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Life in a land without growth
[October 17, 2008]

Life in a land without growth

(New Scientist Via Acquire Media NewsEdge) IT'S 2020, and we are a decade into a huge experiment in which we are trying to convert our country to a sustainable or "steady-state" economy. We have two guiding principles: we don't use natural resources faster than they can be replenished by the planet, and we don't deposit wastes faster than they can be absorbed.

In our society, scientists set the rules. They work out what levels of consumption and emission are sustainable - and if they're not sure they work out a cautious estimate. Then it's up to the economists to work out how to achieve those limits, and how to encourage innovation so we extract as much as possible from every scrap of natural resource we use.

They are using two main mechanisms for doing this. The first is a cap-and-trade system, under which companies can buy and sell emissions permits. This is working well for reducing carbon emissions, for example. The second is to change what we tax. We are gradually abolishing income tax (a very popular decision!) to encourage people to add as much value as possible to the resources they work with. Instead we are taxing resources at the point at which they are removed from the biosphere: oil as it is pumped from the ground, for example, or fish as they are scooped from the sea. This raises the price of those resources, and encourages people to use them sparingly. All that excess supermarket packaging disappeared overnight.

An incidental benefit of this tax system is that it's easy to enforce. Cheats can no longer dodge taxes by hiding their income. Unfortunately it is also regressive: poorer people end up paying a higher proportion of their incomes on goods than the rich do. We offset this by using some of the proceeds to fund benefits programmes and projects for them.

Without economic growth to raise incomes, we have to tackle poverty differently. We are gradually redistributing resources by setting upper limits for income inequality. It was tricky deciding what the permitted range of incomes should be - one that rewards real differences and contributions rather than just multiplying privilege. Plato thought it was a factor of 4. Universities, civil services and the military have always seemed to manage with a factor of 10 to 20, but in the US corporate sector before we began this experiment it was over 500. As a first step, we are aiming to lower the overall range to a factor of 100, so if the lowest salary in a company is $10,000, the highest for a top manager is $1 million. Eventually, we may try to bring this down to a factor of 30.

So what about growth? It is still allowed, but only as long as it doesn't breach the limits set by ecologists. Interest rates have therefore fallen very low, although not to zero. Though the rate of physical throughput of resources is limited, increases in efficiency and developments in technology are allowing us to get more and more out of the resources we have. This increases the value of the economy.

When we began this transition, for example, we introduced a carbon tax which made petrol-fuelled travel prohibitively expensive. That limited car journeys, but also triggered huge investments in public transport, as well as in the technology required to run vehicles on renewable energy. That research has paid off, so cars are becoming much more affordable. Another thriving area of research is virtual reality: air travel is much more restricted now, but we can visit exotic locations at the flick of a switch.

There is disagreement over how much economic growth we will ultimately be able to achieve. Some optimists think technology will allow huge amounts of growth without increasing our impact on the planet. Others point out that even sectors of the economy generally thought to be purely qualitative, such as information technology, actually involve significant use of physical resources - the raw materials required to make computers and monitors, for instance. Even people working in IT spend most of their income on physical goods such as cars, houses and holidays. Besides, for the growth we do achieve to benefit the poor, they are going to need clothing, shelter and food, not electronic music and internet recipes.

Another area that has changed hugely is finance. Our steady-state economy can't support the enormous superstructure of finance that used to be built around expectations of future growth. Investment is mainly for replacement and qualitative improvement, and the enormous pyramid of debt that was previously balanced on top of our economy has shrunk. We are gradually raising the percentage of money deposited that banks are required to keep in reserve. As a result, commercial lending is declining - banks get their income by financial intermediation and service charges instead - and we are moving to a culture in which you have to save money before you can lend or invest it.

We are also producing different kinds of goods. Now that we are paying the environmental costs of what we use, natural resources are expensive. So making short-lived, disposable goods no longer makes economic sense. Today, we only make what we need, and products are built to last - so no more fun consumer tech that has to be updated every six months. And we're developing new models of ownership: rather than buying a car or carpet, you are likely to lease it from an owner who is responsible for maintaining it, and who will recycle it at the end of its useful life.

This means that maintenance and repair - as opposed to production - are much more important sources of employment than ever before. So are science and technology. We have all kinds of opportunities there, from the government-funded ecologists and scientists working on values for concepts such as "carrying capacity" (the number of people Earth can sustain) or modelling the effects of rising sea levels, to the entrepreneurs developing renewable technologies. Without as much economic growth as before, we can't maintain full employment - but then, our old growth economy wasn't so good at doing that either. Instead, people work part time, generally as a co-owner of a business rather than as an employee. The whole pace of life is more relaxed. Incomes are lower but we are rich in something that many of us had never experienced before: time.

Completely free trade isn't feasible any more, of course, because we have to count many costs to the environment and the future that foreign firms in growth economies are allowed to ignore. So we allow regulated international trade under rules that compensate for those differences. As the number of countries committing to sustainability increases, however, we're forming a rapidly expanding club within which we can trade freely. Eventually we hope that club will encompass the whole world.

One of the toughest issues, politically, has been population. We know that we will have to stabilise our population - and that includes immigration rates as well as birth rate. We're not quite there yet, but we are moving in that direction. This will push up the average age of the population, putting pressure on the pensions system, but our economists are busy working out what contributions will be needed to make it sustainable.

How is all this affecting our quality of life? The outlook here is pretty good. Before we started our experiment, psychologists and economists had found that the correlation between absolute income and happiness extends only to a certain threshold. Once basic needs are satisfied, only relative income - how well off we are compared to our peers - influences how happy people say they are. This held for comparisons between rich and poor countries at a given time, and in comparing a single country before and after a significant growth in income. Fortunately, then, abandoning economic growth has not meant a decline in total happiness.

Ten years down the line, the sacrifices we have made have been less onerous than we feared they might be. We have escaped the doomed model of economic growth, and no one is worse off. It's even possible that we have all become a little bit happier, and it's good to know that now our grandchildren have a chance of a better life too.

This scenario is based on a discussion with Herman Daly (see profile)

Copyright ? 2008 Reed Business Information - UK. All Rights Reserved.

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