Prosperity without growth?

The transition to a sustainable economy

Professor Tim Jackson Economics Commissioner Sustainable Development Commission Summary

Economic growth is supposed to deliver prosperity. Higher incomes should mean better choices, richer lives, an improved quality of life for us all. That at least is the conventional wisdom. But things haven’t always turned out that way.

Growth has delivered its benefits, at best, unequally. urgent need of economic development. A fifth of the world’s population earns just 2% of But it also questions whether ever-rising incomes for global income. Inequality is higher in the OECD the already-rich are an appropriate goal for policy in nations than it was 20 years ago. And while the a world constrained by ecological limits. rich got richer, middle-class incomes in Western Its aim is not just to analyse the dynamics of countries were stagnant in real terms long before an emerging ecological crisis that is likely to dwarf the recession. Far from raising the living standard the existing economic crisis. But also to put forward for those who most needed it, growth let much of coherent policy proposals (Box 1) that will facilitate the world’s population down. Wealth trickled up to the transition to a sustainable economy. the lucky few. In short, this report challenges the assumption Fairness (or the lack of it) is just one of several of continued economic expansion in rich countries reasons to question the conventional formula for and asks: is it possible to achieve prosperity without achieving prosperity. As the economy expands, so do growth? the resource implications associated with it. These impacts are already unsustainable. In the last quarter of a century the global economy has doubled, while The Age of Irresponsibility an estimated 60% of the world’s ecosystems have been degraded. Global carbon emissions have risen Recession throws this question into sharp relief. by 40% since 1990 (the Kyoto Protocol ‘base year’). The banking crisis of 2008 led the world to the Significant scarcity in key resources – such as oil – may brink of financial disaster and shook the dominant be less than a decade away. economic model to its foundations. It redefined the A world in which things simply go on as usual boundaries between market and state and forced is already inconceivable. But what about a world us to confront our inability to manage the financial in which nine billion people all aspire to the level sustainability – let alone the ecological sustainability of affluence achieved in the OECD nations? Such an – of the global economy. economy would need to be 15 times the size of This may seem an inopportune moment to this one by 2050 and 40 times bigger by the end of question growth. It is not. On the contrary, this crisis the century. What does such an economy look like? offers the potential to engage in serious reflection. What does it run on? Does it really offer a credible It is a unique opportunity to address financial and vision for a shared and lasting prosperity? ecological sustainability together. And as this report These are some of the questions that prompted argues, the two things are intimately related. this report. They belong in a long tradition of serious Chapter 2 argues that the current turmoil is not reflection on the nature of progress. But they also the result of isolated malpractice or simple failures reflect real and immediate concerns. Climate of vigilance. The market was not undone by rogue change, fuel security, collapsing biodiversity and individuals or the turning of a blind eye by incompetent global inequality have moved inexorably to the regulators. It was undone by growth itself. forefront of the international policy agenda over The growth imperative has shaped the the last decade. These are issues that can no longer architecture of the modern economy. It motivated be relegated to the next generation or the next the freedoms granted to the financial sector. It electoral cycle. They demand attention now. stood at least partly responsible for the loosening Accordingly, this report sets out a critical of regulations and the proliferation of unstable examination of the relationship between financial derivatives. Continued expansion of credit prosperity and growth. It acknowledges was deliberately courted as an essential mechanism at the outset that poorer nations stand in to stimulate consumption growth.

