Growth

There are two meanings relevant to Lean Logic:

1. The natural development of an immature system or organism to maturity.

2. A pathology in which a mature system or organism continues to grow.

This entry is about the pathology, an affliction of economics. The necessity for growth will be discussed in two distinct contexts – the intrinsic need for growth in a market economy; and the intrinsic need for growth in all large-scale economies:

 

The intrinsic need to grow in a market economy

Our present political economy depends on economic growth measured in terms of gross domestic product (GDP: for definitions see Well-Being). The main driver is a relentless rise in productivity: improvements in technology and in the use of labour make it possible to produce more goods and services (on average) per person employed. As the economist Moses Abramovitz writes, it is the possibility of discovering ways of improving productivity that gives meaning to the idea of the “competitive business”:

It offers new firms a chance to carve out lucrative markets to the peril of old firms. And it impels existing firms to make large investment in new products and process research and its application in an effort to enlarge or, at least, to protect the markets they have. The threat posed by the obsolescence of existing products and methods leaves them little choice.G64

The labour released by these efficiency improvements can be re-employed to produce more of the same; or it could turn to the production of something different. Either way, the outcome (in equilibrium) will be growth. In the absence of that equilibrium—that is, if the labour were not re-employed in some way—unemployment would rise towards hyperunemployment, eventually reaching a level at which maintaining any unemployment benefits would be impossible, since so few workers would exist to pay for them in taxes. The state would go bust and “no job” would mean “no income”, which in a market economy can be lethal.

In fact, the market economy is in a dynamic equilibrium, like an aircraft or a bicycle: it is only able to maintain its stability if it moves forward. For an economy, “moving forward” means growth in GDP, which it has to sustain just to reabsorb the labour released by those advances in productivity. The economy will stall or topple if the needed forward motion is not sustained, and the critical rate of about 2–2½ percent annual growth is little changed since the economist Wynne Godley wrote about it in 1993:

It cannot be too strongly emphasised that no recovery can be said to have begun until national production starts to grow faster than the economy’s productive potential, that is by at least 2 to 2.5 percent per annum. Growth at any slower rate will not even bring the rise in unemployment to a halt, let alone turn it round.G65

And it is per capita (per person) growth in GDP that matters, to re-absorb those troublesome advances in per capita productivity. Aggregate growth (i.e., a rise in total GDP), is of no value to the market economy, except in so far as it attends per capita growth.G66

GROWTH AT ALL COSTS
The Plan

The assumption that aggregate growth is a good thing in its own right has been influential—arguably the dominant frame of reference for economic management since the Second World War. It was the motivation for ambitious National Plans in the United Kingdom. The 1965 Plan, which adopted the aim of a 25 percent increase in national output between 1964 and 1970, tells us that “Productivity alone is not enough to achieve the 25 percent growth. There is a manpower gap, for which provision will be made by enhanced rates of recruitment of high-quality trained personnel from overseas, especially from the Commonwealth.”G68

Rises in output/total GDP that are due to a growing population (e.g., from immigration) rather than to improvements in per capita productivity will of course increase the government’s revenues from tax, giving it more to spend on the intermediate economy—i.e., on infrastructures such as transport, waste disposal, law and order, emergency services and administration. However, the demands made on these services will also be higher, owing to the larger population, so no one is better off, except perhaps some ministers who now find themselves with larger budgets, and the government, which can claim credit for a higher rate of growth, hoping that no one will notice that it is referring to the irrelevance of aggregate growth, rather than the per capita growth which (in this context) is the only sort of growth that actually does anyone any good (see “Growth at all Costs” sidebar above).G67

