One of the saddest things about the lurch to extremism and the right wing of the political spectrum over the past few years—and especially these last few months—has been that attention has been taken away from the significant problems with capitalism and its reliance on continued growth that the 2008 crash had exposed.
The Classical Economists, in particular Adam Smith and John Stuart Mill, had already theorised centuries ago that growth could not go on forever and that eventually states would enter the condition of being a “stationary state”. John Stuart Mill wrote that the “increase of wealth is not boundless….the end of growth leads to a stationary state”. In addition, John Maynard Keynes thought that economic growth should not be infinite and that eventually we should reach a place where we could focus on more spiritual issues.
A steady state economy is an economy made up of a constant stock of physical wealth (capital) and a constant population size. Though the term typically refers to a national economy of a particular country it can also be applicable to the economic system of a city, a region or the entire world. The beauty of the thinking behind the theory of the steady state economy is that it broadly recognises that the world we live in is one of scarce and finite resources and uses other metrics than GDP to measure true value in any society.
Arguably countries such as Japan and maybe even the UK, Italy and other developed European countries are approaching becoming stationary states. In the case of Japan it has been shown that citizens have been able to get by well on no or low growth for well over two decades. By contrast, one European state, Germany has actively been pursuing economic growth by using immigration policies to halt population decline and fend off stasis, Angela Merkel describing immigration as “an opportunity” .
However, politically, putting forward policies that would bring about a steady-state economy here are difficult and there is no doubt that the Conservatives would not and could not support such policies. Progress is not in their DNA but the pounds, shillings and pence of business and banking transactions is in their DNA, so the leap required to get to this point of thinking so differently about the economy is quite literally beyond them. Also, many of their number are climate change sceptics who clearly think that we live on a planet with inexhaustible resources.
But it should be a naturally liberal policy, as a more equal society where we consume less, have more leisure time and use more sustainable energy all attest to our strong and basic liberal values and heritage.
Also, there is evidence at the edges to show that it is state we are heading towards anyway. In particular, the fact that this generation of young people will earn less than their parents is already a sign that growth in our economy is destined to be on the wane: There is also evidence that this generation is consuming less than the older generation. . Finally the sharing economy is here and looks destined to stay. This combined with the gig economy means that consumption will be decreasing over time as people brought up in this new world begin to outnumber those from the “old world” of unending growth and “consumption for consumption’s sake”.
Finally, this new state we find ourselves in is almost certainly one of the reasons why more and more politicians, think tanks and academics are considering the Universal Basic Income as a serious policy.
There is a strong reaction to the way that things are going in much of the developed world, and it is no wonder that the extremists on the right wing are having a field day. Change is scary, especially fundamental change that shakes up norms. But it is also an opportunity to move to a sustainable way of living that we as liberals should be embracing and advocating.
* Helen Flynn is an Executive Member of the LDEA. She is a former Parliamentary Candidate and Harrogate Borough Councillor and has served on the Federal Policy Committee and Federal Board. She has been a school governor in a variety of settings for 19 years and currently chairs a multi academy trust in the north of England.
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35 Comments
If wealth can be measured then GDP per head is the measure. Increasing GDP through increasing population does not increase wealth.
Wealth (in the form of GDP per head) can be increased by increased productivity. The invention of the internet in the 1970’s has enabled the increase in productivity since then but this seems to have run its course. There will be other innovations now and in the future which enable productivity to be increased by nations prepared to allow free enterprise to flourish.
Lib Dems should be promoting free enterprise as the route to higher productivity and increased wealth.
One of the real dividing lines between classical liberals and high liberals is whether or not there is a level of wealth beyond which any further growth is unnecessary. As Helen points out, Mill and Keynes (as well as Rawls, but also Marx) believed that “the economic problem” as the production of enough that everybody could have a satisfactory standard of living, after which we could sit back and focus on what really mattered.
They were wrong, however. Keynes predicted in 1930 that we would be four to eight times as rich in 2030 and that we would have met our material needs. He was unerringly accurate with the quantity and completely wrong about the effect it would have on demand. People still “want more”, and they are perfectly rational to want more. “More” means more and better healthcare; more opportunity for travel; a better home; faster communications; better, safer, cleaner jobs…
The real economic problem is how to use the finite resources we have ever more efficiently. We should be no more satisfied with the size of our economy than we were with the size of our continent in 1450. We should seek to expand and explore and discover new ways of making our lives easier and better.