6 Prosperity without Growth? Sustainable Development Commission This model was always unstable ecologically. It freedoms, but as a range of ‘bounded capabilities’ has now proven itself unstable economically. The to live well – within certain clearly defined limits. age of irresponsibility is not about casual oversight A fair and lasting prosperity cannot be isolated or individual greed. If there was irresponsibility it from these material conditions. Capabilities are was systematic, sanctioned widely and with one bounded on the one hand by the scale of the global clear aim in mind: the continuation and protection population and on the other by the finite ecology of economic growth. of the planet. To ignore these natural bounds to The failure of this strategy is disastrous in all sorts flourishing is to condemn our descendents – and our of ways. Not least for the impacts that it is having fellow creatures – to an impoverished planet. across the world, in particular in poorer communities. Conversely, the possibility that humans can But the idea that growth can deliver us from the flourish and at the same time consume less is an crisis is also deeply problematic. Responses which intriguing one. It would be foolish to think that it aim to restore the status quo, even if they succeed is easy to achieve. But it should not be given up in the short term, simply return us to a condition of lightly. It offers the best prospect we have for a financial and ecological unsustainability. lasting prosperity.

Redefining Prosperity The Dilemma of Growth

A more appropriate response is to question the Having this vision to hand doesn’t ensure that underlying vision of a prosperity built on continual prosperity without growth is possible. Though growth. And to search for alternative visions – in formally distinct from rising prosperity, there which humans can still flourish and yet reduce their remains the possibility that continued economic material impact on the environment. In fact, as growth is a necessary condition for a lasting Chapter 3 makes clear, the voluminous literature on prosperity. And that, without growth, our ability to human wellbeing is replete with insights here. flourish diminishes substantially. Prosperity has undeniable material dimensions. Chapter 4 explores three related propositions in It’s perverse to talk about things going well where defence of economic growth. The first is that material there is inadequate food and shelter (as is the case opulence is (after all) necessary for flourishing. for billions in the developing world). But it is also The second is that economic growth is closely plain to see that the simple equation of quantity with correlated with certain basic ‘entitlements’ – for quality, of more with better, is false in general. health or education, perhaps – that are essential to When you’ve had no food for months and the prosperity. The third is that growth is functional in harvest has failed again, any food at all is a blessing. maintaining economic and social stability. When the American-style fridge freezer is already There is evidence in support of each of these stuffed with overwhelming choice, even a little propositions. Material possessions do play an extra might be considered a burden, particularly if important symbolic role in our lives, allowing us you’re tempted to eat it. to participate in the life of society. There is some An even stronger finding is that the requirements statistical correlation between economic growth and of prosperity go way beyond material sustenance. key human development indicators. And economic Prosperity has vital social and psychological resilience – the ability to protect jobs and livelihoods dimensions. To do well is in part about the ability and avoid collapse in the face of external shocks – to give and receive love, to enjoy the respect of really does matter. Basic capabilities are threatened your peers, to contribute useful work, and to have when economies collapse. a sense of belonging and trust in the community. Growth has been (until now) the default In short, an important component of prosperity is mechanism for preventing collapse. In particular, the ability to participate meaningfully in the life market economies have placed a high emphasis of society. on labour productivity. Continuous improvements in This view of prosperity has much in common technology mean that more output can be produced with Amartya Sen’s vision of development as for any given input of labour. But crucially this also ‘capabilities for flourishing’. But that vision needs to means that fewer people are needed to produce the be interpreted carefully: not as a set of disembodied same goods from one year to the next.

