Steady-state economics: introduction

Basic explanation

As an economy grows, it brings benefits in terms of health, happiness and fulfilment. Infant mortality rates fall and life expectancy increases. Welfare states appear, along with health care, education and reliable infrastructure. But as an economy grows past a certain per capita size, benefits stop increasing, then start to fall, and we get more stress, congestion, crime, pollution, noise, ugliness, boring work and lack of community. But it’s the ecological damage that growth causes that presents the greatest threat to humans.

It’s impossible for us to live in harmony with nature and to have a constantly growing economy. One of these aspirations has to go – we suggest it’s the latter.

If you don’t find that self-evident, here’s a simple, four-point explanation:

  1. Material growth can’t continue forever. This is uncontentious and nobody sane is disagreeing with it.
  2. Economic growth always results in an increase in overall spending power. This is more difficult for some to understand, but it’s uncontestable. If it doesn’t increase overall spending power, then it’s not economic growth, it’s growth, or development, in something else – something intellectual, artistic, spiritual, or maybe a devaluation of the currency – but it’s not economic growth.
  3. It’s not possible to ring-fence that increase in spending power so that it’s never spent on material things. If people have more money, they buy more cars, TVs, clothes, foreign holidays, second homes etc. This is obvious, surely; in an interview with footballer Andrey Shevchenko, he explained that he had nine Ferraris. I’m sure he would have had ninety if he’d had more money.
  4. Therefore it’s not possible to de-link economic growth from material growth, which makes perpetual economic growth impossible without destroying ourselves.
Herman Daly

Professor Herman Daly is probably the world’s best-known proponent of non-growth economics; he used to be a senior World Bank economist, where he developed his theories of ‘uneconomic growth’ and steady-state economics.

The main reason that people believe that the economy can grow forever

Meadows et al. in Limits to Growth call the combination of human resource use and waste ‘throughput’. The main barrier to the stabilisation of the global economy is that people believe that a combination of technology and innovation will increase resource efficiency – i.e. will reduce throughput for the same amount of output. This doesn’t work for two reasons.

Firstly, it’s never happened before, so why should it happen in the future? Throughput (and therefore ecological damage) has been growing steadily each year for the last 200 years, because although technology improves efficiency, the reduction in throughput that could have been achieved in a stable economy is completely reversed because of economic growth.

And secondly, it doesn’t work because of the Jevons paradox. Check the link, but basically, any technological improvement that increases efficiency in the use of a particular resource, actually increases the use of that resource, because it becomes more financially and technologically viable to use it. The classic example is James Watt’s steam engine. At the time of its invention, it was thought that it was going to reduce the use of coal, because it did the same work as the Newcomen engine with a fraction of the amount of coal. But of course, there was a massive increase in the use of coal because there was a massive increase in the number of engines and in human activity generally. There have been similar studies for other technologies and resources, but the results are the same. Khazzoom & Brookes, for example, showed that energy efficiency measures increase energy use at the macro level.

This idea only works in a stable economy, not a growing one.

How to achieve a steady-state economy

Steady-state economics is not just about giving monetary value to the environment – that means that you can still trash it if you can afford to; and it’s not about green taxes either – the government will spend the tax income on something else, and the economy still grows. And it’s not about recession, which is neither planned nor desired. We’re talking about stabilising the economy in a controlled way.  Some economists are already proposing alternatives.

Herman Daly’s Steady-State Economics involves working out how much ecological impact is sustainable, then ensuring that we stay below that level with (tradeable) resource depletion quotas (for each resource) and a ‘maximum wealth’ policy. Income from depletion quotas would then be used to build the infrastructure to move to a renewable, low-carbon society. It also involves moving taxation to throughput and away from income.


Miniaturisation can help to stave off the damage caused by constant growth – but many things need to be human scale, and can only be miniaturised to a certain point.

