Well, good afternoon, everybody. It's a real pleasure to be here. My presentation is pretty
visual, so those of you sitting in the far corner over there, if you care to move to
this side of the room, I won't be disturbed by your motion.
So I'm going to talk to you tonight about this notion of managing without growth and
why I think it's such an important concept for us to be considering.
And I'm particularly aware of the fact that having sat through quite a few sessions at
this very interesting conference, this is a notion that may not come readily to you.
Many of the conversations I've heard have been about, well, how do we promote growth?
So with that in mind, I'm going to do my best to try to put this on the agenda of at least
some of you in your future work.
So what I'm going to do is give a very quick comparison, as I understand it, of post-Keynesian
and ecological economics.
Then I'll talk about how I come to understand and others do the economy as a subsystem of
the biosphere.
Then I'll just give you a little bit of the evidence to show that the economies of the
world are putting an excessive burden on the biosphere.
Then in order to think about how we're going to get through this difficult situation, make
the case that we have to deal with the scale of our economies as well as the intensity
with which they undertake certain activities, such as greenhouse gas per dollar of output.
I'll say something about green growth in relation to climate change.
Some people think that therein lies the future.
And then I'll talk about some of the simulation work I've done on what the Canadian economy
might conceivably look like if it was proceeding without growing.
I'll summarize some new developments in my work, and that will be the end of the story.
So look, here's a graphic which shows my understanding in very simple terms of what the post-Keynesian
economics really has given us insights into, and that is this interrelationship between
the real economy and the financial economy.
And I'm just, to be honest with you, just starting to read that literature, and I find
it really, really interesting and exciting.
But I'm an ecological economist.
What ecological economics has focused on is this connection.
That is the connection between the real economy and nature, natural systems.
And you see here that on the left-hand side of this diagram you've got materials going
into the real economy drawn from nature, and then you've got garbage coming out the other
end.
And this is really what the focus of ecological economics is about.
Clearly, I think what's needed is an understanding of how all three systems interrelate.
And I hope that lots of people will help sort that out.
Now, to stress the idea that it's important, at least in some respects, to understand that
economies are subsystems of the biosphere, there's a reminder of the diagram that's still
so often used to introduce students of economics to an economy.
I try to make it look a bit prettier by showing the circular flow this way.
And this gets us started in teaching economics, but if you're interested in the relationship
between the economy and the environment, this is hopeless.
And it's hopeless because there is no environment.
So what are some of the things that we have to add in?
Well, first of all, the sources of materials and energy and what are now being called ecosystem
services, which are a continual flow of these are required to keep the economic system going,
to keep the real economy functioning.
Based upon some fundamental physical laws, we know that all of the material that enters
the economy is emitted from the economy, and we also know from the data that most of
it leaves very, very rapidly.
So everything that comes in is degraded.
That's the secular thermodynamics, goes out into the biosphere.
And now we have a dual problem.
Not only do we have a problem on the sources side, we have a problem that we're overloading
some of the sinks.
That then begins to affect the biophysical cycles that define the way our planet operates,
feeds back on the sources, and things are going from bad to worse.
All of that's taking place on planet Earth.
Well, I mean, it is funny.
You don't normally see this diagram, do you?
If you take nothing away from my talk, please remember this.
Because unless we keep our minds centered on the notion that the economy is embedded in
the biosphere, we are just going to make a very bad situation worse.
Now let me give you some data to show what's happened over the last 100 years or so.
This is information about the global extraction of materials worldwide from 1900 to 2005.
And if you look at what happened in the first 50 years, there was a steady increase of the
use of construction materials, ores and industrial materials, fossil energy carriers, all the
fossil fuels and biomass doubled over that 50-year period.
Then look what happened in the second half of the century, a 700% increase in the extraction
of materials from the environment, and as I said, that all ends up back in the environment
as waste.
Hence, it's no surprise to find this sort of picture being drawn.
This came out of nature towards the end of last year, and it's a really elegant diagram.
What it does, it identifies nine issues of global environmental significance, starting
at the top with climate change, ocean acidification, stratospheric ozone depletion.
I won't read them all.