It is sustained per capita growth, then, that is a necessary condition for stability. It does not necessarily benefit households themselves, because the proceeds may be removed as tax—per capita growth is the main source of funds for the welfare state (or for totalitarian regimes buying power, patronage, bureaucracy and arms). And yet, its absence, if significant in time and scale, would lead to rising unemployment and, eventually, to a breakdown of income flows of any kind to the unemployed. This inherent need for per capita growth will not go away—and yet, of course, it is impossible to sustain it in a finite world (unless we assume a decline in the population at least as fast as the advance in productivity). It is certain that there are no simple answers to this—none that could be proposed without proposing at the same time a transformation in the whole of the way we think, work and order our lives.G69

And yet, once that path of growth has been trodden, if only for a short distance, it is difficult, or impossible, to stop. There is positive/amplifying feedback: growth leads on to growth at a compound rate, and this evidence of success allows the myth of “permanent growth” to become established, leading to the concept of “sustainable growth” (often misrepresented as sustainable development). However, any system which grows beyond its mature state without limit will in due course crash. It may not know it, but it is in danger. And the more successful it has been in sustaining its development in this sense, the greater will be the crash.

This is the central problem of the market economy. If it does not sustain its growth, it will collapse, because unemployment will rise without limit, and both private incomes and public finances will fail. And yet, if it does sustain its growth, it will collapse even more dramatically, owing to the depletion of fuel and materials, the breakdown of the soils, environment and climate, the costs and complications of its intermediate economy, and the decay of social capital. As soon as a society pulls free of its roots in reciprocal obligation and the culture in which it is embedded and moves forward into the market economy, it is marching towards collapse. It is then bound to keep marching as the only way to postpone the reckoning, but the more successful it is in sustaining growth, the greater the ultimate crash will be. In the language of resilience, the shock is the “release” stage in the adaptive cycle (the Wheel of Life).

It is no individual’s fault. It is not due to greed, to rising aspirations, or to lenders wanting their money to grow (Usury), although those may all jump on the rolling wagon of growth. Once growth has become established, it makes itself essential.

 

The intrinsic need for growth in all large-scale societies

Now, that is only half the story because, as it has been told so far, it applies only to the market economy. In fact, all previous societies have gone through the processes of growth, both per capita (advances in the productivity of labour) and aggregate (massive increases in population). But it is only the market economy that is under competitive pressure both to maintain the advances in productivity and to keep practically its whole workforce employed. We now need to look more closely at the other story of productivity advance and sustained growth, which is not about competitive pressures, but about other commitments which have applied to civic societies throughout history. So, we will start again with that (now familiar) improvement in the productivity of labour.

At its most basic level, this takes the form of simple increases in output—as in the case of Adam Smith’s example of labour specialisation leading to increases in the output of pins and nails per person (Intermediate Economy). And improvements in productivity can also come in other ways, such as increases in working hours (members of a traditional society that are recruited into the labour force of a civic society might increase their working hours from some two hours a day towards full-time work), or the development of equipment (pulleys were an early breakthrough), or in the organisation of work. All these are unequivocal improvements in labour productivity—and routes to growth.G70

But now comes the catch—the question of what all this extra output is needed for? In essence, it is about building and maintaining the intermediate economy — the regrettable necessities which are required to support a large-scale civic society. Those intermediate goods and infrastructures are enabled to grow by improvements in productivity. Or, to put it the other way round, the increased output arising from productivity advances substantially feeds through to the support systems needed for a large-scale economy to exist.

The process of building these infrastructures is the process of intensification. It builds the support systems needed by a large-scale system. And, owing to the diseconomies of large scale, the support systems and the tissue of connectedness which they weave increase relative to the size of the society for which they are needed. So (other things being equal), the larger the system, the larger the proportion of its total energy and output needed to build, and then to maintain, its own complicated infrastructures. In other words, in terms of that ratio between the size of the support system and the size of the society, intensification is a process of increasing inefficiency.G71

In summary: as intensification advances, individual output becomes more efficient and so more output per worker is produced. At the same time, the economy as a whole becomes less efficient, so more output per worker is required. The match between the growth in productivity and the growth in regrettable necessities will of course vary from place to place. But civic societies consist largely of structures, services and practices which, owing to their large-scale and complicated form, they could not forgo without extreme difficulty, or at all. What we have here is a ratchet effect: increased population and per capita productivity produce infrastructures on which the economy quickly comes to rely. Going into reverse—doing without those infrastructures—takes us into the territory of the almost impossible. It is the “almost” on which we need now to concentrate, making use of and—as far and fast as possible—expanding what little elbow-room we have.