Richard Douthwaite (in the Growth Illusion) proposes another tool – that governments tweak interest rates until they’re in effect zero, and so there’s no incentive to invest. But people would still use banks for security, cashpoints, cheques, transfers, salaries etc, and this can be loaned to small businesses (for a fee, rather than for interest). Islamic banking goes a step further and bans interest altogether.

No country can abandon its quest for economic growth unilaterally, because other countries will then outcompete them for resources and markets, which will lead to poverty. Contraction and convergence and the Simultaneous Policy are just two of the ways that this problem could be addressed. Poor countries need growth, but rich countries are still behaving like poor countries. In the West, we don’t need material growth any more. We are far enough down the road of bland consumerism as it is.

Noam Chomsky

‘Most cited living author’ Noam Chomsky has this to say about economic growth: ‘The system can only persist with whatever suffering and injustice it entails, as long as it is possible to pretend that the destructive forces that humans create are limited – that the world is an infinite resource and the world is an infinite garbage can. At this stage of history, either one of two things is possible, either the general population will take control of its own destiny and will concern itself with community interests, guided by values of solidarity, sympathy and concern for others or, alternatively, there will be no destiny for anyone to control.’

Economics is a subset of ecology

Herman Daly puts it very well. He says that conventional economists view the economy as an isolated system, and don’t recognise that it is a subset of the environment, completely dependent on inputs from it (low-entropy, or useful raw materials), and outputs to it (high-entropy, or useless waste). The earth (plus its ecology) is a finite, non-growing system. Therefore any subset of it must be finite and eventually non-growing. This stabilisation can come about sensibly, deliberately and safely, or it can be resisted until it is imposed by nature, in which case it will be extremely unpleasant, and potentially fatal.

Various powerful civilizations have come to a sticky end due to overexploitation of their surrounding environment. We’re doing the same thing globally now, and we have nowhere else to go. The world spends over $100 billion annually on advertising to persuade, cajole, pester and shame people into buying more stuff. No amount of green technology, organic food or recycling will stop environmental destruction as long as our economy is constantly growing – it will be one step forward, two back until ecology just won’t support us any more.

The aim of steady-state economics is human and ecological well-being, rather than increased production, and so a happiness index has been suggested to replace GDP, to indicate how well we are doing. GDP includes things like cleaning up pollution, weapons manufacture, prisons, insurance claims, cigarettes and car accidents, but doesn’t include things that are free, like love, growing veg, sunbathing, reading library books, walking in the countryside or just chatting with friends – so how can it measure well-being?


The pro-growth lobby claim that service industries can grow forever without an increase in throughput – but, like this bank, service industries need buildings, computers, energy, paper, desks, phones etc; and salaries (and bonuses) in the service sector are spent on very material things.


Twelve economic growth myths

(Here’s a printable version)

Myth 1: A service economy can grow forever.

Response: No it can’t. Service industries all use resources and create waste (can you think of one that doesn’t?), and the money generated in the service sector doesn’t stay in the service sector – salaries are spent on material things.


Myth 2: We need growth to eradicate poverty.

Response: One of the first things the growth lobby will say if you criticise economic growth is that you are condemning the poor to eternal poverty. Not true – anyone interested in poverty eradication would advocate a re-distribution of wealth. There is enough wealth in the world for everyone to live comfortably – it’s just that most of it is in the hands of a tiny minority. Sharing, and a fair distribution of resources will alleviate poverty, not growth. We’ve had 200 years of growth and although some people have been lifted out of poverty, concentration of wealth and power means that there are now more poor people in the world than ever before. There is a case for growth in poor countries (although there is probably more of a case for them to build their own steady-state economies and drop out of the global growth system that will bleed them dry).


Myth 3: We need growth to generate the money to solve environmental problems.

Response: This argument is a bit like trying to keep warm by burning your house down. Economic growth has brought the world to the brink of ecological catastrophe. Doing the same thing, only harder, isn’t going to make the situation any better – it’s going to make it much worse.


Myth 4: As a country’s economy grows, its environment becomes cleaner.

