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The Most Exciting Event in the History of Technical Analysis

Degrowth, Limits To Economic Growth And The Real World

Economics / Economic Theory Feb 28, 2013 - 05:42 PM GMT

By: Andrew_McKillop

Economics

40 YEARS OF DEGROWTH
More than 40 years ago, in 1972, the MIT researcher Dennis Meadows and his team published "Limits to Growth", a report paid for by the Club of Rome. The study created a massive wave of interest, in part due to "environmentalism" only having just begun as a major theme, at that time, marked by the first UN conference on the environment, in Stockholm, the same year.


Often neglected for further analysis by commentators at the time and since, but certainly one of the most radical claims of the team headed by Meadows was that "conventional economic growth is finished". Growth as we knew it, is no longer possible. Much later, the near synonym of "the sustainable economy" was invented for the low growth, no growth or alternate growth economy.

Sustainable economy and development, since 1992, is a major theme of the UN Organization and UN Agencies. This was reflected by the 1992 Rio conference, and the 2012 Rio + 20 conference held under the auspices on the UN. Since the late 1980s, the theme of climate change and global warming has also been added, as another Limit to Growth and additional rationale for the sustainable economy.

In all cases we should note that we have "variable geometry terms": the alternate or sustainable economy is now an institutional term and theme. Like the "fight" against climate change and global warming, what this exactly means is subject to all kinds of interpretations. Growth, for defenders of the sustainable economy, is both necessary and possible. Fighting climate change and global warming is defended by promoters of this uncertain crisis as unlocking major, even vast new opportunities for growth notably through a complete and rapid restructuring of world power production.

IS NO GROWTH SUSTAINABLE?
The simple answer to this is no. Exceptions could include a "death cross conjunction" of declining or aging populations and depletion of key resources, which to many advocates of no growth is the current situation, at least for population, in an increasing number of formerly rich countries. Others also claim that major key resources, notably petroleum, phosphates and several metals, as well as arable farming land and water, are depleting, in short supply, or that replacing current production capacities, let alone increasing them is either impossible or extreme high cost.

What we can call "populationists" maintain the tradition of Thomas Malthus - fear of overpopulation -  by predicting that the slow but real decline of population in a widening number of rich or former rich countries (such as Russia, Japan, Germany, Spain, Greece, Portugal) is swamped by runaway growth of population in India, Bangladesh, Pakistan and Africa south of the Sahara. They say this raises population pressure on global resources, pushes up the price of key resources, and slows economic growth. The original 1820s version of this fear theme, by Thomas Malthus (shared by David Ricardo) forecast that the world's population would hit 1 billion by about 1860, and this would cause an "apocalyptic decline" of the economy.

At the time, there was no prospect of population growth rates declining, especially in Europe where the Industrial Revolution resulted in the population size of many countries doubling - some tripling - in 1 century or less. This included countries like Germany which today, with an economic output more than 20 times its 1860 level is losing around 100 000 persons per year as its population declines on a now established longterm trend. So-called Malthusian decline of population was held as only due to epidemics, starvation and war for "lebensraum", following total economic collapse caused by rampant overpopulation. No other mechanism was proposed.

Also not included in "Malthusian decline", by catastrophe, almost unlimited and unhindered mass migration was possible in the 19th century and a lot of the 20th century: today the subject of "unlimited migration" is highly political. Unlimited inward migration to rich or formerly rich countries, from India, other south Asian countries or Africa south of the Sahara is no longer possible and is off the agenda. This may itself have a major negative impact on remaining high population growth rates, in these regions. Population growth rates have spectacularly declined in most world regions since the 1980s, notably in the MENA region and Latin America.

Forward estimates of world population, for example by the UN population bureau now very rarely include scenarios of a potential or possible doubling of world population by the end of this century. As recently as the 1990s, however, nearly all official forecasts of world population assumed world population would at least double by as early as 2045.

DEGROWTH AND THE ECONOMY
Most certainly not included in 'Limits to Growth' or any similar "institutionalized decline" report or study since the 1970s, the very real and current self-limiting growth of the economy, and self-triggered contraction of the economy in a widening number of countries, especially the former rich countries is a fait accompli. Degrowth has arrived, certainly since 2008 in a widening number of countries, but this was in no way anticipated, planned or wanted.

