Managing without GrowthSlower by Design, not Disaster

Dr. Peter A. Victor

11 December 2009

Towards an ecological macroeconomicsWU-Vienna University of Economics and Business

World Population

World GDP

8 out of 125,000 generationshave experienced growth

World Fossil Fuels

World in Year 1 World in 2009

Firms Households

Natural Inputs(flows of materials & energy from

SOURCES andEnvironmental SERVICES)

Waste Outputs(SINKS)

Bio-physical Cycles

Economic Cycle

Managing WithoutGrowth?

Growth is not possible over long term

Growth does not bring happiness

Growth is disappointing

Sources Sinks

Services

SourcesGrowth is not possible

over the long term

SOURCES

Material intensity is declining,but not fast enough

47%

110%

29%

Key message:Environmental impact depends on intensity and scale

GDP

Resource Extraction

Material Intensity

Energy consumption - same story

59%

Key message:Environmental impact depends on intensity and scale

110%

24%

GDP

Primary Energy

Energy Intensity

W. S. Jevons

The era of fossil fuels

Wood

CoalOil

Gas

•Higher quality (higher energy density, easier storage, greater flexibility)•Lower cost

Electricity

20+ fold increase in global energy use since 1800Energy Transitions

Technology

1946 1968

1992 2009

1946 1968

1992 2009

‘I would say this is most environmentally friendly cruise ship to date. It is much more efficient than other similar ships. …It dumps no sewageinto the sea, reuses its waste water and consumes 25 percent less power than similar, but smaller, cruise liners.’ (Project engineer)

SourcesGrowth is not possible

over the long term

SINKS & SERVICES

Transgressing Planetary Boundaries

Growth is not possible over log term

Growth does not bring happiness

Real Incomeper person

Percentagevery happy

Making roomHow slowing the rate of

economic growth can helpdeal with climate change

World populationWorld income

World populationWorld income

Green growth

Brown growth

592 mt

Black growth

Black degrowth

Scale and Intensity: the Colours of Growth

Canada’s GDP 1990

Canada’s GHG Intensity 1990

Green degrowth

Any combination of GDP and GHG/GDPalong the red line gives 592 mt of emissions

Higher

Lower

USA’s Economic GrowthScale and Intensity 1990-2007

6,099mt

7,150mt

0.86

$7,113,000

0.62

$11,524,000

Britain’s Economic Growth Scale and Intensity 1990-2007

773mt

676mtKyoto target

637mt

0.94

825,099

0.50

1,266,347

Canada’s Economic GrowthScale and Intensity 1990-2007

592 mt

747mt

556 mt[KyotoTarget]

0.57

$1,314,000

0.72

$825,318

An 87% reduction in Canada’s GHG emissionsfrom 2007 level in 50 years: Scale and Intensity

747mt

97mt

0%/yr growth in GDP

2%/yr growth in GDP

3%/yr growth in GDP

.57.03 .07.02

$1,314,000

$5,785,000

$3,552,000

Intensity after50 years compared with 2007

3% 5% 13%

2007 2007

Environmental Kuznets Curve

Increa

sing I

mpact Decreasing Impact

Intensity (Environmental Impact/GDP)

Scal

e (G

DP)

Environmental Impact

Scale, Intensity and the Environmental Kuznets CurveEI’ EI’’ EI’’’ EI’’’’

EI’EI’’EI’’’’ EI’’’

Brown Growth

Green Growth

(Scale growing slowerthan decline in intensity)

(Scale growing fasterthan decline in intensity)

Managing withoutgrowth?

LowGrowCanada

Can we have full employment, no poverty, fiscal balance, reduced GHG emissions without relying on economic growth?

LowGrowCanada

You bet!

MACRODEMAND

Y =C+I+G+X-M

MACROSUPPLY

Y=f(K,L,t)

Inve

stm

ent

GD

P

Employment,Capacity Utilization

Poverty

GHG Emissions

FiscalPosition

Forestry

Population

Labour Force

LowGrow - simplified structureY = GDPC = consumptionI = investmentG = governmentX = exportsM = imports

K = capital L = labourt = time

What makes an economy grow?

