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Steady State Economy

STEADY STATE ECONOMY
APRIL 25TH, 2012

Some say to resist growth is to risk economic and social collapse. Other say to pursue it is to endanger the ecosystems on which we depend for long term survival. So what are the options?

Note. This feature on the new economy is one in a series. None of the features suggested come without contention or need for increased knowledge and understanding. We present them as suggestions and as works in progress and invite you to enter the discussion by rating each feature, adding your comments and where possible suggesting additional content. Also please let us know if there are other models that would be essential features of a new economy which aren’t here yet.

Steady State Economy

This represents a positive alternative to the pursuit of endless economic growth.

It is an economy that aims to maintain a stable level of resource consumption and a stable population. It is an economy where energy and resource use are reduced to levels that are within ecological limits, and where the goal of maximising economic output is replaced by the goal of maximising quality of life.

There are four key features of a steady state economy:

1) Sustainable scale (the size of the economy fits within the capacity of ecosystems to provide resources and absorb wastes). This dovetails well with localisation

2) Fair distribution (people have equal opportunities to obtain wealth and income, and limits to inequality prevent big gaps between the rich and the poor)

3) Efficient allocation (the power of markets is harnessed appropriately, taking account of where markets work and where they don’t, to allocate resources among competing uses)

4) High quality of life (economic growth takes a backseat to things that really matter to people, like health, wellbeing, secure employment, leisure time, strong communities, and economic stability)

It requires a reform of the monetary system. The current debt-based monetary system drives economic growth, as the need to pay back an increasing amount of debt requires an increasing amount of economic activity.

In a steady state economy, instead of attempting to maximise and continually grow profits, organisations would aim to achieve ‘right-size profits’. An organisation’s total revenue would still be large enough to allow it to be financially viable (i.e. to meet capital costs), but not so large as to cause environmental damage.

An individual organisation would require two new pieces of information to determine whether it was achieving right-size profits: (1) a measure of its total ecological impact, and (2) an ecological allowance to compare this impact to. This information would help businesses rescale their level of economic activity to be sustainable.

There is recognition that the term ‘steady state economy’ is unsatisfactory because it fails to capture the dynamism of the interactions between human society, the economy and the biosphere.

[Source: Enough is Enough summary report, CASSE 2010]

Dynamic Equilibrium

This describes a state where the rate of inputs equals the rate of outputs so the total amount in the system is unchanging over time. It is ‘dynamic’ in the sense that little is steady or stationary, but ‘equilibrium’ in that it is within the boundaries of available biocapacity.

A dynamic system is stable if the fluctuations are within fairly tight limits.

[Source: Growth Isn’t Possible, nef 2010]

Economic growth

In economics ‘growth’ describes the trajectory of Gross Domestic Product and Gross National Product, two slightly different measures of national income. The value of imports is deducted and the value of exports added. Hence, an economy is said to be growing if the financial value of all the exchanges of goods and services within it goes up. The absence of growth gets described as recession. Prolonged recessions are called depressions.

Yet, it is not that simple. An economy may grow for example, because money is being spent on clearing up after disasters, pollution, to control rising crime or widespread disease. The fact that an economy is growing tells you nothing about the ‘quality’ of economic activity that is happening within it.

[Source: Growth Isn’t Possible, nef 2010]

Orthodox economic theory assumes the infinite consumption of finite resources.

[Source: The Great Transition, nef 2010]

The dilemma of growth: to resist growth is to risk economic and social collapse. To pursue it is to endanger the ecosystems on which we depend for long term survival.

[Source: Prosperity without Growth, Sustainable Development Commission report 2009]

De-growth

De-growth carries the idea of a voluntary reduction of the size of the economic system, which implies a reduction of the GDP. However, degrowth is not simply about challenging the centrality of GDP as the overarching policy objective but proposes a framework for transformation to a lower and sustainable level and mode of production and consumption.

[Source: www.degrowth.org]

Rationale

The economy is a sub-system of the environment. All of the inputs to the economy come from the environment. As the economy grows it requires more resources and discharges more wastes. Since we live on a finite planet of limited resources, it is not possible for the economy to grow forever.

For the vast majority of human history, the size of the economy was small compared to the size of the biosphere. But over the past century or so, the economy has grown massively, and the balance has shifted. Humanity now uses 11x as much energy and 8x the weight of material resources each year as it did only a century ago.

Economic growth i.e. continuously increasing production and consumption of goods and services is a) not environmentally sustainable, and b) not improving people’s lives in wealthy countries like the UK.

It has failed to deliver lasting solutions to unemployment and poverty. Given that global resource use is already at an unsustainable level, further growth in wealthy countries only serves to reduce the amount of ecological space available to poor countries, where economic growth is still needed to alleviate poverty.

High levels of income inequality are associated with a variety of health and social problems, including decreased trust, increased mental illness, and higher crime rates.

[Source: Enough is Enough summary report, CASSE 2010]

“Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist”

Kenneth E. Boulding, Economist & co-founder of General Systems Theory

Globally we are consuming nature’s services – using resources and creating carbon emissions – 44 per cent faster than nature can regenerate and reabsorb what we consume and the waste we produce. In other words, it takes the Earth almost 18 months to produce the ecological services that humanity uses in one year. The UK’s footprint has grown such that if the whole world wished to consume at the same rate it would require 3.4 planets like Earth.

[Source: Growth Isn’t Possible, nef 2010]

Restoring business-as-usual – if such a thing is even possible – won’t make us happy, and it will cost us dearly. This report forecasts that in the period to 2050 the cumulative cost associated with climate change will range from £1.6 and £2.6 trillion, while the cost of addressing social problems related to inequality will reach £4.5 trillion.

[Source: The Great Transition, nef 2010]

Key action points for business

CASSE

Limit resource use and waste production. Renewable resources harvested no faster than can be regenerated. Non-renewable resources used no faster than waste products can be absorbed.
Business model that promotes employee ownership to reduce income inequality over the long term.
Shift towards alternative forms of business organisation such as cooperatives, foundations, and community interest companies that are not preoccupied by growth in the same way as profit-maximising shareholder corporations.

Local currencies to support local economic activity.
Shorter working week to help keep unemployment low by distributing available work more equally.
Instead of attempting to maximise and continually grow profits, firms should aim to achieve ‘right-size profits’. A firm’s total revenue should be large enough to allow it to be financially viable (i.e. to meet capital costs), but not so large as to cause environmental damage. An individual firm would require two new pieces of information to determine whether it was achieving right-size profits: (1) a measure of its total ecological impact, and (2) an ecological allowance to compare this impact to. This information would help businesses rescale their level of economic activity to be sustainable.

Links and resources

As well as the pdfs and websites listed above you may also like to see;

1) Report from the Quakers Zero Growth Economy conference with conference papers and mp3 downloads.

2) Summary of the dilemma of growth including explanations of how the economy works, why growth is perceived as necessary, decoupling, and GDP.

3) Website for Second International Conference on Economic Degrowth for Ecological Sustainability and Social Equity conference Barcelona March 2010

original article: http://www.reconomyproject.org/?p=1164