The alternative is a zero-sum world where the only challenge is how we distribute what we have. That is the antithesis of “progress.” And it would be a dark and violent place.
Tom.
I completely disagree, Expansion took people to dark and evil places of war, genocide, imperialism, plunder and slavery. People sometimes talk about capitalism as if got to where it is without bloodshed or the grotesque exploitation of peoples and environments. We ignore the damage being done even now to the environment and to local populations when commercial interests outweigh morality. And what for really? A lot of land future land fill.
A bit of me can’t help wondering (politely) whether Helen has personally deployed her aversion to “consumption for consumption’s sake”.
Does she still watch black and white TV? Has she refused to buy a smart ‘phone and stuck to a land line? How’s about computers? Definitely they have ruined the steady state of communication when a stamp and Postman Pat were perfectly adequate.
Or is she full tilt into the latest of everything?
The trouble with UK economists is that they offer to speak and plan for the 99% of the human race who aren’t British when no one asked their opinion even about the fate of the 1% who are.
Britain is manifestly not in a steady state but is sharply declining. Choose any form of calculation, algebra, arithmetic, calculus, trigonometry, quantum mechanics, the enterprise known as “Britain” is approaching bankruptcy.
As this is an unappealing prospect, most people tend to look away and pretend it’s not.
What a breath of fresh air from Helen.
Laissez-faire economic liberalism has clearly failed the 3,000 plus clients of my local food bank…… whilst Sir Philip Green still has his yacht and Donald Trump will shortly have the White House.
The best sort of liberalism includes intervention in various forms into the so called ‘Free Market’.
Glenn,
Economic expansion did not require war, genocide, imperialism, plunder and slavery. That is just a marxian myth. In fact,war, genocide, imperialism, plunder and slavery were net drains on the income of the warring and imperial nations.
Of course we should not ignore the impact on commercial activity on the environment, and a properly constructed capitalist society would not do so. Our environmental problems are largely political rather than economic, and will require economic growth and development to solve. A steady-state economy will be burning fossil fuels for ever!
You ask “what [do we need to grow our economy] for really?” I have already suggested more and better healthcare; more opportunity for travel; a better home; faster communications; better, safer, cleaner jobs… You may consider future Alzheimer medicines to be nothing but landfill, but for the suffers of such as-yet-uncured diseases, they are an output of economic progress that cannot come quickly enough.
By contrast, one European state, Germany has actively been pursuing economic growth by using immigration policies to halt population decline and fend off stasis
Only one? The UK economy for the last couple of decades has been growing by circa .5% pa that can be attributed to having net immigration of around 300,000 pa…
Additionally, in the autumn 2015 statement, George Osborne made no secret of maintaining these levels of net immigration (remain or leave) to provide the tax receipts necessary to maintain the growth in government expenditure.
I think David Evershed in his comment begins to put his finger on the problem. Are we not more wealthy having the Internet and the globally interconnected communications that it brings even though wages may be the same or lower now than they were in the early 1990’s? The problem is that this sort of wealth doesn’t translate very well into monetary figures. So I would tend to agree with Helen, it is perfectly possible to have a steady state monetary economy, whilst at the same time increasing wealth/standard of living/quality of life.
The Steady State Economy is always going to be a tough sell when we have any like the current level of wealth inequality in our society.
If you offer a Steady State without massive wealth redistribution then you are consigning millions to be permanently economically disadvantaged.
If you offer it with wealth redistribution then you are promising to take money off all of those whose wealth is higher than average.
Like it or not, economic growth is the only way to make poorer people better off, without also making richer people poorer. The liberal challenge is to manage growth so that it’s benefits are fairly distributed.
Helen, I am so glad you have written this, as I have long felt we in Britain should not continue to look for more income growth, to buy more or better material goods if we are already well supplied. What I think we should be seeking to see grow here is well-being, or happiness, and I am pleased that the Government now has a happiness index, unlikely as it seems. Of course managing expectations is the difficulty, but as a Liberal Democrat, Christian and counsellor, I am all for trying. (Have recently got some excellent new clothes from local charity shops, so am not recommending hair shirts!)
There are some serious and painful discussions we all need to go though here….