Response: The environment doesn’t have national boundaries, and the global environment is degrading at an alarming rate. The UK economy is much, much bigger than 100 years ago, and yet locally, the air and water quality is better in many places. However, that’s because we hardly manufacture anything any more. Dirty factories have been exported to the far east, India and Latin America, which means that everything has to be transported from the other side of the world, creating much more ecological damage than if our goods were produced at home.


Myth 5: Growth offers us more choice.

Response: Yes, you’ll be able to choose between hundreds of varieties of unhealthy beakfast cereals or fizzy drinks, but what if you want to walk to local shops (all gone – you have to drive to a supermarket); public transport (too expensive, and not going where you want to go when you want to go); clothes you like (not fashionable this year); non-GM food (soon that may not be possible); to build your own home and live in a low-impact, natural way in the countryside (planning system won’t allow it)? The choices we are offered are superficial.


Myth 6: Energy efficiency, renewables and new energy sources will allow growth forever.

Response: Energy efficiency and renewables are not environmentally-friendly in a growing economy, because any money saved will be used to buy something else – a fridge from China, apples from New Zealand, a holiday in Florida – so the benefit is wiped out. Similarly, on a larger scale, if nuclear fusion becomes available and economically viable, it won’t stop environmental destruction as long as there is a growing economy – can you imagine how many new roads, factories, docks, airports, golf courses etc will be built if we harness fusion? Many more habitats and species will be destroyed.


Myth 7: New technology, and especially miniaturisation, will allow us to grow forever. 

Response: Of course we don’t know what inventions are on the way, and the pro-growth lobby are fond of the story of the fictional chap in New York in the 19th century who said that if traffic continued to grow, the whole city would soon be covered in 6 feet of horse manure. He didn’t know that the car was coming, and we don’t know what new inventions are coming either. But the car brought much worse problems than horse manure. Every year brings more ecological damage, and the rate of destruction is increasing – often because of new inventions. Plus you can’t miniaturise things that need to be human-scale, like fridges, cars, aeroplanes, food, clothes, houses – and as economies grow, people want more of them.


Myth 8: We need economic growth for better weaponry and security.

Response: Whist it’s probably true that the only way that a country like Iran can be sure to avoid invasion is to develop nuclear weapons, the manufacture and use of weaponry involves so much waste and environmental damage, that this is more of a threat to humankind than all-out nuclear war. The only way to ensure our long-term security is for international agreements on the curtailment of both nuclear weapons and economic growth.


Myth 9: Economic growth can continue forever because of recycling.

Response: Recycling can’t grow forever because a) it requires energy; b) you can’t recycle 100% of anything – material is always lost; c) you also need recycling facilities, which require bricks and mortar, trucks, roads etc; and (most importantly), d) it generates income for people who work in the recycling industry, and you can’t ring-fence this income to non-material goods – so if the recycling industry grows, the amount of money in the economy grows, and more stuff gets consumed. Recycling can’t be divorced from resource use and waste, and therefore can’t grow forever.


Myth 10: Human ingenuity is the ultimate resource, and can grow forever.

Response: Actually, this is true, but that’s not growth, it’s development – qualitative rather than quantitative. We can continue to evolve, to develop intellectually, emotionally, artistically and spiritually – but we can’t keep growing materially, which is what inevitably happens if the economy grows. We can’t break the laws of nature. Human ingenuity can’t develop a perpetual motion machine, or an economy that can grow forever.


Myth 11: We can keep growing because we can colonise space.

Response: That’s a big assumption, and an even bigger risk. The enormous amount of resources that would be required and waste that would be generated would add to our environmental problems right here and now, and contribute to ecological collapse on earth before we can colonise other planets. We’re not against space travel – but we haven’t worked out how to live on this planet without damaging its ecosystem yet. Let’s work that out first – we need a secure base.


Plus one more that we hear surprisingly often, even though it’s silly.

Myth 12: Economic growth is just about the amount of money sloshing around in the economy, and can be achieved by adding zeros on a computer screen, without any material growth in human activity.

Response: That’s devaluation of the currency, not economic growth.

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