Transition Culture

20 Dec 2011

Can we manage without growth? An interview with Peter Victor. Part One

I had the privilege recently of speaking with Peter Victor, Professor in Environmental Studies at York University and author of ‘Managing without growth’ (you can see his full bio here).  At a time when the obsession with making our economies grow again is close to hysteria, Peter’s work asks the question as to whether economic growth is the best way to achieve what we want from a society; employment, happiness, good public services, increased equality and so on, and concludes we could have an economy that isn’t growing, but which is actually better at those things.  Having read his fascinating book, it felt like a good time to give him a call (I will break this into 2 posts, one today and one tomorrow).

One of the ideas that I found really surprising from the book was that the whole idea of growth and that economies should grow on a continuous basis is actually a relatively new idea. I wonder if you could give us a quick potted history of where the idea of economic growth came from?

The idea of economic growth per se could probably be dated back at least as far as Adam Smith who was interested in the wealth of nations. What I think is new, and I think what you’re referring to, is the idea that governments should take responsibility for trying to ensure that economies achieve a certain rate of economic growth.  That is relatively new, and only really came to be around about the 1950s / 1960s.

It happened more or less along these lines. The work of John Maynard Keynes in the 1930s convinced most in the economics profession that full employment was not a natural outcome in capitalist economies and that the government could play a useful role in stimulating demand to generate employment when the economy was not capable of doing that itself. This was adopted as a policy by many western governments after the Second World War, but then it was pretty quickly realised, in the space of a decade or so, that when you encourage expenditure to stimulate employment, some of that expenditure is likely to be on new equipment and infrastructure which expands the capacity of the economy, and therefore you have to keep increasing the amount of expenditure simply to keep your growing capacity employed.

This of course is just another way of saying what economic growth is. So economic growth was first adopted by governments in about the 1950s as a measure, as an approach to achieving full employment.  In other words, not for its own sake, but as an employment measure.  However, within about a decade or so things got switched around, and you can see by looking at some of the older literature, that governments started to put the pursuit of growth as their number one priority and employment was reduced to a second level consideration.

Can you give us, in a nutshell, the argument you set out in Managing Without Growth as to why that is something that we should be thinking of doing?

What’s happened in the last half century in particular is that we’ve become very aware that our ever-expanding economies require more and more energy and materials to support that expansion. Now I’m not saying that economic growth as measured by changes in Gross Domestic Product (GDP) is automatically and inextricably related to increases in materials and energy because of gains in efficiency over time, but the historical record is such that clearly there’s been a positive link between the two.

What we’re seeing is mounting evidence that the planet can’t cope with all this extraction of materials and disposal of waste and occupancy of land by humans that we’re imposing on it. And so the question I decided to address was whether we could manage without growth, at least in advanced economies, which are pretty rich certainly by historical standards.

Could we achieve full employment? Could we eliminate poverty? Could we significantly reduce our greenhouse gas emissions? And could we do all that without the government going bankrupt and in the context of an economy that isn’t growing? That’s really what I tried to look into and concluded that it is possible at least from an analytical point of view to show that you can have an economy that can do all that and doesn’t have to grow.

Is your argument that growth is undesirable or that it’s no longer feasible?

I’m interested in both of those lines of argument. I did cover in the book some of the fairly modern literature on the disconnect between economic growth and happiness. If that’s true, if really getting richer doesn’t make us happier then you really have to wonder why we put so much effort into doing it. But then there’s also the question of feasibility.  It doesn’t look like it’s feasible to continue to have economies that just keep growing and keep growing.

It’s good to know, I think, that if growth is not the secret to a happy life, certainly after you’ve achieved a certain level of  material well-being, that not having something that’s not particularly desirable is not such a bad outcome! I think both lines of argument are really important, that there are likely to be ways of leading more fulfilling lives if we pay much less attention to the pursuit of growth and that in doing so we’ll lighten the load that we’re placing on the biosphere.

