Doughnut Economics (8): Be agnostic about growth

Kate Raworth’s seventh “Way to Think Like a 21st-Century Economist” is to replace the idea that economies should keep growing forever by one that strives for economies that make people thrive regardless of whether economies grow or not.

My issue with degrowth

Let me put one thing straight first: barring interstellar travel I do think there is a maximum size to an economy. Economies grow for all kinds of reasons: more people, more use of energy, be it renewable or not, more use of material inputs, more ideas on how to do more with less. All, I believe, are finite resources – and that includes ideas. So the only way to grow forever would be some kind of asymptotic growth, which is not what any side of the growth debate has in mind. I’ve said a lot more about this in an earlier post.

Nevertheless I have never liked the degrowth movement. Some of their ideas are fairly traditional environmental-economic fare: taxing environmental pollution, for example. Others, such as imposing a maximum to anyone’s income, seem overly intrusive to me. I agree with Jeroen van den Bergh, one of the few mainstream environmental economists engaged in serious debate with degrowthers, that degrowth puts the cart before the horse. If environmental pollution and resource depletion are the problem, then focus your policy on environmental pollution and resource depletion. Putting a brake on growth to stop pollution is like stopping your car when you’re in the wrong lane of the highway: you’re not going in the wrong direction anymore but you’re not getting home either. So much easier to change lane! Moreover, history shows plenty of examples of stagnating or shrinking economies with devastating pollution – apparently degrowth is not the panacea its proponents make it out to be. And on the short term it might not even be necessary: within sound ecological limits there may still be plenty of room for growth, at least for the foreseeable future, driven by great ideas or scale economies.

So I’m happy to see that like Jeroen van den Bergh, Kate Raworth takes the agnostic view: degrowth is not the answer, but neither is growth. We need sensible limits on pollution and resource use, and if we can create more welfare by making more efficient use of the space we have within those limits, fine!

Are economists growth addicts?

Most macroeconomics textbooks deal with what growth is, how it works, and surely every environmental economics textbook discusses how growth may be related to environmental pollution. Interestingly, however, I have not come across any economics textbook that clearly explains why we actually need growth. I asked some of my colleagues at Wageningen University, but the responses did not get much further than “I guess people do not like stagnation”, “people always want more.” Is that the best we can tell our students? Moreover, wouldn’t a little satisfaction make us happier?

So what do economists believe? Are they such growth fetishists as Kate Raworth claims? Interestingly, Jeroen van den Bergh, together with Stefan Drews, has also looked into this question. The answer is mixed, but it by and large vindicates Raworth. In a survey among 814 respondents who have ever published on the relation between the environment and economic growth, economists appeared more likely than others to argue that continued economic growth is essential to improve people’s life situation; less likely to argue that economic growth always harms the environment; and less likely to argue that a good life is possible without economic growth. The variation around the means was huge, however, so the differences for these statements were not statistically significant. Other tests in the paper, however, suggest that economists are significantly more optimistic about the prospects for economic growth than environmental scientists. The most striking difference, however, is between environmental economists and those labelling themselves ecological economists. That should not be surprising to anyone who knows these fields. By and large, environmental economists are usually economists who happen to work on environmental issues, whereas ecological eonomists are more likely to be ecologists or environmental scientists who are interested in the relation between the economy and the environment. There are exceptions, but this is roughly the difference and it explains why ecological economists tend to be more pessimistic about growth, and more activist than environmental economists, many of whom like to believe they are doing value-free science.

Why grow?

Raworth discusses three reasons why we are, as she says, addicted to growth. I find the political and social reasons she mentions most convincing and interesting. Economic growth enables politicians to dodge a couple of tricky problems. If poverty is a problem in your country, but taxing the rich would quickly put you out of power in the next election or coup, economic growth is a welcome way to alleviate poverty without raising taxes. As much of economic growth comes from capital accumulation, which in and of itself needs hands and minds to build those machines and factories, growth keeps a lot more people occupied than stagnation. In other words, the lump of labour is not necessarily a fallacy in a stagnant economy.

