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Published: 17 November 2010

Questioning economic growth

Peter Victor

Nature 468, 370-371 (2010)

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Our global economy must operate within planetary limits to promote stability,
resilience and wellbeing, not rising GDP, argues Peter Victor.

The idea that governments of developed countries should no longer pursue economic
growth as a primary policy objective is widely regarded as heresy. Yet a growing
number
of scholars, policy-makers and citizens are coming round to the idea that the
planet
cannot sustain continued global economic growth. Even economist Robert Solow, who
won the 1987 Nobel Prize in Economics for his work on economic growth, said in 2008
that the United States and Europe might soon find that “either continued growth
will be
too destructive to the environment and they are too dependent on scarce natural
resources, or that they would rather use increasing productivity in the form of
leisure”!.
The idea of steady-state economies, or even economic 'degrowth’, in developed

countries is gaining traction.

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The reasons for disenchantment with economic growth as a paramount policy objective
are not hard to find. Humanity has gone beyond the 'safe operating space’ of the
planet
with respect to climate change, nitrogen loadings and biodiversity loss, and
threatens to
do so with six other major global environmental issues”. This excessive burden on
Earth
can be traced to the massive increase in the materials, fossil fuels and biomass
used by
the world's economies. Mankind's 'throughput' — the sheer weight of materials,
including fuel, that feed the world's economies — has increased 800% in the
twentieth
century’, with a correspondingly large increase in wastes returned to the
environment.
In the same time, the human population has risen from 1.6 billion to more than 6
billion,
and our presence has been felt over an increasingly large part of Earth's surface.
All of
this drove and was driven by unprecedented economic growth, the benefits and costs
of
which have been spread remarkably unevenly around the planet.

ON THE JOB...ON TIME...EVERY WORKING DAY!

Credit: KJ. HISTORICAL/CORBIS

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A key question now is whether and how economies can develop in a way that respects
Earth's biophysical boundaries and feeds the 9 billion people expected by mid-
century.

One option is for developed countries to continue striving for economic growth,
while
attempting to reduce impacts on the planet. This means betting that economic growth
can be successfully and rapidly decoupled from material and energy inputs. Such
'green
growth’ is currently favoured by the Organisation for Economic Co-operation and
Development (OECD). But it can be confounded by the rebound effect: efficiency
improvements often induce changes that reduce, nullify or outweigh environmental
and resource benefits. This was first recognized in 1865 by economist W. S. Jevons,
who
noted that improvements in steam engines were accompanied by an increase in total
coal consumption.

By 1910, the best steam engines in the United Kingdom were about 36 times more
efficient than those of 1760 (ref.4), but a 2,000-fold rise in steam-power use> had
increased coal consumption dramatically. A rebound of 50% is not unusual for many
technologies.

What price happiness?

An alternative is to encourage growth in sectors of the economy that use fewer

resources, such as the service sector. Such a strategy could buy some time, but not
if it
simply shifts the production of resource-intensive products and their related
environmental burdens to other countries, as has been the pattern in recent years.

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A third option is to limit growth itself. The battle against climate change
illustrates the
attractiveness of this strategy. To reduce greenhouse-gas emissions (GHG) by 80%
over
50 years, an economy that increases its real gross domestic product (GDP) by 3%a
year
must reduce its emissions intensity — tonnes of GHG per unit of GDP — by an
astonishing
6% a year. For an economy that does not grow, the annual cut would be astill very
challenging 3.2%.

The view that we should curb planetary impacts by reducing growth in richer
countries
is reinforced by several considerations. First, there is mounting evidence that
this
growth is largely unrelated to measures of happiness. Second, in recent decades,
increasing inequality has accompanied much of this growth, leading to problems
ranging from poor public health to social unrest. Third, the prospects for real
improvement in the developing world are likely to be diminished if developed
countries

continue to encroach on more ecological space.

Removing economic growth as a major policy priority runs counter to the views of
governments and many international agencies. Many nations responded to the recent
financial crisis with desperate measures to resume economic growth. Yet when we
recognize how briefly economic growth has held such prominence in policy circles,
dethroning it seems less improbable. Regular estimates of GDP by governments date
back only to the 1940s, and the measure was initially used in support of specific
objectives, such as stimulating employment. Only in the 1950s did economic growth

become a policy priority in its own right®.

Economists and other social scientists now need to map out functional economies in
which growth is sidelined, and stability, resilience and wellbeing are the prime
objectives, within environmental and resource constraints. Ecological economist

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Herman Daly, who has investigated and promoted a steady-state economic model for
several decades, has formulated a useful set of principles for limiting material
use,
including: the harvest of renewable resources should not exceed their regeneration
rate;
the rate of extraction of non-renewable resources should not exceed the rate of
creation
of renewable substitutes; and waste emissions should not exceed the environment's
capacity to assimilate them. To these we should add the protection of land and
water to
reduce competition among humans and other species. Among the many successful
applications of these principles is the creation of protected areas and green
belts.

Daly, with theologian John Cobb, also proposed an alternative measure of macro-
economic success: the Index of Sustainable Economic Welfare (ISEW), incorporating
environmental degradation, resource depletion and other factors. Estimates of this
index show a major divergence from GDP per person for many countries In one study
by
environmental charity Friends of the Earth’, the gap between US GDP and the
'Genuine
Progress Indicator’ (GPI), calculated similarly to the ISEW, was particularly
marked:
whereas GDP per person rose from the 1970s, GP] actually declined (see ‘Genuine

progress?’).