The next red one is the nitrogen cycle, and over here is biodiversity loss.
Now what these scientists did was to say, look, there is in a sense a safe operating
space for humanity on planet Earth, and that's indicated by that green circle.
And then they look at the data very carefully and said, well, how are we doing with respect
to this safe operating space?
They tried to define some thresholds beyond which we should not go, otherwise we are likely
to expose ourselves and other species to irreversible consequences.
And as you can see, with respect to climate change, the nitrogen cycle and biodiversity
loss, they're saying we've gone beyond the safe operating space of planet Earth.
And as I say, this shouldn't really surprise us.
I haven't mentioned, but I'll just do it in passing.
There are many, many more of us as well as the fact that we use all this extra material.
Now there is some good news out there.
For example, we can look at what's happened over time in terms of the material we require
per dollar of economic output.
Again, this is average global data.
There's a detailed story to be told underneath this.
But if you look at the bottom line here, you see that the material intensity of production
worldwide has declined from 1980 to 2005, declined 29 percent over that period.
The problem is that world GDP rose by 110 percent.
I say problem, problem in the sense which I'm looking at these issues.
The net result is that resource extraction has continued to rise even though we've become
more efficient.
The important message here is that environmental impact depends upon scale, the size of the
economy, and intensity.
You get exactly the same story with energy.
You can see that energy intensity declined slightly less than material intensity, but
not enough to keep up with the massive increase in GDP.
As a result, primary energy has risen.
Now one of the reasons this is happening is due to the rebound effect.
We can trace this all the way back to Jevons, who was the first person to my knowledge to
write about it, but I'm going to give you a more modern example.
Imagine you've got an automobile over here and you think that by making it more efficient,
the result will be that we'll use less energy.
And that is true.
On the other hand, by making the car more efficient, we lower its running costs.
As we know that if something gets cheaper, people tend to do more of it.
So what you tend to find is that as it gets cheaper to run the car, people drive further
and use more energy.
Now that doesn't necessarily negate all of the energy saving for the more efficient car,
but it certainly detracts from it.
That's the direct rebound effect.
There's also an indirect rebound effect.
It may take more energy to make the more efficient car in the first place.
We saw this with the Prius, for example.
There was quite a controversy about that a few years ago.
But even if we allow for that, we could still see that by buying this more efficient car,
you save some money.
But the question then is, what do you do with the money?
Well, if you get on a plane and go to Spain for a holiday, the net effect of the energy
saving may be completely gone.
And there are examples of where, as a result of making equipment more efficient, the result
has been more energy use.
The computer is a classic example of that.
Let me say one more thing about energy.
This is a graph that goes about 2,000 years, fossil fuel use over 2,000 years.
And what it shows is that there wasn't a lot of it used until the last moment in that time.
This is a steeper increase, of course, than in population.
You've seen similar graphs for population.
Just to point out one thing, just a quick reminder here, that in fact, only 10 generations
of humans, and of course, this isn't true around the world, but only 10 generations
of humans in developed countries have experienced economic growth.
It's a recent, recent phenomenon.
Just put that out there for you to think about.
Anyway, we have benefited from this use of fossil fuels.
It's supported all of this economic growth that we've had.
But now we're having to face the problem of peak oil.
So very quickly, if you haven't seen this kind of graph before, let me just show you
what it says.
The red diamonds show the annual discovery of conventional oil.
And you'll see that it peaked in the 1960s.
In other words, more conventional oil was discovered in the 1960s than before or afterwards.
We've continued to discover oil, but it's been in decline.
The green line shows the production of oil from those reservoirs.
And you can see that around 1990, production began to exceed discovery.
You cannot produce oil that you haven't discovered.
So eventually, you can draw a green line going off into the future, but eventually
that consumption line and production line is going to come down.
Some say it's already happening right now.
We'll only know for sure when we have enough data, it can look back and say, well, there
was a peak, and we never came back from that.
Even rather skeptical observers will now concede that it's very likely before 2030 and even
more likely by 2020.
And to think of how the world's economy is going to adjust to a decline in the supply
of cheap oil, cheap fossil fuel, is a big problem on its own.