Our social addiction to growth is more philosophical and comes close to what my colleagues said: people are never satisfied. Raworth rightly argues that this desire is not necessarily universal as some cultures appreciate sufficiency rather than insatiability. Again I am wary of the top-down policy interventions she proposes, like limits on advertising. As somebody with serious leanings towards Buddhist thought and practice I agree that this insatiability is a form of spiritual poverty. A core Buddhist premise is that happiness is not achieved by satisfying our wants, but by being less attached to our wants – a view confirmed by modern psychology. But to turn that view into policy means telling people how to live their individual lives to an extent we only see in theocracies. Better to set clear ecological limits and within those limits let people decide for themselves.

Preparing for landing

The most interesting question is addressed at the end. I would have expected that even mainstream economists would eventually pick it up, but so far I have not even seen the degrowth literature address it. If an economy stops growing, be it gradually or suddenly, be it by design, disaster, or depletion, how do we manage the slow-down? The usual response is to get the economy growing again, but let’s just for the sake of argument assume that we know it will not. How do we organise such a stagnant economy? How do we allow the poor a bigger cake if the whole pie will never get bigger? How do we allow people the pride and integration in society that comes with having an honourable job if it is more efficient to let a few people work overtime and have the rest sit on their hands? Rather than address these tricky questions it is a lot easier to dodge them and argue for growth.

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Why (not) price nature?

A few remarks on today’s debate on economic valuation of ecosystem services, here in Wageningen:

  • Having two non-economists as the only speakers in a debate on economic valuation of ecosystem services led to the usual misconceptions of economics, some if which I will explain below.
  • I have written most of what I can say about the issue in this post.
  • In my three-species typology in that post, Dolf de Groot is a typical pragmatic ecologist: he literally called valuation “a necessary evil.”
  • The same typology might label Bram Büscher (a sociologist) a hardcore ecologist, but actually his arguments were more of a Marxist critique of economics and capitalism than of a moral nature (intrinsic value ‘n all). In short his argument is that ecosystem degradation is caused by the logic of capitalism; pricing nature perpetuates that logic rather than abolishing it.
  • De Groot claimed that “conventional economists ignore most externalities, like ecosystem degradation.” As a conventional environmental economist, who has been working on nothing else for the past ten years than externalities and other market failures, and who meets hundreds of similar economists every year at the meetings of EAERE, AERE, IIFET, BIOECON, and so on, I found this very strange to hear, to put it mildly.
  • Another statement by De Groot was that unlike pricing, valuing “is not about substitution.” Economic valuation is ALWAYS about substitution. If you don’t like the idea that people can be compensated for ecological degradation, don’t do valuation. De Groot wants to have his cake and eat it too.
  • It is a more general problem I have with the so-called ‘ecological economists’: a lot of their valuation work is poorly thought through, poorly executed, and done from a political agenda rather than out of scientific curiosity.
  • Common mistakes by ecological economists are (1) not properly defining what they measure (like doing a stated preference survey among tourists to measure indirect use values); (2) aggregating values to such a scale that prices are bound to change (the most fundamental critique of Costanza et al.’s 1997 paper); (3) treating economic values like they would treat biophysical variables such as temperature or density (which are not context-dependent while economic value depends on what question you are asking).
  • Büscher repeated the Suzuki fallacy that “externality” means “not part of the economic system”
  • Büscher “did not have time” to propose an alternative to the capitalist system. Perhaps he should have a look at the historical alternatives to capitalism and their wonderful impact on the environment.
  • Büscher quoted a Chinese philosopher (probably Sun Tzu) that “if you can get your enemy to speak your language you have won the battle” or something in that spirit. I don’t agree. Economists study the rules of market allocation (property rights, taxation, and so on) to understand where such rules work and where they don’t. This would suggest that our advice would always favour big business. But being market-friendly is not the same as being business-friendly.
  • I’m in favour of pricing ecosystem services, but only in the context of concrete policy decisions, in a proper cost-benefit analysis that is part of a wider policy-making process that also takes into account other considerations besides economic value (such as intrinsic value, distribution of effects, and so on). Don’t try to estimate the total value of the planet, as Costanza did.