This page is the summary of
Prosperity without Growth, the most complate analysis so far of
the current financial and economic crisis and why the transition to a
sustainable economy is the necessary path to recovery.
Appendix 1 The SDC ‘Green Stimulus’ Package 108
Appendix 2 Towards a Sustainable Macro-Economy 110
References 113
Endnotes 122
Summary of Prosperity
Without Growth
Economic growth is supposed to deliver prosperity. Higher incomes
should mean better choices, richer lives, an improved quality of life
for us all. That at least is the conventional wisdom. But things
haven’t always turned out that way.
Growth has delivered its benefits, at best, unequally. A fifth of the
world’s population earns just 2% of global income. Inequality is higher
in the OECD nations than it was 20 years ago. And while the rich got
richer, middle-class incomes in Western countries were stagnant in real
terms long before the recession. Far from raising the living standard
for those who most needed it, growth let much of the world’s population
down. Wealth trickled up to the lucky few.
Fairness (or the lack of it) is just one of several reasons to question
the conventional formula for achieving prosperity. As the economy
expands, so do the resource implications associated with it. These
impacts are already unsustainable. In the last quarter of a century the
global economy has doubled, while an estimated 60% of the world’s
ecosystems have been degraded. Global carbon emissions have risen by
40% since 1990 (the Kyoto Protocol ‘base year’). Significant scarcity
in key resources – such as oil – may be less than a decade away.
A world in which things simply go on as usual is already inconceivable.
But what about a world in which nine billion people all aspire to the
level of affluence achieved in the OECD nations? Such an economy would
need to be 15 times the size of this one by 2050 and 40 times bigger by
the end of the century. What does such an economy look like? What does
it run on? Does it really offer a credible vision for a shared and
lasting prosperity?
These are some of the questions that prompted this report. They belong
in a long tradition of serious reflection on the nature of progress.
But they also reflect real and immediate concerns. Climate change, fuel
security, collapsing biodiversity and global inequality have moved
inexorably to the forefront of the international policy agenda over the
last decade. These are issues that can no longer be relegated to the
next generation or the next electoral cycle. They demand attention now.
Accordingly, this report sets out a critical examination of the
relationship between prosperity and growth. It acknowledges at the
outset that poorer nations stand in urgent need of economic
development.
But it also questions whether ever-rising incomes for the already-rich
are an appropriate goal for policy in a world constrained by ecological
limits.
Its aim is not just to analyse the dynamics of an emerging ecological
crisis that is likely to dwarf the existing economic crisis. But also
to put forward coherent policy proposals (Box 1) that will facilitate
the transition to a sustainable economy.
In short, this report challenges the assumption of continued economic
expansion in rich countries and asks: is it possible to achieve
prosperity without growth?
1. The Age of Irresponsibility
Recession throws this question into sharp relief.
The banking crisis of 2008 led the world to the brink of financial
disaster and shook the dominant economic model to its foundations. It
redefined the boundaries between market and state and forced us to
confront our inability to manage the financial sustainability – let
alone the ecological sustainability – of the global economy.
This may seem an inopportune moment to question growth. It is not. On
the contrary, this crisis offers the potential to engage in serious
reflection. It is a unique opportunity to address financial and
ecological sustainability together. And as this report argues, the two
things are intimately related.
Chapter 2 argues that the current turmoil is not the result of isolated
malpractice or simple failures of vigilance. The market was not undone
by rogue individuals or the turning of a blind eye by incompetent
regulators. It was undone by growth itself.
The growth imperative has shaped the architecture of the modern
economy. It motivated the freedoms granted to the financial sector. It
stood at least partly responsible for the loosening of regulations and
the proliferation of unstable financial derivatives. Continued
expansion of credit was deliberately courted as an essential mechanism
to stimulate consumption growth.
This model was always unstable ecologically. It has now proven itself
unstable economically. The age of irresponsibility is not about casual
oversight or individual greed. If there was irresponsibility it was
systematic, sanctioned widely and with one clear aim in mind: the
continuation and protection of economic growth. The failure of this
strategy is disastrous in all sorts of ways. Not least for the impacts
that it is having across the world, in particular in poorer
communities. But the idea that growth can deliver us from the crisis is
also deeply problematic. Responses which aim to restore the status quo,
even if they succeed in the short term, simply return us to a condition
of financial and ecological unsustainability.