The mechanism by which the economy "self-limits" is now well known and described by analysts, and is primarily financial, fiscal and monetary but also certainly includes economic psychology, or psychosis. Economic policy in most formerly rich countries, and in certain Emerging economies (notably India) can also be called "degrowth oriented" or growth-limiting. These are not pro-active, growth seeking policies, despite what is claimed for them by all official economic institutions such as the IMF, World Bank, and central banks, as well as national economic ministries.

One claimed reason why 'Limits to Growth', in 1972, was a shock to policymakers is that at the time, in the early 1970s, "growth was sure and certain". This was the Trente Glorieuse period (the glorious 30-year period) of high growth described by economist J. Fourastie. But 1972 was already the fag end of this growth interval. Trend rates of growth were already declining, economic and financial crises were recurring more frequently, inflation and interest rates rose, and so on. Wheeling the keyword "ecology" on stage appeared to offer a near miraculous one-liner explanation of why growth was declining!

Today, far more than 1970s, the world is forced to acknowledge there is and can be de-growth. Attempts at replacing degrowth by "the sustainable economy" is at best a slick-trick play on words, since the intensity of degrowth in the formerly rich countries, since at latest the 1980s, has had so many cumulative effects and impacts. These make re-growth the single most important economy policy must-have, but even a cursory glance at national economic data in almost any former rich country will show that "The 3 D's" of debt deficit and decline have taken an awful toll. In turn, this sets the legitimate question of whether economic growth "as we knew it" is now remotely possible?

DONT HAVE THE BABY AND DO RECYCLE THE BATHWATER
Throwing the baby out with the bathwater is the result (denied of course) of the economic, industrial, financial and other policymaking that has been developed and applied, in almost all former rich countries, and in Emerging countries for as long as 30 years. The "baby" included balanced budgets, manageable debt, freedom from trade deficits, full employment and more subjective but critical themes like public confidence in money, the economy and government. All were thrown down the drain.

Claims of inevitable resource depletion destroying the economy through exploding costs of raw materials and energy are confronted by the reality of technology and industrial progress since the 1970s. Today, for example, the need for and dependence on virgin ores in industries such as iron and steel and aluminium has been slashed. World aluminium producers, today, mostly run on 50% recycled input aluminium scrap, or higher. Glass, plastics, pulp and paper and many other basic metals and materials industries have followed the same track: this was in no way due to their owners reading 'Limits to Growth'. World hydrocarbon energy, meaning oil, gas and coal faces a riotous multiplication of newly discovered and now-recoverable resources. World coal energy reserves including deep coal energy recovery through in situ fracking and methane extraction, may be as high as 15 000 years of present world physical coal consumption. World renewable energy resources are literally natural, endless and in several cases like wind and solar power have marginal costs of zero.

In no way does this mean that "everything is rosy" for the environment and the biosphere, as very large sections of the public know and accept in the majority of former rich countries.

The main problem, today, is Agenda Fatigue or Overtalk. Environmental issues, grafted onto the most serious crisis of capitalism that has ever been known, where economic growth is now physically and politically impossible - not because of resource or environment limits - has produced decisional collapse or implosion. Unable to make serious, committed and above all coherent decisions across the energy, environmental and natural resources domain, further and real limits to growth have been created and added. As if they were needed!

In a recent interview with France's 'Rue 89' online news and politics site, Dennis Meadows was asked why he decided (like Barack Obama!) not to attend the 2012 Rio + 20 sustainable economy conference. Among his reasons, he underlined his own personal belief in the dangers of CO2 emissions, but above all the way that environmentalism has been "politically packaged" as a new and additional expedient for justifying current clumsy attempts at "saving global finance".

As we know, doing anything serious about "saving the system" will need a lot more than playacting with technocratic "reforms", as they are called, but will also need economic growth - or at least the main surrogate of growth that which interests 99% of the population: employment. Economic growth of that kind is surely on the agenda - of ordinary voters - but is right off the menu for our dysfunctional, irresponsible and incompetent, and often criminal leadership elites. 

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2013 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

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