Sustainable Development Commission Prosperity without Growth? 7 As long as the economy expands fast enough to have increased by 40% since only 1990 (the Kyoto offset labour productivity there isn’t a problem. But base year). if the economy doesn’t grow, there is a downward There are rising global trends in a number of other pressure on employment. People lose their jobs. resources – a range of different metals and several With less money in the economy, output falls, public non-metallic minerals for example. Worryingly, spending is curtailed and the ability to service in some cases, even relative decoupling isn’t public debt is diminished. A spiral of recession happening. Resource productivity in the use of some looms. Growth is necessary within this system just structural materials (iron ore, bauxite, cement) has to prevent collapse. been declining globally since 2000, as the emerging This evidence leads to an uncomfortable and economies build up physical infrastructures, leading deep-seated dilemma: growth may be unsustainable, to accelerating resource throughput. but ‘de-growth’1 appears to be unstable. At first this The scale of improvement required is daunting. looks like an impossibility theorem for a lasting In a world of nine billion people, all aspiring to a prosperity. But ignoring the implications won’t make level of income commensurate with 2% growth on them go away. The failure to take the dilemma of the average EU income today, carbon intensities growth seriously may be the single biggest threat to (for example) would have to fall on average by sustainability that we face. over 11% per year to stabilise the climate, 16 times faster than it has done since 1990. By 2050, the global carbon intensity would need to be only six The Myth of Decoupling grams per dollar of output, almost 130 times lower than it is today. The conventional response to the dilemma of growth Substantial economic investment will be needed is to call for ‘decoupling’: continued economic growth to achieve anything close to these improvements. with continually declining material throughput. Lord Stern has argued that stabilising atmospheric Since efficiency is one of the things that modern carbon at 500 parts per million (ppm) would mean capitalist economies are supposed to be good at, investing 2% of GDP each year in carbon emission decoupling has a familiar logic and a clear appeal as reductions. Achieving 450 ppm stabilisation would a solution to the dilemma of growth. require even higher levels of investment. Factor As Chapter 5 points out, it’s vital to distinguish in the wider capital needs for resource efficiency, between ‘relative’ and ‘absolute’ decoupling. material and process substitution and ecological Relative decoupling refers to a situation where protection and the sheer scale of investment resource impacts decline relative to the GDP. Impacts becomes an issue. The macro-economic implications may still rise, but they do so more slowly than the of this are addressed in Chapter 8. GDP. The situation in which resource impacts decline More to the point, there is little attempt in existing in absolute terms is called ‘absolute decoupling’. scenarios to achieve an equitable distribution of Needless to say, this latter situation is essential if incomes across nations. Unless growth in the richer economic activity is to remain within ecological nations is curtailed, the ecological implications of a limits. truly shared prosperity become even more daunting Evidence for declining resource intensities to contemplate. (relative decoupling) is relatively easy to identify. The truth is that there is as yet no credible, The energy required to produce a unit of economic socially just, ecologically sustainable scenario of output declined by a third in the last thirty years, for continually growing incomes for a world of nine instance. Global carbon intensity fell from around billion people. one kilo per dollar of economic activity to just under In this context, simplistic assumptions that 770 grams per dollar. capitalism’s propensity for efficiency will allow us Evidence for overall reductions in resource to stabilise the climate and protect against resource throughput (absolute decoupling) is much harder scarcity are nothing short of delusional. Those who to find. The improvements in energy (and carbon) promote decoupling as an escape route from the intensity noted above were offset by increases dilemma of growth need to take a closer look at in the scale of economic activity over the same the historical evidence – and at the basic arithmetic period. Global carbon emissions from energy use of growth.