Been looking at some of these issues and would welcome comments on these books, for example:
‘How much is enough? Money and the good life’. By Edward Skidelsky.
‘The Economics of enough: how to run the economy as if the future mattered’. By Diane Coyle.
Steady-state theorists need to look at the pessimistic analysis by Benjamin Friedman. He predicted that we would get populist right-wing and racist movements prospering if growth slowed or stagnated for any lengthy period of time. So his book ‘The Moral Consequences of Economic Growth is essential reading I think…
Blurb on Friedman book says:>>Friedman examines the political and social histories of the large Western democracies particularly of the United States since the Civil War to demonstrate the fact that incomes on the rise lead to more open and democratic societies. He explains that growth, rather than simply a high standard of living, is key to effecting political and social liberalization in the third world, and shows that even the wealthiest of nations puts its democratic values at risk when income levels stand still. Merely being rich is no protection against a turn toward rigidity and intolerance when a country’s citizens lose the sense that they are getting ahead. <<
The case of Japan is that it is faced by an ageing and falling population and is also faced with massive debt.
@ Tom Papworth,
One of the earliest words to enter the English language was the Indian slang term ‘loot’.
Has there ever been a more effective and economically advantageous corporate plunder than that by the East India Company backed by the British Government? Or do we still believe that our expansion into other nations was part of ‘the white man’s burden’?
The first sentence should have read , ‘the earliest Indian words to enter the English language……’.
The first thing needed to establish a steady state economy is to balance the budget. Successive governments have got away with budget deficits and increased national debt by covering the Debt/GDP ratio with additional growth. That’s not to say that it cannot be done but this would have to involve higher taxes and that would only be possible if disposable incomes were raised. That does not necessary need to be through greater productivity alone but through cost of living reductions. The cost of housing/land/energy efficiency being the most likely targets. Trouble is not so much population as demographics. Again, not a insurmountable issue as the recent raising of the pension age is indicating.
@Jayne Mansfield
No. The occupation of India was, over the long term, a massive drain on the UK’s resources. It was neither “economically advantageous” nor “the white man’s burden”. It was folly.
In that, at least, it is not unlike a belief in steady-state economics.
Instinctively I take Helen’s side on this. After all, millions do jobs they hate to get the money to buy things they don’t need. But Helen refers to a more equal society where we consume less. In practice I think it would be a less equal society. I don’t propose to expound a theoretical economic argument to support this, merely the observation that in practice powerful groups in society will be able to continue to enrich themselves at the expense of the rest of us. For example, professional groups will seek to restrict entry to certain jobs in order to keep salaries high.
We live in a world where the pace of change is at its fastest since the industrial revolution and looks likely to continue to increase faster. Declaring that this is the time for productivity enhancements to suddenly stop because of a misguided belief in post-Soviet command and control economics is frankly rather unexpected. Young people are not consuming less than their baby boomer parents because they are post-materialist: It is because the baby boomer generation has locked down housing and jobs through oppressive regulation which means the under 40s have the lowest share of wealth that has ever been measured.
There is also an implicit economic nationalism here – One population, one set of productivity and one government. No mention of the outside world, our multi-billion value of exports, imports which provide a diet richer in minerals than one available from the UK climate alone, 2 million+ foreign residents and tens of millions of tourists and business visitors.
@Chris Coy
I would caution against taking the view that “millions do jobs they hate to get the money to buy things they don’t need”. It is not for you to judge whether they “need” these things or not. They clearly believe that they need them and we should acknowledge their right as free and equal human beings to exercise that judgement.
I totally agree that a steady-state economy would be less equal, however. Once the economic problem becomes one not of production but of distribution, it becomes a zero-sum game where power is wealth and wealth is power. I realise that that is often how capitalism is portrayed, but one only need to look at the politics of countries where the government truly dominates distribution to see how unequal and undemocratic such a society would become.
(Sorry I misspelled your surname, Chris!).
Tom Papworth,
The fact is Marxist Myth or not it all happened. Ironically what your argument reminds me of most is one of those old soviet types claiming that you should ignore the history because the ideology is so perfect. I just see excuse making.
Glenn,
I’m not denying that war, genocide, imperialism, plunder and slavery happened. I am saying they were not fundamental to economic growth. There was plenty of war, genocide, imperialism, plunder and slavery under communism and their economies often shrank.
