Thursday, February 23, 2012

A farewell to growth?

It has been common for certain progressive groups to suggest that better income distribution and no growth, or even degrowth more recently, would be better than the capitalist driven consumerist growth process [for a critical review of this literature go here]. Several different strands of thought are involved in this view, and it would probably be worthwhile to disentangle them all.

First, there is an obvious Malthusian flavor to this view, going back to the dire predictions by the Club of Rome in the early 1970s, as a result of limited availability of non-renewable resources. Peak oil has been predicted a few times since. And yes it may very well happen in the near future, but somehow I doubt it. Remember that we moved away from coal and steam engines to oil and combustion ones, not because coal disappeared or became truly scarce, but simple because technological change made it less important as a source of energy (and yes we still burn a lot of coal).

In that sense, our problem is less that we have reached the limits of the existence of renewable resources, but more that the consequences, which are associated to Green House Gas (GHG) emissions, will be and already are dire. It is very likely that climate change caused by GHG emissions will lead to increasing costs in terms of food shortages, for example. But the question there is less that we cannot grow [the Malthusian thing, food does not grow as fast as population; the quintessential anti-Malthusian was Ester Boserup, an early feminist economist, that showed that agricultural productivity was determined by population dynamics; in other words, higher population growth led to increasing agricultural productivity], but who bears the costs of growth.

We leave in a world in which many developing countries import food, in part as a result of very high productivity in agriculture in developed countries, and in part as a result of subsidies and trade policies imposed by developed countries. The costs of global warming will fall overwhelmingly over poor and food-insecure countries in dry and tropical regions, that largely depend on rain fed farming, mostly in Sub-Saharan Africa and South Asia.

That means that a more equitable system to redistribute the costs of climate change, and alternative trade and agricultural policies are needed, which provide food security around the globe. Further, to reduce the effects of climate change a huge increase in spending on R&D is necessary.A Green New Deal or environmental equivalent of the space race, and lots of regulation would do a great deal to promote new and cleaner technologies (see for example the 2006 documentary, “Who Killed the Electric Car,” on what a California regulation did for the electric car).

Finally, note that there is no evidence of sustained technological progress (call it division of labor, or productivity, and you see that the wealth of nations might depend on it) with zero growth or negative growth. Productivity is not only pro-cyclical, but also structurally connected to growth. No growth in demand means limited incentives to productivity increases. So only with economic growth there is a hope of getting cleaner technologies. Degrowth also might lead to all sorts of environmental degradation, since it is far from clear that a society with spiraling down output would manage resources efficiently.

Second, there is peculiar view of the relation between income distribution, consumption patterns and economic growth. The notion is that no growth is necessary, since better living conditions can be obtained simply by redistributing income. The presumption seems to be that income distribution will have no effect on patterns of consumption and on economic growth. It is true that the effects of income distribution on growth are ambiguous, but the presumption that they have no effect is very strong.

I have my own views on what is more or less likely under the particular circumstances we are in. It seems reasonable, that if the redistribution towards the less privileged that the no-growth/degrowth crowd want took place that a consumption boom would follow. Particularly in developed countries were wages have been repressed for a while and which the last few years of the recession have made worse. And that would lead to growth, which is the opposite of what they want. But as much as I would favor that sort of redistributive policy, alas it is not in the cards.

Further, although it is true that consumerism is in many respects created by corporations and several elements in the consumption patterns in modern advanced societies are wasteful, one might also be careful about the false moralism of the New Puritans, as James Livingstone refers to those that preach that all thrift is good and all consumption bad. Consumption is associated to growth, and to better living conditions for the poorest among us. After all it has been the consumer society created by the Industrial Revolution that allowed us to obtain several of the benefits that we now take for granted in civilized societies, with longer life expectancy and better quality of life.

Finally, there is a naïve neoclassicism that is also part of the problem with the no-growth/degrowth crowd. It seems that for some, economics is synonymous with a certain view in which supply and demand determine everything, and, hence, the rejection of the consequences of those neoliberal policies must pass through the rejection of growth too.

Of course growth might not be associated to the market forces as suggested in neoclassical theory (and markets might actually work in very different ways than the mainstream thinks they do). Growth might often be the result of limiting the power of markets, and driving economic forces towards alternative goals. And, while it is certainly true that not all growth is good for the environment, an alternative (and Keynesian) perspective of what is behind growth and development processes might open the door for more environmentally friendly economic dynamics. A simple example would be to use the proceeds of say nationalized and heavily regulated oil extraction for investment in research and development of new technologies.