1 De-growth (décroissance in the French) is an emerging term for (planned) reductions in economic output.

8 Prosperity without Growth? Sustainable Development Commission The ‘Iron Cage’ of Consumerism survival. The ‘iron cage of consumerism’ is a system in which no one is free. In the face of the evidence, it is fanciful to suppose It’s an anxious, and ultimately a pathological that ‘deep’ resource and emission cuts can be system. But at one level it works. The system achieved without confronting the nature and remains economically viable as long as liquidity is structure of market economies. Chapter 6 exposes preserved and consumption rises. It collapses when two interrelated features of modern economic either of these stalls. life that together drive the growth dynamic: the production and consumption of novelty. The profit motive stimulates a continual search Keynesianism and the Green New Deal by producers for newer, better or cheaper products and services. This process of ‘creative destruction’, Policy responses to the economic crisis are more or according to the economist Joseph Schumpeter, is less unanimous that recovery means re-invigorating what drives economic growth forwards. consumer spending so as to kick-start economic For the individual firm, the ability to adapt and growth. Differences of opinion are mainly confined to innovate – to design, produce and market not just to how this should be achieved. The predominant cheaper products but newer and more exciting ones (Keynesian) response is to use a mixture of public – is vital. Firms who fail in this process risk their own spending and tax cuts to stimulate consumer survival. demand. But the continual production of novelty would be Chapter 7 summarises some of the more of little value to firms if there were no market for the interesting variations on this theme. It highlights consumption of novelty in households. Recognising in particular the emerging international consensus the existence, and understanding the nature, of this around a very simple idea. Economic recovery demand is essential. demands investment. Targeting that investment It is intimately linked to the symbolic role that carefully towards energy security, low-carbon material goods play in our lives. The ‘language of infrastructures and ecological protection offers goods’ allows us to communicate with each other multiple benefits. These benefits include: – most obviously about social status, but also about • freeing up resources for household spending identity, social affiliation, and even – through giving and productive investment by reducing and receiving gifts for example – about our feelings energy and material costs for each other. • reducing our reliance on imports and our Novelty plays an absolutely central role here exposure to the fragile geopolitics of for a variety of reasons. In particular, novelty has energy supply always carried important information about status. • providing a much-needed boost to But it also allows us to explore our aspirations for employment in the expanding ‘environmental ourselves and our family, and our dreams of the industries’ sector good life. • making progress towards demanding global Perhaps the most telling point of all is the carbon reduction targets almost perfect fit between the continual production • protecting valuable ecological assets of novelty by firms and the continuous consumption and improving the quality of our living of novelty in households. The restless desire of the environment for generations to come. consumer is the perfect complement for the restless innovation of the entrepreneur. Taken together In short, a ‘green stimulus’ is an eminently these two self-reinforcing processes are exactly sensible response to the economic crisis. It offers what is needed to drive growth forwards. jobs and economic recovery in the short term, Despite this fit, or perhaps because of it, the energy security and technological innovation in relentless pursuit of novelty creates an anxiety that the medium term, and a sustainable future for our can undermine social wellbeing. Individuals are at children in the long term. the mercy of social comparison. Firms must innovate Nonetheless, the default assumption of even or die. Institutions are skewed towards the pursuit the ‘greenest’ Keynesian stimulus is to return the of a materialistic consumerism. The economy itself economy to a condition of continuing consumption is dependent on consumption growth for its very growth. Since this condition is unsustainable, it is

Sustainable Development Commission Prosperity without Growth? 9 difficult to escape the conclusion that in the longer protecting both people’s jobs and their capabilities term something more is needed. A different kind for flourishing. But this condition will need to of macro-economic structure is essential for an be supplemented by conditions that ensure ecologically-constrained world. distributional equity, establish sustainable levels of resource throughput and emissions, and provide for the protection of critical natural capital. Macroeconomics for Sustainability In operational terms, there will be important differences in the way that the conventional There is something odd about the modern refusal to variables play out in this new macro-economy. countenance anything but growth at all costs. Early The balance between consumption and investment, economists such as John Stuart Mill (and indeed the split between the public and the private sector Keynes himself) foresaw a time in which growth spending, the nature of productivity improvements, would have to stop. the conditions of profitability: all of these will have Herman Daly’s pioneering work defined the to be re-negotiated. ecological conditions of a steady-state economy in The role of investment is particularly crucial. terms of a constant stock of physical capital, capable Sustainability will need enhanced investment in of being maintained by a low rate of material public infrastructures, sustainable technologies throughput that lies within the regenerative and and ecological maintenance and protection. assimilative capacities of the ecosystem. These investments will operate differently from What we still miss from this is a viable macro- conventional capital spending (Appendix 2) and will economic model in which these conditions can be have to be judged and managed accordingly. achieved. There is no clear model for achieving Above all, a new macro-economics for economic stability without consumption growth. Nor sustainability must abandon the presumption of do any of the existing models account fully for the growth in material consumption as the basis for dependency of the macro-economy on ecological economic stability. It will have to be ecologically variables such as resources and emissions. In short and socially literate, ending the folly of separating there is no macro-economics for sustainability and economy from society and environment. there is an urgent need for one. Chapter 8 explores the dimensions of this call in more detail. It presents results from two Flourishing – within Limits specific attempts to develop a macro-economics of sustainability. One of these suggests that it is Fixing the economy is only part of the problem. possible, under certain assumptions, to stabilise Addressing the social logic of consumerism is also economic output, even within a fairly conventional vital. This task is far from simple – mainly because macro-economy. A crucial role is played by work- of the way in which material goods are so deeply time policies in this model, to prevent rising implicated in the fabric of our lives. unemployment. But change is essential. And some mandate for The second model addresses the macro- that change already exists. A nascent disaffection economic implications of a shift away from fossil with consumerism and rising concern over the fuels. It shows that there may only be a narrow ‘social recession’ have prompted a number of ‘sustainability window’ through which the economy initiatives aimed at improving wellbeing and can pass if it is to make this transition successfully. pursuing an ‘alternative hedonism’ – sources of But crucially, this window is widened if more of identity, creativity and meaning that lie outside the the national income is allocated to savings and realm of the market. investment. Against the surge of consumerism there are These exercises reveal that a new macro- already those who have resisted the exhortation to economics for sustainability is not only essential, ‘go out shopping’, preferring instead to devote their but possible. The starting point must be to identify time to less materialistic pursuits, to their family, or clearly the conditions that define a sustainable to the care of others. economy. Small scale ‘intentional’ communities (like the These conditions will still include a strong Findhorn community in Scotland or Plum Village in requirement for economic stability as the basis for France) are exploring the art of the possible. Larger

