Green growth or no growth?

Credit: dannymark/istock

The current climate emergency is at last getting more of the attention it deserves, thanks to the Extinction Rebellion demonstrations and the success of Green parties in last month’s European Parliament elections. But how should economic policymakers react? Should they be concentrating on making growth green – adopting the new ‘green growth’ paradigm – or seeking prosperity without growth?

Many international economic organisations, including the Organisation for Economic Co-operation and Development, International Monetary Fund and World Bank, have been advocating the former. There is even a treaty-based, intergovernmental Global Green Growth Institute, “dedicated to supporting and promoting strong, inclusive and sustainable economic growth in developing countries and emerging economies”. On the climate change front, Nicholas Stern has made a strong case that a “committed and strong low-carbon transition could trigger a new wave of economic and technological transformation and investment, a new era of global and sustainable prosperity” and the New Climate Economy project has laid out a route map towards “better growth, better climate”.

Yet there is a strong current of opinion that views this pro-growth approach as fundamentally wrong-headed, on theoretical and empirical grounds. This line of thought can be traced back through the debates about the Club of Rome’s 1972 report, The Limits to Growth, all the way to Thomas Malthus and John Stuart Mill.

Give green growth a chance

I reckon that green growth ought to be given a chance. The switch from our current global economic trajectory requires a huge, pervasive and persistent effort of collective action. That is more likely to happen if people and politicians see something in the switch for them. The evidence suggests that economic growth does tend to promote reported human happiness and – perhaps more relevant for policymakers – tends to help politicians win votes. Economic growth has helped to lift millions out of poverty and save lives.

But is continued economic growth possible even if it is desirable? I take some comfort from the fact that estimates of the costs of stopping human-induced climate change – the “greatest market failure the world has seen” (Nicholas Stern’s words again) – are relatively modest. Aiming to keep the increase in global temperature from pre-industrial times below 1.5°C would probably only knock 0.1 percentage points off the average annual growth rate of GDP over the 21st century. But that is no reason for complacency. So far, the global community has not stepped up to meet this modest cost.

And there are many other intractable environmental problems, several of which are serious global risks, that are a lot less well understood than global warming and less amenable to mitigation by economic policy tools. But that points to the need for further study, evaluation and straight talk by politicians willing to take the long view. If collective action in response to this challenge is politically infeasible, I certainly do not rate highly the chances of persuading politicians to go for ‘no growth’ instead.

I understand the pessimism of those who look at the track record so far of efforts to decouple economic growth from environmental degradation and material scarcity. Hickel and Kallis recently argued that “there is no empirical evidence that absolute decoupling from resource use can be achieved on a global scale against a background of continued economic growth”. They are highly sceptical about economic projections based on increases in the efficiency with which raw materials are used and highlight the danger of rich countries offloading environmentally harmful and profligate activities to low-income countries. Some of their concerns are echoed by advocates of green growth such as the OECD.

But looking at the historical record over a period when policymakers have not prioritised efficient use of natural resources misleads us about what could be done in the future. Indeed, so far, governments have instead been subsidising resource exploitation. Perhaps around US$1 trillion is spent on directly subsidising the consumption of resources, including approximately $400 billion on energy, $200–300 billion of equivalent support on agriculture, and $200–300 billion on water. The authors who made this observation also note that, “While these direct subsidies are vast, they pale in comparison with the indirect subsidies in the form of natural assets that governments have failed to properly price. There is another US$1 trillion, very approximately, in the form of subsidy for the use of the atmosphere as a sink for greenhouse gas emissions. The indirect subsidy associated with lack of payments for biodiversity loss and other environmental costs is estimated at perhaps as much as $6.6 trillion.”

Yet with the right price signals and regulatory contexts – and, of course, technological advances – resource productivity can increase dramatically, as we have seen with, for example, silicon chips and LED lighting. Progress (though not yet enough) is being made by some countries, including the UK, in decoupling economic growth from the growth in carbon emissions. Much more needs to be done to price raw materials and environmental capital properly, and to spread advances in materials productivity around the world, especially to the newly industrialising nations of the Global South.

Less ‘stuff’, more ‘human intelligence’

The most important way of decoupling natural resource use and environmental harm from economic growth is to change the nature of economic growth. Much more emphasis needs to be put on the generation and use of ideas rather than the exploitation of nature. As Baptist and Hepburn have argued, treading lightly on the planet need not reduce economic growth in value terms. They found that, in the US, sectors with lower material intensity had higher total factor productivity, as did those with higher labour intensity. In other words, using less ‘stuff’ and more ‘human intelligence’ increased overall productivity and economic output.

The ‘weightless’ economy discussed by Danny Quah and Diane Coyle may be able to escape the confines of resource scarcity by exploiting the infinite expansibility of the global knowledge base. Like the fight against climate change, this will require collective action on a massive scale, for example to regulate the owners of the intellectual property that is potentially so valuable. That seems a worthwhile challenge to me – and, despite its difficulties – an easier one to meet than persuading people to give up on growth.

Alex Bowen is an economist and special adviser to the Grantham Research Institute on Climate Change and the Environment.

The views in this commentary are those of the author and do not necessarily represent those of the Grantham Research Institute.