 

Can growth be stopped?

Considerable thought has been given to the idea of halting growth but, first, there are some points to note about this:

1. Zero-growth won’t do

Calling a halt to growth will not be enough. The world economy is already well into overshoot (Systems Thinking > Feedback > Time) and, if it is to avoid shocks which would destroy it, will need to shrink, rapidly and soon. That is, it will have to go into “degrowth”.

2. The taut market is designed to destroy inefficiency

Many past civic societies have in fact made efforts—with varying success—to block further growth by setting limits to working time, by requiring producers to maintain intentionally inefficient practices, or by preventing the expansion of growth capital by means of intentional waste.

But the market economy does not do that: it depends on taut, competitive pricing to maximise efficiency (minimise the labour needed per unit of output) and has no tradition or instinct for intentionally wasting either goods or potential productivity. That does not mean that the option of introducing slack is impossible, but getting from here to there would not be an adjustment; it would be a radical transformation.

3. Population changes are not an available instrument

As it faces the problem of excessive scale and recognises the need to reduce it, the democratic market economy understandably rules out a reduction in population as part of the solution. Very long-term demographic change due to (for instance) falling fertility rates are too slow-acting to be relevant to the rapid corrections that are needed and in prospect for economic growth; indeed, most current projections foresee a rise in the global population rather than a fall. Former societies did not have this problem, since their populations adjusted promptly to changes in the ability of their economies to support them (Unlean). That is no role model for us, but it provides some insight as to why we find the problem of growth so hard to solve.G72

4. The scope for reducing output without increasing hardship is limited

Here we encounter the ratchet effect. So many of the products of economic growth—the goods, services and intermediate infrastructures it produces—are things genuinely needed to support a tolerably humane life in our giant civic society that it would present households with substantial problems if a significant proportion of that production were reduced or eliminated as required by “degrowth”.

Average-income households are not big spenders; they have little scope for pulling back their consumption. Nor is the opportunity for cuts in output to be found in forcing the super-rich to fire their butlers or to eat out less expansively. A relevant reduction in output would involve a massive transformation—a reversal of intensification — of the support systems needed for a large-scale society, which have been established not in response to greed, but for the good reason that they were necessary (Needs and Wants). In the absence of a strengthened informal economy, it would have implications not just for the quality of life, but for life and death.

The abstract assertion that we are all consuming too much and that we would be better off if we consumed less—despite its popularity in green circles—will not do. There is indeed scope for consuming less and improving the quality of our lives at the same time, though the opportunity for doing so varies, but consistent reductions on a scale which are deep enough to make the difference that is needed would bring deep distress and hardship to households across a broad spectrum of income levels. Critics in the developed countries have benefited from growth all their lives, and may not all be completely aware of what the consequences of a deep reduction in economic output would be. The Renaissance scholar Desiderius Erasmus made this point about advocates of war: “Dulce bellum inexpertis” [War is sweet to those who know it not].G73

5. The rising costs of labour-intensive services present a non-negotiable need for growth

A substantial share of the intermediate economy consists of work that fundamentally relies on human input (labour), such as the social services. In a large market economy, this includes much work which former civic societies would not have done on a large scale, such as special educational needs, long-term care and prisons. For reasons detailed in Composition, the relative costs of such services (where people are hard to replace with automation) rise with advances in technology and economic growth, and so constantly need more revenue, which can only be provided by more growth.

There is a vicious problem here. As productivity increases in other sectors and the economy grows (and intensifies), these services are more in demand and thus provision requires more revenue. This can only be found through further growth . . .

