Rethinking Scale and Growth for a More Sustainable World

Despite the lack of policy progress on climate change and ecosystem
degradation there is no shortage of solutions currently on offer. While
the specifics may differ, those getting most attention share one
characteristic-they focus on technological change. Whether it's Pacala
et al's wedges, Jeffrey Sachs' plan to reduce carbon emissions through
plug in hybrids and carbon capture and storage, McKinsey's cost
abatement curve approach, or Jacobson and DeLucchi's 100% renewables by
2030 plan, the emphasis is on technology. Most conspicuously lack a
number of obvious changes that would reduce emissions and footprint.
They barely address households' lifestyles and "behavioral" changes (the
first McKinsey report calls these too "difficult"), ignore changes in
distribution of assets and structure of enterprises, and are light on
the conditions of knowledge generation and dissemination. Furthermore,
with the exception of the green jobs literature, they generally fail to
integrate their analyses with current labor market conditions. As
readers of this blog are well aware, the dominant discourse also pays
scant attention to the equity implications and opportunities of
environmental policy.

In Plenitude: the new economics of true wealth, I argue
against the techno-fix approach. We also need deeper, systemic change
that incorporates economic structures, the rate and pattern of growth,
as well as alterations in cultural and social norms. Technology is
heroic, but the task of making a grossly unbalanced system sustainable
on its back alone is asking too much. Grappling with not only emissions
reductions, but the full material requirements of a shift to a new
energy paradigm, plus an additional 2 billion people requires technology
plus.

But even more importantly, a wider array of changes is also a desiderata
for a transition to a truly sustainable economy. That's because what
was efficient (or even just profitable, to put a finer point on it, and
differentiate between true efficiency and profitability) in an
industrial economy is not what is efficient, optimal or profitable in an
ecologically-oriented economy.

Both for households and firms, shifting to sustainability opens up
new possibilities, and intersects with ongoing changes in the economy.
In Plenitude, I lay out a number of principles that should
inform our thinking about how to solve the climate and eco-crises. These
include re-thinking the question of scale, knowledge transmission, the
role of informal economies and social capital, new consumer patterns,
and the relation among productivity growth, output and hours of work.
Here I will address two of these: scale and worktime.

Mainstream thinking on the shift to clean energy has a bias toward
large-scale installations, such as nuclear power stations, big wind
farms, concentrated solar, CCS and other capital intensive approaches
which will be dominated by large energy providers. Both the technologies
and the firms are outsized. But is big and even bigger the right future
as we transition out of the industrial era? There are good reasons to
think not, and that small is finally becoming not only beautiful, but
also efficient. Information technology is key to why. We need a lot more
research on this issue. But at a minimum, scale is one of the variables
that needs to be seriously raised as we contemplate economic futures.
The argument that the optimal scale of enterprise is falling relies in
part on the role of information technology in undermining the need for
the (classically inefficient) command and control functions of the
modern corporation and making possible efficient, low-cost communication
among distributed networks. Networks can share certain functions, while
competing on others. Indeed, the experience of the US economy over the
last few decades suggests that it's the small and medium firms who have
provided the bulk of innovation and employment growth.

There are other reasons why leaving the sustainable future to large
corporate entities is problematic: their excessive political power makes
them capable of blocking needed policy reforms, a problem that will
only get worse in the US after Citizens United. Furthermore,
resilience models suggest that highly centralized systems are
vulnerable, a point hammered home by the financial meltdown of 2008.
With climatic uncertainties predicted to increase, and financial crises
occurring regularly, a shift to smaller enterprises, operating in a more
de-centralized way is both prudent and likely to be more efficient.
These arguments are in addition to the more conventional one that local
or regionalized economies are less transport and energy intensive.
Finally, de-centralization promotes equity, by making small-scale
ownership, either in cooperatives or small businesses, more economically
feasible.

A second area is the nexus of output growth, productivity and hours
of work. There is now growing evidence that de-carbonization and
de-materialization (the de-linking of production from materials flow)
are only occurring on a limited basis. The material flows associated
with a dollar of GDP have been declining by about 1% a year for decades,
a phenomenon known in the literature as relative de-coupling. However,
increases in total production have lead to rising materials use,
including fossil fuels and their emissions. Since 1980, total materials
use (including fossil fuels) climbed 45%. GHG emissions have also
continued to rise, with a sharp acceleration since 2000. We haven't yet
cracked the nut of translating efficiency gains into lower emissions,
nor are we likely to without addressing the rate of growth of output.

One approach, which is getting more attention in the last few years,
is that the wealthy countries of the global North should reduce their
growth rates in order to provide ecological space for the global South.
(Indeed, even mainstream figures such as Lord Stern and Anthony Giddens
have begun to question Northern growth. See also the recent statement of a global group of economists, of which I and other E3 economists are a part.

But how to achieve such a feat? As I first argued in 1991 in World Development, and have elaborated in Plenitude,
the key is to reduce average hours of work. The economy will continue
to produce productivity increases. If they are not absorbed by rising
output, then equilibrium needs to be restored through declines in hours.
People can work shorter weeks or years, or less of their lifetimes.
That's flexible. What matters is that productivity growth isn't
channeled into more production, but into more time off the job. Shorter
hours are associated with lower emissions and less ecological impact.

This path also has two other virtues. It yields a significant benefit
to employees in the form of more time off the job. It won't be possible
to get global North populations to accept slow or no growth without a
corresponding benefit. This at least creates the possibility of
political feasibility. And once hours reductions begin, they tend to be
popular.

Second, if average hours fall, it becomes far easier to create new
jobs, because firms need to generate less revenue for every new
position. In the long-hours US it is now necessary to generate between
15 and 25% more revenue per job than in shorter-hours Western European
countries. To date the recover has failed to produce job growth anywhere
near the pace which is required to restore pre-crash levels, and
opposition to additional federal stimulus is hardening. Hours reductions
represent a fresh, possibly politically feasible approach. States are
turning to the unemployment insurance system to subsidize hours
reductions, and these policies are currently seen as politically neutral
and even business-friendly. Reducing hours of work is a policy reform
that satisfies the three E criteria: it reduces eco-impact, improves
economic efficiency, and enhances equity.

Taken together a decline in enterprise size and a reduction in
average hours of work can facilitate the growth of a low-impact sector
of self-providing households, self-employment and small-scale businesses
and coops. That's because people will have more time away from their
formal jobs and the competition from large enterprises will abate.
Fostering such a sector will help individuals build skills and assets,
reduce their personal footprints, and lay the groundwork for functioning
local and regional economies. The web and digital technologies are
central to this vision: because so much knowledge and skill can be
readily transmitted digitally, it is far more feasible to have high
productivity household and small-scale production. Indeed, household
production should no longer be seen as an antiquated pre-industrial
paradigm. Rather, it's one of the new possibilities that are available
to us in the 21^st century. In addition to its economic and
ecological aspects, it can also be a highly desirable lifestyle,
allowing people more creativity, freedom and flexibility.

The silver lining of the recession is that we could use it to
accelerate a movement toward this kind of systemic change. We could
re-balance the labor market with policies that facilitate shorter hours,
the development of cooperatives and small businesses, and
skills-training in small-scale green technologies and knowledges. In the
process, we'd be on the road to reducing CO2 emissions, lowering
footprints, and creating a more equitable and well-functioning economy.