Podcast: Two Cents' Worth
Two Cents’ Worth: Is growth bad?
Growth. Companies love it, politicians feast on it, most of us blindingly see it as a good thing.
But what if we’re all wrong?
What if endless GDP growth is bad? What if successful companies could grow - and then stop growing?
Oxford-based economist Kate Raworth, the sell-out opening act at this years Auckland Writers Festival in Auckland, is questioning the idea that producing and selling more every year is essential to a country’s stability and prosperity.
While growth brought us helpful stuff like washing machines, cars and mobile phones, it also brought pollution and social inequality, says Raworth.
“There’s plastics in human bodies worldwide. Our children breathe polluted air. There’s land degradation, water shortage, phosphorous and nitrogen pollution, ocean acidification to hit levels not seen in 14 million years. And the richest 1 percent of people worldwide own half of the world’s wealth.”
Raworth says it’s a problem the world’s economies are structurally dependent on growth.
“They have been designed to expect and demand and depend upon GDP increasing endlessly. We have economies that need to grow, whether or not that makes us thrive.
“We were told in the 21st century growth would even things up - trickle down economics. But you know what - it didn’t work. We were told growth will clean up after itself. It hasn’t worked.”
In 2017 Raworth wrote Doughnut Economics: Seven Ways to think like a 21st century economist. The book got to number six on the Sunday Times bestseller list in the UK.
Raworth’s doughnut economic model captures the imagination partly because it’s so easy to understand. The doughy doughnutty loop in the middle represents her ideal of a regenerative, distributive economy.
The hole inside the doughnut is where our less-than-ideal real economy falls short - people missing out on food, water, housing, income etc.
Outside the doughnut is all the damage we’ve done in pursuit of economic growth - climate change, species loss, pollution.
The growth curve
There’s another powerful illustration Rowarth uses in her presentation. It’s two bog-standard x-axis, y-axis graphs. GDP is on the vertical, time on the horizontal. But in one, growth continues exponentially; in the other the line flattens out.
“Look to nature. This is nature’s growth curve. From your children’s feet to an elephant to a tree in the Amazon, things grow and then they grow up and they mature and they come to thrive.”
Raworth’s saying it’s fine - natural - to stop growing.”
Raworth sits towards the extreme end in the growth argument, but she’s not alone.
Nobel laureate Michael Spence, a professor at Stanford University in the US, has also argued against growth as the be all and end all. And another Nobel prizewinner, Joseph Stiglitz is lukewarm on GDP - in some cases.
“We identify a number of ways in which GDP is not a good measure of economic performance or societal wellbeing. For example, GDP doesn’t tell you what happens to the typical citizen and this is an increasing problem you can have GDP going up but most people being worse off.”
Stiglitz promotes a focus on “green GDP”, which takes account of environmental degradation and resource depletion.
A country which cuts down its forests might produce short term growth, but it’s not sustainable.
GDP didn’t always grow
Most people take GDP growth for granted, but actually it’s a relatively recent thing. For tens, if not hundreds of thousands of years, GDP per capita didn’t grow at all.
New Zealand economist Arthur Grimes. professor of wellbeing and public policy at Victoria University, says economic growth wasn’t really a thing until the eighteenth century. Before that prices and wages didn’t go up because landowners and aristocrats tended to control production and discouraged change.
“New ideas are very dangerous for an established elite, so people weren’t allowed to innovate. Things only changed with the Enlightenment, when people started to question the status quo and you started getting new ideas.
“People started to experiment, devising new ways of running countries and companies. And it led to scientific advances and the growth we’ve seen since the industrial revolution.”
Even when the economy started growing, it was a couple of hundred years before anyone started measuring it.
During the Great Depression the US government decided to add up everything made in the entire country. It was basically a way to work out exactly how bad things were economically. But the idea of counting everything spread around the world, morphing into what’s known as the gross domestic product, (GDP) and its sister gross national product (GNP).
Politicians around the world started using that number to say ‘Hey the economy’s getting stronger’, or ‘Oh shit, the economy’s looking a bit wonky.’” And almost a century later, we’re still using it.
The downside to GDP
But as Stiglitz said, while GDP is a great way to measure physical stuff, it’s a terrible way to measure wellbeing. That’s because it values bad stuff just as highly as good stuff.
As US Senator Bobby Kennedy put it in a 1968 speech just a few months before his assassination:
“GNP counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and jails for the ppl who break them. It counts destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armoured cars for the police to fight the riots in our cities.
“Yet GNP does not allow for the health of our children, the quality of their education or the joy or their play. It does not include the beauty of our poetry... or the intelligence of our our public debate. It measures neither our wit nor our courage, neither our wisdom nor our learning... It measures everything in short, except that which makes life worthwhile.
From a New Zealand perspective, disasters like the Christchurch earthquake, West Coast landfill flood and Rena oil disaster are great for GDP because they involve expensive rebuilding and cleanup jobs.