So, providers of such labour-intensive services (such as the government) need the rising income provided by growth to cover the rising costs which are caused by growth in the first place.

Such labour-intensive services are only part of the intermediate economy. But their cost rises relentlessly, relative to:

a. the declining cost of the typical basket of all goods—which is substantially set by years of advance in technology and process; and

b. wage levels—which are set with reference to the cost of that basket.

And the rising cost of such services is seen as a further reason for the necessity of growth. To any public sector accountant charged right now with paying for nurses, teachers, officials and soldiers, degrowth is out of the question.

6. Growth will shortly be needing no encouragement to stop. And then go into reverse

As oil production begins to decline from its peak, with or without the support of the other aspects of the climacteric, it is likely that growth will falter, and turn into decline. We will wonder how we ever came to be talking about halting growth; it will be happening, faster than we might wish.

The task we face, therefore, is not the generality of “degrowth”, but the detail of “deintensification”. OK, it’s a longer word, but it takes us to what we are actually trying to do. What has got us into this situation is centuries of intensification, with its voracious use of natural assets to build the complicated and concentrated economy in which we now live. The road back is deintensification, in the form of reconfiguring those infrastructures to support its sequel—a much smaller-scale, localised community, distributed as a modular system, enabling its parts (small groups, households, neighbourhoods . . . ) to achieve the critical property of elegance.

We have the advantage that much present-day science and technology lends itself to a small-scale, neotechnic order, which was not available in the early and middle stages of industrialisation. We cannot be sure, however, that in the future these technologies will be available.

The case for deintensification—getting improvements in efficiency by moving towards that modular order of highly-developed local resilience — is robust. What is in doubt is how far it can be achieved from the starting point of today. Lean Logic is sceptical as to whether an intentional transformation on the needed scale is possible, arguing instead that what lies ahead is a climacteric with numerous consequences affecting every aspect of our lives, including population. But that is not a debate that needs to be settled, for two reasons:

First, the same set of objectives presents itself, whatever the prospects for the future, or the expectation of success. Our global political economy — as is typical of a complicated system in trouble—is busy responding to the problem by adding to it, frantically building infrastructures or shoring them up, even though they are too large, too centralised and concentrated, too degraded and too overstretched to have anything more than a short expectation of life. As such, every effort should be made now to achieve the transformation—to localise, reskill and rebuild culture and community, and to develop the informal economy which is the means by which households can meet substantial needs elegantly and directly. It produces goods and services without financial reward, for direct consumption by the people involved, and without dependence on growth or the infrastructures of intensification.

Secondly, the only way of knowing the extent to which the process of deintensification is possible is by trying it. One framework for doing so, at the local scale, is the Energy Descent Action Plan (EDAP). Another—complementing the EDAP at the national scale—is TEQs (Tradable Energy Quotas).

 

Can we look to reduced working time as at least part of the solution?

The question of how to achieve managed degrowth has been studied by several recent critics, and one much-discussed means to that end has been the idea of reduced working hours. Significant contributions on this topic have been made by Gerhard Bosch, Peter Victor, Tim Jackson and a joint report by Anna Coote, Jane Franklin and Andrew Simms.

Bosch considers some of the conditions that would have to be in place to make a reduction in working time possible. He argues that the option of shorter working hours will not be taken up unless people can afford it, and that this in turn will call for high levels of productivity, with training to make it happen, and wages to match. He also emphasises the need for flexible hours.G74

Victor’s discussion of the case for shorter working time emphasises the need to ensure that those whose income already leaves them close to the poverty line do not find it reduced yet further. He notes that effective action would at the same time be needed to protect the environment, along with taxation and incentives to reduce the flow of fuels and materials and to conserve capital assets. Efficiency improvements would be directed to the conservation of energy and materials, rather than to raising output. Action would need to be taken to limit international trade to the central task of meeting a nation’s needs, rather than making money from each nation’s comparative advantage. Victor recognises that measures like this would present problems for nations (first movers) that implemented them while others did not, and that solutions would require them to live simply. He cites Henry David Thoreau’s Walden, and E.F. Schumacher’s Small is Beautiful as inspirations for the prospect of “voluntary simplicity”, which would open up the possibility of getting by on the reduced consumption.G75

