Steady State Or Status Quo?

"Anyone who believes exponential growth can go on forever is either a madman or an economist" - Kenneth Boulding

For as long as economies, markets and governments have existed we have pursued one goal to solve all economic, social and environmental problems. This one goal has shaped policies for hundreds of years and is at the core of how we think and act today. It seems odd, therefore, that until now this ideology has not been disputed or challenged. Economic growth may not be the answer. These seven words are blasphemous amongst any economic or political community but in the course of this essay sufficient evidence will be provided to both shatter the conventional model of a growth-based economy and offer a feasible alternative in the form of a 'steady-state' economy.

Firstly, let us examine the success of the global growth-based economy which has been in effect for as long as time. In order to do this, economic, social and environmental indicators must be analyzed.

It is no secret that we have been abusing our planet in the pursuit of endless production and consumption, however, amongst all the dramatised mass media reports, what can we objectively establish as facts? Between 1900 and 2000, world GDP increased from about $2 trillion to $51 trillion, an astounding factor increase of about 25. On its own, an increase in GDP would not pose a problem at all. However, economic activity is linked very closely to energy and resource use (see Figure 1). As a result of GDP growth, we now use 11 times as much energy and 8 times the weight of material resources every year as we did only a century ago1. The researcher Johan Rockstrom conducted an investigation on the burden the economy is placing on the biosphere and his results were shocking. He was able to define "safe operating boundaries" for 10 planetary processes (the black line) and found that we are exceeding the safe operating boundaries by large margins for at least 3 processes (see Figure 2). He warned that the potential consequences of transgressing these boundaries were devastating on both a continental and planetary scale. Furthermore, Network calculated the 'ecological footprint' of the Earth in the last 50 years. This is a measure of how much biologically productive land and water area a population requires to produce the resources it consumes and to absorb the waste it generates. According to the latest data, our footprint is 50% larger than the biosphere can accommodate meaning that we are living in debt or 'ecological overshoot'. Hopefully, it is now clear that the environmental effects of the never-ending growth model have been catastrophic. This all stems from the fact that the economy is a subsystem of the Earth. As the economy grows, the inputs from the environment increase and the waste products emitted into the environment also increase. However, the environment itself is finite and this process cannot go on forever.

Perhaps it is not surprising that a policy of endless economic growth is destined to fail environmentally, however, what is surprising, is that this policy is also failing to solve social problems. In terms of inequality, the conventional approach is that "a rising tide lifts all boats", but the trickle-down effect has not seemed to occur. As clear from Figure 3, inequality in the USA has been on the rise even as GDP has been increasing. The richest fifth of Americans make 8.5 times more than the poorest fifth2, and the picture is much the same across the developed world. Large income gaps often lead to unhealthy status competition and the prioritisation of superfluous consumption which, in turn, leads to further resource use. Some argue that the growing income gap is just part of human nature if we are in fact "rational utility maximisers" but what is unarguable is the effect increased inequality has had on communities. A composite index named "the index of social and health problems" compiles data on life expectancy, math and literacy, imprisonment, homicides, trust and many other indicators. When graphed against income inequality (see Figure 4), a transparent relationship emerges; income inequality causes these problems. Correlation does not always imply causation but in this case Wilkinson and Pickett conclude that income inequality is the linking factor. Inequality is not the only social indicator which has shown growth is detrimental. Despite there being no uniform way to measure happiness, happiness measures are perhaps the most useful statistic, since every government's ultimate aim should be to increase the quality of life of their people. One would expect 'mean happiness' has increased in the last 50 years as incomes and GDP have. However, due to mass commercialisation, we have started to define happiness differently. According to the researcher Richard Layard, instead of criteria such as time spent with family and time spent outdoors, happiness is now quantified by the amount of stuff we own. As a result, mean happiness has flatlined in the past 50 years and recently has started to decrease (see Figure 5). When data is compared across countries, the results show an interesting trend. Life satisfaction does in fact increase as GDP rises, but only up to a certain point. Beyond a GDP per capita of $20,000, money does not appear to buy additional happiness (see Figure 6). So perhaps we should stop for a second in our pursuit of continuous growth and consider whether it is even worth it. Does the headline "GDP increases by 2%" really make us feel fulfilled or should we be finding other ways to increase everybody's quality of life?

