The case against degrowth

Degrowth can be defined as the planned reduction (through policy interventions) of production and consumption in high-income countries, in order to reduce the environmental impact. If the production and consumption is measured in terms of resource throughput, we are talking about resource degrowth. If it is measured in terms of GDP (economic wealth), we can call it economic degrowth. 

This article argues why campaigning for degrowth is ineffective, and can even be counterproductive or harmful. Instead of degrowth of the economy, increasing technological innovation (research and development of clean tech) is more effective. 

The ImPACT equation

To understand degrowth, we can start with the ImPACT equation, given as:

Im=PxAxCxT,

with Im the impact on the environment (e.g. kg CO2 emissions, decrease in biodiversity, level of pollution), P the population size (number of consumers), A the affluence or economic activity per capita (dollar economic wealth created per person or dollar GDP per person), C the consumption intensity of resources (e.g. kWh energy per dollar, m² land per dollar or kg minerals per dollar GDP), and T the translation factor that translates resource use in environmental impact (e.g. kg CO2 emissions per kWh energy used, decrease in ecosystem quality per m² land used). The total greenhouse gas emission is the product of four factors: the number of people times the average amount of dollars income per person times the average amount of energy used per dollar times the average emissions per unit energy used.

Degrowth assumes that the four factors in the ImPACT-equation are independent from each other (or more generally non-decreasing functions of the other factors). If that is the case, and as all four factors are positive, it is clear that one can reduce the environmental impact by reducing per capita GDP (the factor A) or resource use (the product of A and C).

With the impact equation, we can look for those factors whose reduction is the most effective way to reduce total environmental impact. We aim for the largest reduction in impact, preferably all the way down to zero.

Reducing population: the population degrowth objective

Reducing population size (the factor P) is the objective of population degrowthers or antinatalists. The only ethical method to reduce population size, is investing in voluntary family planning to reduce unwanted pregnancies. However, this measure has a limited potential: even if all unwanted pregnancies are avoided, population size will not decrease fast enough to meet climate targets. More drastic population reduction measures, for example by unvoluntary sterilization, are unethical and politically unfeasible. One cannot reach zero impact by reducing only the population size, except if one reduces the population to zero, which is definitely unfeasible.

Reducing population size may not only be ineffective, but could be harmful in some ways. First, there are the negative economic effects of population reductions. Fewer people means fewer brains and hence fewer new discoveries, inventions and solutions to problems. It means less specialization of work, less division of labor, which results in lower labor productivity and hence longer working hours (less leisure). It means having fewer customers and buyers, and hence lower incomes.

Second, there are negative ethical aspects of population reductions. Having fewer happy people is problematic according to some reasonable population ethical theories, such as total utilitarianism that maximizes the sum of welfare of everyone in the future. It is possible that future generations have higher welfare levels than us. If these future populations are smaller than what could have been, it means that a number of very happy lives do not exist. Total welfare is lower than what could have been. According to many reasonable population ethical theories, a world that has extra people who are extra happy, is better than a world where those happy people do not exist, all else equal.  

Reducing affluence: the economic degrowth objective

Reducing affluence (the factor A) is the economic degrowth objective. Within the degrowth movement, the measure of GDP is often criticized as not measuring what really matters (e.g. flourishing). As a result of this direct attack on the GDP metric, degrowth is often perceived (at least by outsiders) as striving for a reduction of GDP. Such economic degrowth is not necessary, not effective, not politically feasible and potentially harmful.

Economic degrowth is not necessary, because it targets the wrong enemy. GDP is not the enemy; environmental impact is the enemy. Environmental scientists are able to determine upper bounds on environmental impacts such as pollution. For example, climatologists have determined the carbon budget: how much greenhouse gases can still be emitted that keep the atmospheric temperature increase below 1,5°C. But GDP is measured in dollars, a totally different quantity than kg CO2. Hence, none of the economic degrowthers are able to say what is the upper bound or true limit on affluence. There are no scientific studies that estimate the maximum level of GDP that is still permissible.

In the very end, it all comes down to computation (information processing). Everything we value, such as the feelings of well-being created by our computing brains or the biological diversity created by ecosystem processes, is based on computation. The true limits to growth, are the limits of computation, and these are extremely far away. GDP can still grow by an extremely huge amount before hitting these limits.