One author who's done that, more than anybody else I know, is Bob Ayres, who's written this
fantastic book called The Economic Growth Engine, where he looks at very, very carefully
the relationship between access to cheap energy and economic growth.
Included in his book, it's not the whole story, is a model of economic growth in the U.S.
and its dependency on access to cheap energy.
And he makes some projections.
He says, although highly uncertain, and I'll stress that, the most probable forecast for
U.S. GDP is one in which growth ceases sometime between 2030 and 2040.
Now some people say the answer is green growth.
Well, I was trying to find the definition of green growth, and I was delighted to find
this slide from an OECD publication that was going to tell me what green growth is.
And here's the definition.
Green growth can be seen as a way to pursue economic growth and development while preventing
environmental degradation, biodiversity loss, and unsustainable natural resource use.
I then thought the next slide would tell me what the way was, because if we don't know
what the way is, it's not exactly a very helpful definition.
So I'm sorry to say that I had to sort of try to develop my own definition of green
growth, and it goes something like this.
This is a graph which shows the scale of the Canadian economy.
That's our GDP.
And it shows our greenhouse gas intensity, and I'm going to define green growth only
in terms of greenhouse gases.
It really needs a richer definition than that.
In 1990, that was Canada's GDP, and I picked 1990 because that's the base year for the
Kyoto commitments.
And in 1990, this was Canada's greenhouse gas intensity.
If you multiply the intensity, which is greenhouse gas per dollar of GDP by GDP, you get the
total output of greenhouse gases from Canada in 1990.
Now we could have had that level of greenhouse gas emission with a larger economy and a lower
intensity or a smaller economy and a greater intensity.
So there's the red line shows all of the combinations of scale and intensity, which would have given
us 592 megatons of greenhouse gas emissions.
If we're on the right-hand side, we're talking about higher emissions, and on the left-hand
side, we're talking about lower emissions.
So here's my definition of green growth.
If we start where we were in 1990 and then we move into this roughly stated green triangle,
the economy is getting larger or at least not getting smaller if we stay along the bottom
line.
Intensity is getting lower at a faster rate than the economy is growing, and therefore
total emissions are coming down.
That's the definition of green growth, and I think that works at different levels, not
just the national level.
But of course, if you can have green growth, you can have brown growth, which means that
you get a bigger economy.
Intensity is declining, it's just not declining fast enough to keep up with the increase in
scale.
Well, I wasn't going to stop there.
There's black growth, bigger economy and a greater intensity.
And over here in Europe, more than in North America, there's discussion of degrowth, where
you actually have a smaller economy, and that will allow you a little bit of extra greenhouse
gas intensity if you want.
And if you really mess it up, you can have black degrowth.
Well, so here we have a definition of green growth.
Let's see what happened in Canada over the last 20 years or so.
There's that 592 megaton starting point.
We would like, I would like at any rate, to have seen the Canadian economy move into this
green zone.
This is what happened.
Oh, that's where we said we would get to, by the way.
We did have a Kyoto commitment.
We didn't pay much attention to it, though.
Which start here is an annual result.
And so you can see how, yeah, we're getting a reduction in intensity, and we hear a lot
about that from the politicians, but it just doesn't keep up with the increase in scale.
As a result, Canada's greenhouse gas emissions increased dramatically over that period.
Now let's look to the future.
Starting at the 734 megatons of greenhouse gases, I think 87% reduction in greenhouse
gases, we need some dramatic reduction of that sort over a 50-year period, means we're
going to, if we're going to succeed, we've got to get to this 95-megaton isoquant.
If we do it by green growth, it means we've got to stay somewhere in that triangle.
Now, if we do it by no growth, it means we're going to travel along this bottom line and
get all of that reduction in greenhouse gases by reducing intensity.
Now look at those numbers at the bottom, if you can see that.
We would have to reduce our greenhouse gas intensity over 50 years to only 13% of what
it is now.
Every year we'd have to see, on average, a 4.1% reduction in greenhouse gas intensity.
That is an unprecedented kind of change in the way we would use energy, but that's with
no growth in the economy.