So maybe the growth-based economic model is not perfect, but there is no use in bringing this to light if there is no viable alternative. Researchers at CASSE3 have provided a solution in the form of a steady-state economy. At its simplest, this is an economy which seeks to maintain a stable level of resource consumption and a stable population by replacing the goal of increasing economic activity with the goal of improving lives. It all may sound rather idealistic and vague at this stage but when broken down steady-state economics starts to become an attainable (yet still monumental) change. The changes needed can be broken down into four broad categories: resource use, population, inequality and monetary systems. Each category has a multitude of policy suggestions but only the most relevant and effective have been included here.

There are many direct and indirect policies which have been proposed to limit the global consumption of resources. One direct policy is the "cap and share" system which is similar to the tradable permit system used to limit CO2 emissions in the EU. At first, a scientifically safe cap is set each year on each type of resource. The government then distributes citizens with annual emission permits, which they can in turn sell to firms if their household consumption is under the permit's value. In this way, citizens receive income for consuming less than their share of goods so the power is shifted from corporations to the people. Ecological tax reform is also suggested in order to discourage waste-generating behaviour. The burden of taxation in general should be shifted onto items which pose environmental problems, such as vehicle miles travelled, in order to generate revenue which can be used to clear up wastelands, invest in green technology or cut other "good taxes"4 such as income tax. Lastly, one of the most effective strategies is conserving essential natural areas. At the moment, an estimated 11% of the planet's land surface is protected5 but these areas are often economically unproductive lands in mountainous regions. By cordoning off ecosystem hubs, we can allow resources to regenerate and sustainable consumption may be achieved.

The global population has been increasing exponentially in the last 100 years (see Figure 7) yet only China has ever acknowledged this as a problem and taken an active step, via the one-child policy, to controlling their population. The acknowledgement of this as a problem is a sensitive topic politically and taking any step to prevent further population growth is a humanitarian issue as much as anything else. However, environmentally speaking, with current population projections at 9.3 billion by 2050 and over 10 billion by 21006, we need smaller footprints but we also need fewer feet. Even if current efforts to reduce resource consumption are successful (and enacted immediately), it is estimated that we will need 1.5 times the current stock of planetary resources to meet all of our needs in 2050. Many developed countries such as Japan and Russia have been experiencing falling fertility rates and population decreases. In the light of the environmental impacts of overpopulation this should be viewed positively, but the fear of an aging population, associated with a declining workforce, has led to nations trying to reverse this trend. In 2006, the Russian government paid 250,000 rubles (£4,200) to women choosing to have a second baby. When population control is brought up, images of George Orwell's 1984 spring to mind partly due to the bad name the drastic one-child policy gave to the field. Unbeknown to many, there are some simple and uncontroversial ways to reduce population growth. Firstly, providing education about family planning and providing universal access to condoms can go a long way. It is estimated that roughly 80 million unintentional pregnancies occur every year. Coincidentally, 80 million is also the size of global annual population growth7. If all unwanted pregnancies were eliminated, we would already be close to achieving a stable population. Another non-coercive method is the empowerment of women through education, especially in less developed countries. Studies show that girls who attend school tend to grow up to be mothers of fewer children since: they appreciate to a greater degree the economic implications of having more children, they learn more about family planning and they have a greater potential to pursue a career path thereby delaying or forgoing having more children. Overall, both these methods are true win-wins for society, but they do require the prioritisation and funding of education. Education is often hailed as the essential ingredient for growth, but it may in fact be the key to a stable global population and the transition to a steady-state economy.