2. Redefining Prosperity
A more appropriate response is to question the underlying vision of a
prosperity built on continual growth. And to search for alternative
visions – in which humans can still flourish and yet reduce their
material impact on the environment. In fact, as Chapter 3 makes clear,
the voluminous literature on human wellbeing is replete with insights
here.
Prosperity has undeniable material dimensions. It’s perverse to talk
about things going well where there is inadequate food and shelter (as
is the case for billions in the developing world). But it is also plain
to see that the simple equation of quantity with quality, of more with
better, is false in general.
When you’ve had no food for months and the harvest has failed again,
any food at all is a blessing. When the American-style fridge freezer
is already stuffed with overwhelming choice, even a little extra might
be considered a burden, particularly if you’re tempted to eat it.
An even stronger finding is that the requirements of prosperity go way
beyond material sustenance. Prosperity has vital social and
psychological dimensions. To do well is in part about the ability to
give and receive love, to enjoy the respect of your peers, to
contribute useful work, and to have a sense of belonging and trust in
the community. In short, an important component of prosperity is the
ability to participate meaningfully in the life of society.
This view of prosperity has much in common with Amartya Sen’s vision of
development as ‘capabilities for flourishing’. But that vision needs to
be interpreted carefully: not as a set of disembodied freedoms, but as
a range of ‘bounded capabilities’ to live well – within certain clearly
defined limits. A fair and lasting prosperity cannot be isolated from
these material conditions. Capabilities are bounded on the one hand by
the scale of the global population and on the other by the finite
ecology of the planet. To ignore these natural bounds to flourishing is
to condemn our descendents – and our fellow creatures – to an
impoverished planet.
Conversely, the possibility that humans can flourish and at the same
time consume less is an intriguing one. It would be foolish to think
that it is easy to achieve. But it should not be given up lightly. It
offers the best prospect we have for a lasting prosperity.
4. The Dilemma of Growth
Having this vision to hand doesn’t ensure that prosperity without
growth is possible. Though formally distinct from rising prosperity,
there remains the possibility that continued economic growth is a
necessary condition for a lasting prosperity. And that, without growth,
our ability to flourish diminishes substantially.
Chapter 4 explores three related propositions in defence of economic
growth. The first is that material opulence is (after all) necessary
for flourishing. The second is that economic growth is closely
correlated with certain basic ‘entitlements’ – for health or education,
perhaps – that are essential to prosperity. The third is that growth is
functional in maintaining economic and social stability.
There is evidence in support of each of these propositions. Material
possessions do play an important symbolic role in our lives, allowing
us to participate in the life of society. There is some statistical
correlation between economic growth and key human development
indicators. And economic resilience – the ability to protect jobs and
livelihoods and avoid collapse in the face of external shocks – really
does matter. Basic capabilities are threatened when economies collapse.
Growth has been (until now) the default mechanism for preventing
collapse. In particular, market economies have placed a high emphasis
on labour productivity. Continuous improvements in technology mean that
more output can be produced for any given input of labour. But
crucially this also means that fewer people are needed to produce the
same goods from one year to the next.
As long as the economy expands fast enough to offset labour
productivity there isn’t a problem. But if the economy doesn’t grow,
there is a downward pressure on employment. People lose their jobs.
With less money in the economy, output falls, public spending is
curtailed and the ability to service public debt is diminished. A
spiral of recession looms. Growth is necessary within this system just
to prevent collapse. This evidence leads to an uncomfortable and
deep-seated dilemma: growth may be unsustainable, but ‘de-growth’1
appears to be unstable. At first this looks like an impossibility
theorem for a lasting prosperity. But ignoring the implications won’t
make them go away. The failure to take the dilemma of growth seriously
may be the single biggest threat to sustainability that we face.
5. The Myth of Decoupling
The conventional response to the dilemma of growth is to call for
‘decoupling’: continued economic growth with continually declining
material throughput.
Since efficiency is one of the things that modern capitalist economies
are supposed to be good at, decoupling has a familiar logic and a clear
appeal as a solution to the dilemma of growth.