Jackson writes that reduced working time would need to be in the context of reduced inequality and strong social capital, developed in resilient communities, and he suggests that we can look to the Transition movement for inspiration. Changes in working time would require profound changes in the present direction of travel, away from the culture of consumerism, and Jackson wonders whether, and in what senses, it would mean the end of capitalism. He settles on three key practical policies to reduce growth:

1. a greater emphasis on service-based activities, with less demand for—and more conservation of — material goods;

2. increased investment in ecological assets which should be recognised as a form of capital — yielding a flow of value, and

3. the reduced working time policy itself.

His answer to the question of whether this would still be capitalism is ambiguous: there would be more public and employee ownership, and there would be less focus on the return on financial assets, since it would be environmental assets that would be the focus of economics in this sharply different, zero-growth form. This would not be a society which saw its aims in terms of ever-increasing consumption, nor its worth in terms of financial capital.G76

Coote et al’s analysis is tightly focused, in that it is based on a steep reduction to the 21-hour week; it is also comprehensive, in that it outlines many of the arguments both for and against a much shorter working week, the reactions to such a change, safeguards to deal with the problems it would raise, and steps towards achieving it. They argue that it would improve the quality of lives in the economy we have now by giving us more time at home with family and community, as well as reducing stress and improving relations between the genders. They suggest that (in the light of the experience that already exists of a three-day week), it could also improve the productivity with which we use the time we spend at work. It would make it easier to contemplate a shift in the focus of our working lives from the formal economy of paid work, to the informal “core” economy of working directly for ourselves and families.G77

 

These contributions are valuable and groundbreaking, but they do invite some observations, three especially:

First, an imposed shorter working week would be difficult to enforce in the context of the taut market economy, and would tend to quickly snap back to full-time work (Leisure). It would also be hard to distinguish between formal work (e.g., working in the horticulture industry) and informal work (e.g., growing vegetables for family and friends).

Secondly, what sort of shorter working week are we talking about? There are two kinds:

One is where it goes with a rise in hourly rates, so that incomes remain unchanged. The other is where hourly rates remain unchanged, so that weekly wages—incomes—reduce in step with the fall in working time. Coote et al give us a hint of what is in their minds about this:

If hours are to be reduced incrementally . . . over, say, 15 years, it may still be possible to increase hourly rates gradually during that time to offset, at least partially, the effect on total earnings.G78

So pay rates rise to compensate, leaving take-home pay unchanged. Companies’ labour costs remain constant, but their output goes down. Unless all other producers in the market do the same, or watertight tariff barriers are established, what happens next is that producers who shorten their working week are priced out of business; their workers become unemployed. You might try it with a large non-competitive organisation like a National Health Service, but then the cost has to be paid by tax, so this, too, leads—via reduced demand and high costs—to unemployment.G79

Or what about the alternative version, where a shorter working week leads to a pro rata reduction in pay? This, too, would be unstable, with workers strongly motivated, for reasons of income, to get back from their reduced hours to a full working week (Leisure).

Thirdly, there is the problem that we have come to depend on what the economy produces. A 40% reduction in working hours (from 35 to 21 per week) would, realistically, mean a 40% reduction in incomes, and that—even if mitigated by redistribution—would have consequences in terms of both living standards and politics which would make it unlikely to happen. As discussed above, it carries no weight to assert that in this consumerist society we consume too much anyway. Indeed, it is hard to make sense of this at all without a firm basis in that key concept of intensification. We are all at present stuck with, and dependent on, the shared cost of maintaining a giant, intensely complicated civic society, and if that commitment is not met, we are in trouble. The case for voluntary simplicity, with the example of Henry David Thoreau, who lived by a pond, does not accurately reflect the detail of the lives of households on middle or lower income in twenty-first century cities.