If we grow at 2% a year, bigger scale, we need a lower intensity.
We would have to get down to 0.03, which is only 5% of our greenhouse gas intensity today.
And if we were to grow at 3%, which is kind of the historical norm for Canada, we've essentially
got to get all greenhouse gas emissions out of the economy.
So this is just really sort of a suggestion to you.
I won't say it doesn't.
There's nothing proven here.
But the more we strive for growth, the more pressure we put on ourselves to become more
efficient and reduce greenhouse gas emissions.
So I started to think, well, maybe we should look at managing without growth, and let's
see what the Canadian economy might do if that was the case.
And to do this, I developed a model which I call low grow.
I wasn't keeping any secrets from anybody about what I was interested in.
And I asked a specific question.
Can we have full employment, no poverty, fiscal balance, and reduce greenhouse gas emissions
without relying on economic growth?
I developed a model along Keynesian lines, and I'll just give you a quick schematic description
of it.
Macro demand is represented, a set of equations for consumption investment, government expenditure,
exports and imports.
Macro supply expressed by a rather standard and not easy to defend production function,
but served the purpose that I wanted for it, which was to help estimate the employment
requirements to meet macro demand.
So at the top, you get the generation of GDP, and then the production function tells you
how many people will be employed, and also to what extent capacity will be utilized.
But of course, the element I in macro demand investment adds to the capital stock, and
so this is what drives the growth cycle in the economy.
So that's captured in the model.
Population is there, population expands, can have a positive effect on demand, but it also
affects the labor force, and so that affects L and the production function.
The model also keeps track of the government's fiscal position, that's all three levels of
government in Canada added together, and it keeps track of the number of people in Canada
living below the poverty line.
So a quick reminder, what makes an economy grow?
Because I'm going to start taking these things out of the economy in a moment.
Well, we can look at macro demand, we spend more on consumption, the economy grows, on
investment, on government expenditure, on goods and services, and if we run a trade
balance.
An expanded trade balance will show up as a growth in GDP.
But we can look at it from the supply side.
We can look at our labor force and how skilled it is.
We can look at the capital stock, and we can look at all of those factors that go into
determined productivity.
But when I run this model forward, I get a business as usual case.
I put it in quotes, because I don't for a moment think that we would ever see a future
like this, and you'll see it started in 2005.
I ran these simulations just before the recession hit.
So that's the business as usual case.
The black line, the one on top is GDP per capita.
The GDP per capita would double over that 30-year period.
Greenhouse gases continue to rise, not a very good outcome.
The blue line is unemployment, it doesn't do very much over that period.
The red line is Canada's debt-to-GDP ratio, it was in decline at that point and would
have continued declining under that scenario.
But the real sad news here is this brown line, the poverty line.
For poverty in the model, I use the UN's Human Poverty Index, which is a composite of income,
adult illiteracy, and longevity beyond the age of 60.
And you see it rises.
In other words, even with 30 years of economic growth of the kind we've had, we would have
more poor Canadians at the end of 30 years of growth than we had at the start.
Then I said, well, let's suppose I took out all of this impetus for growth and all of
these variables here, starting in 2010, and just phased them down over 10 years so that
there was no growth left in the economy at that period.
It might take some time for the repercussions to be worked out.
Now you'd expect that to be disastrous.
And it is.
It's very scary.
Unemployment just goes right off the graph.
Poverty gets unacceptably high.
The debt to GDP ratio goes way up.
Finally, GDP per capita, if you look at the black line on the far right, has leveled off,
managed to finally squeeze the growth out of this economy, and greenhouse gas emissions
have come down.
But this is a very frightening scenario, and of course, this is what has everybody worried
when we go into a recession.
You know, this is the sort of thing that we might be heading into if we don't get out
of it.
But can we do better?
Lots of people are asking that question.
And one such person is Larry Elliott, who writes in The Guardian Weekly.
And he wrote that the real issue is whether it's possible to challenge the growth at any
cost model and come up with an alternative that is environmentally benign, economically
robust, and politically feasible.
Well, it's possible to do it on the computer, but that's not enough, I realize.
Anyway, here's a better scenario, a better low growth scenario.