Unfortunately, this language is too technical and secondly not many are going to vote for permanent stagnation. I’m not an optimist about Britain, Europe, or the world, but I at least want to vote for a plan that could change things, not just cement my lack of optimism.
Thanks for all the comments so far! Glad to have stirred up some debate.
No one seems to refer to the fact that our young people are consuming less and will earn less than the older generation. This is a fact and presents us with an opportunity to shift our economic model. What will happen to house prices in the next 10-20 years? The pace of building new houses is still achingly slow, so there is still going to be a supply shortage for many years to come. But, there is simply no way will the next generation be able to buy them at such inflated prices. So we are going to see a shift in our economy that I think will be big.
I think it is down to us to be radical and begin the conversation with the public in any way we can about the changes that are necessary in our economy to make life better for, I would argue, everyone! You have to start somewhere……
Helen,
I think the concept of a steady state economy is to0 close to the Malthusian catastrophe hypothesis for comfort, with its premise that there is a constant stock of physical wealth (capital).
Innovation and productivity enhancements continue apace and have overcome physical constraints time and again. As commentators noted earlier, Keynes envisioned a time when our biggest problem would be not the growing of food or production of material goods but what to do with our leisure time.
In some ways this has come to pass with an ever decreasing proportion of labour engaged in agricultural production and manufacturing. The service economy, however, continues to grow. A century ago few families would have the wherewithal to have infants attend nursery schools, have elderly relatives cared for in nursing homes or contemplate foreign travel. Now it is commonplace.
The inter-generational problem of housing is acute and is a failure of the planning, economic and monetary systems. One that may be best addressed by the Georgist proposals for land value taxation as a means of sharing economic rents more equitably between landowners, mortgage financiers and tenants.
@Tom Papworth.
I take your point, but I don’t doubt that many people hate their jobs. Whether a lot of people already have enough “stuff” is indeed a value judgement.
Further thought…….
Any significant future gains in GDP are likely to be driven by new and sophisticated technological advances. These advances will not necessarily create many new jobs, but will need a small number of highly skilled individuals, creating an even more divided labour market and greater inequality. How do we share the gains in a way that increases social justice and social solidarity ?
Even more problematic…….
In many developing countries the best chance of significant economic growth comes from exploiting their natural resources. We in the west may be looking to reduce our oil/gas/coal usage but if imposing that position on developing nations keep them poor ? Another liberal dilemma !
Suppose the Governor of the Bank of England were to forecast two consecutive quarters of negative growth? We are currently at risk of entering an economic roller-coaster, depending on which sectors the Prime Minister chooses to negotiate for as she tries to pick winners? Video games anyone? A candyfloss economy?
“Also, there is evidence at the edges to show that it is state we are heading towards anyway.”
This is my takeaway comment from this very welcome article from Helen. Moreover,..this is the kind of debate that should have started [mainstream], approx., 20 years ago. The overarching problem, as I see it, is that a steady state economy, which might be very welcome right now,.. is not thermodynamically possible. The global economy, like the human body, and indeed the universe will not accept stasis. A dissipative system such as our global economy is,.. requires copious amounts of energy simply to maintain itself [as is], and ultimately, such a system, [in aggregate terms], is either in a state of growth or decay. This is not a political comment,.. This is simply,.. how it is.
As a boomer age, retired engineer, I was weaned as a young chap, on the promise of flying cars, endless mind blowing limitless technological opportunities, and the futurist writings of Alvin Toffler as my guru guiding light,.. until……
Around 2002, I discovered several new studies and troubling energy related realities that I couldn’t ignore, no matter how much I tried. I unfortunately discovered that there were limits, but worse than that, was the realisation that those limits are close at hand.
Growth was good while it lasted over the last 250 years, but it’s slowly but incrementally, shutting down across the globe, and we’re going to have to deal with it, and its social consequences, over the next 15 to 30 years (ish).?
My take,.. is that a steady state economy as Helen suggests is maybe desirable but not realistic, and that sooner or later, we will have to adopt what I have previously called,… a ‘Triage Economy’, which will require hard-nosed decisions on what we as a society are willing to,.. ‘let go’, not from some political ideological reasons,.. but simply because in this new era of de-growth,..we will have to.?
It goes without saying that this is way beyond any Brexit issues.? Whether we were to Leave or Remain, the thermodynamic realities described above,..will unfortunately, still apply.
