After austerity: a new limit to growth?

Victor Anderson

Friday, 07 June 2013

climate-changeThe current focus on policies for returning to economic growth threatens to obscure the problems of sustaining growth on a finite planet. A new study hopes to respond to this threat.

The current focus on austerity and competing policies for achieving a return to growth threatens to remove from view the powerful arguments by the “green” movement about the problems of sustaining economic growth on a finite planet. Any successful growth policy currently being proposed is going to simply add to carbon emissions, bid up commodity prices internationally, and accelerate the destruction of ecosystems. Growth policies on those lines are not going to be successful for very long. Not only will they have a very high environmental cost, but they will also feed costs back into the economy, consequently cutting growth short. This is simply unsustainable.

It is easy to forget the role that unsustainable growth played in triggering the financial crisis of 2008. In the run-up to the crisis that autumn, the prices of food, oil, and metals rose extremely rapidly in the spring and summer – enough on their own to threaten the prospects for growth in Europe and North America. Rapidly rising prices for commodities such as oil contributes to stagflation – stagnant output because firms simply can’t afford to buy increased quantities of raw materials.

On its own, in a simpler economy without a complex financial sector, that would have been enough to bring a halt to growth. But, on top of the price increase problem, we have a financial sector entirely dependent on debt and interest, and repaying debt with interest depends on having more money in the future than you have now. When that is the situation across the whole economy, such a debt-based economy must be a growing economy. If the expectation of medium-term growth goes away, as it did in the United States in autumn 2008, there is a financial collapse – which is exactly what happened.

The problem for advocates of growth policies of almost all varieties now is that there is no guarantee that such a collapse won’t happen again, even if we make some sensible reforms in the financial system. The future may well be coming out of austerity, returning to growth, bidding up materials prices – and back again to stagnation.

Hence the attractiveness to politicians and others of the slogan “green growth.” There are now many “green growth” institutes, “green growth” speeches, and “green growth” policy proposals for infrastructure development. But, despite the obvious attraction of finding some way to square the circle, is “green growth” really a possibility or is it only a contradiction in terms?

This question of “green growth” is a key part of the agenda for a new study of the world economy and environment now being carried out at Anglia Ruskin University. The project is revisiting the issues raised by the 1972 classic Limits to Growth, but this time with more information, better computing power, and greater understanding of many of the scientific questions involved.

The authors of Limits to Growth developed a computer model of the relationship between many key variables in the world system, ranging from the economy to the environment and from resources and the food supply to population. Running several different scenarios on the basis of different assumptions, they came to the conclusion that a variety of “business-as-usual “ trajectories would lead to ecological and economic collapse in the first half of the twenty-first century.

That study provoked a great deal of debate, some of it based on a misrepresentation of the authors’ argument, ignoring the fact that they presented several scenarios and not just the initial, simplest one. The study, however, had some real problems. Four in particular still stand out now, more than 40 years later:

  • First, it was a global study, making no attempt to look beyond world totals and averages to consider the different impacts of their proposals in different parts of the world. The authors also failed to look at the wars, conflicts, and other international relations problems those different impacts might provoke.

  • Second, the science of climate change was poorly developed at the time. Limits to Growth operated with a vague generalised concept of “pollution,” as opposed to the more nuanced understanding of the effects of various pollutants we possess now.

  • Third, the authors emphasised world dependence on metals, fuels, and other resources in terms of a tendency for them to be depleted and run out, rather than in terms of scarcity. A scarcity of these resources would drive price increases, enabling supplies of these resources to last longer at lower rates of consumption. Therefore, Limits to Growth perhaps had a built-in bias towards finding catastrophic outcomes rather than more gradual decline trends.

  • Finally, there was a tendency to treat GDP and its growth or lack thereof as a relatively simple concept. The “green growth” questions weren’t asked: is there any composition of world GDP such that growth could be sustainable? If so, what would that look like? Is “green growth” really possible or not?

A new study for a new century

The new study, now being carried out by the Global Sustainability Institute (GSI), based in Cambridge at Anglia Ruskin University, is addressing each of these problems with Limits to Growth, as well as returning to the basic issue of the world economy’s dependence on the environment and resources, which was fundamental to the 1972 study.

GSI’s work is going beyond a blanket global study by using “agent-based modelling” to examine the impact of global trends on individual countries and the relationships between them. The project is trying to put together a global “system dynamics” approach with the “agent-based” one, gaining both global and national perspectives.

GSI is also incorporating the latest data on climate change and the other planetary ecological boundaries, updating the science used to underpin the 1972 study.

It is also developing a much more sophisticated model of the relationship between resource usage, scarcity, commodity price changes, and their impacts on the overall economy, rather than a simple “use it up and it’s gone” picture of resource depletion. Finally, it is attempting to answer the “green growth” questions by not only modelling the possible outcomes of growth given the current composition of GDP, but by also considering the likely consequences for growth of major shifts in what GDP output consists of.

We haven’t got to our answers yet – but we do have a clear idea of where we are trying to get to. The study is aiming to produce four main outputs: a “most likely” scenario, a series of additional scenarios exploring the implications of a range of about 20 “wild card” unlikely but possible events (such as a rapid shift from investment to consumption in China), a “green growth” scenario based on major change in the composition of output and consumption (or a statement of why that would be impossible), and, finally, a computer interface enabling readers and users to check our reasoning and model the effects of policy or other changes they can suggest for themselves, e.g. what would happen if everyone became vegetarian or if there was no problem about carbon emissions.

The main focus of the study is on 2020. Obviously, most of the trends being considered are much more long-term than that date suggests, but the purpose of a relatively near-term focus is to encourage thinking about changes which could be introduced by current policy-makers in the next few years—by the next UK Government or the next set of EU Commissioners, for example.

We are trying to get away from the tendency to endlessly postpone discussion of these issues – whether due to election seasons or party manoeuvring – until after some immediate crisis hits. Even then, the next election comes along or a different crisis flares up, so that politicians almost never get on to considering the key long-term trends we all need to address.

This article originally appeared on OpenDemocracy http://www.opendemocracy.net/openeconomy/victor-anderson/after-austerity-new-limit-to-growth

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  1. Posted by Stan Rosenthal

    Spot on Victor. This is the scenario that dares not speak its name in political circles. I’ve been banging on about it since the recession began but there is a sort of denial operating on both the left and right of the political spectrum since it goes against the promise of rising material standards.

    The only answer is The kind of good society described in that excellent publication you were involved in “Prosperity without Growth” and by Andrew Simms in his debate recorded at this site with Jon Cruddas. It is time for our all-round wellbeing to replace ever increasing wealth as the goal we should be striving for. Let us hope Jon takes some of this on board in his policy review but it will take some selling to the brainwashed Great British Public.

    Reply