Managing Growth and Creating an Economy to Serve People

Gordon Coggins

It is not the economy that determines how much energy we need. It is the availability of energy that determines the kind of economy we can have” (Victor, Peter A. (2008). Managing without Growth. Slower by Design not Disaster, p. 33).

“Simple, cheap, concentrated power [coal, oil, gas] lies at the heart of our modern economies” (McKibben, Bill (2007). The Wealth of Communities and the Durable Future, p. 15).
McKibben and Victor both move from the topic of peak oil (and peak water, and peak food) to consider what might equally be called “peak” growth. “Of all the defining characteristics of Post-War II capitalism, the centrality of economic growth as the overarching policy objective is perhaps the most important,” Victor concedes, quoting Jonathan Porritt (Capitalism as if the World Matters, 2005, p. 45 V p. 191).

But both Victor and McKibben are in challenge mode. Current rates of economic growth in the developed nations, they agree, cannot be sustained in the rest of the world. Victor says, “So as we start to think about managing without growth we must remember that, if the biophysical constraints … take hold, our economy will change whether we like it or not” (V p. 34). “Do the math,” says McGibben, and the math is impressive, enough, surely, to convince even the most self-blinkered global-warming deniers.

These are admirable books. Both tellingly summarize the evidence that “More Stuff” has not produced more happiness for, particularly, the people of the developed world. Moreover, for developing economies, beyond a certain low income threshold, (one study suggests perhaps a $10,000 annual income) more stuff will not bring more happiness. Both convincingly make the case that “business (and growth) as usual” cannot be sustained on the planet.

McKibben, challenges the prevailing political and economic orthodoxy that big is efficient and efficient is good. He also takes his shot at conventional economists, quoting English critic Richard Douthwaite: “orthodox economists…. are forced to ignore the possibility that irrationality, prejudice, love, community solidarity, idealism, upbringing and even enlightened self-interest might help explain the way people behave… because if they abandoned their twin simplifying assumptions of rationality and pure self-interest, the world would be so complicated they would have nothing to say.” More positively, McKibben supplies many examples of successful community initiatives which do relate to real human behaviour and needs, and also face forward as possible future alternatives to economic growth.

Victor reviews the literature of attempts to devise measures of the human factors, such as the GPI (Genuine Progress Indicator), and the HDI (Human Development Indicator), devised in recent years as alternatives to offset the exclusive use of GDP as the sole measure of human progress. In the same context he does supply the tools of a trained economist, in models for projecting various growth-related future scenarios. One scenario, for example, concludes that: if HIC’s (high income countries) manage no-growth GDP and no population increase and continue reduction of energy/GDP and CO2/energy ratios at 1992-2002 rates, their total emissions will decline by 40% over 50 years (p. 120). His book’s aim, he says, quite candidly is “to present a case for rich countries to manage without growth” (p. 123).

Both authors make the proposal, unthinkable to current Canadian policy-makers heading to Copenhagen, but quite reasonable nonetheless, that the developed countries take the big sacrifice, reducing their growth so as to leave room for the poorer countries to grow until they catch up on the well-being scale. “The excess CO2 in the atmosphere today comes largely from the accumulated CO2 emissions from past economic growth in the high income countries,” argues Victor, “so, with considerable justification, middle and low income countries expect the high income countries to take the lead in reducing CO2 emissions” (p. 117). Hard to refute the logic, but, be sure, learned attempts to do so will be made by HIC think tanks and indentured economists.

McKibben and Victor are impressive contributors to the rethink-economic-theory literature. Their books come at a strategic time when the prevailing economic orthodoxy has been discredited and the world brought to economic near-disaster, and when human-induced global warming has finally had to be recognized as an undesirable guest who will not go away. McKibben’s attack on the long-held assumption that all economic growth is unequivocally a good thing follows three lines: (1) growth as we now create it is producing more inequality than prosperity, more insecurity that progress; (2) we do not have the energy to maintain the growth and cope with the pollution it creates; and (3) growth is no longer making us happy (McK p. 11).

