by Kate Raworth
Since then, however, leading economists in the OECD and in major financial institutions have been choosing their words carefully when discussing future growth prospects. In early 2016, Mark Carney, governor of the Bank of England, warned that the global economy risked being trapped in a ‘low growth, low inflation, low interest rate equilibrium’.21 The Bank for International Settlements – effectively the central banks’ central bank – concurred, noting that ‘the global economy seems unable to return to sustainable and balanced growth … the road ahead is quite narrow’.22 The IMF meanwhile advised that, ‘our projections continue to be progressively less optimistic over time … policymakers should not ignore the need to prepare for possible adverse outcomes’.23 The OECD itself agreed that the world was in a ‘low-growth trap’ with growth ‘flat’ in high-income countries.24 And the influential US economist Larry Summers declared that we have entered ‘the age of secular stagnation’.25 It sounds suspiciously as if some economies might be approaching the top of their S curves.
Can we keep on flying?
Set in this context, the debate over the future of GDP growth in today’s high-income countries is polarised between the ‘keep-on-flying’ advocates of green growth and the ‘prepare-for-landing’ advocates of post-growth economics. Disagreement between the two sides appears to hinge on technical questions. Will the cost of solar power fall low enough to provide abundant renewable energy? How resource-efficient can the circular economy become? And how much economic growth will the digital economy deliver? In fact, as I discovered, the real source of disagreement goes far deeper and is more political than technical.
A few months after my immobilising encounter with the Medusa, I went along to a university reunion and bumped into one of my former economics professors. After a quick catch-up on families and careers, I asked if he thought GDP growth was possible for ever. ‘Yes!’ he instantly declared. ‘It has to be!’ I was taken aback, not just by the force of his conviction, but by the reasoning behind it. He was sure that economic growth was possible for ever because it had to be possible for ever. That fleeting exchange started to beckon me back towards the Gorgon monster. What made him think that endless GDP growth had to be possible? What would happen if it wasn’t? And why – most alarmingly – had we not addressed either of these questions in my four years of economics degrees?
From then on, I started listening more closely for the deeper beliefs that underpin positions on both sides of this debate and I began to hear the source of their differences. To make those differences clear, imagine all those in the debate seated as passengers on opposite sides of the aisle in Rostow’s airplane. In essence, the beliefs that divide many of them come down to this:
The keep-on-flying passengers:
economic growth is still necessary – and so it must be possible.
The prepare-for-landing passengers:
economic growth is no longer possible – and so it cannot be necessary.
Both sides are on to something here, but both tend to be unduly optimistic in the conclusions they draw, so let’s explore their arguments.
The keep-on-flying passengers are clear on one thing: that economic growth is a social and political necessity in every country. ‘If growth were to be abandoned as an objective of policy,’ wrote the economist Wilfred Beckerman in 1974, ‘democracy too would have to be abandoned … the costs of deliberate non-growth, in terms of the political and social transformation that would be required in society, are astronomical.’26 Beckerman’s influential book In Defense of Economic Growth was a scathing response to the Club of Rome’s Limits to Growth report and it became an instant pro-growth classic. His belief in the political necessity of growth is still shared by many economists and public commentators today. As Benjamin Friedman argues in The Moral Consequences of Economic Growth, it is not high incomes but ever-growing incomes that foster ‘greater opportunity, tolerance of diversity, social mobility, commitment to fairness and dedication to democracy’.27 The economist Dambisa Moyo agrees. ‘If growth wanes,’ she warned a TED audience in 2015, ‘the risk to human progress and the risk to social and political instability rises and societies become dimmer, coarser, and smaller.’28
Since economic growth is deemed a political necessity by the keep-on-flying crowd – no matter how wealthy a country already is – it is no surprise to hear them argue that further growth in high-income countries is possible because it is coming and it can be made environmentally sustainable. First, growth is on the way, argue technology optimists such as Erik Brynjolfsson and Andrew McAfee: thanks to the exponential growth in digital processing power, we are entering the ‘second machine age’, in which the fast-rising productivity of robots will drive a new wave of GDP growth.29
What’s more, argue green growth advocates such as the UN, World Bank, IMF, OECD and EU, future growth can become green by decoupling GDP from ecological impacts. In other words, while GDP continues to grow over time, its associated resource use – such as freshwater use, fertiliser use, and greenhouse gas emissions – can fall at the same time. But how much decoupling is enough for growth to be green on the scale required to get into the Doughnut? It’s a tall order, and (like many things) is best shown in a picture.
The diagram shows GDP growing over time, accompanied by three very different possible pathways of resource use. When GDP grows faster than resource use does – due, for example, to water and energy efficiency measures – it is known as relative decoupling – and this is the kind of ‘green growth’ that is the focus in many low-income countries today. But in high-income countries – where consumption levels have long exceeded what Earth can sustain – it would clearly be by no means enough. Any further GDP growth in these countries would at least need to be accompanied by absolute decoupling so that resource use falls in absolute terms as GDP rises.