Again, I introduced a whole set of measures starting in 2010, phased them into 2020.
You'll see GDP per capita finally stabilizes.
Greenhouse gas emissions have come way down.
Unemployment's lower than it's been in Canada for 50 years.
The human poverty index is very low, and still the GDP, the debt-to-GDP ratio is very healthy.
How do you do that?
Well, I'll just quickly summarize a few of the things that have to be done.
This is outside the model, but we have to redefine what we mean by success.
We have to impose limits on the extent to which we keep going back to nature's storehouses
for materials and energy and disposing of our waste, and I think we have to limit the
extent to which we use land.
We are in the midst of the sixth grade extinction, crowding out other species in an unconscionable
fashion.
I put a carbon price in the model, and that's what brings the greenhouse gas emissions down.
If we do those things, we have the limits on materials, et cetera, and we have a carbon
price.
Prices in total will be more informative and will help bring the change around.
In this scenario, the population is stable, and so is the labor force.
There's a more efficient capital stock.
A shorter work here is the instrument here that brings the unemployment rate down, because
if we're going to continue to be more productive, the only way to avoid increasing output is
to have – and not have higher unemployment – is to share out the work differently.
More generous anti-poverty programs are included in the model.
This isn't in the model, but it's something we have to pay a lot of attention to, because
we're talking about cultural change here, more informative advertising and fewer status
goods.
And in education – I happen to work in the education sector these days – we've got
to make sure we're educating people for a full life, not just for work.
All right.
Let me just say some of the new developments that I've been working on.
Working with Tim Jackson on what it might mean if we have – if we observe that in
the green sectors, there may well be lower productivity, lower labor productivity, not
higher labor productivity.
It takes the pressure of the need to reduce the workweek if we make a shift into those
sectors.
We've developed a little mold to explore that.
There are some authors who say, look, you know, it's not growth that's good or bad.
It's some elements of growth.
Can't we just grow the parts that are good and not grow the parts that are bad?
I've adjusted the model to account for that.
You can gain a little bit of time, but not very much.
I've also added in a declining participation rate as a sort of a proxy for the aging population
to see what difference that would make.
Started to disaggregate investment because the version I've shown you now regards all
investment as the same, and that's not satisfactory.
I've developed a degrowth scenario for Canada, and if I've got time, I'll show you that,
because there's a lot of interest in some quarters to actually shrink the economy on
the grounds that we've let them get too large.
It's one thing to identify global limits, as I did in an earlier slide, but what's
a fair share for a country like Germany of access to those global limits?
What's a fair share for Canada?
Trying to identify what those fair shares might be, and then I could impose those on
the model and say, well, what's the best the economy could do if it respects those fair
shares and shift the emphasis right away from whether we're growing or not growing?
Following Bob Ayres, I want to change the production function so that Exergy, which
is available work or available energy, is included, and add in other indicators, the
Human Development Index, the Ecological Footprint, and finally, I want to add in the financial
sector.
Trouble is I don't know how to do it, and I've come to this conference partly to find
out.
I made some progress there, but not enough.
Look, lots of people are questioning growth.
I might have been a voice in the wilderness at one time, but there are lots of us out
there now.
I'm just going to flash through some press clippings.
All of these are about – look at that, New Limits to Growth, Revive Malathusian Fears,
Here's Krugman, Running Out of Planet to Exploit.
I mean, I just love that language just because I hate it.
It's so honest.
The new sign is saying the folly of growth.
World is facing a natural resources crisis worse than the financial crunch.
That's a telling one.
To water greener.
It just goes on and on, contemplating a life without growth.
There's Spiegel talking about can economists function without growth?
The Economist.
There are many books coming out.
I'll just mention one.
This is Tim Jackson's report, In Britain, Prosperity Without Growth.
There's the NEF, Growth Isn't Possible.
Now it's reached Facebook.
This is a younger generation showing some interest in this.
This is the Center for the Advancement of the Steady State Economy.
And here's the second international conference on degrowth, and I'm just quickly going
to tell you – I think I've got five minutes left – the degrowth scenario I developed
for Canada.
