Misconceptions of a Zero Growth Economy
A recent discussion at Hacker news started of debating a news article about fear of recession in Asia. This debate kickstarted a discussion of zero growth economy when one of the participants wrote:
Fear of recession is irrational. There is no need for continuous growth.
The responses showed that people have very different ideas of what zero growth actually means. On one end you have those thinking anybody uttering something like this has a poor grasp of economics, as exemplified in this remark:
I think you misunderstand “growth” as wall-street profits. The world GDP today is $80T. If you divide that by world’s working population (which is 65% of total population), you will arrive at about $9/hr wage rate for average human. The growth is the improvement in value of time for an average human being. This is obviously very broad view because returns are extremely unevenly distributed but when GDP grows, many people benefit by having their standard of life elevated by that little bump. Continuous growth is what led to dramatic reduction in massive poverty in India and China compared to 1970s and now also starting to take place in Africa. There is most definitely need for continuous growth.
This is, I think a bit typical view on the right, thinking that leftists are primarily approaching economics in an emotional fashion rather than actually having thought through the issue. Which I must confess is a lot of how I have previously viewed a lot of leftists, which was a major reason for me previously to abandon left wing ideology.
The problem however is that one does not speak the same language. The way I see it today is closer to how one of the next debaters framed it:
My interpretation of the parent was that there is some hypothetical point at which basic needs (whatever they are) of all humans are satisfied and additional growth is about more comfort/less work. At that point one could in principle stop with growth. And with very skewed distribution, this hypothetical point is way further into the future than with even distribution.
So zero growth should not be interpreted pedantically as: “let completely stop all world GDP from increasing a single dollar, starting today!” Rather it is an aspiration for how societies should develop.
The Limits of Capitalism and Growth
We are starting to reach the ecological limits of the earth, and merely going about things as we always have is not going to cut it. Perhaps through technology we can keep going for some more years, but technology cannot solve the fundamental problem with our current capitalist system: It is a system based on infinite growth. The built in assumption is ever growing population where every individual keeps consuming ever more. Better energy efficiency, recycling, more efficient utilization of raw material etc can keep us going longer. But sooner or later we will hit the wall.
The political right is unable to accept this absolutely basic fact of existence. Perhaps because it has been all too easy to mock the doomsayers. Humans have had an amazing ability to overcome out challenges. The green revolution avoided global starvation. We managed to solve the problem with depleting ozon layer and acid rain. We managed to change the dystopian society of the industrial revolution to the fairly pleasant societies we live in, in the west today.
Yet this narrative, papers over the sever permanent ecological damage we humans have imposed on the world almost our entire existence. We started early. Large animals like mammoth was believed to have been made extinct by humans. When humans crossed the baring straights we made most large animals in the Americas extinct within a relatively short time, through hunting. The damage is permanent. Those species are extinct and will never come back.
The areas of early human civilization have often gone through extreme environmental changes. Ancient times and antiquity saw widespread deforestation causing soil erosion and spreading dessert. Romans hunted numerous animals into extinction either locally or globally.
Greece has little vegetation today but was quite green in the bronze age wit forrest all over.
Early Mesopotamian cultures collapsed due to environmental destruction they inflicted upon their own lands:
By 1800 B.C., agriculture in southern Mesopotamia had almost disappeared, leaving an impoverished people who lived on a desolate and poisoned land. The world’s first civilization had created a monumental environmental disaster.
One argument about the rise of northern and western Europe, is that prosperity shifted west-ward and northwards as earlier civilizations destroyed their environment. Northern Europe e.g. has a climate that is more capable of surviving the negative effects of massive deforestation and depletion of nutrients from the soil. But there are limits. As you go further North nature becomes very vulnerable again. Iceland is still struggling with replanting the forrest that was destroyed hundreds of years ago by the original Viking settlers from Norway.
Okay so we destroyed some nature but we are still around and doing well, what is your point?
We humans have exhausted all resources in our habitat again and again, forcing us to adapt. When we killed all the big animals in an area we were forced to revert to agriculture. As we depleted and eroded the soil we had to expand into even more areas, and at times our civilizations simply collapsed.
We killed almost all the whales, leading to a desperate shortage of whale oil that was used in oil lamps. We got saved by using mineral oil, drilled from oil wells.
Do you see the pattern in how we exhaust one resource, move to the next one. Then we exhaust that resource and move to the next? At times we don’t have the technology to move on, and our civilizations collapse. There is a pattern emerging which is that we are increasingly painting ourselves into a corner.
The yardstick is not whether we survive or prosper but what the planet will end up looking like. When we killed most of the animals in an area, we survived by reverting to agriculture. If we destroy agricultural land and/or consume more than it can provide we will likely build more hydroponics facilities which can feed us. We will likely cut down more forrest to expand farmland. Should climate or pollution get out of control, humans will always find solutions. It could mean building domes over our cities to protect against the destroyed environment outside. We can in principle survive on planets like Mars through the use of technology, so naturally we could achieve the same on Earth.