The challenge of decoupling. If GDP is to continue growing in high-income countries, its associated resource use must fall not just relatively or absolutely but sufficiently absolutely to move back within planetary boundaries.
When it comes to carbon dioxide emissions – the key to tackling climate change – many high-income countries, including Australia and Canada, have so far failed to achieve any absolute decoupling. But others appear to have shown that it is possible – at least some of the time – even when taking account of emissions embedded in the nation’s imports. According to available international data, between 2000 and 2013 Germany’s GDP grew by 16% while its consumption-based CO2 emissions fell by 12%. Likewise, the UK’s GDP grew by 27% while emissions fell by 9%, and GDP in the US grew by 28% while emissions fell by 6%.30
If these data are accurate then this is a striking break with the past – and yet it is still far from enough. Despite achieving a degree of absolute decoupling, these countries’ emissions are not falling nearly fast enough. Some leading climate scientists calculate that high-income countries’ emissions now need to be falling at a rate of at least 8–10% per year in order to help bring the global economy back within planetary boundaries.31 But in reality they have been falling at most by 1–2% per year. Highlighting this gap calls for setting a more relevant standard, sufficient absolute decoupling–sufficient because it is on the scale needed to get back within planetary boundaries – and it is a distinction that is too often missing in the green growth debate.
So can sufficient absolute decoupling be compatible with an ever-growing GDP? According to the keep-on-flying crowd, yes, in three broad ways. First, by rapidly shifting energy supply away from fossil fuels and into renewables such as solar, wind and hydro – a trend that is being sped along by the fast-falling cost of renewables, especially solar photovoltaics. Second, by creating a resource-efficient circular economy whose material throughflow becomes a round-flow within the capacity of Earth’s sources and sinks. And third by expanding the ‘weightless’ economy made possible by digital products and services, in which ‘mind not matter, brain not brawn, ideas not things’ drive future GDP growth.32 It�
�s important to note, however, that the decoupling required would not be a one-off phase: if GDP were to keep on growing, then the rate of decoupling would have to more than keep pace with it, year on year on year.
Is the keep-on-flying crowd sure that these measures can deliver enough decoupling in high-income countries to make growth as green as it needs to be? Many acknowledge that the scale of the challenge is extremely daunting but still believe it is possible, particularly since most governments have barely started introducing the policies needed to bring it about. In other words, according to economists Alex Bowen and Cameron Hepburn, ‘It is too early to rule out absolute decoupling.’33
Others, however, are privately less certain. I have had many conversations with representatives from government, academia, international agencies, and business to try to get to the source of their apparent conviction in the green growth vision that is now ubiquitously embedded in their job titles, imprinted on their business cards, and written into their organisational strategies. One conversation with a senior adviser to the UN summed up the unspoken uncertainty for me. During a break at a recent green growth conference, I asked him whether he really believed that green growth – on a scale sufficiently green to bring us back within planetary boundaries – was possible in the world’s richest countries. As the other delegates started filing back into the conference room, he lingered behind and replied in a hushed voice, ‘I don’t know, no one does, but we have to say it is to keep everyone on board.’ I admired his off-the-record honesty, but wished there were more space on the record in those very conferences for such doubts to be voiced because they certainly need airing.
Those seated on the other side of the aisle – the prepare-for-landing passengers – are quick to air those doubts publicly because they believe that in high-income countries green-enough growth is simply not feasible. Far from being too early to rule decoupling out, it is too late to rely on the belief that it will happen. If sufficient action were taken to move back within planetary boundaries, they argue, it would be unrealistic to believe that it could be accompanied by continual growth. And to understand why, we must revisit long-standing assumptions about what drives GDP growth in the first place.
Back in the 1950s Robert Solow, father of economic growth theory, attempted to pin down exactly what had caused the US economy to grow over the past half-century. His seminal growth model – based on the same theoretical foundations as the Circular Flow diagram – assumed it would be due to the productivity gains arising from labour and capital working ever more effectively together. But when he plugged US data into the model’s equations, to his surprise he found that capital invested per worker explained a mere 13% of the American economy’s growth over the previous 40 years, and he was forced to ascribe the unexplained remaining 87% to ‘technical change’.34 It was an embarrassingly large residual, leading his contemporary Moses Abramovitz, whose own calculations were turning up similarly large explanatory gaps, to admit that this residual was effectively a ‘measure of our ignorance about the causes of economic growth’.35
Economists have been chasing after better explanations of GDP growth ever since, seeking to discover the contents of that mysterious residual. The answer would probably have been spotted decades ago if Bill Phillips had simply opted for a different power source to keep the water pumping round his MONIAC machine. If he had run it not off electricity but off pedal power – complete with a panting student cranking the bike pedals round during every demonstration – it would have been far harder for him and his fellow economists to overlook the role played by an external source of energy in keeping the economy going. Alternatively, if either Phillips or Solow had seen the economic big picture – summed up in Chapter 2’s Embedded Economy diagram – then their economic models might well have incorporated the answer from the get-go.