One essential gap in the analysis of both books, however, is what to do with the growth imperative built into our monetary system. Victor ignores the topic entirely. His only reference to money supply is as one of several variables in his mathematical models. He seems to assume at one point (172) that the Bank of Canada regulates the money supply. If only it did fulfill that mandate using all the tools legally at its disposal, we might well have more prosperity and less debt-fed growth in Canada.

McKibben does acknowledge the nub of the monetary problem. In a section on local money systems, he says, “Even the apparently simple question of where money comes from is hard to answer. It’s not the government printing press; money really originates when banks make loans. And since they charge interest for those loans, part of the endless-economic-growth model is in place right from the beginnings – without the growth, you can’t pay off the interest” (162).

Without the growth, you can’t pay off the interest. Call that the “growth imperative.” It trumps all of both authors’ proposals for surmounting the coming human catastrophe brought on by resource depletion and global warming.

Though McKibben states the money problem so clearly, he does not seriously address it. His major theme is how to replace with better alternatives the current economic model of “More-is-Good,” which has meant consolidation, centralization, “efficiency” and long distance transportation. As alternatives, he emphasizes local initiatives and community involvement, and goes on to explore such examples as small farm marketing vs. the agro-giants, and local entertainment – music and stage performances – vs. wide corporate electronic distribution of a few well-paid performers (pp. 166-7). On the monetary front, his theme comes out in some exploration of the 4,000 “complementary currencies” around the world, also called LETS (Local Exchange Token Systems). They are not presented, however, as serious competitors for bank-created debt-money. That is realistic. Only if national and world currencies completely implode, might LETS save a few local communities from a devastating money shortage. Still, it is a good idea in the context of his grassroots alternative to the existing economic system. However, unless the no-growth argument takes into account the growth imperative of our existing national and international debt money systems, it has no legs. The program must devise a system in which money is largely a medium of exchange and not a commodity to be rented, and explain how to manage the changeover.

This is the nettle which must be grasped. What would be helpful in the debate now is a thoughtful technical study of the steps to displacing a national or international monetary system (or systems), with one which does not have a built-in growth imperative. Without that blueprint, to speculate on what such a system would look like is merely an incitement to biased contradiction. The new monetary architecture, of course is not going to build itself.

So who will grasp the nettle? The very profitable private financial system will not volunteer its own demise. Individual consumer or community action and local activists generating LETS, as we have said, can only go so far. There remains government, which can still claim the right to manage the money supply by right of seigniorage. Armed with a well-researched (and popularly comprehensible) program, a government might choose to start changing the monetary structure of its society incrementally. This might be easiest for Canada and the UK because both governments “own” their national banks. Or, faced with a major monetary meltdown of the old system, such as we faced in 2008-2009, a government (or governments), might even undertake a drastic rebuilding on a different foundation, if the blueprint existed.

The research to develop the blueprint could be divided among a band of scholars and researchers. Some particular areas that come to mind:

1. Replacing private creation of the money supply and making banking a public service, financing people- and planet-friendly enterprises. (How about providing home mortgages at cost?)
2. Redefining the public good to replace the current GDP measure of progress.

3. Redirecting the use of labour and resources to the production of goods and services designed with a view to restoring the balance between the destruction and the re-generation of the planet’s natural resources and services (energy, forests, fisheries, water, waste management, consumption, and agricultural land management, for example);

4. Finally, a vast reconstruction of the advertising and propaganda paradigm from their current function of promoting growth, to one of persuading the world’s populations and governments to see the necessity of the new economic earthscape. Specifically, the higher income countries would have to be persuaded to adopt a new version of Franklin Roosevelt’s happy phrase and act seriously to improve the economic health of “the forgotten ‘countries’ at the bottom of the economic pyramid.”

Every great enterprise must begin with an idea. Crises beget ideas. Is the economics establishment up to this one? Probably not, but Victor and McGibben are pointing the way.

Gordon Coggins

-- from Economic Reform, February 2010