As Chapter 5 points out, it’s vital to distinguish between ‘relative’
and ‘absolute’ decoupling. Relative decoupling refers to a situation
where resource impacts decline relative to the GDP. Impacts may still
rise, but they do so more slowly than the GDP. The situation in which
resource impacts decline in absolute terms is called ‘absolute
decoupling’. Needless to say, this latter situation is essential if
economic activity is to remain within ecological limits.
Evidence for declining resource intensities (relative decoupling) is
relatively easy to identify. The energy required to produce a unit of
economic output declined by a third in the last thirty years, for
instance. Global carbon intensity fell from around one kilo per dollar
of economic activity to just under 770 grams per dollar.
Evidence for overall reductions in resource throughput (absolute
decoupling) is much harder to find. The improvements in energy (and
carbon) intensity noted above were offset by increases in the scale of
economic activity over the same period. Global carbon emissions from
energy use have increased by 40% since only 1990 (the Kyoto base year).
There are rising global trends in a number of other resources – a range
of different metals and several non-metallic minerals for example.
Worryingly, in some cases, even relative decoupling isn’t happening.
Resource productivity in the use of some structural materials (iron
ore, bauxite, cement) has been declining globally since 2000, as the
emerging economies build up physical infrastructures, leading to
accelerating resource throughput.
The scale of improvement required is daunting. In a world of nine
billion people, all aspiring to a level of income commensurate with 2%
growth on the average EU income today, carbon intensities (for example)
would have to fall on average by over 11% per year to stabilise the
climate, 16 times faster than it has done since 1990. By 2050, the
global carbon intensity would need to be only six grams per dollar of
output, almost 130 times lower than it is today.
Substantial economic investment will be needed to achieve anything
close to these improvements. Lord Stern has argued that stabilising
atmospheric carbon at 500 parts per million (ppm) would mean investing
2% of GDP each year in carbon emission reductions. Achieving 450 ppm
stabilisation would require even higher levels of investment. Factor in
the wider capital needs for resource efficiency, material and process
substitution and ecological protection and the sheer scale of
investment becomes an issue. The macro-economic implications of this
are addressed in Chapter 8.
More to the point, there is little attempt in existing scenarios to
achieve an equitable distribution of incomes across nations. Unless
growth in the richer nations is curtailed, the ecological implications
of a truly shared prosperity become even more daunting to contemplate.
The truth is that there is as yet no credible, socially just,
ecologically sustainable scenario of continually growing incomes for a
world of nine billion people.
In this context, simplistic assumptions that capitalism’s propensity
for efficiency will allow us to stabilise the climate and protect
against resource scarcity are nothing short of delusional. Those who
promote decoupling as an escape route from the dilemma of growth need
to take a closer look at the historical evidence – and at the basic
arithmetic of growth.
1 De-growth (décroissance in the French) is an emerging term for
(planned) reductions in economic output. Prosperity without Growth?
Sustainable Development Commission
6. Confronting Structure: The ‘Iron
Cage’ of Consumerism
In the face of the evidence, it is fanciful to suppose that ‘deep’
resource and emission cuts can be achieved without confronting the
nature and structure of market economies. Chapter 6 exposes two
interrelated features of modern economic life that together drive the
growth dynamic: the production and consumption of novelty.
The profit motive stimulates a continual search by producers for newer,
better or cheaper products and services. This process of ‘creative
destruction’, according to the economist Joseph Schumpeter, is what
drives economic growth forwards.
For the individual firm, the ability to adapt and to innovate – to
design, produce and market not just cheaper products but newer and more
exciting ones – is vital. Firms who fail in this process risk their own
survival.
But the continual production of novelty would be of little value to
firms if there were no market for the consumption of novelty in
households. Recognising the existence, and understanding the nature, of
this demand is essential.
It is intimately linked to the symbolic role that material goods play
in our lives. The ‘language of goods’ allows us to communicate with
each other – most obviously about social status, but also about
identity, social affiliation, and even – through giving and receiving
gifts for example – about our feelings for each other.
Novelty plays an absolutely central role here for a variety of reasons.