Economic degrowth is not an effective strategy to reduce environmental impact. First, from a global social justice perspective, economic degrowth should apply only to the high-income countries. Poorer countries should be allowed to grow in order to reduce poverty. However, most (more than 50%) of the global environmental impact (for example global greenhouse gas emissions) occurs in non-high-income countries with high levels of poverty, where degrowth is not appropriate. Suppose degrowth results in a reduction of 50% of the average GDP per capita in the high-income countries. This will reduce the total impact with less than 25%. Such a small reduction in greenhouse gas emissions is not sufficient to meet climate targets and keep the temperature increase below 1,5°C. Hence, reducing affluence has only a small potential. In general, reducing the total impact all the way to zero by only reducing affluence requires a 100% reduction of affluence, which is not feasible.

Economic degrowth is not so politically feasible, as it requires a lot of international cooperation between high-income countries. Reducing GDP is an objective of economic degrowth, but that does not immediately translate into a concrete policy. To study the effectiveness and feasibility of economic degrowth, we have to look at specific policy proposals made by degrowthers. 

The most obvious degrowth policy proposal that targets economic growth and affluence, is the implementation of an income ceiling or maximum income level (e.g. a 100% income tax rate above a certain threshold). Degrowthers argue that the relationship between what is measured (income or GDP per capita) and what matters (e.g. well-being, life satisfaction, flourishing), is non-linear and concave. That means increasing the income or wealth of a poor person strongly increases that person’s well-being, but increasing the income of a rich person does not much increase that person’s well-being. If a population becomes very rich, increasing GDP is no longer an effective means to increase the well-being of those people. Hence, setting a maximum income level where the relationship between income and well-being breaks down, should be feasible. But degrowthers neglect the also non-linear and concave relationship between environmental impact (e.g. ecological footprint per capita, greenhouse gas emissions per capita) and GDP per capita. Richer people have a higher propensity to save, which means a smaller fraction of their income goes to consumption. Richer people also make use of more clean technologies that are more expensive. Hence, someone with twice as much income, has less than twice as much environmental impact. This non-linear relationship between GDP and environmental impact means that choosing a high maximum income level does not reduce the total environmental impact that much. 

In general, choosing the maximum income level is difficult. If the maximum income level is high, it still allows for a lot of growth, as many people can increase their incomes. If on the other hand the maximum income level is low, it becomes politically unfeasible, as many people will consider that income level as poverty.

A more problematic aspect of a maximum income, is that it can decrease innovation and technological progress, because it reduces the incentive to earn more money by taking risks and invest in innovation. The same goes for another degrowth proposal: a maximum size on (for-profit) companies. This regulation would imply that companies cannot grow and take advantage of their increasing returns to scale. This reduces efficiency. Many small companies are often not able to produce the same things as efficiently as a fewer number of larger companies. 

Another degrowth policy proposal that intends to target affluence, is a reduction of working hours. Income and affluence can be reduced by reducing hourly wages, but this faces political resistance, or reducing working hours. However, in free market capitalist societies, we already see a reduction in working hours per worker. Due to increasing productivity and income levels, which corresponds with economic growth, people increasingly value leisure time and prefer to work fewer hours. As a consequence, further government interventions to regulate working hours, for example by setting a maximum that people are allowed to work, would be less effective. And such regulations are too economically disruptive. For example, some highly productive people are willing to work more hours and employers are willing to pay them for those extra hours, but they would be prevented from doing so. This is an infringement on liberty.

Finally, economic degrowth can be harmful. A policy to reduce economic growth risks having negative economic side-effects, for both richer and poorer countries. The rich countries that degrow could face for example increased unemployment and increased government debt (due to lower tax revenues). There are at present no economies that show a decrease in their GDP while at the same time not increasing unemployment or government debt. There is no clear consensus among economists how to safely degrow as a country. Degrowth can be considered as a risky experiment to figure out how to avoid unwanted economic problems while reducing GDP. Also poorer countries can be harmed if richer countries degrow, because of reduced international trade and decreasing export levels towards degrowing richer countries.

Reducing resource consumption: the resource degrowth objective

A third strategy to reduce environmental impact, is to reduce the resource consumption intensity C. This can be very cost-effective, as it saves energy and resource costs, but it has limited feasibility. Just like the previous two factors, reducing the impact all the way to zero by reducing consumption intensity to zero, is not feasible. This unfeasibility is not because of political reasons, but because of physical limits (in particular the second law of thermodynamics).