However if we place any value on nature. If we actually want to be able to sail the seas and see whales, walk the woods and experience a rich biodiversity, then merely surviving to consume more isn’t “mission accomplished”. Not to mention the hardship we will undoubtedly experience on the way before we continue prospering.
People mistakenly think the transition from hunter and gatherer to farmer was a big improvement. It was not. It only became an improvement after long time of improving farming technology and developing better crops. For many generations it was a step down. Modern research shows hunters and gathers had better health than farmers and worked considerably less. They only had to work about 20 hours per week. Transition to agriculture did not happen because it was better but because humans were forced to, having depleted all other food resources (killed all the animals in the area).
The industrial revolution saw the same pattern. Sure how high standard of living today is depend-ended on the industrial revolution happening. However as it happened life was not better for most people than earlier times. Quite the contrary. London e.g. was so polluted that more people died than were born. The population just kept increasing because so many people moved there. The horrible living conditions was the direct cause of the virulent spread of socialism and various revolutions. It was because people fought back that conditions eventually started improving.
The point is that while we have eventually prospered it has often come at enormous sacrifices for the generations preceding us. No doubt we will overcome the pending environmental doom we are approaching. Eventually we will have better technology and we will have made political, social and economic changes to cope. The problem is that we tend to do that only after millions have suffered.
The question is how many millions or possibly billions have to either die or live in hardship in the future because we are too stubborn and self centered to make the necessary changes today?
Not to mention, that by the time we get there are lot of destruction will be irreversible. A large number of species will be extinct, that we will never get back.
Okay fine! But what is your alternative?
A common complaint about protester against the current regime, is that protests only know what they are against but not what they are in favor of.
In short I think it is fair to say it would be a sort of hybrid socialism and capitalism. Now you may want to ask are there not other ideologies one could follow? Why always those two?
We can stick as many labels as we like on different ideologies but in the end there are not that many fundamentally different ways of organizing society. Every society is of course a mix of different ideologies and approaches. So what I am advocating isn’t a complete replacement of everything we got but rather changing the mix.
Many aspects of capitalist should probably still exist but we got to stop putting capitalism in the drivers seat. Instead capitalism has to be put in the backseat.
A system operating on the principle of infinite growth and consumption cannot be steering the overall economy. Instead a larger part of the economy should be based on cooperatives, government owned and run companies and voluntarism. Those capitalist companies that do exist, should be regulated more towards serving human needs rather than profits.
The fundamental problem with a capitalist corporation is that it is centered around always selling more stuff, to make more profit. If humans don’t actually have a natural desire to consume more of what the corporation sells, then the corporation will try to manipulate human emotions to cause a desire to consume their products. This cycle pushes up consumption.
Cooperatives and government run companies tend to expand less aggressively. Although there is a natural desire for workers owning a cooperative to gain more income, their desire to grow the business at almost any cost is usually not as strong. However this is also an accepted reality. With the current arrangement that employed work is the only way to receive income, we are not rid of the underlying drive to push others to consume what we make.
Thus I think a form of universal basic income is needed. If we can guarantee everybody a minimum level of income without paid work, everybody will have a weaker incentive to attempt to push others to consume what you make. Citizens will be able to pursue other interests not bound by the ability to charge money for the activity they perform. One possible model is how open source development works. It has been a tremendously successful approach in software development. Enormous software projects have been successfully completed without individuals or companies being able to charge for the work they have performed.
If we can accomplish it at large scale within software, then why not within other human endeavours? In particular if all intellectual work is performed without charging for it, it potentially means large efficiency gains. Imagine how cheap medication would be if there are no patents and the information about how to make a pill is free. 3D printers is an interesting example. Large corporations initially patented most 3D printing technology. It caused the industry to stagnate for many years. The explosion we have seen in 3D printing over the last decade began when important 3D printing patents started to expire. Patents were in other words holding back progress.
How to Bootstrap an alternative System
This alternative economic model cannot be made over night. It has to be done step by step. Here are some of the simple first steps.
- Cut back on the areas where ads are permitted. E.g. limit how frequently ads can appear on TV and radio. Remove billboards allowing advertisement. The rational is that ads are there to encourage unnecessary consumption.
- For larger companies allow up to 50% worker representation on company boards.
- All factories or local branches of a company closing down must offer the company for sale to the workers themselves as a cooperative. Government must be able to match some of the money the workers offer up.
- Start special government banks offering loans specifically to cooperatives or alternatively offering better conditions to cooperatives than regular companies. The banks themselves could potentially be turned into cooperatives.
- Extend warranties for consumer products, to encourage companies to make more durable products thus reducing the need to constantly buy new things to replace old and broken products.
- Explore ways of breaking company monopoly on repairing their own products. Pass laws to require more parts of a product to be easily repairable and serviceable by consumers themselves or others. Today it is frequent that companies deliberately make products that cannot be repaired and often have obscure types of screws or other fasteners so only repair shops with specialized tools can assemble and disassemble.
