Environmental limits to growth?
The modern debate about economic growth first kicked off in 1972, with the publication of the influential Limits to Growth report by the Club of Rome.
The argument of the report was that exponential growth of production and consumption could not be sustained over the long term due to the finite resources and absorptive capacities of the Earth’s environment.
In the half century since then global environmental degradation has greatly worsened, with climate change, soil depletion, deforestation, ocean pollution and the loss of biodiversity all at critical levels.
This has led environmentalists and environmental economists to revisit the question of whether economic growth can be environmentally sustainable.
Asking ‘can we have prosperity without growth?’, John Cassidy surveys the various players and arguments in the growth debate.
In a report for the All Party Parliamentary Group on Limits to Growth, Tim Jackson and Robin Webster revisited the 1972 Limits to Growth report. They found that its predictions appear to be essentially still correct and that new understandings of planetary boundaries have added new dimensions to the challenge.
A 2012 report by the Institute of Actuaries and Anglia Ruskin University found strong evidence of resource constraints to economic growth, with serious economic and political implications.
Writing on Columbia University’s Earth Institute blog, Steve Cohen argues that economic growth and environmental sustainability can be made compatible through the use of human ingenuity, enlightened design and cutting-edge technology.
One response to concerns about environmental degradation has been to argue, not that economic growth per se is impossible, but only its current patterns and forms.
If the world switches to renewable energy, becomes much more resource-efficient and institutes a ‘circular economy’ in which resources are reused and recycled, GDP growth can continue at the same time as environmental damage is reduced.
Growth in global income remains morally necessary, it is argued, to end poverty and give everyone on the planet a decent living standard.
Advocates of ‘green growth’ include major economic institutions such as the World Bank, and many governments and companies.
They acknowledge that the world is very far from achieving green growth now.
But they maintain both that it is possible to ‘decouple’ GDP growth from environmental damage, and that it is politically and socially infeasible to call for growth to cease.
The OECD adopted a ‘green growth strategy’ in 2011 and has a programme of work focused on how to implement it.
The Global Green Growth Institute supports governments to define and implement green growth strategies, while the Green Growth Knowledge Platform hosts a range of analytical and policy studies.
Political economist Michael Jacobs explores the origins of the concept of green growth, why it took hold and its relationship to the concept of sustainable development.
Tim Jackson and Peter Victor explain the difference between relative and absolute decoupling of environmental impact from GDP, finding ‘no evidence at all’ for global absolute decoupling.
Reviewing the evidence for decoupling of GDP growth and environmental impact, Jason Hickel and Giorgos Kallis ask ‘Is green growth possible?’ With ‘net zero’ by mid-century requiring global carbon emissions to fall by 7-10% per year – far beyond anything achieved so far – they conclude that it isn’t.
With the focus of green growth on environmental sustainability, the concept of ‘inclusive growth’ has been developed to emphasise how growth strategies can be redesigned to achieve reductions in poverty and inequality. The OECD defines inclusive growth as ‘economic growth that is distributed fairly across society and creates opportunities for all’.
Advocates of inclusive growth argue that redistribution through the tax and welfare systems is not sufficient to achieve genuine inclusion. They typically emphasise instead the importance of education and skills, labour market reform, asset ownership, the empowerment of local places and democratic participation.
The OECD’s Inclusive Growth programme generates research and policy on how to achieve a more fairly distributed form of growth.
The Royal Society of Arts’ Inclusive Growth Commission published its recommendations in 2017. It advocates for abandoning the ‘grow now, redistribute later’ model of economic growth, advocating instead an ‘inclusive growth’ approach that puts more power in the hands of local places to create good quality jobs and prosperity.
The bottom 50% of people globally have captured just 2% of the gains from global economic growth since 1995, while the richest 1% have captured 38%, according to the new Global Inequality Report. This busts the myth that growth of itself helps tackle inequality, argues economic historian Matthias Schmelzer.
Degrowth and a steady-state economy
For some environmentalists and economists ‘green growth’ and ‘inclusive growth’ are mirages. The root problem in our economy and society, they argue, is the obsession with economic growth. Exponential growth cannot be achieved within the earth’s planetary boundaries, and cannot satisfy human needs.
‘Degrowth’ is the term increasingly used for strategies which seek a deliberate and planned contraction in the economies of high-income countries. Proponents argue that reducing the throughput of materials and energy can be achieved at the same time as maintaining and even improving people’s standards of living. As unplanned recessions exacerbate inequality, a central tenet of degrowth proposals is to ensure social justice by equitably sharing out resources, and reducing consumption and income by reducing working time.
Proponents of the idea of a ‘steady-state economy’ or ‘prosperity without growth’ argue for an economy in which environmental resources and absorptive capacities are sustained at an ecologically healthy level. This will require a contraction in the current size of high-income economies.
Economist Tim Jackson, author of Prosperity Without Growth, explains the economic and scientific ideas underpinning ‘growth scepticism’, based on the pioneering work of economists Nicholas Georgescu-Roegen and Herman Daly.
Economist and author of Degrowth Giorgos Kallis argues that degrowth is not about implementing a better or greener form of development but ‘an alternative vision of a prosperous and equitable world without growth’.
Anthropologist Jason Hickel explains the economic logic of the degrowth idea, arguing that it could lead to ‘radical abundance’. He defines degrowth as being at core about equality, with a focus on the progressive redistribution of existing income.
Friends of the Earth Europe collects a series of essays on the idea of ‘sufficiency’, where a cap on material resource consumption would be achieved through equitable distribution and sustainable lifestyles.
