A Lego-style cartoon
Can economic growth coexist with sustainability?

Think:Act Magazine "Rethinking Growth"
Can economic growth coexist with sustainability?

Portrait of Think:Act Magazine
Think:Act Magazine
Central Europe
April 9, 2020

Kate Raworth, Vaclav Smil and Diane Coyle share a common message on the future of growth: slow down.

Article

by Fred Schulenburg
illustrations by Supertotto

Read more about the topic "Rethinking Growth"

Three of today's leading economic minds are challenging us to reconsider the way we view growth. One common thread runs through them all: it's time to slow down.

Kate Raworth: Finding Balance with the Doughnut Theory

After a period of disillusionment with economics, Kate Raworth worked in development and at the UN before returning to economics. She says that right now we are nowhere near her vision of a more harmonious economy.

Doughnuts are not normally associated with a balanced, healthy approach to life. Yet for the economist Kate Raworth, the doughnut is a useful symbol. Raworth makes the doughnut akin to a compass. It can, perhaps, guide us toward a reworking of economics, a 21st-century overhaul. We need to find a better and more virtuous cycle of labor and reward that takes into account the currently ignored elements – the environment, social, and domestic elements – which the doughnut's shape helps to represent.

People need to be protected by new measures to help keep them in society's embrace – the sweet spot of the doughnut’s "ring." In Raworth's model, there are resources we need for a good life, such as food, clean water, housing, energy, education, health care, and democracy. The hole in the doughnut represents an area of deprivation of those needs. Beyond the doughnut are the Earth's environmental limits, such as climate change, water pollution and other problems with the natural world. So the area between those two positions is the ecologically safe and socially just space to inhabit, which in her example is the ring of the doughnut itself. You can see key elements of the problem and solution in the graphic to the left.

A sugary pastry helps illustrate how we need to account for social needs, well-being and the environment.

The history of economics, Raworth argues, is one of "raising our sights." She looks back to classical Greece, where "economics" referred to household management and was later extended to the city-state of Athens. Adam Smith then extended it to the nation-state 2,000 years later. Were they here today, they would demand that we adapt our approach to the planetary age. This is the "most exciting task" for the new generation of economists. Investing in human, natural, and social wealth will help sustain humanity. Perhaps her doughnut can help us find a balance and live in the sweet spot where everyone has enough and the planet can support it all.

A Lego-style cartoon woman stands between a piggy bank and a sign with the percent symbol

  1. The virtuous circle
    The way the economy works right now is simple: We receive wages and dividends for our labor; in return, we spend our earnings on various goods and services.
  2. The cost of growth
    For decades, the economics profession held that progress could be measured through economic growth. But Raworth argues progress should balance resource usage with protection of the planet.
  3. New definitions
    Policymakers recognize the old models aren't working and are looking for a new way forward with terms like "sustainable," "smart" and "lasting." Raworth says we need to widen our concept of economic development beyond simple "growth”.
  4. Unpaid work, unfair pay
    The current economic system ignores huge amounts of unpaid work, often carried out by women. Wages are increasingly unevenly distributed, leading to fundamental imbalances that are now spilling over into the political sphere.
  5. Rights need to be put right
    Hunger, deprivation, and lack of access to items such as heating and water are an indictment of our current approach to growth. We need to deliver on basic human needs and rights. The UN is currently trying to play a role in this.
  6. The human element
    The economy's focus should be on investing to sustain humanity. That means a reset by individuals, corporations, and governments in which decisions about economic activity and outlook are made to respect balance.
  7. Find the eco-balance
    Not putting any demands on the planet won’t work. We need to draw from the planet to survive as a species. If we push the planetary boundaries too far, we risk wrecking it. We have to find a balance that works.

Diane Coyle: A New World with Maps and Gaps

The Cambridge University professor and author of GDP: A Brief but Affectionate History aims at a more complete accounting for growth.

A map on which some bits are quite clear and others quite faint – or perhaps even just blank. That's how Diane Coyle sees the current picture of economic growth and our attempts to define and measure it. And she has ideas about policies that need to be introduced to improve lives and reset our thinking.

Coyle thinks that businesses and nations are ignoring many of the critical items that contribute to growth today. The overall result, she argues, is a somewhat partial account of growth, which in turn results in an incomplete basis on which policy choices are being made. Her analysis has led her to the idea of a chart that needs filling in.

Changing all of this will not be easy. Individual action, whether taken by people or by companies, will have limited effect. "Changes in [accounting] frameworks are driven by crises, often conflict," says Coyle. "We got the GDP we have because of World War II." Conflict – combined with a fundamental change in economics, such as through the emergence of new technologies – is what drives realignments in thinking as well as in methodology.

The question for her now is whether we are at such a tipping point. Does the current discontent with the limits of our understanding as to what constitutes growth crystallize into a movement for change? She is cautiously optimistic and says that she sees evidence of a real change in attitudes to growth – and that is proving especially true within the business world. Still, she argues, that change is only truly possible if collective efforts are made across multiple fronts. She suggests a "plural approach" – from professional bodies, at the industry level, through national accounting frameworks and up to international institutions such as the G7 group of the world's richest economies. This will boost awareness and also change the way in which we perceive growth going forward.

