The End of Growth: Adapting to Our New Economic Reality (6 page)
Read The End of Growth: Adapting to Our New Economic Reality Online
Authors: Richard Heinberg
Tags: #BUS072000
What Comes After Growth?
The realization that we have reached the point where growth cannot continue is undeniably depressing. But once we have passed that psychological hurdle, there is some moderately good news. The end of economic growth does not necessarily mean we’ve reached the end of qualitative improvements in human life.
Not all economists have fallen for the notion that growth will go on forever. There are schools of economic thought that recognize nature’s limits; and, while these schools have been largely ignored in policy circles, they have developed potentially useful plans that could help society adapt.
The basic factors that will inevitably shape whatever replaces the growth economy are knowable. To survive and thrive for long, societies have to operate within the planet’s budget of sustainably extractable resources. This means that even if we don’t know in detail what a desirable post-growth economy and lifestyle will look like, we know enough to begin working toward them.
We must discover how life in a non-growing economy can actually be fulfilling, interesting, and secure. The absence of growth does not necessarily imply a lack of change or improvement. Within a non-growing or equilibrium economy there can still be continuous development of practical skills, artistic expression, and certain kinds of technology. In fact, some historians and social scientists argue that life in an equilibrium economy can be superior to life in a fast-growing economy: while growth creates opportunities for some, it also typically intensifies competition — there are big winners and big losers, and (as in most boom towns) the quality of relations within the community can suffer as a result. Within a non-growing economy it is possible to maximize benefits and reduce factors leading to decay, but doing so will require pursuing appropriate goals: instead of
more
, we must strive for
better
; rather than promoting increased economic activity for its own sake, we must emphasize that which increases quality of life without stoking consumption. One way to do this is to reinvent and redefine
growth
itself.
The transition to a no-growth economy (or one in which growth is defined in a fundamentally different way) is inevitable, but it will go much better if we plan for it rather than simply watch in dismay as institutions we have come to rely upon fail, and then try to improvise a survival strategy in their absence.
In effect, we have to create a desirable “new normal” that fits the constraints imposed by depleting natural resources.
Maintaining the “old
normal” is not an option
; if we do not find new goals for ourselves and plan our transition from a growth-based economy to a healthy equilibrium economy, we will end up with a much less desirable “new normal.” Indeed, we are already beginning to see this in the forms of persistent high unemployment, a widening gap between rich and poor, and ever more frequent and worsening environmental crises — all of which translate to profound distress across society.
A Guide to the Book
This book began with a sudden insight on the morning of September 16, 2008 (the day after Lehman Brothers filed for bankruptcy). I was sitting in a meeting of about 40 leaders and funders of non-profit organizations, listening to a former JP Morgan managing director explain what derivatives are and why the financial world seemed to be disintegrating at that very moment. One of the funders in the room took a call on his cell phone and afterward I heard him whisper, “I just lost forty million dollars.” The notion occurred to me:
We are witnessing the beginning of the end of economic
growth
. I knew the end was inevitable anyway, but now events within the world of high finance were conspiring with environmental limits to bring it about sooner, and more dramatically, than almost anyone had foreseen.
That thought wouldn’t have stayed with me if I hadn’t been prepared for it — conditioned by having read
the Limits to Growth
decades previously, and by years of following trends in resource depletion. But it did take root, and for months afterward I poked and prodded it every which way, testing to see if it was sound, premature, or plain wrong.
I discussed it with economists, business consultants, energy experts, and resource analysts. I spent countless hours reading about economic history and about the causes of the unfolding financial catastrophe. I consulted my colleagues at Post Carbon Institute, asking: Even if this is true — that the world has indeed essentially outgrown the possibility of growth itself — is this a message that should be broadcast to the world, or would it be better for me to continue writing about energy and resource issues? At last, in mid-2010, for reasons I’ll discuss more in Chapter 7, it became clear that the story of
The End of Growth
needed to be told.
The realization that growth may be at an end raises many questions. Will the financial impact be inflationary or deflationary? Will some nations fare better than others, leading to protectionist trade wars? Will the “downsizing” of the economy lead also to a ”downsizing” of the human species? How quickly will all of this happen? What can we do to protect ourselves and adapt?
These are some of the issues we will explore in the chapters ahead.
Chapter 1 is a potted history of economies and the discipline of economics. Readers well-versed in these subjects will find this a quick and dirty tour. This is not because I lack formal training as an economist or historian (though I do), but because the purpose here is only to provide some context. The rest of the book assumes a basic understanding of how and why economies have come to rely on growth, and why most mainstream economic theories ignore environmental limits.
In Chapter 2 we will see why economic growth has stumbled badly for reasons internal to the world’s monetary and financial systems. Crucially, we will explore whether there are practical limits to debt, and whether we have broached those limits. This chapter also provides a short history of the current worldwide economic crisis and the efforts of governments and central banks to manage the mayhem.
Chapter 3 examines factors external to the financial system that will make it impossible for the economy to recover and begin growing again — factors that include the depletion of fossil fuels, minerals, and other natural resources, as well as worsening natural and industrial disasters.
Many readers will protest that limits to energy resources and minerals can be overcome with efficiency and substitution, enabling further economic growth. Chapter 4 addresses those arguments, showing why economic strategies that worked well to maintain an expansive trajectory during the 20th century are losing steam.