At the moment here in the UK the government is obsessed with growth at all costs. Everything else seems to be being thrown out of the door in terms of this obsession with trying to get the economy to grow again. What do you see as the dangers that are inherent in trying to do that at a time when all the other pressures are becoming so clear upon us?

Well of course they’re not on their own in that!  I think that’s true of many governments.  The problem I see is that it’s an approach that’s entirely focussed on the short term. Now of course the long term is made up of a series of short terms, so the problem I see is that if we keep focussing on the short term we will lose sight, I think we’ve lost sight, of the sort of broader priorities which call upon us to change our direction.  So I have a lot of sympathy for governments that see the immediate problems and strive to deal with them, but I have much less sympathy if they don’t have a longer term vision that makes sense of where we’re heading.  That’s what I think is lacking.

I’m very concerned that trying to pull out all the stops to re-stimulate economies, to use the cliché, “to get back on track”, is actually a formula for far worse things to happen, probably in the not too distant future.

You wrote the book in 2008.  In terms of economics, rather a lot’s happened since then! If you were updating the book or re-writing it now, how would the crash and the implications of the last three years strengthen or weaken or change what you would have put in the book?

The book was published in 2008 by an academic publisher, Edward Elgar, a very good publisher, but they took about a year to produce the book.  I completed it in 2007 and I wrote most of it in 2006, so it’s actually a longer period of time than the three years that we’re talking about here. Anyway, when I wrote the book, Canada was in a particularly healthy economic position as is currently understood. In particular, our governments were running substantial budget surpluses, (of course it’s changed now, they’re running deficits) so that alone makes the problem of a transition to an economy which isn’t madly pursuing economic growth somewhat more problematic, but I don’t think it brings the whole pursuit to an end, if I can put it that way.

What I think of course has happened is that we know a lot more about the fragility of the financial system than was apparent when I was doing my research and I didn’t pay much attention in the book to that aspect. I simply assumed that the central bank in Canada, the Bank of Canada, would continue to try to keep the level of inflation in the standard range, something like 2% plus or minus a little bit, and adopt a monetary policy that would do that. That wasn’t an unreasonable assumption, and I think it’s the same sort of assumption that I would make going forward if I was doing the work again, but they’d be starting from a more difficult position because of the other problems the economy’s having.

I should say though that Canada has been patting itself on the back during these last three years because our banking system turned out not to be as vulnerable as those of many other countries, because they didn’t get involved in some of the more suspect and precarious investments. That was as much by luck as it was by judgement I think, but that’s another story.

In fact, that’s some of the work that I’m doing right now with my good friend and colleague in Britain, Tim Jackson. We are building a better macroeconomic model of national economies in which the financial sector is much more front and centre so that we can better understand the links between the financial sector, the real economy and the biosphere – trying to track all those three systems at one go. But, you know, I think on the one hand the financial system and its situation has to be better understood, but on the other the fact that we’ve gone through these very difficult economic times has led a lot of people, who used to think that everything was moving along pretty nicely, to question just how robust our economic and  environmental systems are.

That’s been good. I think it’s generated much more interest in this kind of work than was there when the book first came out. I think this is positive. On the negative side I think that the information we have about the state of the world’s eco-systems just tells us things are going from bad to worse. So the urgency has actually increased over the last three to five years to say we’ve really got to look at alternatives and take them on board. I think one of the encouraging things of the Occupy movement which sort of started from nothing and went around the world very fast, indicates an appetite for change that wasn’t there three years ago.

One of the points that I found very interesting from a Transition Network perspective was that you look at localization as a part of the response, and say that actually without appropriate policies from government it’ll be insufficient, but then you also say that you don’t see a national government response coming unless it’s led by the grass roots and by communities. I wonder where you see the, how you see that log jam might be broken?

I don’t have a good answer to that question!  What I try to do is to put before people an alternative economic future that I hope they find credible.  Up until now, and I would say even right now, the pursuit of growth is really a showstopper for many other alternatives. If you propose some policy or measure to reduce environmental damage inevitably someone says, “Well what would that do for economic growth, for competitiveness or productivity?”, and many many good ideas along those lines get shot down because growth is used as the test for these other initiatives.