 

In short, the use of the shorter working week as a means of achieving degrowth is back-to-front. This would be an outcome of success, and it is some way down the line: there is a lot of genius to be accomplished first.

What deintensification requires is a rebuilding of the diverse informal economy of communal self-reliance—growth of the “core economy”, as Edgar Cahn and Coote et al call it.G80 The first steps to making that work are consistent with a full working week, or minimal reductions in it. A helpful start would be widely-established flexible working time—ready agreement that employees should be able to negotiate shorter working hours if they want to, so that the building of the informal economy can be accomplished incrementally. But the motivation to gear-up the informal economy to delivering more must be in place from the outset—otherwise, extra hours of enforced leisure will be experienced as authoritarian control, and as an incentive to bust the system.

And, remember, too (as introduced briefly above), that the shorter working week is only one of the many ways in which an economy can work towards a reduction in the scale of its output—towards developing the slack economy. Other ways include the use of intentionally-inefficient technologies (such as handcraft for tasks that could be done by machine) and of processes that minimise environmental impact—or have a positive environmental impact. On the same principle, local materials that require substantially more work could be used instead of imported materials. Or labour could be absorbed in projects involving intentional waste, such as carnival. Or there could be positive, deliberate teaching of the art of idleness, with the focus on the arts, and life as a citizen rather than as a professional.G81

It may well be that life in the Lean Economy will be very busy and stretched indeed—at this stage there is no reason really to have confidence that the prospects ahead will be a leisure-rich utopia (who knows?). Either way, building local informal economies is the priority—but if we are thinking about ways of turning growth round from positive, to zero, to negative, and if the shorter working week is the method that is being considered, we should also be aware that quite a range of other growth-killing options is available.

The heart of the matter is this. If the motivation and opportunity exist, and if the objective of building the informal economy—deintensifying—is established first, the incrementally-shortening working week would naturally flow from this, as a sign that we were getting things right.

 

Conclusions on growth

The task then, is not properly specified in terms such as the degrowth of the market economy. It is about growth of the informal economy, its sequel. It is not about wrestling with the controls of economics to force it in the direction of degrowth, but about getting ready for the moment when the coming climacteric does the heavy work of degrowth for us; when the goods, materials, food and services—whose life-preserving growth has caused so much guilt—turn out to not be there.82 The informal economy that must take over is still tragically weak. Its development is intensely urgent. Degrowth will come on us all too quickly.

If deintensification were achieved on the needed scale, and in the available time, without a correspondingly steep descent in population, this would, on the available evidence, be the first time in history, but it is the right aim, and there is no downside; if it is not achieved, we face the prospect of an unmitigated crash in the economy and the population alike.

We have inherited a system that depends on growth. That growth will end, by accident or design, and soon. Probably, growth will go into reverse, without the need for assistance, and more decisively than any zero- or negative-growth programme could accomplish. Whatever the cause, the system that develops without it will not be a revision of what we have now. It will be a complete rewrite.

 

Related entries:

Lean Economy, Dual Economy, Debt, Entropy.

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David Fleming
Dr David Fleming (2 January 1940 – 29 November 2010) was an economist, historian and writer, based in London. He was among the first to reveal the possibility of peak oil's approach and invented the influential TEQs scheme, designed to address this and climate change. He was also a significant figure in the development of the UK Green Party, the Transition Towns movement and the New Economics Foundation, as well as a Chairman of the Soil Association. His wide-ranging independent analysis culminated in two critically acclaimed books, Lean Logic and Surviving the Future. A film about his perspective and legacy - The Sequel: What Will Follow Our Troubled Civilisation? - was released in 2019, directed by BAFTA-winning director Peter Armstrong. For more information, including on Lean Logic, click the little globe below!

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