Due to its cost-effectiveness, we already see a decrease in the global average energy intensity (kWh energy used per dollar GDP) with 1% per year over the past two decades.

Instead of focusing on the factors A and C separately, the degrowth movement focuses on the product AxC. What is needed according to resource degrowth, is neither merely a reduction in economic activity as measured in GDP, nor merely a reduction in consumption intensity, but a reduction in resource throughput, as measured in GDP times consumption intensity.  

As with economic degrowth, resource degrowth is not necessary, not effective, not politically feasible and potentially harmful.

The major criticism against resource degrowth policies, is its lack of necessity. First, the real limits to growth are still far away. Consider energy scarcity. The amount of solar energy that hits the earth is almost 10.000 times more than the energy used by all humans. Add the solar energy that can be captured in space (e.g. on the moon), all geothermal energy that can be captured, and nuclear energy from both fission and fusion, and it becomes clear that there is an abundance of energy. Limits on materials (e.g. metals and minerals) are less stringent, because given enough energy, materials can be recycled or mined at hard-to-reach places (e.g. the ocean floor, the moon, asteroids,…). The physical limits of resource use are not yet reached, so why would we need a self-declared, political limit on resource use that is much lower than the physical limit that sets the true boundary?

Second, even if we hit the limits, planned policies are not required. Private property rights on resources (energy, land, minerals) are feasible. These rights are already in place or easily implementable. With such property rights, there is no market failure, which means that free markets solve the scarcity problem through the price mechanism. In other words; markets will automatically indicate whether resource growth and GDP growth are no longer possible. In particular, if the prices of resources increase so fast that resource use or GDP no longer grow, then the market indicates that the limit to growth is reached. As the market will not let the economy grow any further, extra government interventions to stop the growth are superfluous. 

But at this moment, there are no indications that we are near the limit. For example, energy expenditure accounts for less than 10% of GDP in high-income countries. That means that the energy prices need to increase really a lot before they impact economic growth. But the prices of resources do not increase so fast that growth becomes impossible. In fact, the prices of most resources (adjusted for inflation) are not even increasing. There is more evidence for a general decreasing trend of resource prices the past decades. This is the opposite of what one would expect if we reached the limits to growth.

Next to their lack of necessity, the resource degrowth policy proposals are not so effective. The two most relevant proposals are an advertisement ban and a resource taxation. 

Suppression of advertisements from the public space might be effective, as it could decrease overconsumption. However, this effectiveness is very limited. First, there is some economic evidence that advertisement does not increase consumption that much. Second, an advertisement ban could decrease the prices of products, which results in higher consumption levels. Commercial advertisement is economically inefficient, because it is a zero-sum game: if one company advertises, the competing companies have to spend advertisement budgets to promote their products. In the end, the competing companies are pulling on a rope in opposite directions. The rope is not moving that much and the rope pullers waste energy. Similarly, the competing companies waste costs on advertisement. An advertisement ban would save the companies these costs, which means they can lower their prices.

Degrowthers argue that technological innovations that increase resource efficiency and decrease resource use are not so effective, due to possible rebound effects. For example, households save energy costs when they use more energy efficient appliances. That means they have more money left for extra consumption of other things. Their use of energy efficient appliances also decreases energy demand, which means the price of energy decreases, which means other people will buy (and waste) more energy. These concerns for rebound effects are legitimate. But degrowthers underestimate or neglect similar rebound effects of their policy proposals, such as an advertisement ban. 

A second resource degrowth policy proposal is a resource taxation. We have to make a distinction between a resource tax and a pollution tax. When there are negative externalities, such as pollution, a taxation is very effective (although its effectiveness is mitigated due to a lower political feasibility, as it requires international cooperation). A pollution tax internalizes the external costs of pollution into the price of the product. However, when there are property rights on resources, there are no such negative externalities. Furthermore, the supply of resources is inelastic (independent of the price). Consider a tax on land use. As the land is already there (i.e. it is not being produced), a land tax does not decrease land use (unless the tax would be really high, which is politically unfeasible). In general, a resource taxation does not decrease resource use and hence is not effective to reduce the environmental impact. 

