‘When it adopted the model of classical Newtonian mechanics, notes Georgescu-Roegen, economics forgot that time is irreversible. It therefore overlooked entropy, or in other words the non-reversibility of transformations of energy and matter.’ writes Serge Latouche in his book ‘Farewell to Growth’. The fact that time does not go back is obvious, yet economists tend to overlook its irreversibility, constantly neglecting the incommensurable and irrecoverable losses that may come with economic growth.
The notion of unlimited economic growth has been around for a long time. It has been at the core of economics since its very beginning, it became the solution to mankind’s problems and invaded the political discourse everywhere. However, as the global economy seems to have outgrown Earth’s resources and the costs of growth have become more and more evident, the supremacy of such an entrenched idea is being called into question. French economist Serge Latouche is a big voices in a current movement, which claims that degrowth (directly translated from the French word décroissance) is the key to solving environmental and social problems over the long run and to ‘creating integrated, self-sufficient and materially responsible societies’.
What is degrowth?
The perception that there are material limits to economic growth goes back to Malthus. However, it was not until the 1970s that criticisms of economic growth truly became widely recognized in economic sciences thanks to the works of Romanian economist Nicholas Georgescu-Roegen. In his 1971 book “The Entropy Law and the Economic Process”, he claimed that classical economics completely ignores the damages created by continuous growth. Economics’ mechanistic view left out the second law of thermodynamics, which concerns the irreversibility of energy transformations that makes unlimited growth not possible; hence his conclusion that “Economics will have to merge into ecology”. In 1972, the release of the report “Limits to Growth” by the Club of Rome, an association of thinkers, stressed the incompatibility between infinite growth and physical finiteness, setting off a debate that has gained momentum in the most recent economic crisis.
What exactly is degrowth? The concept is defined in the Degrowth Declaration of the Paris 2008 conference as “the process by which right-sizing may be achieved in the wealthiest countries, and the global economy as a whole”, where “right-sizing” means the reduction of the global ecological footprint. On the website of Research and Degrowth, an academic association on the topic, the concept is defined as the ‘downscaling of production and consumption that increases human well-being and enhances ecological conditions and equity on the planet.’ The idea is clear: improve quality of life without further jeopardizing the physical environment, which implies leaving behind a paradigm of infinite economic growth.
Degrowth is not just about a deep fundamental change in the way we think about the economy, but also a political, cultural and environmental project. It is about a change in values and institutions, the pursuit of democracy and participation at a local level and meeting needs in a self-sufficient way. According to the Degrowth Declaration, degrowth entails ‘quality of life rather than quantity of consumption’, ‘substantially reduced dependence on economic activity, and increase in free time, unremunerated activity, conviviality, sense of community and individual and collective health’, among others.
The proponents of this movement highlight degrowth is not the same as negative growth. Serge Latouche finds a contraction scenario to be catastrophic, bringing societies into ‘distress’ as unemployment rises. Degrowth is also not ‘sustainable development’: in Latouche’s perspective, the expression is paradoxical and the word ‘sustainable’ only adds a ‘superficial ecological component’ to development. However, a question that remains to be answered is how exactly can degrowth be socially (and politically) viable, that is to say, how can the concept be applied without causing economic disaster.
In a 2012 paper, Damir Tokic laid out several possible devastating economic consequences of a degrowth strategy: degrowth can cause a stock market crash, deleveraging and deflation. ‘As a result, the economy would implode’, writes Tokic.
Truth be told, economic growth has come with countless problems: resource depletion, climate change, health issues, waste accumulation, income inequality, reduced environmental quality and the list goes on. As the world is not able to regenerate at a pace compatible with increasing demand, these damages represent serious concerns for those who have already embraced degrowth as a feasible alternative.
Herman Daly, one of the fathers of ecological economics, is another critic of economic growth. His major contribution has been the proposal of a steady-state economy: ‘one that develops qualitatively (by improvement in science, technology, and ethics) without growing quantitatively in physical dimensions’. While negative economic growth is ‘self-destructive’, positive economic growth seems to have become ‘uneconomic’ with higher environmental and social costs than its benefits. According to Daly, unlimited growth would only be possible were one of the following conditions to hold: ‘1. If the economy were not an open subsystem of a finite and non-growing biophysical system, 2. If the economy were growing in a non-physical dimension, or 3. If the laws of thermodynamics did not hold.’ Daly’s policy suggestions for the implementation of a steady-state economy include controversial measures such as quotas on the use of basic resources like fossil fuels, the introduction of a maximum level of income and population control.
Degrowth and steady-state are obviously interrelated and complementary concepts: degrowth is a transitional voluntary process of reducing the size of the economy so that a steady-state is reached and maintained. An important aspect of these ideas concerns their distinction between rich or North countries and poor or South countries. Daly explains that ‘It is absolutely a waste of time as well as morally backward to preach steady-state doctrines to underdeveloped countries before the overdeveloped countries have taken any measure to reduce either their own population growth or the growth of their per-capita resource consumption.’ A steady-state paradigm must thus start in the richest and overconsuming countries.
The logic behind these concepts is reinforced by the idea that the link between GDP and important aspects of human wellbeing is far from being straightforward. Indeed, the famous Easterlin paradox suggests that beyond a certain level of needs satisfaction, absolute income does not correlate with happiness. Nevertheless, the degrowth movement has been criticised for its pessimistic view of technology’s potential to solve problems and even for its lack of clarity on how degrowth may be compatible with capitalism and how market economies can voluntarily enter a degrowth path. Yet, however revolutionary and utopian these ideas may sound, it is impossible not to worry about the issues they raise.
In 1977, Austrian economist Fred Hirsch called the physical limits to growth “distant and uncertain”. He was not so much troubled by the natural limits of economic accumulation. He was concerned though with the social limits to economic growth, being the congestion and frustration caused by social scarcity – and not material or natural constraints – the real limit to growth.
Hirsch distinguished the “material economy” from the “positional economy”. The material economy refers to goods and services whose quantity can be increased without “deterioration in quality”. The positional economy, on the other hand, involves goods, services, social relationships that are not accessible to everybody, as they are “scarce in some absolute or socially imposed sense or subject to congestion or crowding”. Being one’s consumption of positional goods dependent on the consumption of others, these goods are hierarchical and allow individuals to be at a higher position in the social ladder. While economic growth does not pose a problem to the material economy, it fosters “positional competition”. In what became known as the “paradox of affluence”, Hirsch explained why the increasing scarcity of “positional goods” and subsequent “frustration” brought about by economic growth inevitably places a limit on society’s ability to grow and increase welfare.
Limits to growth – physical or social – are ideas that question well-established paradigms. What about the facts? Europe is undeniably in the midst of an economic crisis that is taking longer to tackle than originally anticipated and developed economies, confronted with lower long term growth rates, are starting to look at thriving economic growth as an unrepeatable dream from the past.