Raworth advocates economies that are “regenerative and distributive” and she’s big on the circular economy. That’s where as much stuff as possible is reused or made into something else, not thrown away.
It’s the opposite of the traditional, linear “take, make, dispose” economic model.
Raworth says Swedish outdoor clothing company Houdini is a great example of regenerative economics. Houdini encourages recycling, renting, repairing and reusing in its own production and for its customers. Last year the company started a composting scheme for its clothing.
“They say ‘bring us your sportswear back’, they put some of it in the compost bin, turned it into soil, grew vegetables on top and served it to their customers,” Raworth says. “You’re eating your old skiwear.”
So what if Houdini Sportswear grows? Makes more and more clothes, more and more money? Is that OK?
Raworth’s answer is ‘it depends’. If someone goes out and buys new Houdini skiwear when their old non-compostable skiwear is perfectly OK to wear for another season, that’s probably not great.
But if Iots of people switch to buying Houdini skiwear - and then remember to take it back to the store be made into vegetables - that’s probably OK
The growth conundrum
Bottom line, it’s a bit of a conundrum. And no less in New Zealand than in Sweden.
Take independent electricity retailer Electric Kiwi. The company got top spot at the 2018 Deloitte Fast 50 awards with growth of a massive 3,600 percent.
CEO Luke Blincoe says the company grew revenue from under $1 million to $27 million in three years and is adding 12,000-15,000 customers a year.
Blincoe wants to get 100,000 in the next five years - about five percent of the market.
That sounds bad in terms of Raworth’s doughnut economics theories. Not only is it massive growth, but it’s also in the electricity sector.
Close on 10 percent of our carbon dioxide emissions come from power generation and heating.
Worse, Electric Kiwi offers a free hour of off-peak power every day as a key marketing strategy. It’s like they’re encouraging customers to use more.
That’s not how Blincoe sees it.
“Part of the key to our growth and success is we’ve been able to develop a position where consumers are rewarded for moving their consumption into off-peak periods. And that means they are likely to be moving their consumption away from fossil fuel generation.”
This works because hydro or wind power is cheaper to produce than electricity made from fossil fuels.
So in the middle of the day - and definitely in the middle of the night - there’s enough power from the cheap renewable electricity sources to meet all our needs. But when everyone comes home from work and turns on the heaters and starts making dinner, power consumption rockets and electricity generating companies have to send out coal- and gas-generated power as well.
“The term in the industry is ‘load shifting’. Shifting the load from a high-carbon period of the day to a lower-carbon period of the day, so avoiding those emissions during the peak.”
Moreover, Blincoe says Electric Kiwi’s growth is not from creating new customers - it’s from poaching them.
“Every consumer we win is already using electricity. Our average consumption isn’t higher than the market average; people are just using their electricity more mindfully.”
Blincoe estimates to date the company’s customers have avoided about 7000 tonnes of emissions.
No one’s arguing sustainable growth is a good thing. But where the economic discussion can get heated is when you get down to the cost-benefit analysis of changing how the economy works.
On the one hand you have people like Raworth arguing the price of unending growth is unacceptable damage to the planet.
On the other hand you have politicians like US President Donald Trump arguing the price of cleaning up the planet is unacceptable damage to the economy.
That’s why he pulled the US out of the Paris Climate Accord.
Even between economists, the battle’s getting heated.
Grimes fundamentally believes growth is definitely good.
“If you look around the world at countries where people are happiest, have best life satisfaction, fullest life satisfaction, they are all rich countries.
“It’s pretty hard to believe we wouldn't want to keep our lives getting better, each generation being richer than the last generation, which is richer than t generation before. If we were stuck where our grandparents were, we’d be pretty sad.”
Raworth fundamentally disagrees.
“If we are going to keep strolling into the 21st century with rational economic man as our guide, markets as our central mechanism and growth as our goal this is not going to go well. So let’s scrap that. Let’s start again.”
It’s not just theoretical fisticuffs. Economists can get personal too. Arthur Grimes is pretty scathing about Doughnut Economics
“I think it’s contentless to a large extent. Economists have talked about all these things before. I don’t think [Raworth] has added anything except for a pretty diagram.”
But Raworth isn’t going down without a fight. She’s not talking about Arthur Grimes in particular, but has a message for all her detractors.
“Every time an economics professor says you are making a big fuss about nothing, I say ‘Bring it on’.”
(For more on this topic, read Thomas Coughlan's interview with Raworth published in March.)
Thanks to the Auckland Writers Festival for use of the audio of Kate Raworth's talk. For the full podcast of the event click here.
About Two Cents' Worth
Two Cents' Worth has been launched by Newsroom in a co-production with RNZ. It is the country's first weekly business podcast. It is broadcast just after the midday news on Sundays on RNZ National, and is available on both RNZ and Newsroom's websites. It can also be found on iTunes and other podcast apps.
Each week we will examine one issue in depth and then convene a panel discussion.