10 Prosperity without Growth? Sustainable Development Commission social movements (such as the ‘transition town’ Governance for Prosperity movement) are mobilising people’s desire to live more sustainably. These initiatives don’t appeal Achieving these goals inevitably raises the question to everyone. But they do provide an invaluable of governance – in the broadest sense of the word. learning ground, giving us clues about the potential How is a shared prosperity to be achieved in a for more mainstream social change. pluralistic society? How are the interests of the Chapter 9 discusses their strengths and limitations. individual to be balanced against the common It explores why people may turn out both to be good? What are the mechanisms for achieving this happier and to live more sustainably when they balance? favour intrinsic goals that embed them in family Particular questions arise about the role of and community rather than extrinsic ones which government itself. Chapter 10 identifies an almost tie them into display and social status. Flourishing undisputed role for the state in maintaining macro- within limits is a real possibility, according to this economic stability. For better or worse, government evidence. also ‘co-creates’ the culture of consumption, shaping On the other hand, those at the forefront of social the structures and signals that influence people’s change are often haunted by the conflict of trying to behaviour. At the same time, of course, government live, quite literally, in opposition to the structures has an essential role to play in protecting the and values that dominate society. These structures ‘commitment devices’ that prevent myopic choice represent a culture of consumption that sends all and support long-term social goals. the wrong signals, penalising ‘good’ environmental History suggests a cultural drift within government choices and making it all but impossible, even for towards supporting and encouraging a materialistic highly-motivated people, to live sustainably without and individualistic consumerism. This drift is not personal sacrifice. entirely uniform across all countries. For example, In this context, simplistic exhortations for people different ‘varieties of capitalism’ place more or less to resist consumerism are destined to failure. emphasis on de-regulation and competition. But all Urging people to insulate their homes, turn down varieties have a structural requirement for growth, the thermostat, put on a jumper, drive a little less, and rely directly or indirectly (eg in export markets) walk a little more, holiday at home, buy locally on consumerism to achieve this. produced food (and so on) will either go unheard Government itself is conflicted here. On the one or be rejected as manipulation for as long as all the hand, it has a role in ‘securing the future’ – protecting messages about high street consumption point in long-term social and ecological goods; on the other the other direction. it holds a key responsibility for macro-economic For this reason, structural change must lie at the stability. For as long as macro-economic stability heart of any strategy to address the social logic of depends on economic growth, government will consumerism. And it must consist in two main avenues. have an incentive to support social structures that The first is to dismantle the perverse incentives for undermine commitment and reinforce materialistic, unproductive status competition. The second must be novelty-seeking individualism. Particularly where to establish new structures that provide capabilities that’s needed to boost high street sales. for people to flourish – and in particular to participate Conversely, freeing the macro-economy from a meaningfully and creatively in the life of society – in structural requirement for growth will simultaneously less materialistic ways. free government to play its proper role in delivering The advantages in terms of prosperity are likely social and ecological goals and protecting long-term to be substantial. A less materialistic society will interests. enhance life satisfaction. A more equal society The narrow pursuit of growth represents a will lower the importance of status goods. A less horrible distortion of the common good and of growth-driven economy will improve people’s underlying human values. It also undermines the work-life balance. Enhanced investment in legitimate role of government itself. At the end of public goods will provide lasting returns to the the day, the state is society’s commitment device, nation’s prosperity. par excellence, and the principal agent in protecting our shared prosperity. A new vision of governance that embraces this role is urgently needed.