In 2009 physicist Robert Ayres and ecological economist Benjamin Warr decided to construct a new model of economic growth. To the classic duo of labour and capital they added a third factor of production: energy, or, more precisely, exergy, the proportion of total energy that can be harnessed for useful work, instead of being lost as waste heat. And when they applied this three-factor model to data on twentieth-century growth in the US, UK, Japan and Austria, they found that it could explain the vast majority of economic growth in each of the four countries: Solow’s mystery residual, long assumed to reflect technological progress, turned out to reflect the increasing efficiency with which energy is converted into useful work.36
The implication? The last two centuries of extraordinary economic growth in high-income countries are largely due to the availability of cheap fossil fuels. It makes sense when you break it down: the energy contained in a single gallon of oil is equivalent to 47 days of hard human labour, making current global oil production equivalent to the daily work of billions of invisible slaves.37 What then are the implications for GDP in the post-fossil-fuel future that we must create? ‘We have to anticipate the possibility that economic growth will slow down or even turn negative,’ warn Ayres and Warr. ‘In short, future GDP growth is not only not guaranteed, it is more than likely to end within a few decades.’38
What, though, of the promise of renewable energy? Its price may be falling fast but – like all stocks in a system – solar, wind and hydro capacity take time to install. Many in the prepare-for-landing crowd believe it cannot be installed fast enough to match the economy’s demand for energy, especially if fossil fuels are phased out at the speed required. What’s more, in comparison to the easy-to-access oil, coal and gas reserves of the twentieth century, a far larger proportion of renewable energy that is generated must be used by the energy industry itself simply to generate more – as is the case for energy from sources such as shale gas and tar sands. Some analysts believe the economic implications are stark. ‘It is time to re-examine the pursuit of economic growth at all costs,’ concludes US energy economist David Murphy; ‘we should expect the economic growth rates of the next 100 years to look nothing like those of the last 100 years.’39
Furthermore, some in the prepare-for-landing crowd doubt that the weightless economy can be as dematerialised as its name implies, given the material- and energy-intensive infrastructure that underpins the coming digital revolution.40 Others, meanwhile, doubt that the weightless economy will contribute as much to GDP growth as the growth optimists expect. A wide array of online products and services like software, music, education and entertainment are already available almost for free because, thanks to the Internet, they can be created and reproduced at near-zero marginal cost. Analysts such as Jeremy Rifkin believe that today’s emerging horizontal networks of renewable energy generation and 3D printing are set to amplify this trend. If they do, it could result in a great deal of economic value that was once sold at a profit in the marketplace being shared for low or no cost in the collaborative commons.
The sharing economy is also growing, in which the culture of ownership – with every household equipped with its own washing machine and car – is giving way to a culture of access, with households sharing laundry facilities and renting cars by the hour from a local car club. Rather than go shopping for new clothes, books and children’s toys, a growing number of people are swapping – or ‘swishing’ – them with friends and neighbours.41 In such an economy, plenty of economic value will still be generated through the products and services that people enjoy, but far less of that total value will flow through market transactions. The implication of these various trends for GDP growth? ‘The steady decline of GDP in the coming years,’ concludes Rifkin, ‘is going to be increasingly attributable to the change-over to a vibrant new economic paradigm that measures economic value in totally new ways.’42
It’s an intriguing point, but does it make a difference to the future of economic growth? After all, some in the keep-on-flying crowd suggest, what ultimately matters for human well-being is the total value of economic activity, regardless of whether or not it is captured through market trans
actions in GDP. That may be true for households, where the value of caring work is given and received directly with no money changing hands (and so is already missing from standard GDP accounts). It is also true for those engaged in the commons who reap economic value as they co-create it – whether it is the value generated by irrigating their rice paddies or by collaborating online in open-source design, again with no money changing hands.
But whether or not economic value gets monetised through the market does matter a good deal to finance, to business, and to government. Financiers only make a return – by extracting interest, rent or dividends – on economic value that has a market value. Business can only capture value as revenue and profit when that value has been monetised in sales. And governments find it far easier to levy taxes for public revenue on economic value that is exchanged through the market. All three of these – finance, business and government – are structured to expect and depend upon a growing monetary income: if GDP is no longer set to grow even though total economic value may well continue to do so, then those expectations need to change profoundly.
For those in the prepare-for-landing crowd, the upshot of all these trends is that green growth in high-income countries is nowhere on the horizon: it is time to go green without growth instead. But this is where they tend to be over-optimistic themselves: certain that endless GDP growth is not possible, some are too quick in concluding that it therefore cannot be necessary, and point to the so-called Easterlin Paradox as evidence that higher incomes do not make us happier anyway.
