Can addressing the productivity crisis address ‘limits to growth’?

Earlier this week I was at the launch of the All Party Parliamentary Group on Limits to Growth. Its mere existence is a sign that the subject is no longer taboo. I left with worries – will it get lost in defining terms? how will it get credibility beyond the usual suspects? are we trapped? – and one big hope. There’s a tantalising prospect that solving the productivity puzzle might tickle the Treasury’s fancy, and require a shift to a sustainable soci-technological basis. 
 
Let’s start with Prof Tim Jackson’s very useful summary of where the limits to growth debate has got to, and then move on to the wider reflections.

Tim Jackson and Robin Webster had written a short report called Limits Revisited for the launch, which considered the limits to growth debate some 44 years after the original Club of Rome report. It has three ways that limits to growth is relevant to today.

1. Resource constraints. The original argument is that, as resources are used up, there is ever-extra effort to get hold of what you need, which has a lower quality anyway. You find yourself over-allocating productive resources to getting more resources, rather than into new or different resources. Economic collapse comes when you can no longer get at the quality resources you need at a level of effort you can sustain. The report talks of oil and minerals.

I’ve always found this an under-whelming argument, and still do. Fundamentally, yes, the Earth is not an infinite source. But this is the sort of threat that our current system should be able to respond to, though doubtless with much pain for incumbent companies and dependent countries. Past oil shocks have been because producers wanted to constrain supply deliberately or we were constrained by refining capacity, not running out of oil. Rising prices pushed people to use more efficiently (e.g. shift in car sizes), invest in expanding processing capacity, invent ways of extracting previously too-hard sources (e.g. shale gas), look elsewhere (e.g. the Arctic), or find substitutes (e.g. move to solar). The Simon-Ehrlich Wager shows we cope.

Also, thinking in terms of traction, this is a non-starter. Some people have been saying “we’ll run out of X material in Y years” for decades, and have a record of being wrong. The original Limits to Growth Report wasn’t guilty of that, and said these effects start in 50-100 years time. But I think this angle, for better or worse, is discredited.

2.Planetary boundaries.  We cannot treat the Earth as an infinite sink. We’ll run out of the ability to deal with pollution and waste before we run out of stuff to turn into pollution or waste. The key example is the greenhouse gas effect. We’re releasing more greenhouse gases than the climate can handle. Result: temperature rises and, potentially, runaway climate change.

For me, this is the scary one because there are no price signals until the impacts hit the economy, by which time it is too late. My memory of the 30 year update of the original Club of Rome report, has soil erosion as the key cause of collapse. The increase in food production uses the soil faster than it can regenerate, and pollution erodes it even further. This fundamentally reduces the scale and quality of food production possible, and so reduces the scale and complexity of global civilisation that is possible.

3. Secular stagnation. This did not feature in the original report, and has come to prominence from mainstream economics in the last few years. One part of this says that growth since the 1990s relied on borrowing, which popped so spectacularly in 2007. Another part says that in the past there were General Purpose Technologies (GPTs) like steam, electricity and internal combustion engine, which increased labour productivity and therefore growth. These have run their course and there are no new ones to replace them. That’s why labour productivity has been going downing the US and UK, why wages stagnated, why people had to borrow to increase their standard of living. The emerging technologies might even decouple economic activity from jobs, which then undermines a broad mass of people having wages with which to buy stuff. We may be going ‘post-growth’.

This where I think there is juice. I was at a Cabinet Office event last year on the Future of Productivity. The all-powerful Treasury is worried about where productivity is going to come from, are most Western governments. So, addressing this challenge at least stands a chance of being heard, while the other two just bounce off people’s cognitive frames (regardless of evidence that the planet is not an infinite source or sink).

There are two explanations in play. The lesser, but still useful, is that we’re measuring the wrong thing. GDP is calculated from the financial value of transactions in the formal economy. Famously it misses the informal (like childcare) or things that aren’t in prices, like environmental externalities. That hasn’t mattered too much to policy makers in the past.