In particular, novelty has always carried important information about
status. But it also allows us to explore our aspirations for ourselves
and our family, and our dreams of the good life.
Perhaps the most telling point of all is the almost perfect fit between
the continual production of novelty by firms and the continuous
consumption of novelty in households. The restless desire of the
consumer is the perfect complement for the restless innovation of the
entrepreneur. Taken together these two self-reinforcing processes are
exactly what is needed to drive growth forwards.
Despite this fit, or perhaps because of it, the relentless pursuit of
novelty creates an anxiety that can undermine social wellbeing.
Individuals are at the mercy of social comparison. Firms must innovate
or die. Institutions are skewed towards the pursuit of a materialistic
consumerism. The economy itself is dependent on consumption growth for
its very survival. The ‘iron cage of consumerism’ is a system in which
no one is free.
It’s an anxious, and ultimately a pathological system. But at one level
it works. The system remains economically viable as long as liquidity
is preserved and consumption rises. It collapses when either of these
stalls.
7. Keynesianism and the Green New
Deal
Policy responses to the economic crisis are more or less unanimous that
recovery means re-invigorating consumer spending so as to kick-start
economic growth. Differences of opinion are mainly confined to how this
should be achieved. The predominant (Keynesian) response is to use a
mixture of public spending and tax cuts to stimulate consumer demand.
Chapter 7 summarises some of the more interesting variations on this
theme. It highlights in particular the emerging international consensus
around a very simple idea. Economic recovery demands investment.
Targeting that investment carefully towards energy security, low-carbon
infrastructures and ecological protection offers multiple benefits.
These benefits include:
• freeing up resources for household spending and productive investment
by reducing energy and material costs
• reducing our reliance on imports and our exposure to the fragile
geopolitics of energy supply
• providing a much-needed boost to employment in the expanding
‘environmental industries’ sector
• making progress towards demanding global carbon reduction targets
• protecting valuable ecological assets and improving the quality of
our living environment for generations to come.
In short, a ‘green stimulus’ is an eminently sensible response to the
economic crisis. It offers jobs and economic recovery in the short
term, energy security and technological innovation in the medium term,
and a sustainable future for our children in the long term.
Nonetheless, the default assumption of even the ‘greenest’ Keynesian
stimulus is to return the economy to a condition of continuing
consumption growth. Since this condition is unsustainable, it is
difficult to escape the conclusion that in the longer term something
more is needed. A different kind of macro-economic structure is
essential for an ecologically-constrained world.
8. Macroeconomics for Sustainability
There is something odd about the modern refusal to countenance anything
but growth at all costs. Early economists such as John Stuart Mill (and
indeed Keynes himself) foresaw a time in which growth would have to
stop.
Herman Daly’s pioneering work defined the ecological conditions of a
steady-state economy in terms of a constant stock of physical capital,
capable of being maintained by a low rate of material throughput that
lies within the regenerative and assimilative capacities of the
ecosystem.
What we still miss from this is a viable macroeconomic model in which
these conditions can be achieved. There is no clear model for achieving
economic stability without consumption growth. Nor do any of the
existing models account fully for the dependency of the macro-economy
on ecological variables such as resources and emissions. In short there
is no macro-economics for sustainability and there is an urgent need
for one.
Chapter 8 explores the dimensions of this call in more detail. It
presents results from two specific attempts to develop a
macro-economics of sustainability. One of these suggests that it is
possible, under certain assumptions, to stabilise economic output, even
within a fairly conventional macro-economy. A crucial role is played by
work- time policies in this model, to prevent rising unemployment.
The second model addresses the macroeconomic implications of a shift
away from fossil fuels. It shows that there may only be a narrow
‘sustainability window’ through which the economy can pass if it is to
make this transition successfully. But crucially, this window is
widened if more of the national income is allocated to savings and
investment.
These exercises reveal that a new macroeconomics for sustainability is
not only essential, but possible. The starting point must be to
identify clearly the conditions that define a sustainable economy.
These conditions will still include a strong requirement for economic
stability as the basis for protecting both people’s jobs and their
capabilities for flourishing. But this condition will need to be
supplemented by conditions that ensure distributional equity, establish
sustainable levels of resource throughput and emissions, and provide
for the protection of critical natural capital.