• Macro demand (what wespend money on):– Consumption– Investment– Government– Trade

• Macro supply (what we canproduce):– Labour– Capital– Productivity

‘Business as usual’

GDP per Capita

GHG Emissions

Poverty

UnemploymentDebt to GDP Ratio

What happens if we eliminate increasesin all sources of economic growth?

(starting in 2010 over 10 years)

• Consumption• Investment

• Government• Trade

• Population/labour• Productivity

A no growth disaster

GDP per Capita

GHG Emissions

Poverty

Unemployment

Debt to GDP Ratio

‘The real issue is whether it is possible tochallenge the “growth-at-any-cost model”and come up with an alternative that isenvironmentally benign, economicallyrobust and politically feasible.’

Larry Elliot (economics editor)The Guardian Weekly 29th August 2008

A better low/no growth scenarioHow?• Macro demand and supply stabilized

(stable population and labour force)• Carbon price• Shorter work year• More generous anti-poverty programs

GDP per Capita

GHG EmissionsUnemployment

Poverty Debt to GDP Ratio

What would change? New meanings and measures of success Limits on materials, energy, wastes and land

use More meaningful prices More durable, repairable products Fewer status goods More informative advertising Better screening of technology More efficient capital stock More local, less global Reduced inequality Less work, more leisure Education for life not just work

Average hours worked peremployed person - Canada

low/no growscenario

1736

1392Netherlands

1417Norway

1433Germany

2007

Selective Growth

FinalDemand(GDP)

High IntensityLimited

ExpendituresStable or decline

Low IntensityExpanded

ExpendituresIncrease

GHG(Direct &Indirect)

RelativeIntensities ofCommodities

(GHG/$)

GHGGDP

Rate ofEconomic

Growth

Business as Usual

90% increase in GHG

Year

GDP/capita

GHG

Limited Expenditure: 50% GDP Relative intensity: 10

Limited Expenditure Target: 10% in 2020

47% reduction in GHG

GDP/capita

GHG

LE % of GDP

Year

Limited Expenditure: 22% GDP Relative intensity: 10

Limited Expenditure Target: 10% in 2020

No reduction in GHG

GDP/capita

GHGLE as % GDP

Year

Limited Expenditure: 22% GDP Relative intensity: 4

Limited Expenditure Target: 0% in 2020

15% increase in GHG

GDP/capita

GHG

LE as % GDP

Year

Selective growth requires:- LE to be large % of GDP- High relative intensity

GDP All Items

High Carbon Footprint Items(22% GDP UK)

High Real Land Footprint Items(20% GDP - UK)

High Impact Items(15.2% GDP - UKbased on combined Footprints)

3rd Set of High Impact Items

We must knock economic growth off its pedestal

Entering the Mainstream“It is possible that the US andEurope will find that…eithercontinued growth will be toodestructive to the environmentand they are too dependent onscarce natural resources, orthat they would rather useincreasing productivity in theform of leisure…

Robert SolowNobel Laureate in Economics

There is no reason at allwhy capitalism could notsurvive with slow or even nogrowth.”(Harper’s Magazine, March 2008)

Elements of an ecologicalmacroeconomics

• Full world• Economy as a subsystem

– Biophysical limits– Relevance of 1st and 2n laws of thermodynamics– Use of non-monetary data– Risk, uncertainty, ignorance

• Scale matters• Longer time horizon• Technological skepticism• Definition and measurement of progress• Ethical framework• New institutions• Spatial definition• Money

Some questions

• How should we measure progress and prosperity?• What new institutions are required to limit throughput and

protect habitat more effectively?• How should financial, corporate and legal institutions be

redesigned?• What would be the role of money in a low or non-growing

economy, what would determine the rate of interest?• What are the micro foundations of a macro economy that

has dispensed with growth?• Is low/no growth feasible for an individual economy?• Is capitalism compatible with an economy that respects

the limits of the biosphere?