A Lego-style cartoon woman with a breathing mask rides a bike across a map

  1. Partial view of growth
    We are ignoring many of the critical items that contribute to growth today. The overall result is a partial account of growth that is deceptive and lacking.
  2. Pressing issues
    While climate change grabs the headlines, other issues such as air quality, which directly affects individuals, do not get as much attention and yet have a huge impact. Other significant missing items that need to be addressed include mental health.
  3. Environment
    The environment is more than a global issue. There are environmental issues right on our doorstep that need to be addressed.
  4. Accounting for implicit value
    There is no consensus method for measuring the components of growth that we currently ignore. "But we do know that they are not zero," notes Coyle. The implication is that we need to put a value on and account for many things that are now set at zero, but which should not be, to change how we see the economy.
  5. A balance sheet rethink
    We need to think about balance sheets in their fullest extent. That requires a comprehensive and all-embracing accounting method. There are many important yet intangible collective assets that do not make it on to the balance sheet – from the environment to data.
  6. Human capital
    It isn't on a company's balance sheet, but productivity relies on investing in and protecting human capital – knowledge, education, skills and other components are a vital cog in the economic machine. Environmental policies are a part of that.
  7. Change the GDP!
    The concept of GDP was a child of the 1930s, when the global economy was in a perilous state and prevailing methodologies were found lacking. There are clear comparisons with today, where new forces such as climate change and the tech revolution are influencing economics and politics.
  8. Working together
    Change is possible if collective efforts are made that require input from professional and industry bodies through national accounting frameworks up to international institutions such as the G7 group and political and economic blocs such as the EU to boost awareness and change our perception of growth.
  9. Defining data's value
    Data is a key component of the new economy, but we need to measure its efficacy and harness it. "No one has any idea of the value of data and how they use it or how to use it properly," says Coyle.

Vaclav Smil: The case for creating quality growth

Professor emeritus at the University of Manitoba, Canada, Smil's ideas are referenced by economists and revered by leaders such as Bill Gates, who has said he looks forward to a new Smil book the way other people do the next Star Wars movie.

"There are limits everywhere," says Vaclav Smil. "Of course growth has to come to an end. No trees grow to heaven." The environmental scientist has spelled out his thoughts in his recently published book Growth: From Microorganisms to Megacities. He claims that as a resident of "flyover country" – the central expanse of North America that most only see from the air – he is a voice on the margins of the economics debate.

Smil argues that we have become confused between quality and quantity growth – and that humankind has reached the "pinnacle of irrational stupidity" in how we consume. Things have to stop – the challenge is how to do so. "Single, simple solutions" – like the blanket application of a fee to offset the environmental costs of various goods, services, or activities – are not the answer, he says. While putting a price on behavior might work in an egalitarian society, in inegalitarian ones, which increasingly applies to the US, implementing such a charge will hit the poorer members of society the hardest.

A more nuanced approach at various levels, Smil argues, would be a better way to address the problem. "Voluntary abnegation" – individual decisions to scale back and eliminate waste – is one starting point. Another is to establish greater transparency about the "real" price of the goods that we buy. "We pay no fair price for anything. There are subsidies everywhere," says Smil. "We don't know the real price for bread, cheese or gasoline." He adds: "We need to get to those numbers and start acting on them."

The response needs to be graduated, given the unintended consequences of simply relying on price as a tool for changing behavior. The critical step is establishing awareness of the facts. Above all, a key step toward addressing the current challenges needs to be changing our own conception of growth and realizing that "ever onwards and upwards" is not a rational approach.

A Lego-style cartoon men

  1. From microorganisms to megacities
    From microbes to flora and fauna, empires and babies: Only when we see the bigger "growth" picture – and its limits – do we realize just how misplaced and narrow our conventional perceptions of measuring the progress of economic activity are.
  2. The madness of wanting more (and more)
    Humankind is at the "pinnacle of irrational stupidity," says Smil. We live in ever-larger houses, we drive ever-bigger cars, and produce ever more food, a significant chunk of which is wasted. “A half-rational society would address this.”
  3. Tech errors
    Some tech gurus believe that there are no limits to growth. We have been "badly influenced," says Smil, by the “Moore scare syndrome" – a reference to "Moore's Law" of computing power growth named after the former CEO of Intel.
  4. Environmental cost
    There are challenges to environmental issues. Take Germany’s move away from nuclear and fossil fuels as an example of how a well-intentioned policy has increased prices to the point that some citizens struggle to meet them.
  5. Lessons from nature
    Smil says we need to look at growth in nature as an example. What is true of the natural world is also also true of the human one.
  6. Quantity growth has its limits
    Smil argues that we have become confused between quality and quantity growth. Quantity growth has its limits – and not least when it comes at a cost to the planet.
  7. Quality growth
    Quality growth can, and should, continue to deliver better outcomes in areas such as health care, education or environmentally beneficial cars.

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Portrait of Think:Act Magazine
Think:Act Magazine
Central Europe