But many emerging technologies have near-zero marginal cost, which means the financial value of formal transactions is basically nil even though they are helping people live their lives. Once you put up your solar panel, you don’t pay the sun for its rays. When you have fun on-line you pay very little (especially if you are the product, meaning the company is getting value from the data about you) compared to the off-line activity you would have been doing 20 years ago (think YouTube vs cinema trip). So, GDP is under-stating the welfare from new technologies.

Also, people pay a lot of attention to labour productivity, but almost none to resource productivity. In the past that might have made sense. Going forward, we have many people but not enough planet. So attention needs to shift.

Reforming GDP has been the least successful change effort in recent times. Everyone knows its at best partial, if not downright misleading. The standard sustainability-related arguments have had no impact. Perhaps the productivity crisis – which governments do care about – gives a chance to augment GDP.

The second – and much more important – explanation for the productivity crisis: it’s exactly what you would expect if we are the trough before new technologies are properly taken up. I have to thank the European Futures Observatory for this insight. An established order has grown around the established technologies, including physical infrastructure, skills and schooling, regulation and more. So moving from one GPT to another is painful. You have to dis-assemble lots of how stuff gets done economically and socially before then be able to reassemble around the new GPT. These cycles are known as Krondatiev waves and have been much studied by Carlotta Perez.

If this is true, then the way to solve the productivity crisis is by shifting to the new technologies, especially around digital and renewables. For instance, on energy we keep building a grid for a small number of large generators. That model has had several decades of learning effects; any improvements are incremental at best. We won’t get the full benefits of solar until we we build for a large number of small generators. Because it’s new, it has decades of improvements to come. But it requires incumbents shifting their production basis, or getting out of the way. Frankly, they find it easier to lobby government for the status quo.

That’s not to say digital revolution is a straight win. There’s lots of difficult questions – how to have worthwhile jobs to what does it do to our identities – which I’ve written about elsewhere. Given that its inevitable (try putting that genie back in the lamp) we need to answer those questions, and we need to surf it to a sustainable future.

So, there’s a tantalising prospect that solving the productivity puzzle might tickle the Treasury’s fancy, and require a shift to a sustainable socio-technological basis.

But there there are worries too.

Will it get lost in defining terms? Part of the evening was spent saying how people didn’t like the presentational effect of the term ‘de-growth’ but that some sort of reducing the scale of some sectors was necessary. I liked what Kate Raworth said: we need to move going for growth, with a side-effect of whether people thrive or not, to focusing on people thriving, whether or we’re growing or not. It’s important to find a framing that will speak to where people are starting from. I worry about the need of some (not, I think the secretariat of the APPG) for purity.

How will it get credibility beyond the usual suspects? There are lots of fixed positions on growth. To caricature only slightly: environmentalist say its always bad; economists say its always good. A lot of pro-sustainability folk saying that sustainability is important may be satisfying but it will have no effect. So, the APPG will need to reach beyond the usual suspects. Can it bring in the best and interesting business voices? What about influential commentators? The FT’s Martin Wolf was been important in broadcasting the Stern Review. In his new book about the recent financial crisis he says he “lacked the imagination to anticipate a meltdown of the Western financial system” and praises heterodox economists for getting it more right than the mainstream.

Are we trapped? The final worry is not about the APPG, but about our global situation. Through the debate two things became clear:

  1. There is no path forward which has growth as we’ve known it within planetary boundaries
    AND
  2. There is no path forward for the required de-growth within the politics we have.

Basically, we’re trapped into a civilisation-degrading pattern at a global scale which will take a massive crisis before we act with the urgency and scale required. That is frightening, and depressing, prospect.

The mere existence of Group is a sign that we’re realising we’re in this trap. The Group might be able to spread understanding and acceptance amongst a crucial audience: MPs and senior policy-makers. That is a very worthwhile thing to do. And there is so much more that we must be doing too.

 
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