In operational terms, there will be important differences in the way
that the conventional variables play out in this new macro-economy. The
balance between consumption and investment, the split between the
public and the private sector spending, the nature of productivity
improvements, the conditions of profitability: all of these will have
to be re-negotiated.
The role of investment is particularly crucial. Sustainability will
need enhanced investment in public infrastructures, sustainable
technologies and ecological maintenance and protection. These
investments will operate differently from conventional capital spending
(Appendix 2) and will have to be judged and managed accordingly.
Above all, a new macro-economics for sustainability must abandon the
presumption of growth in material consumption as the basis for economic
stability. It will have to be ecologically and socially literate,
ending the folly of separating economy from society and environment.
9. Flourishing – within Limits
Fixing the economy is only part of the problem.
Addressing the social logic of consumerism is also vital. This task is
far from simple – mainly because of the way in which material goods are
so deeply implicated in the fabric of our lives.
But change is essential. And some mandate for that change already
exists. A nascent disaffection with consumerism and rising concern over
the ‘social recession’ have prompted a number of initiatives aimed at
improving wellbeing and pursuing an ‘alternative hedonism’ – sources of
identity, creativity and meaning that lie outside the realm of the
market.
Against the surge of consumerism there are already those who have
resisted the exhortation to ‘go out shopping’, preferring instead to
devote their time to less materialistic pursuits, to their family, or
to the care of others.
Small scale ‘intentional’ communities (like the Findhorn community in
Scotland or Plum Village in France) are exploring the art of the
possible. Larger social movements (such as the ‘transition town’
movement) are mobilising people’s desire to live more sustainably.
These initiatives don’t appeal to everyone. But they do provide an
invaluable learning ground, giving us clues about the potential for
more mainstream social change.
Chapter 9 discusses their strengths and limitations. It explores why
people may turn out both to be happier and to live more sustainably
when they favour intrinsic goals that embed them in family and
community rather than extrinsic ones which tie them into display and
social status. Flourishing within limits is a real possibility,
according to this evidence.
On the other hand, those at the forefront of social change are often
haunted by the conflict of trying to live, quite literally, in
opposition to the structures and values that dominate society. These
structures represent a culture of consumption that sends all the wrong
signals, penalising ‘good’ environmental choices and making it all but
impossible, even for highly-motivated people, to live sustainably
without personal sacrifice.
In this context, simplistic exhortations for people to resist
consumerism are destined to failure. Urging people to insulate their
homes, turn down the thermostat, put on a jumper, drive a little less,
walk a little more, holiday at home, buy locally produced food (and so
on) will either go unheard or be rejected as manipulation for as long
as all the messages about high street consumption point in the other
direction.
For this reason, structural change must lie at the heart of any
strategy to address the social logic of consumerism.And it must consist
in two main avenues. The first is to dismantle the perverse incentives
for unproductive status competition. The second must be to establish
new structures that provide capabilities for people to flourish – and
in particular to participate meaningfully and creatively in the life of
society – in less materialistic ways.
The advantages in terms of prosperity are likely to be substantial. A
less materialistic society will enhance life satisfaction. A more equal
society will lower the importance of status goods. A less growth-driven
economy will improve people’s work-life balance. Enhanced investment in
public goods will provide lasting returns to the nation’s prosperity.
10. Governance for Prosperity
Achieving these goals inevitably raises the question of governance – in
the broadest sense of the word. How is a shared prosperity to be
achieved in a pluralistic society? How are the interests of the
individual to be balanced against the common good? What are the
mechanisms for achieving this balance?
Particular questions arise about the role of government itself. Chapter
10 identifies an almost undisputed role for the state in maintaining
macroeconomic stability. For better or worse, government also
‘co-creates’ the culture of consumption, shaping the structures and
signals that influence people’s behaviour. At the same time, of course,
government has an essential role to play in protecting the ‘commitment
devices’ that prevent myopic choice and support long-term social goals.