Leigh Phillips argues against what he calls ‘the degrowth delusion’. He identifies environmental degradation as arising from market capitalist economies and describes degrowth as ‘an end to progress’.
Rather than either ‘green growth’ or ‘degrowth’, some economists have begun to use the term ‘post-growth’ to characterise an economic policy stance focused directly on achieving environmental sustainability and individual and social wellbeing.
A ‘post-growth’ society and economy would be one where economic growth – and its attendant consumption patterns – is not regarded as a good in itself. While some of those using the term believe degrowth is necessary, others are (in Kate Raworth’s phrase) ‘growth agnostic’.
Some analysts have pointed out that western economies have for some time been experiencing much lower growth rates than in the past, with the idea of ‘secular stagnation’ suggesting that this may be a long-term condition. So adjusting to a post-growth economy may be necessary, whether designed or not.
The dependence of current economies on growth to sustain employment and raise tax revenues has led some researchers to model a ‘post-growth’ economy which lives within planetary boundaries and focuses on redistributing wealth and improving wellbeing rather than growing output.
In a report for the OECD, leading economists argue that high income countries should adopt ‘beyond growth’ strategies focused on four paramount goals: environmental sustainability, reducing inequalities, improving wellbeing and system resilience.
In a Centre for the Understanding of Sustainable Prosperity (CUSP) paper on the ‘post-growth challenge’, Tim Jackson the warns how ‘secular stagnation’ (economic slowdown) may be the new economic normal.
The Institute for Ecological Economy Research in Germany critiques both degrowth and green growth approaches. It recommends instead a ‘precautionary, post-growth’ approach to delivering social well-being within planetary boundaries.
Tim Jackson and Peter Victor have developed macroeconomic models capable of describing a sustainable national economy operating within ecological limits.
The Zoe Institute has initiated a ‘policymaking beyond growth’ project seeking to show how economic and political stability can be ‘unbound’ from economic growth in order to pave the way for a sustainable prosperity.
The idea of ‘wellbeing’ is now widely used to characterise the goal of a flourishing economy.
Wellbeing includes income but is not limited to it: it also includes other factors, including the quality of work, physical and mental health and public goods (such as the natural environment and social cohesion) that make up people’s overall quality of life. The general concept of wellbeing includes both individual life satisfaction and the flourishing of society as a whole.
A common focus of those arguing for a ‘wellbeing economy’ is that we need new indicators to measure economic and social progress, in place of growth of GDP (see below). Economic and social policy needs to be designed to achieve wellbeing directly, rather than relying on economic growth.
A number of countries, including Iceland and New Zealand, are using ‘wellbeing budgets’ and new indicators to try and ensure that this is achieved.
The Wellbeing Economy Alliance (WEAll) defines what is meant by wellbeing, and explains the policy pillars which can help achieve a wellbeing economy. A range of policies are currently being implemented around the world which are promoting wellbeing economies in practice.
In 2019 the All Party Parliamentary Group on Wellbeing set out a £9.5 billion policy agenda to improve wellbeing. It proposes targeted action in key areas including mental health provision, childcare, job creation and wellbeing at work.
HM Treasury has published its supplementary guidance to the Green Book covering the consideration of wellbeing as part of the government’s cost benefit analysis and evaluation of spending decisions. The What Works Centre for Wellbeing provides a summary of the aims and links to resources in the document, as well as an evidence base for policies which can increase wellbeing, and a range of policy case studies.
Duncan Fisher explains how New Zealand, Iceland and Scotland are using wellbeing budgets and alternative indicators to change the way they make policy.
GDP and alternative indicators of economic progress
One of the most common arguments in the growth debate is about the value of Gross Domestic Product (GDP) as a measure of economic progress. This was not what GDP, which measures national income and output, was originally designed for. But economic policy and analysis has generally used it as such: GDP growth is the primary (though not only) economic goal of most governments.
The argument against GDP is that it does not measure environmental degradation or the depletion of ‘natural capital’; it ignores productive activity (such as childcare and housework) that occurs outside market transactions; it cannot take into account intangible but important public goods such as social cohesion and trust; it does not reflect subjective happiness or life satisfaction; and does not measure the distribution of income or wealth.
Many attempts have therefore been made to construct alternative metrics of economic and social progress, with the aim of ‘dethroning’ GDP from its paramount position. Some seek to adjust GDP in various ways. Others have compiled an index of various measures.
The most common approach is to use a ‘dashboard’ of multiple economic, environmental and social indicators. These more complex datasets have the ability to track a breadth of concerns, but make it harder to track overall progress and tell a clear narrative story.
The Centre for the Understanding of Sustainable Prosperity explores the four main approaches to measuring economic and social progress, finding a clear distinction between indicators of use to policy makers, and those designed to tell a public story.
The OECD has taken a lead in devising and publishing alternative indicators. Updating a landmark 2009 report on the limitations of GDP by Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi, its ‘Beyond GDP’ report argues that good policy needs better measures. The OECD’s Better Life Index published dashboards of economic, environmental and social indicators for 36 high income countries.
National-level examples of alternative indicator sets include the UK Office for National Statistics’ Measurement of National Wellbeing dashboard, and New Zealand’s Living Standards Framework.
In a paper for the ILO surveying a range of approaches to devising alternative indicators, Günseli Berik argues that the Genuine Progress Indicator, a composite indicator which makes roughly 25 adjustments to GDP, is the most useful in comparing countries and conveying a simple narrative of progress.
The UN’s Sustainable Development Goals, are an internationally accepted measure of national progress. They divide 17 domains of human life into 169 targets for 2030. While broadly welcomed at the level of ambition, their value in driving policy in practice remains a subject of some debate.