The End of the World As We Know It?

Two authors give surprisingly similar answers.

Ninety-nine percent of all animal species that ever lived are extinct, doomed because they had evolved into niches that were destroyed when environmental changes occurred too fast for them to adapt. We humans have survived so far because we evolved as non-specialists: our large brains permit adaptation to change without waiting for evolution to alter our genes.

Over the last several centuries, humans have evolved socially, culturally and economically to fill a niche created by our use of fossil fuels and their myriad byproducts. Our exploitation of that niche has led to severe environmental pressures, while our access to petroleum is narrowing and will eventually shrink to insignificance. Can we use our large brains to evolve out of this niche successfully—mitigating the causes that are our responsibility and adapting to change that is already evident?

Of the books under review, in Managing Without Growth: Slower by Design, Not Disaster, Peter Victor studies one approach to evolving successfully out of this niche, while in Why Your World Is About to Get a Whole Lot Smaller Jeff Rubin discusses the timing and consequences of its disappearance. They start with different questions but arrive at some similar conclusions.

The first part of Victor’s argument deals with climate change and its probable impact. Many of the effects are already obvious, and the balance of scientific opinion is that we are the major cause, although there are intellectually respectable dissenters. If the large majority is right, and if we continue as usual, our species may not go extinct, but our present civilization probably will. When literally billions of thirsty, starving people migrate in search of survival, it is doubtful if civil authority, even in those areas that are less affected, could resist collapse.

Those who resist adopting serious measures argue they would be too costly and that there is still doubt that we are the culprit. It is hard to see such arguments as rational. Consider an analogy. You live below a dam and learn of a significant chance—the majority of experts say certainly well over 50 percent—that the dam will seriously breach or totally fail within the next few decades and that the resulting disaster could probably be prevented by some ongoing repairs starting now and at a cost to the inhabitants of somewhat less than 5 percent of their personal incomes. Would it be rational to balk at this modest insurance cost? Would it be rational to wait until every expert agreed, even though the dam will probably fail before that happens? Would it be rational to second-guess the experts, asserting the danger is non-existent? Of course not.

So, given that it is rational to take some action now, what should it be? Variants of two main approaches can be seen in the literature: either accept further growth in both total and per capita national income and deal with its undesirable side effects, or drastically restrict—even halt—further growth at least in high-income nations. Victor is in the latter camp. He argues that growth should be made secondary to policies to protect the environment—a relatively mild goal with which many of us can agree. But he also advocates more, stating that his book “is about managing without growth.”

When assessing his arguments, one must realize that long-term growth is driven by the technological changes that have transformed us in 10,000 years from hunter-gatherers to citizens of today’s complex civilizations. Living standards that we now view as normal were reserved for only a few until little more than a century ago. Victor agrees that economic growth has done wonders in the past. However, he advises caution in believing that new technologies could solve our environmental problems because they usually have undesirable side effects, their development takes time and some problems cannot be solved by technological fixes. But side effects can be mitigated and, given public resolve and public funding, new technologies can be developed quickly, as evidenced by electronic computers and atomic energy in World War Two. However, the possibility of sudden, irreversible alterations in the environment when some tipping point is passed is a compelling argument for taking immediate drastic action rather than assuming that ameliorating technologies can be developed afterward.

In his subsequent analysis, Victor says many wise things. He correctly views the economy as an open system accepting resources and emitting wastes. He studies many useful public policies to remove harmful “wastes,” such as pollution taxes and cap-and-trade systems. He also develops some interesting models that reveal possible consequences of various growth regimes from zero growth to business as usual. But the core of his argument is in two main theses: rich countries can now exist satisfactorily without further economic growth, and such growth can be drastically curtailed or ended through public policy.

In considering whether the industrialized countries could exist satisfactorily in a no-growth mode, Victor makes the important point that further growth is not needed to increase human happiness in the rich countries. Recent “happiness research” has shown that at up to about $12,000 per year in per capita national income (just about that achieved by the poorest of the rich countries), people feel happier, but when national incomes rises beyond that value, happiness does not increase.