History suggests a cultural drift within government towards supporting
and encouraging a materialistic and individualistic consumerism. This
drift is not entirely uniform across all countries. For example,
different ‘varieties of capitalism’ place more or less emphasis on
de-regulation and competition. But all varieties have a structural
requirement for growth, and rely directly or indirectly (eg in export
markets) on consumerism to achieve this.
Government itself is conflicted here. On the one hand, it has a role in
‘securing the future’ – protecting long-term social and ecological
goods; on the other it holds a key responsibility for macro-economic
stability. For as long as macro-economic stability depends on economic
growth, government will have an incentive to support social structures
that undermine commitment and reinforce materialistic, novelty-seeking
individualism. Particularly where that’s needed to boost high street
sales.
Conversely, freeing the macro-economy from a structural requirement for
growth will simultaneously free government to play its proper role in
delivering social and ecological goals and protecting long-term
interests.
The narrow pursuit of growth represents a horrible distortion of the
common good and of underlying human values. It also undermines the
legitimate role of government itself. At the end of the day, the state
is society’s commitment device, par excellence, and the principal agent
in protecting our shared prosperity. A new vision of governance that
embraces this role is urgently needed.
11. The Transition to a Sustainable
Economy
The policy demands of this analysis are significant. Chapter 11
presents a series of steps that governments could take now to effect
the transition to a sustainable economy. Box 1 summarises these steps.
They fall into three main categories:
• building a sustainable
macro-economy
• protecting capabilities for flourishing
• respecting ecological limits.
The specific proposals flow directly from the analysis in this report.
But many of them sit within longer and deeper debates about
sustainability, wellbeing and economic growth. And at least some of
them connect closely with existing concerns of government – for example
over resource scarcity, climate change targets, ecological taxation and
social wellbeing.
A part of the aim of this report is to provide a coherent foundation
for these policies and help strengthen the hand of government in taking
them forward. For at the moment, in spite of its best efforts, progress
towards sustainability remains painfully slow. And it tends to stall
endlessly on the over-arching commitment to economic growth. A step
change in political will – and a renewed vision of governance – is
essential.
But there is now a unique opportunity for government – by pursuing
these steps – to demonstrate economic leadership and at the same time
to champion international action on sustainability. This process must
start by developing financial and ecological prudence at home. It must
also begin to redress the perverse incentives and damaging social logic
that lock us into unproductive status competition.
Above all, there is an urgent need to develop a resilient and
sustainable macro-economy that is no longer predicated on relentless
consumption growth. The clearest message from the financial crisis of
2008 is that our current model of economic success is fundamentally
flawed. For the advanced economies of the Western world, prosperity
without growth is no longer a utopian dream. It is a financial and
ecological necessity.
12 Steps To a Sustainable Economy
Building a Sustainable
Macro-Economy
Debt-driven materialistic consumption is deeply unsatisfactory as the
basis for our macro-economy. The time is now ripe to develop a new
macro-economics for sustainability that does not rely for its stability
on relentless growth and expanding material throughput. Four specific
policy areas are identified to achieve this:
1. Developing macro-economic capability
2. Investing in public assets and infrastructures
3. Increasing financial and fiscal prudence
4. Reforming macro-economic accounting
Protecting Capabilities for
Flourishing
The social logic that locks people into materialistic consumerism is
extremely powerful, but detrimental ecologically and psychologically. A
lasting prosperity can only be achieved by freeing people from this
damaging dynamic and providing creative opportunities for people to
flourish – within the ecological limits of the planet. Five policy
areas address this challenge.
5. Sharing the available work and improving the work-life balance
6. Tackling systemic inequality
7. Measuring capabilities and flourishing
8. Strengthening human and social capital
9. Reversing the culture of consumerism
Respecting Ecological Limits
The material profligacy of consumer society is depleting natural
resources and placing unsustainable burdens on the planet’s ecosystems.
There is an urgent need to establish clear resource and environmental
limits on economic activity and develop policies to achieve them. Three
policy suggestions contribute to that task.
10. Imposing clearly defined resource/emissions caps
11. Implementing fiscal reform for sustainability
12. Promoting technology transfer and international ecosystem
protection.
For the full
report, go to
Tim Jackson, Prosperity without
Growth? The transition to a sustainable economy.
Written for Sustainable Development Commission, United Kingdom,
