An economy that shrinks quantity and grows quality

Feb 13, 2023
World map on a dried and cracked soil.

Recent debate on this site about economic growth and environmental protection highlights the very narrow and limiting framing of mainstream economics, and points to the far more positive prospect that is available to us if we can broaden our vision.

Mark Diesendorf (and here) has strongly countered arguments by Roger Beale and Michael Keating that we can resolve the climate and other environmental crises while maintaining “economic growth”. However there are still stronger arguments against continuing the growth paradigm and its turbo-charged, market-fundamentalist modern variant. Furthermore, the alternative prospect is even more attractive if we drop terms like “no growth” and “de-growth” and distinguish quality from quantity.

First, economies in the neoliberal era that began around 1980 have not done nearly as well, in conventional terms, as the postwar “Keynesian” economies. Through the 1950s and 1960s growth of the Australian Gross Domestic Product, GDP, averaged over 5% per annum and unemployment averaged 1.3%. Inflation was a modest 3% or so. Neoliberal economies have never come close to this performance.

The supposed failure of Keynesian management in the 1970s ignores the profound disruption of a quadrupling of energy prices and the inflationary spending of the United States on its war in Vietnam, coupled with the removal of the gold standard.

Second, the debate about growth is confused by a frequent failure to define the term. Usually it refers to the growth of GDP. Diesendorf recounts some fundamental deficiencies of GDP as a measure of our quality of life and notes better alternatives that would allow us to more clearly define our priorities.

The debate can be clarified by distinguishing quality from quantity. We can aspire to reduce the quantity of resources we use even as we continue to improve our quality of life. Whether the GDP rises or falls as we do so becomes irrelevant. Given that many exploitative and polluting activities are counted as positives in the GDP, it is likely that our quality of life would improve even as the GDP declines. The GDP might decline indefinitely as we learn to be ever-more resource-efficient, so there is no need to limit ourselves even to a “steady state” system. Living systems have been refining their resource efficiency for about four billion years and show no sign of stopping.

We already know many ways in which our wasteful use of resources can be reduced, some of them mentioned by Diesendorf, and others too numerous to go further into here. The “circular economy” championed by Environment Minister Plibersek would be a key component of a low-quantity regime, even though her claim that her policies could achieve it, by 2030 no less, is fantasy and greenwashing. The real circular economy has been envisaged by McDonough and Braungart in Cradle to Cradle.

Most aspects of the Australian environment are degrading, as are many aspects of our society. Both misguided “economic growth” and population growth contribute to this. A more immediate argument, against high immigration rates in particular, is that each additional person costs our existing society about $500,000 to pay for new houses, shops, schools, roads and so on. Recent high immigration rates have cost 10% of GDP or more, an enormous impost. These estimates come from Dr. Jane O’Sullivan’s work, summarised here.

More generally, it is reasonable to conclude that the neoliberal social engineering of the past four decades has been an economic failure and a social disaster. The aged-care tragedy is one example of a grossly inappropriate use of unfettered markets, because the goals of maximising profits and maximising care are diametrically opposed.

Markets are powerful, and can be useful, but only if we actively ensure the financial incentives under which they operate are aligned with societal goals, which commonly they are not. This is not surprising, considering that neoclassical economics is a pseudo-scientific activity whose near-equilibrium models bear no useful resemblance to real modern economies, which are far-from-equilibrium, non-linear complex systems. It is like trying to model wild horses as though they are rocking horses. There is a large, marginalised literature of analysing economies in more realistic terms, Steve Keen being only one notable contributor of many.

Both Beale and Keating claim, in effect, that it is innate in humans to always want more stuff. Their assertion neglects the huge modern industry dedicated to manipulating our desires so we want endlessly more stuff, even though many of us have plenty already and we understand it is not really making us happier and it is harming the planet. Beyond that, most human cultures have lived by the ethic of taking only as much as they need, and of leaving the land in better condition than they found it. Our modern consumerist society is anomalous and pathological.

Michael Keating claims that critics of growth offer no “realistic” alternative policies, that would be acceptable to voters. Well there are many such policies. I commend, among many, Jason Hickel’s Less is More because I think it correctly identifies within our system the fundamental driver of growth. It is what Hickel calls artificial scarcity, created by literally and metaphorically enclosing the commons and shutting some people out, so everyone is forced to compete desperately for what remains accessible. But the Earth is abundant. We overcome artificial scarcity by restoring people’s fair access to commons of many kinds.

As for persuading the punters to go this way, if we just reversed some of the current mechanisms by which wealth is siphoned off by the already wealthy, so more people got a fairer and larger share of what is jointly produced, a lot of people would soon come to see their quality of life improving and they would then be open to more of the same.

In closing, I concur with Diesendorf’s contention that Beale and Keating do not give sufficient weight to the peril we are in. Steve Keen has documented the extraordinarily ignorant and misleading modelling of the effects of global warming by some prominent economists. In fact we know we are close to climate tipping points that could condemn our descendants to climate hell. We do not know if one or more systems might already have tipped. By this assessment, we have been in the red-alert zone for a decade or more.

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