Sustainable Development Commission Prosperity without Growth? 11 The Transition to a Sustainable Economy efforts, progress towards sustainability remains painfully slow. And it tends to stall endlessly on The policy demands of this analysis are significant. the over-arching commitment to economic growth. Chapter 11 presents a series of steps that governments A step change in political will – and a renewed vision could take now to effect the transition to a sustainable of governance – is essential. economy. Box 1 summarises these steps. They fall But there is now a unique opportunity for into three main categories: government – by pursuing these steps – to • building a sustainable macro-economy demonstrate economic leadership and at the • protecting capabilities for flourishing same time to champion international action on sustainability. This process must start by developing • respecting ecological limits. financial and ecological prudence at home. It must The specific proposals flow directly from the also begin to redress the perverse incentives and analysis in this report. But many of them sit within damaging social logic that lock us into unproductive longer and deeper debates about sustainability, status competition. wellbeing and economic growth. And at least some Above all, there is an urgent need to develop of them connect closely with existing concerns of a resilient and sustainable macro-economy that is government – for example over resource scarcity, no longer predicated on relentless consumption climate change targets, ecological taxation and growth. The clearest message from the financial social wellbeing. crisis of 2008 is that our current model of economic A part of the aim of this report is to provide a success is fundamentally flawed. For the advanced coherent foundation for these policies and help economies of the Western world, prosperity without strengthen the hand of government in taking them growth is no longer a utopian dream. It is a financial forward. For at the moment, in spite of its best and ecological necessity.

12 Prosperity without Growth? Sustainable Development Commission Box 1: 12 Steps To a Sustainable Economy

Building a Sustainable Macro-Economy Debt-driven materialistic consumption is deeply unsatisfactory as the basis for our macro-economy. The time is now ripe to develop a new macro-economics for sustainability that does not rely for its stability on relentless growth and expanding material throughput. Four specific policy areas are identified to achieve this:

1. Developing macro-economic capability 2. Investing in public assets and infrastructures 3. Increasing financial and fiscal prudence 4. Reforming macro-economic accounting

Protecting Capabilities for Flourishing The social logic that locks people into materialistic consumerism is extremely powerful, but detrimental ecologically and psychologically. A lasting prosperity can only be achieved by freeing people from this damaging dynamic and providing creative opportunities for people to flourish – within the ecological limits of the planet. Five policy areas address this challenge.

5. Sharing the available work and improving the work-life balance 6. Tackling systemic inequality 7. Measuring capabilities and flourishing 8. Strengthening human and social capital 9. Reversing the culture of consumerism

Respecting Ecological Limits The material profligacy of consumer society is depleting natural resources and placing unsustainable burdens on the planet’s ecosystems. There is an urgent need to establish clear resource and environmental limits on economic activity and develop policies to achieve them. Three policy suggestions contribute to that task.

10. Imposing clearly defined resource/emissions caps 11. Implementing fiscal reform for sustainability 12. Promoting technology transfer and international ecosystem protection.

For further details see pages 103-107

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