Lower GDP, but Higher Quality of Life?

BY BRYAN LONG 

When GDP falls, we call it a recession, and we all know that is a bad time.  Unemployment is up, the stock market is down.  Earnings fall, social services falter, teachers are laid off, deficits rise.  We all look anxiously at economic numbers, waiting for recovery, for GDP to rise.

But here’s the truth that we do not like to see:  in a world of limited resources and many people, our fixation on increasing economic growth is luring us into disaster.  Already we are using more resources than is sustainable.  We can’t keep producing more each year.  We have to ask instead:  “What’s the difference between quantity and quality?  How can we have less quantity of stuff but still have more quality of life?”

An economist could take you on an all-day tour of how to calculate Gross Domestic Product (GDP).  But to put it simply, GDP attempts to quantify how much we produce in a year of goods, services and information.   GDP, as most governments calculate it, misses a lot of productivity.  It leaves out the services we provide to each other without the exchange of money, and doesn’t include unreported (black market) transactions.  But even if it isn’t precise, repetitive measurement of GDP is supposed to give us an indication of how an economy is expanding, or falling into recession.

If we accept GDP as a measure of economic expansion, however, then it is fair to ask what fuels that expansion, what resources the expansion is consuming, and what space the economy is expanding into?  Because the economy is not a virtual world where new resources can be infinitely added and energy is free.  Humans are an integral part of a biological network, subsisting on energy from the sun, and living inside a thin geophysical envelope.  We have only the earth and biosphere as it is, and must do our best to live enjoyably within it without degrading it.

That there are limits to growth is not a new argument.  Until recently, however, those who voiced that argument were drowned out by the majority, who countered that resources are ample to our needs, and that any shortages that do arise from time to time can be overcome through new sources, or new methods.  Those who suggested that GDP does not measure quality of life were put down by pointing to the historical rise in the standard of living of the industrialized nations, and by presenting the following inductive argument and rhetorical question:

a)    Economic growth is historically associated with increases in living standards;
b)    Increased living standards are desirable and good;
c)    Therefore, economic growth is desirable and good.
“Would you deny the underdeveloped world their chance at a better life?”

Unfortunately, in this case inductive reasoning fails.  The dramatic improvements in living standards over the past 300 years occurred because the human race found a new, fantastic source of energy:  coal, oil and natural gas trapped in the crust of the earth.  Essentially all of the technology of a modern economy is directly or indirectly based on the energy of fossil fuels.  The lifestyle today of the average citizen of an advanced industrial nation is supported by an energy flow several times greater than that which supported her ancestor of 1700 – and there are many more of us alive today to be supported.

Proposing that developing economies grow their economies to provide living standards improvements presumes the underdeveloped world could grow their economies in the same way that the industrial nations have.  The problem is:  they can’t. The United States has about 5% of the world’s population and consumes 20-25% of global fossil fuel energy.  The U.S. consumes similar percentages of other natural resources.  And it has done so for many years, thus building up its industrial and social capabilities.  At the same time, we have already caused atmospheric changes that will create climactic change:  the world needs to begin burning less fossil fuel, not more.

Meanwhile, the population of the planet has doubled and doubled again since 1900.  The argument is offered that population growth decreases when development increases, and that is hopefully true.  But even with just the people we have now, there simply aren’t enough energy, mineral, or biological resources in the world to support U.S.-style economic growth for the underdeveloped countries.   If development requires an increasing GDP, there is no solution to this problem.

Well then, what if we simply use energy and resources more efficiently, so that we can continue to produce more stuff, but use less matter and energy in production?

Efficiency, driven by intelligence and applied technology, is certainly key to our survival.  But the question above still presumes that producing more stuff is desirable.  The best way to improve efficiency, however, is to make goods that last longer rather than more goods, and services of higher quality rather than more services. The call to inventive efficiency is really a call for higher quality in our goods and services, not for a means to produce in greater quantity.

It is time to put aside, explicitly and decisively, the objective of higher GDP.   GDP measures quantity, not quality of production.  GDP presumes that a growth in production is a growth in quality of life, when in fact we have reached a point that the opposite is true. Not even our current level of goods production can be sustained, much less continual increases.  We must instead take up new measures of efficiency and of quality of life, and manage to those, not to GDP.   As soon as we completely change our mindset of growth for a mindset of quality and efficiency, we will find that there are tremendous opportunities to improve our lives and lifestyles.