Chapter 5 explores how the winding down of world economic growth is likely to play out over the coming decades in terms of demography, international development, currency wars, and geopolitical rivalries. This chapter also addresses China’s continued rapid economic expansion and examines in some detail the question: Can this continue for long?
In Chapter 6 we will explore ways that governments and central banks could successfully manage the inevitable transition from a growth-dependent economy to a contracting or steady-state economy. We begin the chapter with a rather stark portrayal of a “default scenario” of what is likely to transpire if the managers of the global money system continue with current policies. Along the way, we learn about alternative currencies, ecological economics, and the economics of happiness.
Finally, Chapter 7 discusses what individuals and communities can do now to prepare for changed conditions ahead, laying the groundwork for the post-growth, post-hydrocarbon economy and way of life. As hopeful signs and opportunities, we explore Transition Initiatives and Common Security Clubs.
I recommend reading these chapters in sequence. The book develops its argument cumulatively.
The process of writing
the End of Growth
changed me. Even though I was well prepared to undertake the project, having spent the past four decades observing how and why our current growth-based economy is unsustainable, I found the process of coming to terms with the implications of an ongoing cessation of worldwide economic expansion more than sobering. Even readers well versed in relevant subjects such as ecological economics will likely find that this book undermines their mental equilibrium in a way that is both deeply uncomfortable and exhilarating — in that it makes explicit a host of fears and misgivings about the economy that I think most of us carry around with us unconsciously.
BOX I.3
The Perils of Prediction
This book is in effect making a prediction — that world economic growth will not return. It is a hedged prediction, because it takes account of the likelihood of relative growth, consisting of temporarily continuing expansion in some economies and occasional partial rebounds in others. Still, hedged or not, predictions are perilous in fields ranging from weather forecasting to horse racing, economics certainly among them.
18
Some would argue that timing is the essence of prediction.
19
If a forecast is off by a few years (or even milliseconds, in some scientific experiments), the prediction fails. Paul Ehrlich was famously wrong in his 1980 bet with Julian Simon that the prices of five commodity metals would increase over the following decade. Arguably, Ehrlich just had his timing wrong: as we have seen, since 2000 most commodity prices have trended upward. But by calling the commodity price rise for too soon he lost the $10,000 bet and provided resource optimists with an endlessly repeatable anecdote.
Others would say that, at least in predictive situations that involve a dire warning, the general correctness of the warning is often more important than the precise timing specified. Suppose the National Hurricane Center forecasts that a hurricane will strike Miami at approximately 5 pm, but the storm’s speed across water slows temporarily and the hurricane actually strikes at 11 pm, still wreaking devastation. The important thing will have been that people were warned and got out of harm’s way; the forecasters’ failure to pinpoint the moment of impact will be seen to have been of little importance — it did not make the hurricane disappear.
The end of growth is a process, and, as I hope to have successfully argued, it is an inevitable one. The crash of 2008 was undoubtedly a pivotal moment in that process, but the shift from a general pattern of economic growth to one of general contraction is likely to continue for several years. Relative growth will make confirmation or disconfirmation of the prediction implied in this book’s title problematic during this time. However, the real aim of the book is not to score points for accuracy in forecasting an event that must occur in any case (whether it happens this year or a decade from now), but to warn readers, and society in general, so that we can adapt successfully and minimize damaging impacts.
Few economists saw our current crisis coming, but this predictive
failure was the least of the field’s problems. More important
was the profession’s blindness to the very possibility of catastrophic
failures in a market economy.
— Paul Krugman (economist)
The conventional wisdom on the state of the economy — that the financial crisis that started in 2008 was caused by bad real estate loans and that eventually, when the kinks are worked out, the nation will be back to business as usual — is tragically wrong. Our real situation is far more unsettling, our problems have much deeper roots, and an adequate response will require far more from us than just waiting for the business cycle to come back around to the “growth” setting. In reality, our economic system is set for a dramatic, and for all practical purposes permanent, reset to a much lower level of function. Civilization is about to be downsized.
Why have the vast majority of pundits missed this story? Partly because they rely on economic experts with a tunnel vision that ignores the physical limits of planet Earth — the context in which economies operate.
In this chapter we will see in brief outline not only how economies and economic theories have evolved from ancient times to the present, but how and why some modern industrial economies — particularly that of the US — have come to resemble casinos, where a significant proportion of economic activity takes the form of speculative bets on the rise or fall in value of an array of real or illusory assets. And we’ll see why all of these developments have led to the fundamental impasse at which we are stuck today.
In order to maximize our perspective, we’re going to start our story at the very beginning.
Economic History in Ten Minutes
Throughout over 95 percent of our species’ history, we humans lived by hunting and gathering in what anthropologists call
gift economies
.
1
People had no money, and there was neither barter nor trade among members of any given group. Trade did exist, but it occurred only between members of different communities.
It’s not hard to see why sharing was the norm within each band of hunter-gatherers, and why trade was restricted to relations with strangers. Groups were small, usually comprising between 15 and 50 persons, and everyone knew and depended on everyone else within the group. Trust was essential to individual survival, and competition would have undermined trust. Trade is an inherently competitive activity: each trader tries to get the best deal possible, even at the expense of other traders. For hunter-gatherers, cooperation — not competition — was the route to success, and so innate competitive drives (especially among males) were moderated through ritual and custom, while a thoroughly entangled condition of mutual indebtedness helped maintain a generally cooperative attitude on everyone’s part.
