Friday, June 12, 2009

Bigger isn't Better

By Peter A. Victor
May 2009

There's nothing like a good crisis to make us rethink old ideas. The
depression of the 1930s led to the rejection of the prevailing idea that
unemployment would right itself if only people would work for lower wages.
Governments could do very little to help. These ideas were overthrown by
experience and by the invention of modern macro economics by British
economist, John Maynard Keynes. By the end of World War II, most Western
governments had adopted Keynesian economic policies designed to ensure that
total expenditures were sufficient to maintain full employment.

Keynesian economists soon discovered that full employment today meant a
bigger economy tomorrow because some of the investment expenditures required
to keep unemployment down: on infrastructure, buildings and equipment, also
expanded the productive capacity of the economy. So does an expanding
population and labour force. Initially, governments pursued economic growth
to meet the more pressing concern of maintaining full employment, but this
soon changed. In the 1950s, economic growth became the number one economic
policy objective of governments and all others, such as productivity,
innovation, free trade, competitiveness, immigration, even education, became
a means to that end.

Until a year or so ago all seemed to be going reasonably well. Then came the
breakdown in the financial sector followed quickly by a recession that
through globalization, spread further and faster than swine flu. Now
governments are congratulating themselves for acting together to stimulate
spending to get the economies back on course, much as Keynes might have
recommended. But times have changed since his day. World population has
increased almost three times, world economic output has increased ten times
and with this massive expansion of the human presence on earth, we are
confronting limits to the availability of cheap energy, to fresh water, and
to the capacity of the atmosphere to absorb increasing emissions of
greenhouse gases. At the same time we are destroying the habitat of numerous
species of flora and fauna and the security of our own food supplies is

It is time to rethink the old idea that the solution to all our problems
lies in the incessant expansion of the economy. Rich countries like Canada
should explore alternatives, especially if poorer countries are to benefit
from economic growth for a while in a world increasingly constrained by
biophysical limits. Some deny or simply ignore these limits and argue that
economic growth in rich countries is necessary to stimulate growth in poorer
ones. Others say that with Œgreen¹ growth we can expand economic output as
we reduce the demands we place on nature through more efficient production,
better designed products, fewer goods and more services, compact urban
forms, and organic agriculture. While these measures may well help in a
transition they are an unlikely prescription for the long term. What is
required is a radical rethinking of our economies and their relation to the
natural world.

Although no 21st century Keynes has emerged to prepare the intellectual
ground for such a change in thinking, we do have a body of knowledge built
up over many decades and now thriving under the name of Œecological
economics¹. Ecological economists understand economies to be subsystems of
the earth ecosystem, sustained by a flow of materials and energy from and
back to the larger system in which they are embedded. It is understandable
that when these flows were small relative to the earth they could be
ignored, as they have been in much of mainstream economics. Economists are
not alone in treating the economy as a self-contained, free standing system
largely independent of its environmental setting. It is a widely held view
that environmental protection is just one among multiple competing interests
to be traded off against the economy. And anyway, this mainstream
perspective teaches that if resource and environmental constraints are
encountered, scarcities will be signalled by increases in prices that will
induce a variety of beneficial changes in behaviour and technology. Should
this system of scarcity, price, response fail then economists can estimate
Œshadow¹ prices which can be imposed directly through taxes or used
indirectly through policies based on cost-benefit analysis to fix the

To ecological economists, this is an inadequate response to the myriad
problems of resource depletion, environmental contamination and habitat
destruction confronting humanity in the 21st century. They question the
pursuit of endless economic growth and contemplate a very different kind of

In my own work, I have examined whether and under what conditions a country
like Canada could have full employment, no poverty, much reduced greenhouse
gas emissions, and maintain fiscal balance, without relying on economic
growth. Using a comparatively simple model of the Canadian economy I have
explored scenarios in which these objectives are met. The ingredients for
success include a shorter work year to reduce unemployment yet retain the
advantages of technological progress, a carbon price to discourage
greenhouse gas emissions, and more generous anti-poverty programs.

In such an economy, success would not be judged by the rate of economic
growth but by more meaningful measures of personal and community well-being.
We would adjust to strict limits on our use of materials, energy, land and
waste, guided by prices that provide more accurate information about real
rather than contrived scarcities. We would enjoy more services and fewer but
more durable and repairable products, and we would value use over status
when deciding what to buy. Rampant consumerism would be history, advertising
would be more informative and less persuasive, and new technologies would be
better screened to avoid problems to be fixed later, if at all.
Infrastructure, buildings and equipment would be more efficient in their use
of energy and we would think and act more locally and less globally. With
more free time at our disposal we would educate ourselves and our children
for life not just work.

Is all this simply wishful thinking of a sort that flourishes in troubled
times? I think not. The undercurrent of discontent with modern life is rich
with ideas for a better future, one that is not dependent on economic
growth. For example, in March of this year the UK¹s Sustainable Development
Commission delivered its report ŒProsperity without Growth?¹ to the British
Government endorsing and amplifying many of the ideas expressed here. The
Centre for the Advancement of a Steady State Economy based in the USA has
obtained over 3000 signatures on its position statement designed to help
change the goal of the economy from growth to sustainability. At the local
level, Transition Towns has spread in less than four years from the UK to
many countries including Canada, to raise awareness of sustainable living
and to build local resilience in response to the combined threats of peak
oil and climate change. Even mainstream economists are moving with the tide.
Nobel Laureate economist Robert Solow said last year: ³It is possible that
the US and Europe will find thatŠeither continued growth will be too
destructive to the environment and they are too dependent on scarce natural
resources, or that they would rather use increasing productivity in the form
of leisure.² Let¹s add Canada to the list and go from there.

Economist Peter A. Victor is Professor in Environmental Studies at York
University and author of Managing without Growth. Slower by Design, not
Disaster, Edward Elgar Publishing, 2008. ³Bigger isn't Better first
appeared in the Ottawa Citizen (

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