20 May 2006

The steady state economy

By Andrew Boswell

Last week, Jacqui McCarney discussed how endless economic growth does not make us happy. Would a steady state economy be better for our well-being?

This is not a new idea – in 1848, John Stuart Mill wrote of a Stationery State economy. Mill had great concerns with the damaging effects on human character of the unremitting pursuit of possessions, foreseeing the happiness / growth conundrum. Mill was, even then, well aware of the world resource's being finite and the dangers of over-population, and foresaw the need for sustainability too.

Now sustainability is a much abused word - its virtuous qualities are all too often hijacked by those green-washing their far from virtuous and damaging agendas. Likewise the word 'renewable' when applied to energy-from-waste incinerators, and Blair's disastrous nuclear plans!

Renowned economist, Herman Daly, has studied steady state economics and sustainability for many years. He cuts through the dishonest use of words like 'sustainable' by defining three precepts of a sustainable economy:
  1. 1. Renewable resources such as fish, soil, and groundwater must be used no faster than the rate at which they regenerate.

  2. Non-renewable resources such as minerals and fossil fuels must be used no faster than renewable substitutes for them can be put into place.

  3. Pollution and wastes must be emitted no faster than natural systems can absorb them, recycle them, or render them harmless.
True sustainability is not just aesthetic thinking – ultimately physics will force it on us. Writing last September, in Scientific American, Daly correctly asserts "the facts are plain and uncontestable: the biosphere is finite, non-growing, closed … any sub-system, such as the economy must at some point cease growing and adapt itself into a dynamic equilibrium, something like a steady state." Endless, senseless growth is questioned more each day – by MPs such as Colin Challen, and even the Government's chief scientist, Sir David King.

Daly points out that beyond a point of optimal consumption, growth becomes 'uneconomic', or 'bad', anyway, as loss of leisure, depletion of our natural capital, pollution and congestion outweigh any benefits. Eventually a population consumed in uneconomic growth reaches a 'futility limit' where increased consumption brings no measurable benefits. The futility limit may have already been reached in rich countries, or we are very close, as increases in production and consumption come at ever greater expense in resources and well-being.

The sustainable, steady state economy will bring many benefits. Like a fit, adult human, it is dynamic, constantly changing and developing, but not needing to physically grow anymore. By comparison GDP, that measure of bland economic activity and God to economists and politicians, is a measure of obesity.

Dangerous, too, as global GDP is fossil-fuelled - measurements since 1960 show that each year's growth in global GDP has a corresponding increase in CO2 emissions – and Governments have not found a way of breaking this link. A large part of these emissions come from the energy expended growing the economy. Malcolm Slesser, an energy expert, has estimated that 50% of emissions are used in growth - that is 50% of fossil fuel is burnt just to produce 3% growth.

E F Schumacher intuited this when writing four decades ago: "It is easy to see that the effort needed to sustain a way of life which seeks to attain the optimal pattern of consumption is likely to be much smaller than the effort needed to sustain a drive for maximum consumption."

Researchers are starting to create measures of sustainable well-being. The index of sustainable economic welfare (ISEW) includes factors such as income inequality, unpaid domestic labour, health, education, and depletion of environmental assets. Try to create your own ISEW, based on how you value each of the full 19 measures making up the index, at this Friend of the Earth webpage. Research shows in the US that the negative factors in ISEW have been increasing faster than the positive - is this a society past its futility limit?

Whilst there have been two international conferences on Bhutan's Gross National Happiness, the New Economic Foundation's (NEF) composite Measure of Domestic Progress (MDP) provides a UK approach. Whilst UK GDP has soared in the last 50 years, NEF finds that our MDP is not improving, and the divergence is especially transparent over the last 30 years: GDP increased by 80 per cent, but MDP fell sharply during the 1980s and has not yet regained its 1976 peak.

As Jacqui McCarney concluded last week "Real strides in happiness in the West will only come about when people learn that we cannot consume our way to happiness, and Governments start putting true wellbeing before endless economic growth."