For more information on GDP and alternative measures of development, see:

IEEP Patrick ten Brink’s Presentation on Beyond GDP indicators… http://tinyurl.com/5vbgv3

Beyond Growth, by Herman Daly  (book) http://cli.gs/VsSYNm

Calvert – Hendersen Quality of Life Indicators (website):  http://cli.gs/Bg1U16

Flynn Research, Sustainability and Quality of Life Indicators (report) http://cli.gs/nPYVgz

Chapter 5 of Herman Daly’s Steady State Economics (1977)   http://cli.gs/Zjbm5Q

What is Econosystemics? Revisited.

Extracted to: BRYAN LONG

Every time someone asks me what econosystemics is, I find I tell it a little differently.  I guess that’s the honest mark of an evolving paradigm; it gets a little clearer the more you think about it.

Econosystemics reframes economics to focus on the creation and accumulation of value, not only in human society, but also in this gloriously complex biosphere we are part of.  We’re all in this together, and it isn’t a zero-sum game.  There is hope for us all.

That is a very different approach from the economics that is taught in our universities and business schools, in which the emphasis is on the pricing and allocation and of scarce resources.  Not only in the textbooks, but also in popular discourse, the focus is on a consumption-driven, human-only economy.   Corporations, in this paradigm, compete to satisfy the pre-existing consumption demands of households.  Households return investment and labor to the corporations, and aside from resource scarcity and waste, that’s the closed loop.  Economic growth, deemed essential to a healthy economy, is about continually increasing production and consumption.  Running faster and faster in the rat-race; the devil take the hindmost.

But life isn’t that neat and simple, nor so bleak..  Life on Earth is an open thermodynamic system, receiving energy from the sun and converting it, somewhat chaotically,  into more life — or into things which have value for life.  Life on Earth is a complex, dynamic system that keeps on evolving.  Human economic activity is not fundamentally different from all the rest of life, we just take it to a different level.  We channel energy from various sources through our economic infrastructure to create value: the things that we need or want.  We consume much of that value, but a substantial fraction gets reinvested into our ever-evolving infrastructure.  In that regard, it is a virtuous cycle of value accumulation.

We are, however, destroying value within the larger ecosystem.  Humans are now a dominant force of change, responsible for environmental disruption and rapid biodiversity loss.   Econosystemics, therefore, looks at our value creation in context: what value is, and how it is created and destroyed in a complex dynamic system that includes not only what we call “the economy”, but also our quality of life and all of what we call our “environment”.  Econosystemics considers not just a flow of value from “nature” to human society, but examines the flows of value in all directions within the whole ecosystem web.

Econosystemics doesn’t ignore consumption, but it notices that new value creationprecedes demand.  For a company like Apple, for example, the marketing mantra isn’t “Find a need and fill it,” but “Create a new need.”  In econosystemics, what matters is not economic growth but economic development, which can be defined as the net accumulation of value within our entire biosphere — made thermodynamically possible by a flow of energy.  If economics is the “dismal science” focused on scarcity, econosystemics is a “hopeful science” that offers the promise of human “progress” without deprivation of the many for the sake of the few, and without the destruction of our vital biosphere.

It is very important for modern corporations to internalize this viewpoint as part of their culture.  The most successful corporations, in the long run, are not those that focus on building today’s products more cheaply, but those that are inventing new technologies and new ways to create and accumulate value.  The most successful companies, in the long run, are not those that exploit their employees and communities, but those that invest in their employees,  communities, and the environment.  You see this in the trend towards corporate co-opetition, in the success of companies like Google and Apple, and in the movement towards multi-stakeholder, environmental and social responsibility.

Where this is heading is towards a responsible society of corporations, in which an informal and formal social contract emerges that enforces norms and disciplines corporations that are blatantly destroying value, whether by environmental destruction or by promoting and profiting on war and social conflicts.    This isn’t just about morality; it’s about business, too. Companies that can refocus their activities away from debt-fueled, unsustainable consumption and towards an ongoing accumulation of value within the econosystem will be the most successful companies of the next decades.