Opinion Sur
This article considers the idea that we need to reduce greatly the throughput of materials and energy of the global economy—recognizing that this will probably mean a reduction in economic growth, at least as we now understand that term. A cessation of economic growth, as it is now measured and understood, may be expected to come about through a combination of two principle factors:
On the demand side, unless technology can provide an extraordinarily dramatic rescue operation, products, and the physical inputs (including energy) required to make them, will become more expensive relative to incomes from work. This would be the result of ecological constraints making themselves felt through rising resource costs and/or through deliberate social action designed to prevent further depletion and degradation of valuable scarce resources. It would likely result in a decline in wages, and hence in effective household demand.
On the supply side—specifically in relation to the supply of labor—in most of the world demographic shifts will shrink the proportion of the population that is of working age relative to those who are too old or too young to work.
Some possible outcomes for jobs and incomes
In terms of jobs and income there are several quite different outcomes that could be traced from the unfolding of these factors.
There might be enough jobs available for all or most of those who want them; or there might be a decreased market demand for labor, resulting in either massive unemployment, or else job-sharing.
Decline in resource quality and quantity might make labor less productive, resulting in lower wages [[Another outcome is possible, at least for a while: since the share of income going to profits has risen over the last few decades, at the expense of flat or declining wages, a reversal in this trend could, for a while at least, mitigate the change in the relative prices of material inputs vs. labor.]]; or technology might come to the rescue, maintaining or increasing labor productivity, and therefore not reducing labor income.
Another scenario in which technology rescues labor productivity without cutting jobs is the one that most people would hope for – though, as I’ll discuss later, an scenario with reduced work hours, could also be very appealing. Frankly, though, I am not very optimistic about technology rescuing productivity. Even if it does, there is also the issue of whether a reduced work-force, relative to total population, can maintain per capita output at today’s levels.
Issues of resource scarcity and quality
However, I will start from a different perspective, with a few remarks on the potential for a technological rescue, in terms supplied by Howard Brown, one of the most optimistic business people I know, and one of the smartest. He co-founded a company called dMASS, Inc—a name that refers to the reduction of resource mass through design. The goal of dMASS is naked value. Naked Value—the name of the excellent short book he wrote with two of his colleagues—is defined as “the essence that remains in a product or service after stripping away all unneeded resources. It’s the pure benefit customers seek, without waste and without material resources that don’t contribute to wealth or well-being.” (Brown, p. 3)
The reason why it is so important to concentrate on naked value is that the world is facing lower quantities and inferior quality for many essential resources. The British Geological Survey now publishes a “Risk List” ranking 52 economically important elements based on the risk that the supply will not be able to meet current expectations and patterns of use.
A 2011 McKinsey Report stated that “a number of factors are conspiring to create a risk that we might be entering a new era of high and volatile prices over the next two decades. Up to three billion people could join the middle class boosting demand at a time when obtaining new resources could become more difficult and costly. The stress on the resource system is likely to be compounded by increasing links between resources that mean that price shocks in one can swiftly transmit to others. In addition, environmental deterioration, driven by higher consumption, is making the supply of resources—particularly food—more vulnerable.” (McKinsey Global Institute, Nov 2011)
These alarming predictions have already been proven quite correct. The reason this is so is partially explained by Richard Heinberg in his book, The End of Growth: “When the quality of an ore drops, the amount of energy required to extracting the resource rises. All over the world mining companies are reporting declining ore quality. So in many if not most cases it is no longer possible to substitute a rare, depleting resource with a more abundant, cheaper resource; instead the available substitutes are themselves already rare and depleting.” (Heinberg p. 161)
Howard Brown similarly notes that “growing demand in the face of constrained supplies creates resource price volatility and conflict over unreliable supplies. So, while your markets grow, and perhaps demand for your products grows, the resources you need to operate your business become more expensive and less accessible.” (Brown, p. 10)
The good news from Brown is that there are technological and smart-thinking solutions that will make it possible to shrink the throughput of materials and energy in our economies while improving the functionality of the total output. He says, “For any business today, the central goal should be figuring out how to deliver the benefits people need in new ways with as little resource mass as possible.” (Brown, 36) And he cites as examples companies that are “developing products that deliver light without light bulbs, portable power without batteries, warmth without thick insulation or boilers, bacteria-safe surfaces without chemicals, and clean clothes without detergent.” (Brown 4-5)
The less good news from McKinsey is that “the capital needed each year to create a resource revolution will rise from roughly $2 trillion today to more than $3 trillion. However, the benefits could be as high as $3.7 trillion a year if carbon had a price of $30 per tonne and governments removed substantial resource subsidies and taxes. Even this would not be sufficient to prevent global warming and provide universal access to resources, which could cost in the region of another $350 billion a year.” (op. cit.)
Environmentalists such as Heinberg assume that the rich world will need to greatly reduce its consumption. Brown’s optimistic twist on this is that, yes, we will need to reduce greatly the use of materials and energy used in production, but it will be possible to end up producing equal or better outcomes for consumers. The McKinsey report similarly assumes that the technology is there, if the money and the will can be found. As for whether any of this means an end to economic growth as we know it—that may depend on how we measure growth. Maybe consumers will consent to spend as much on the naked value of oral hygiene, without the packaging and materials now contained in toothpaste. However, if the reduction in input mass occurs faster than the rise in input costs, the net will be reduced production costs. Then market competition should bring down the price for which this good—or service—can sell.
We thus have a picture that is both attractive and scary: our economies might retain or increase their ability to produce what people want, but less money will change hands as businesses spend less on inputs, and consumers spend less to get the real values they seek.
The alternative is a picture that is scary but unattractive: businesses do not manage to reorient their conception of the naked value they are selling, or do not manage to reduce sufficiently the energy and materials required to produce that value, and the shift away from growth (in blunt terms, severe depression) occurs, not because of human cleverness, but because of binding ecological constraints.