One of the largest social problems which has developed due to the conventional growth-orientated economy is mass inequality (details of which have been outlined earlier). However, finding solutions to shrink disparity is often a controversial topic since monetary incentives are thought to be the motivation for innovation and entrepreneurship. If this was true we would expect more innovation in countries with larger income gaps, but this is not the case8. In fact, research suggests that larger monetary incentives only lead to better performance on the most rudimentary of tasks. According to Daniel Pink, in his book Drive: The Surprising Truth about What Motivates Us, "people perform best when they are given the freedom to direct their own work, the opportunity to improve their skills, and when they feel that their work has meaning and purpose". There are two main policy approaches to reducing inequality. Firstly, income and wealth can be redistributed through the use of taxation, social programs and minimum income requirements. There are already some widely accepted methods such as progressive tax systems and universal healthcare systems - but clearly they are not going far enough. A concept referred to as a "citizen's income" has been proposed whereby the state provides an unconditional automatic payment to each individual as a right of citizenship. This hopes to level the playing field for low income families by placing everyone on the same starting line at least. The income would be enough to meet basic needs related to nutrition, housing and healthcare. This could either be funded by establishing an income or wealth ceiling or by replacing other direct benefit schemes which would now be covered by the citizens income. Switzerland has found this method extremely effective in reducing inequality. The second strategy deals with the heart of the problem by attempting to narrow income differentials in the workplace instead of redistributing income later. One approach to achieve this is to set maximum pay differentials such that the highest-paid employee can only earn a certain percentage more than the lowest-paid employee. In the UK, a 20:1 ratio has been proposed for public sector employees9. However, even with good intentions and well-designed policies, it may still prove difficult to reduce inequality due to the base human emotions of greed and desire. Although we also have more altruistic motivations, our negative emotions are exploited and encouraged by the media. Therefore, a prerequisite to reducing long-term inequality is a cultural shift away from the pursuit of more towards the pursuit of enough - something which no government policy can address.

Lastly, the current monetary system is in urgent need of drastic reform due to its intrinsically flawed mechanism. First of all, the lifeblood of the system, money itself, has become increasingly unhinged from real assets. Money has no value in itself - it is simply a claim on wealth10. This poses a problem when the supply of money exceeds the supply of real wealth, since inflation occurs. Unfortunately, the system is rigged for this to happen because, contrary to common belief, private banks create most of the money in circulation via interest-bearing loans11. Banks are able to create money out of thin air because they can legally issue loans far in excess of the money they hold in deposit. Reserve requirements are becoming lower and lower, in order to encourage lending, and as a result the system is becoming more and more vulnerable. To make matters worse, since the interest paid on loans is higher than the interest paid on deposits the total money supply must expand over time to avoid defaults. This additional money can only come from one place- more loans. Therefore, under its current conventions, debt must keep increasing for the financial system to operate. Along with the negative effect this has on general confidence levels, it also means that if banks stop lending the whole system collapses, as it did in 2008. The economists Molly Scott Cato and Mary Mellor have recommended the establishment of a debt-free national currency and a local currency to make the monetary system consistent with steady-state principles. A local currency is money that is issued by a community and valid for transactions only within that community. As the currency circulates to people and businesses within the community, more benefits accrue to the community and less leakages take place. Local currencies have already been successful in many communities, such as in the Berkshire region of Massachusetts where BerkShares are accepted by 400 banks and in Bristol, in the UK, where the Bristol Pound is accepted for tax payments. Overall, our current structure means that a business cycle has unfolded whereby a recession is inevitable every few decades. Surely, this is proof enough that reform is necessary.

In conclusion, we have become all too comfortable and close-minded in our way of approaching economics. Instead of concentrating our efforts on building a sustainable future for everyone, the priority has been the pursuit of growth on the individual, national and global level. When one examines the environmental effect this has had on our Earth, a steady-state economy stops being a responsible alternative and starts becoming our only option. Enough of the status quo, the time for action is now.