Well, to what level should we degrow?
In other words, if we were to set out to shrink the economy, saying we've overstepped
the safe operating space of the planet, what should we do?
Well, I look back at the ecological footprint literature, and if you look there, you see
that it was around 1980 that we started using ecological resources in excess of the planet's
capacity to supply them.
So I then said, all right, well, that'll be a starting point for what a globally sustainable
GDP might look like, what it was in 1980.
Now a large portion of that footprint is carbon.
So I said, well, we could get a lot of carbon out of that, which would mean we could have
a bigger economy.
That would get me close to 2,000.
So I took that number, made that my sustainable global GDP.
So what's the maximum sustainable average GDP per capita?
Well, that rather depends on how many people you have.
I optimistically said we might stabilize the world population 8 billion.
So that would give us a maximum average sustainable GDP per capita of 3,815 US dollars.
So what should I set for Canada?
Well, I could just take the same number for Canada.
Why should Canadians live at a higher level than the planet can sustain for us all on
average?
But I knew I didn't have any chance at all getting the economy down to that level in
10 years, or sorry, in 30 years and still having an audience.
So I picked a number four times bigger than that.
So this degrowth scenario would have Canadians living at four times the average sustainable
GDP per capita.
And then I ran the model.
And here you have a degrowth scenario.
Now in this one you see GDP doesn't go up and stabilize, or GDP per capita rather, it
comes down and stabilizes.
Nonetheless, unemployment is low, greenhouse gas emissions, they come way down.
That's easy.
When the human poverty index has come down and still the debt to GDP ratio has worked
out very nicely.
I'm just going to compare the scenarios for you.
You can see how dramatically different these scenarios are.
This is GDP per capita.
The blue line was that business as usual scenario I showed you.
The red line was my first stability scenario.
And here's the degrowth scenario.
So you can see what a mammoth change degrowth is as compared with aiming to stabilize at
a higher level.
Here's greenhouse gas emissions, very different among the three scenarios.
Much better performance if you don't grow the economy so much.
And here's some of the underlying.
Because the population scenarios, in business as usual, the population is growing faster
than I assumed in the stabilization and degrowth scenarios.
Here's working time to get the unemployment down or to keep unemployment down with a smaller
economy reduced working time.
You can see it's not a huge reduction with the first stabilization scenario I showed
you, but with degrowth it's a massive reduction in work time.
There's government expenditure, again a very, very different story.
And here's the carbon tax.
No carbon tax in business as usual.
We don't have one at the federal level in Canada.
A pretty steep one in the first stabilization scenario and a much tougher one in the degrowth
scenario because it's used there to generate revenues.
In the other scenario it's carbon neutral.
Okay, report European activists against economic growth.
One of the things that has struck me about the degrowth movement as opposed to the long-standing
interest in economics in steady state is that it is explicitly a political movement
of a new generation saying we've got to significantly change the direction in which the world's
economies are going, particularly the economies of the north.
So the question I have, and I don't have answers to these, is can we adapt?
I mean I think we're an adaptable species, but it's our institutions that keep holding
us back.
And here's a picture of a variety of institutions, a university, the central bank, the Supreme
Court, our parliament, a religious institution, of course production and sales, and the global
institutions.
The amount of change that this redirecting of the economy is going to require is very,
very considerable.
Therein lies a huge challenge.
However, if we don't make the kind of changes that I think the biophysical data is telling
us that we really have to, then I'm afraid I think we are looking at a very bleak future.
This is a bleak picture even when it projects well, but there's this huge thundercloud
and a ship going into it.
I don't happen to think, however, that is the only future.
In fact, I spend my time working towards an alternative, and so I like to characterize
a brighter future with this picture.
And this is the sort of future I think we need to work together to bring about.
So I'm going to just show this same slide again.
I think this is a step towards that brighter future.
If we can develop a comprehensive understanding of how the financial, the real, and the natural
systems work together, and I'm going to direct these comments.
Excuse me, older folks, but I'm directing these comments to the younger people in the
audience who are still looking around, I hope, for research topics.
This is the area that it would be really good for you to work in.
Thank you very much.
Thank you.