What I’m trying to suggest is that it’s not a reasonable test. We can just, to re-state the title of the book, “manage without growth”. Whilst it’s true that I do think there’s a very important role for policy to establish the framework within which we all operate, I’m also very focussed on the idea that these ideas and initiatives have to come from the grassroots. No government of the sort I’m interested in can be expected to take what we would call leadership unless there’s a lot of people out there who want to go in this direction. It’s as much a push from the bottom as it is a sort of a pressure from above, and I think what’s happening right now is we’re seeing more push from the bottom, through movements such as yours, and very little take-up from the top, although there are glimmers of hope in some places.

In Canada we have three levels of government, all quite significant: the federal, provincial and municipal.  Municipal governments seem far more aware of the limits within which they have to operate than the more senior levels of government. Go up to the provincial level of government and there’s a fair bit of understanding of these issues. At the federal level it seems to evaporate entirely.

Can we have capitalism without economic growth?

I’m going to give two answers to that question. First and foremost, although I talk about managing without growth for pragmatic reasons and because I want to take part in the current dialogue I focus on GDP, the growth that we really have to stop, and in fact turn back, is growth in the use of materials and energy and land use. Clearly water is also one other material, but I don’t otherwise mention water separately. Those are the points at which we as a species really interact with the biosphere, and that’s where we’ve gone too far.

We have to, I believe, find ways to discipline ourselves so that we are much gentler on the planet. What our economies will then be capable of doing within that set of constraints is hard to say. I personally don’t think that the pursuit of growth as measured in conventional terms is a good way to deal with those biosphysical limits because they get sacrificed in the pursuit of growth.  Can capitalism survive if it has to operate within limits? You see when it’s put that way it sounds like a very ordinary question because the standard definition of economics is about making the best use of scarce resources.

Economics and economists have understood for a long time that economies are always constrained by available resources, so that in itself has never been a threat to capitalism, the efficient use of limted resources has always been seen as one of its virtues. So I don’t think that a stricter limit on the extent to which we draw resources from nature and put waste materials back is necessarily a threat to capitalism.

If I have to look for support for this idea, there was a quote that I refer to many times by Robert Solow, a great economist particularly known for his work on economic growth, who says very much the same thing, that he sees no reason why capitalism can’t survive with low, or even no-growth. Now that doesn’t mean that there aren’t many questions to be answered, such as what sort of institutions could work if the economy was not pursuing growth or wasn’t growing? To what extent and in what ways do our institutions have to change?

These are questions that I and some others are investigating right now and whether we end up with a view of an economy that we’d say doesn’t look anything like capitalism, we don’t really know yet. My own sense at the moment is that if we do effectively come to terms with these limits on how we interact with the biosphere, we’ll be looking back maybe half a century or a century from now and saying well, there was no one time when the economic system was transformed but it has evolved into something which we may or may not chose to call capitalism at that time.

So the end of economic growth doesn’t necessarily mean an economic collapse?

It could mean that, if you have an economic system that relies on growth.  That’s the dilemma we’ve got now. It seems to be that unless the economy is growing it flirts with collapse or it does collapse. The challenge to us is to try to configure an economy that doesn’t grow and doesn’t collapse. I think that’s really what I try to do in my book. As some of the simulation work suggests, and it’s no more than a suggestion because the work is somewhat preliminary, that yes, of course you can have a steady state economic system, just like you can have a steady state eco-system.

Think of a forest that is in what might be called a mature state. It doesn’t mean it stays that way forever, but for a good length of time its total biomass is roughly constant. Now within that, trees are being born and are growing and dying all the time. And I think that’s quite a good parallel to make with a steady state economy. In some overall sense it’s in a steady state. Perhaps that’s because the material and energy flows through the economy are being maintained at a more or less constant level, but what’s going on in the economy can be very vibrant and exciting, just that the whole system’s not growing.