Victor’s position becomes more controversial when he proceeds to argue that further growth will not produce full employment, eliminate poverty, remove income inequalities or protect the environment. Let us look at each of these points in turn. On employment, in spite of dire predictions, continued growth has created many more jobs than it has destroyed, holding North American unemployment to levels that can be dealt with fairly easily by public policy. On poverty, Victor agrees with recent research by Canadian economist Christopher Sarlo that growth has reduced absolute poverty. However, he concentrates on two relative definitions under which there will always be poverty: the bottom 10 percent of the income distribution and those households that spend more on bare necessities than the average household. Using the second of these, he quotes a startling figure: “Canadian governments had the financial means to eliminate poverty in 2005 by redistributing more income to those at the lowest end of the income scale and still run an overall budget surplus.” This in itself offers striking evidence of the power of growth to reduce absolute poverty, since that claim could never have been correctly made before the 20th century. On income inequalities, the technological changes that produced growth in the first two thirds of the 20th century narrowed the gap between rich and poor, while those changes that drove growth in the last third led to an increase. Since no one knows how the effects of the next technological regime will compare with recent history, this experience seems a poor reason to advocate stopping further technological change. On the environment, Victor sometimes mixes the effects of growth and public policy. Although the environmental performance of the rapidly growing North American economies has been worse than those of the slower growing European economies, the explanation lies in differences in public policy, not in relative growth rates. Nonetheless, there can be no doubt that the technologically driven rapid growth of world population and per capita consumption has put enormous strains on the environment.

Victor also argues that “it is imperative that rich countries … slow down their rates of growth to leave room where the need for growth is greatest [in the poor countries].” But it is generally agreed, and much of what Victor says supports this, that it would be impossible to raise the poor countries to the levels enjoyed by the rich countries using existing technologies without putting intolerable strains on resources and the environment. So the only hope for raising poor countries close to the standards of the richer countries is through further growth-creating technological developments that continue to lower, in terms of units of output, both resource inputs and the amount of pollution, the latter action assisted by public policy. Furthermore, new technologies are needed to end our dependence on fossil fuels, to say nothing about eliminating many diseases and physical disabilities.

Finally Victor introduces policies for managing without growth. Advocating no growth is as easy as producing the relevant policies to get there is difficult. The specific policies that Victor advocates are useful, although they do not, in my opinion, provide a recipe for ending growth. He avoids having to confront the key question of how to end growth by arguing that “what really matters … is that quantitative targets on resource inputs and waste outputs be established … The decision about the best policy instrument for implementing these limits, while important, is secondary.” But the devil is in the details. A rational comparison of the goals of either stopping growth or accepting it and mitigating its harmful side effects cannot be made until the means advocated to achieve each are fully specified.

Here are Victor’s key proposals followed by my reactions:

Population must be stabilized.

In Canada, although not in the world, this could be accomplished quite easily by controlling immigration.

Adopt the three rules created by former World Bank chief economist Herman E. Daly.

These are “renewable resources should be harvested at rates that do not exceed regeneration rates,” “waste emissions should not exceed the natural assimilative capacities of ecosystems into which they are emitted” and “the rate of depletion of non-renewable resources should not exceed the rate of creation of renewable substitutes.” The first two rules are achievable with existing policy tools, given political will. However, the third does not strike me as a good rule. Applied to coal in 1800, it would have stifled the industrial revolution that raised the masses from abject poverty to relative prosperity in a mere century or so. Applied to oil in 1910, it would have hobbled much of economic growth in the 20th century. When large supplies of a non-renewable resource exist, it makes sense to use them until they are becoming scarce before devoting resources to finding renewable (or other non-renewable) substitutes.

If technological changes do occur, some of their benefits should be taken out in less work rather than more output.

This is feasible, although not without costs, as the French have discovered, given the problems that this measure created for business and industry when it was introduced in 2000.

Investment should be reduced by a combination of quantitative controls on inputs, the corporate income tax, the capital gains tax and a capital value tax.

This is risky since new technologies need to be embodied in new capital goods. Curtailing incentives to invest therefore discourages virtually all forms of technological innovation.

Do not rely on export-led growth.

Here Victor incorrectly assumes that such growth requires a “favourable” change in the balance of trade. In fact, all it requires is that exports compete well in foreign markets while imports of equal value do well domestically. This conforms with economists’ conventional wisdom.

Could one country such as Canada go to a no-growth economy on its own?

Victor poses the question and sees two obstacles: international trade agreements and emigration of capital and skilled labour. Serious though these will be, far more serious is that if Canadian growth and the technological change that drives it slow dramatically, our international competitiveness will erode quickly. Export industries will stagnate, imports will rise dramatically, the Canadian dollar will depreciate and Canadian living standards will fall.