GENUINE PROGRESS?

US GDP rose over the past decades; the GPI,

which accounts for social and environmental

factors, went down.

20 ,

== Gross Domestic

Product (GDP)

i = Genuine Progress

Indicator (GPT)

10

US$ per capita (thousands)

1950 1960 1970 1980 1990 2000

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Shorter work year

These results bear out an observation made in 1934 by Simon Kuznets, a Russian-
American economist and one architect of the system of national accounts from which
GDP is derived®: “The welfare of a nation can scarcely be inferred from a measure
of
national income.” Work on more broad-based indicators to complement or replace GDP
has been given a substantial boost by a 2009 report by Nobel laureates Joseph
Stiglitz

and Amartya Sen’ that caught the attention of many politicians.

Models have been built to explore what might realistically be accomplished in

developed countries that forgo economic growth, and what the consequences might be.
I constructed”® a fairly conventional model of the Canadian economy and found
circumstances under which employment can be increased, poverty and greenhouse-gas
emissions reduced, and government debt effectively managed without economic
growth. A key ingredient is a shorter work year, which would help to spread
employment
among more of the labour force. The benefits of greater productivity would thus be
directed towards more leisure time, rather than increasing GDP. Scoping this out
for
Canada, assuming that labour productivity continues to rise modestly, a reduction
in
the average work year of around 15% by 2035, to 1,500 hours a year, would secure
full
employment. This work year would still be longer than in some European countries.
In
Germany, for example, the average paid employee worked 1,430 hours in 2008.

Other ingredients for an attractive low/no-growth scenario include more focused and
better-funded anti-poverty programmes, a stable population (already achieved in
many
developed countries and within the grasp of others), and stricter policies on
environment and resources, based on Daly's principles. My study has helped to
stimulate similar investigations, under way or proposed, in countries including New

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Zealand, Austria, the United Kingdom, Finland and the United States, with results

expected over the next year or so.

Zero economic growth, however, may not be enough. Some researchers are looking
seriously at 'degrowth’': shrinking developed economies to bring them into balance
with
resource and environmental limits, while improving quality of life. The scope of
changes
in all aspects of the economy would be much more far-reaching, and the
repercussions
for society greater. Nevertheless, degrowth in materials use, fossil energy, land
and
water is clearly required, so degrowth of national economies may be unavoidable.

There is debate about whether capitalism is compatible with steady-state or

degrowth
economies. A shrinking economy brings a real risk that profit-seeking companies and
their shareholders will be disappointed, credit ratings will suffer, the financial
system
will be in jeopardy, trade will shrink and the whole capitalist system could spiral
to
collapse. Whether this would happen remains an open question. Solow, for one, sees
no
reason why capitalism could not survive with slow or even no growth. Others are
more
sceptical — especially about the survival of capitalism in degrowth societies. It
is worth
noting that even in a shrinking economy, some sectors — such as renewable-energy
development — will flourish.

As long as economic growth remains so important to global policymakers, humanity is

hopelessly constrained: the environmental policies we need face the unreasonable
political hurdle that they must also be shown to promote economic growth. This must
change. At grass-roots level, many people in the developed world are already
directing
their energies towards enhanced wellbeing, in part by turning to local producers
for
their food, clothing and other needs. Institutions of all kinds — financial,
political, legal,
educational, religious and social — that have evolved to thrive in a fast-growing

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economy will have to adapt. This could be the greatest challenge of all; there are
no

good answers yet as to how they should change.

With the prospect of environmental calamity facing humanity, developed economies

must chart a course towards living within a fair share, and no more, of the
planet's safe
operating space. Developing countries, in their turn and time, will also have to
adjust.
Done thoughtfully, this could lead to more satisfactory and fulfilling lives for
all.

References

1 Stoll, S. Harper's Magazine. http://www.harpers.org/archive/2008/03/0081958

(March 2008).

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3 Krausmann, F. et al. Ecol. Econ. 68, 2696-2705 (2009).

4 Smil, V. Energy in World History (Westview Press, 1994).

5 Crafts, N. Econ. J. 114, 338-351 (2004).

6 Arndt, H. W. The Rise and Fall of Economic Growth (Longman, 1978).

7 Friends of the Earth. Indexes of Sustainable Economic Welfare.

http://www.foe.co.uk/community/tools/isew/international.html.

8 Kuznets, S. National Income, 1929-1932. Senate Document 124.

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http://library.bea.gov/u?/SOD,888 (US Congress, 1934).

9 Stiglitz, J., Sen, A. & Fitoussi, J.-P. Report by the Commission on the
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of Economic Performance and Social Progress, 2009).

10 Victor, P. A. Managing without Growth: Slower by Design, Not Disaster (Edward

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2008).

Author information

Authors and Affiliations

Peter Victor is an economist at York University in Toronto, Ontario and author of

Managing Without Growth: Slower by Design, Not Disaster.

[email protected],
Peter Victor

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Victor, P. Questioning economic growth. Nature 468, 370-371 (2010).

https://doi.org/10.1038/468370a

Published Issue Date

17 November 2010 18 November 2010
DOI

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