of demographics, economics and social change, young citizens are ALREADY spontaneously challenging the ‘received views’ of economic growth.
    Political change is in the wind everywhere as young citizens protest against economic mantras that hamper their futures, resulting in low employment, rising inequality and low life satisfaction.

    Secondly, from our small disaster zone here in Christchurch New Zealand, an urban community devastated by earthquake aftershocks of 22 Feb 2011, its incredibly obvious to us Matthew that the ownership of financial assets does matter, it matters at an absolutely basic level.

    Ownership determines how, when and when decisions are made to reinvest profits – so those who own the means to produce financial growth determine not only what happens, and to whom, but where and how-and those investment decisions affects the life chances of others who have little say.

    In these contexts, Prosperity Without Growth reveals itself as part of a new, long overdue, and deeply democratic conversation we can all contribute to.

  19. Pingback: Prosperity without Growth? « The Echidna and the Fox

  20. Eliot Whittington

    Matthew – Any chance of an update on this? Would be interesting to see if there’s any further thoughts prompted by the comments

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