Finally we must begin to scale back free trade. People must realize it is a faustian bargain. Yes trade is an economic benefit for two trading countries in general because it offers specialization and economies of scale as benefits. However this positive outcome as a dark side which people talk less of:
- Often it pits workers in different countries against each other, reducing their salaries and conditions.
- It takes away a country’s ability to follow an entirely different economic system. A country today cannot easily e.g. offer crucial services or products as a government service or somehow subsidized without breaking trade rules. Trade rules tend to be setup so countries have little choice but privatize as much of their economy as possible. Otherwise it is claimed that companies are given an unfair advantage against private companies in other countries. Singing free trade deals take away autonomy to make such decisions.
- It makes it harder to require e.g. longer warranties or make other special demands on producers without ending up in some WTO/EU/NAFTA court.
Together with free trade things like free flow of capital and people often follows as well. This tends to make it hard for a country to chart an alternative economic policy with higher standards for workers and higher taxes. Companies can simply threaten to move overseas, because money flows freely across the boarder. However if there was not a free flow of capital companies could not easily leave.
The free flow causes a sort of race to the bottom. Money will always flow towards the country setting the lowest environmental standards, the poorest work standards, the lowest minim wages.
Of course people have to made aware that this is a tradeoff. The price of gaining sovereignty is lower economic growth. A tradeoff the Brexit crowd seem unwilling to make. In our case that is not a problem, because the goal is to get out of the demand for never ending growth.
Problems with Zero Growth and How to Deal with them
To clarify, zero growth should not be taken literally in a pedantic sense. It does not necessarily mean that GDP will not rise. Zero growth as I define it, is about a minimal growth, and preferably reduction in our consumption of natural resources and destruction of nature.
I means a minimal increase in our consumption of physical goods. Since technological progress will still continue this will cause a problem with factories. Since they are not increasing production but efficiency keeps improving, the number of workers needed will decline.
In other words zero growth will naturally over time lead to ever increasing unemployment. This is why a combination of universal basic income and shorter work hours will be needed in such a society. From this it follows that we need to replace many corporations with cooperatives or give workers more power and influence. Otherwise a continuous reduction in hours worked will lead to a continuous decline in salary.
Companies can in principle pay equal salaries for shorter workdays given that they are not facing competition from foreign companies not following this model. This is why this approach cannot function with full free trade or some sort of control on capital. Otherwise companies will get outcompeted or move overseas.
How to Achieve Close to Zero Growth in Usage of Natural Resources
One way is to actually use the mechanism of the market itself. Prices is a powerful mechanism to influence the market, and we can alter prices through taxation.
One can thus start taxing raw material inputs higher to encourage economic activity which consumes a minimal amount of natural resources. Again this will make products uncompetitive abroad. Yet again demonstrating the challenge with having free trade. Domestic companies facing higher costs of inputs will collapse in competition from foreign companies not facing these taxes.
Thus imports need to be taxed to level the playing-field. And yes, this comes with an economic cost. By taxing imports other countries will respond in kind, hurting domestic producers. But again this a deliberate tradeoff. You cannot have a cake and eat it too.
It is also important to realize these changes will take time. One cannot start heavily taxing raw material inputs from one year to the other without potentially destroying many companies. Taxes has to be introduced gradually and companies need time to adjust.
The Political Challenge
Perhaps the biggest obstacle to the polices I propose is not necessarily implementing them in practice but rather the fierce resistance they will face among companies and capitalists profiting from the current system. They will not want a system that says there will be no growth in profits. There will be minimal increases in sales.
Since the change will be opposed by the economic elite, the changes will not easily get through. Money is power and influence. Rich companies and capitalists has the attention of politicians in a way that regular citizens concerned about the future of our planet does not have.
The easiest way for them to kill the idea is to offer the enticing idea that we don’t need tradeoffs. We can just keep consuming because technology, recycling and corporate responsibility will solve all the issues.
Or they can scaremonger about how this low growth alternative will mean less money for education, health care, child care or whatever people have an emotional attachment to.
It is easy to be tricked by this when everything is measured in money. A better way to analyze the problem is to consider the wealth of a country being in terms of the hours of labour that can be engaged in useful work. Just because fewer hours are spent making material goods does not mean there will be less hours available to perform health care service e.g. This is primarily limited by the hours health care professionals have at their disposal.
Ironically the cost of health care tends to rise as we produce more “stuff”. But this only happens in a relative sense. Since making a TV takes fewer hours each years, the cost of surgery measured in TVs will tend to increase. The hours needed to do surgery hardly falls each year, while it falls for most industrial products.
Thus as the production of stuff slows, the price increase of things such as health care and education will slow as well.
Of course there a lot more to it than this, but it just illustrates how easily you are deceived when you don’t fully comprehend how the economy actually works.