What I take from this line argument is more of a questioning of the current economic philosophy of nations like Britain. Does GDP really tell you anything very much, why eulogise change for the sake of change, Are the values involved a true reflection of how people live or want to live day to day? For that matter is it even really progress and will technological changes actually lead to an endless need to expand.
It strikes that we’ve not really learned anything from a series economic bubbles bursting. So you have all this emphasis on communication, but actually the internet kills a lot of commerce. There is more music, more publishing, more films are made and so on than at any point in history. However the ability to make money from it is diminishing because there is no way of controlling the almost instant access everything for free. Despite all the claims. the growth in Britain isn’t in high paid high skilled work it’s in zero hour low paid work, pound lands, fast food, discount stores and so on.
I second the point by Edis Bevan above that economic stagnation can be disastrous for liberals. Look at the gains of the 50s and 60s, when incomes were growing fast, versus the role wage stagnation has played in Brexit, Trump and the wider swing to the right.
There is still so much poverty and want in the world. It will be so much easier to cure it if our total wealth rises than if we simply try to redistribute what already exists. As Helen rightly notes, there is evidence growth is slowing down, but I see it as a trend to fear and counter rather than one to embrace.
The trouble with a steady state economy is that capitalism, and ther fore much of our existing economy, assumes growth to fund the investments made. With zeo growth, many investments that would need growth won’tbe made, so negative growth or slump. Meanwhile, humanity is heading for many major crises created by the growth so far: water shortages, climate change, energy shortfalls, species extinctions, populist fascist politics and probable resource wars to name a few.
When I click on “evidence that this generation is consuming less” I end up at apple.com with a loop of their products. I don’t think that this statement is true. The oldest people are more likely to make do with an old product so long as it works and not replace it just because it is no longer the latest model, while younger people like to have the latest model. They would prefer to buy something new to use something they are given that has been used before. I also think they are much more likely to buy a new product rather than investigate if their old product can be repaired.
@ P. J.
“cost of living reductions”
Indeed building more than 300,000 houses a year would be a start. Ensuring there are no homeless people or people having to live in bed and breakfast. This hopefully would reduce the price of houses and the level of rents.
Would government pay for all insulation measures on all property that does not meet the energy efficiency standards of new houses?
Should government also pay for double glazing in houses without it?
Could Land Valuation Taxation on business land assist in financing these as well as the Citizens Income (as Helen Flynn would like introduced)?
We need to be sure the economy works for us, not the other way around.
I’m not sure that focusing on GDP is really meaningful for most people, nor does a fixation on increasing it, or keeping it steady, have a direct impact on the improvement to the lives of those that are struggling, or on protecting our environment.
We need to do more with the resources we have, and so I’m an advocate of the Circular Economy!
https://www.ellenmacarthurfoundation.org/circular-economy
I don’t think it’s wrong to have a modern TV or a smart phone, but it really is unnecessary to get a new one each time they change the model number. It would be refreshing to be able to buy electronics that are designed to last more than a couple of years, and that can be fixed or upgraded without having to throw the whole thing out. Better for the consumers’ pocket, better for the environment, and more local jobs for people to do the work. On the other hand, it’s bad for share prices.
@Helen,
No economy, even one that isn’t growing is going to be “steady-state”.
The way to correctly understand economics is to, initially, forget about money just look at the available resources that we all have at our disposal. If mankind invents robots that will free up human labour for other things then we will have more resources at our disposal. We will end up richer. Or, we won’t need to work such long hours.
Whether capitalism is capable of handling to the issues you raise and the ensure that the workers who are displaced by the robots aren’t unfairly disadvantaged is the key question.
Nate Silver’s website has an interesting view on how social mobility is adversely affected by low growth and inequality. They even claim that data shows how inequality is more significant than low growth, by a factor of two.
Inequality Is Killing The American Dream
If we have grown to live in a have, have not and have yachts society over the past few years then we should question the morality of those with yachts while others struggle for housing and food. Especially if they become chummy with the most powerful in the country by calling for greater fundraising while also avoiding their own contribution….
Being adverse to consumption for consumption’s sake and owning the latest gadgets do not need to be opposing sentiments. However, those who have a perfectly good mobile and then want the latest design just because its the latest design aren’t really demonstrating that they disagree with consumption for its own sake.