PS: Obviously all of the views discussed above are not held necessarily by any particularly person that believes that no-growth or degrowth is necessary. And I left a few additional views out, e.g. a view that capitalism is doomed and we are on the verge of a new (perhaps better) system (by the way, I don't agree with that one too; capitalism is doing fine, even if workers are not). But all of these propositions are part of the arguments used by different people to suggest that the benefits of economic growth are overrated.


  1. Good post. The problem I see with growth is that unless the rate at which the economy decouples from CO2 emissions (more GDP per unit of CO2 emitted) rapidly increases we are going to face harsh effects from climate change. As it stands now, more GDP = more CO2, the rate at which this is changing is far to slow to avoid serious climate change effects. As you point out this will no doubt disproportionately hit the poor in the world (one of the reasons I doubt any serious action will be taken by rich countries). Not to be a Malthusian, but the serious no growth folks (Daly, Costanza) have a legitimate point, they just don't have any reality based solutions or a good understanding of Keynesian Macro. They don't grasp the macro realities of no growth (or even slow growth) you layout in your post. Just my two cents.

  2. Agreed. I would only say that the hope of significant changes in CO2 growth connection demand huge State intervention and investment, rather than market mechanisms. At the end of the day, it's a discussion of what determines technical progress.

  3. This comment has been removed by the author.

  4. So are you claiming that climate change would not be a problem if it were accompanied with appropriate redistributive policies? How confident are you that James Hansen is wrong when he argues that burning all available fossil fuels will trigger a runaway greenhouse effect that will leave the Earth as an uninhabitable Venus?

    Second, do you believe that for a rich country (like the United States today), economic growth in itself makes a significant positive contribution to human wellbeing?

    1. Hi JW. Second question first. Yes. Ask the unemployed (African American, young, and women that are paid less for same work, in particular). There is a simple regularity called Okun's Law that shows that 2% growth above average brings unemployment down by 1%. This is what you need to eliminate the Tent cities (Hoooverviles?) have that sprung up in American cities after the crisis. Number one. The question is when will we burn them all, and how to avoid it. My point is that ALL the evidence for technical change (only way to reduce the burning, that will happen unless we find alternative sources) is with growth. Degrowth is just a way to create the catastrophe before.

    2. Matias,

      But that's a different question! Of course unemployment has very large costs, and *as currently constituted* the economy cannot stop growing without generating unemployment. (In fact the social harm of unemployment is far greater than the lost output, which makes the link to growth more tenuous.) But the claim that growth -> employment -> happiness is not the same as the claim that growth -> happiness. I principle, there's no reason that we could not reap the fruits of technological progress in shorter working hours rather than higher output. And I'm going to go out on a limb and say that EVERY SINGLE advocate of less/no growth says that's exactly what we should do. And before you say it's politically impossible, keep in mind that many countries, including the US in earlier periods, have indeed taken a large share of technological gains in the form of leisure.

      On the other point, it is certainly true that there is an important link from growth -> technological progress. But it's not an absolute link, there are lots of other factors. And whatever gain there is from speeding gthe development of clean technologies, has to be weighed against the cost of additional emissions in the meantime. It's also not obvious that technological progress always helps. It's only improved technology, after all, that e.g. makes the extraction of shale gas feasible. In the end, no matter what happens to technology, the climate problem will only be addressed when there is a political commitment to address it. In the meantime, faster growth *may* make things better, by speeding the development of carbon-saving technologies. Or it may make things worse, by increasing the amount of carbon burned before those technologies are in place, and/or by speeding the development of carbon-using technologies.

    3. Well not sure about the idea that "there's no reason that we could not reap the fruits of technological progress in shorter working hours rather than higher output." I do not know of any case in which a firm will introduce a new method of production, to reduce costs, and beat the competition, that does not result from a need to expand its production.

      The link between growth and productivity is pretty well established in the empirical literature, for example the Kaldor's Laws. In fact, I would agree with Steve Bannister who says that population dynamics has a far greater weight on carbon emissions than the greening of the energy supply. See his post here

    4. For a different view, more in line with what you think see this paper by Minq Li and Chiara Piovani

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    1. Hi JW. The literature is huge, and not always consistent. That's why I said in the post-scriptum that nobody necessarily believes in all of those things. There is value I think in providing a general overview of a particular intellectual movement (like growth skeptics), even if you (and others) might not agree with all the above propositions.

    2. I deleted the comment you're replying to because on reflection I decided it was rude. Sorry!

    3. No sweat, I got your point. I started replying before you deleted it.


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