The one point on Victor’s list that I have omitted so far is technology. Here he would “design a system to help ensure that before new technologies are introduced or become widespread, they are scrutinized to assess their intended consequences and to anticipate and prevent unwanted effects as well.” Granted, Europeans attempt such an assessment, but only as a non-binding suggestive overview. No one considering Watt’s steam engine of 1790, operating at a pressure of one atmosphere, or the electronic computer of 1946, whose world demand was thought to be less than ten, or the first halting attempts at biotechnology following on Crick and Watson’s double helix discovery, could have had any idea of the transforming effects of the enormously influential technologies into which each evolved. To set policy on an early assessment of such technologies, now or in the future, would be no better than doing so by examining the entrails of a sacrificial goat.

Jeff Rubin considers a more confined problem—the consequences of the rapid elimination of the petroleum part of the fossil fuel niche—but ends up with the expansive conclusion that the resulting market forces will do naturally what Victor hopes to ensure through public policy: low or even zero rate of economic growth. His analysis of the history of our petroleum fixation is interesting, although he has a maddening tendency to accuse economists of elementary errors. For example, we read that the “laws of economics didn’t work” because the rising price of oil was not accompanied by an increasing supply and did not lead to less being used. Any good first-year economics student could tell Rubin that the rising price, increasing supply and falling demand that he says economics predicted are mutually inconsistent. That student could also point out that what actually happened was simply due to the expansionary effects of economic growth counteracting the contractionary effect of the rising oil price.

Rubin predicts that the next global economic expansion will see oil prices rise to at least the levels of the last peak, and that the resulting skyrocketing transport costs will upset today’s complex system of global value chains and decentralized global production, replacing them with much more localized production: “Oil prices will soon put us in a time machine heading back to a world trade environment that will be broadly comparable to what the world looked like three or four decades ago.” These smaller localized markets “won’t be able to sustain the same level of specialization, which is the lifeblood of global technology. Without the ever-increasing degree of technical specialization seen over the last few decades, it is unlikely that the next ones will be able to produce the same pace of technological progress as we have seen in everything from video games to genomics.” So we will end up where Victor wants us—in a slow or no-growth economy.

Rubin buttresses his argument with two more controversial predictions: major recession and inflation. “Oil prices, not delinquent subprime mortgages, are what brought down the global economy,” he asserts. There is insufficient space here to deal adequately with this claim. Suffice it to say that although high oil prices had some depressing effect, Rubin is in a small minority in believing that the U.S. subprime mortgage mess was not the main cause of the 2008 global meltdown. Also he foresees the next recovery will be accompanied by a major inflation brought about by the U.S. Federal Reserve’s monetization of the massive American government debt as well as from higher costs, including increased oil prices.

All this is worth reading as a cautionary tale. But how likely is it? Rubin’s analysis of how we got to 21st-century oil prices and consumption rates is excellent, if one ignores the silly criticisms of economists and occasional elementary economic mistakes. (For example, at one point he confuses nominal and real interest rates. Contrary to his argument, a 12 percent interest rate accompanying a steady 10 percent inflation provides no less encouragement to investment than a 4 percent interest rate accompanying a steady 2 percent inflation rate. Both have the same real effect on borrowers and lenders.) His predictions about the future course of oil prices and its consequences for de-globalization also seem likely to be borne out.

A major recession brought on by high oil prices is possible, but that would reduce oil prices again just as the present one did. A serious inflation is also possible, given all the liquidity that central banks have injected. But given their sophistication and their low-inflation mandate, serious inflation seems unlikely.

De-globalization of the world’s manufacturing activities will have many serious consequences and require much painful adjustment, but will it seriously slow technological innovation and hence lessen long-term growth rates? The first two decades of the 20th century saw high innovative activity, some say the highest ever, in a setting less globalized and specialized than today. The direction of invention and innovation will no doubt shift in response to significant de-globalization, rising prices for oil and its byproducts, and the introduction of some of the policies advocated by Victor. But humans are technological animals and have invented and innovated throughout history. Unless we adopt Draconian anti-growth policies far stronger than Victor has enumerated, or decide to continue with business as usual, which leads to the sort of environmental disaster mentioned at this essay’s beginning, it seems unlikely that innovation and growth will come near to stopping in the foreseeable future.