But a resource tax remains important, though, because it increases fairness through redistribution. A resource tax allows to redistribute the unearned income (resource rent) from owning resources. A resource tax-and-dividend system, where resource tax revenues are distributed to all citizens as a universal dividend, is both fair and efficient. A resource tax is efficient, because resources are created by nature and not by the resource owners. The resource owners will not be disincentivized by the tax: they will not produce less resources when resources are taxed, because the resources are not produced by the owners. And a resource dividend makes the system fair: as no-one produced the resources, the value of the resources belongs equally to everyone. A dividend is a method to equally distribute the value (resource rent) of the resources among citizens. 

Improving technology; the ecomodernist objective

In contrast with the degrowth movement, the ecomodernist and effective environmentalist movements primarily focus on the fourth factor in the ImPACT-equation. This T-factor represents technology. A high T-factor means a lot of dirty technology is being used in the economy. Ecomodernists and effective environmentalists campaign for increased government funding in clean technology research and development.

There are several reasons why ecomodernists and effective environmentalists focus on reducing the T-factor by increasing government spending on clean tech innovation. 

A first reason is that of all factors in the ImPACT-equation, T is the only factor that can feasibly (according to the laws of physics, without much political resistance) be reduced all the way to (almost) zero, such that the environmental impact becomes (almost) zero. For example, there are clean energy technologies, such as nuclear energy and renewable energy, that have (almost) zero greenhouse gas emissions per energy unit. 

Due to technological innovation (research and development of clean technology that has a low environmental impact), we already see a decoupling of climate impact and economic growth in most high-income countries. The consumption-based per capita CO2-emissions in almost all high-income countries (e.g. EU, US,...) dropped by about 25% the past 15 years (since 2005), whereas their levels of GDP per capita kept increasing. Degrowthers are skeptical about such decoupling, and argue that such decoupling is not fast enough to meet climate targets and avoid 1,5°C global warming. But at least we have evidence that decoupling due to technological innovation is possible. In contrast, degrowthers believe in the feasibility of another kind of decoupling, between economic wealth and human well-being or life satisfaction. But there are no countries that show an increase in well-being (e.g. an increase in living standards or flourishing) and a decrease in GDP or resource use. There is strong evidence that GDP is positively correlated with measures of well-being. Degrowthers should be more skeptical about the decoupling of well-being and GDP, than about the decoupling of GDP and environmental impact. 

A second reason for the effectiveness of reducing the T-factor, is the interdependence between the factors A and T. In particular, with appropriate policy, the T-factor can be made a decreasing function of A. And this function could even be steeper than 1/A. That means an increase in A could reduce the total environmental impact, because the factor T decreases stronger than the increase in A. Suppose the affluence A increases with 10% (which can be reasonably expected after 5 years of growth at the average growth rate of the past two centuries). If only 1% of that increase in GDP is used for funding of clean technology innovation, which should be politically feasible, the global budget for clean technology R&D more than doubles (currently less than 0,1% of global GDP goes to clean tech R&D). A doubling of R&D could roughly correspond with having the clean technologies on the market twice as fast. If a clean technology has zero CO2 emissions per kWh energy or dollar GDP, it doesn’t matter if the economy grows with 10%, because zero times 10% is zero. Reducing GDP, on the other hand, is dangerous, because there will be less money available for funding of clean tech R&D and for paying for the new clean tech infrastructure.

Third, technological innovations have positive returns to scale. Technology has large spillovers: once invented, the whole world population can adopt the clean technology without extra R&D costs. The innovation is a public good. The provision of public goods is a market failure, because markets are not sufficient providers of public goods. Therefore, it is important that governments invest in this public good by increased funding of clean tech R&D. 

Fourth: technological innovation is politically feasible. It does not require international cooperation. It does not face much societal resistance.

Degrowthers argue that clean tech innovation introduces rebound effects that make this policy less effective. For example more clean tech could decrease the price of dirty technology and hence increase the use of dirty technology. However, a rebound effect is mitigated if a pollution tax (or a tax on dirty technologies) is introduced, and if the R&D focuses on clean technologies that are sufficiently substitutable (instead of complementary) with dirty technologies. If clean tech is a good substitute, it can automatically outcompete dirty technologies from the market. Compare it with the transition from horse carriages to motorized cars. The cars outcompeted the horse carriages from the market, even without a horse carriage tax or other government policies to regulate horse carriage use. Horse carriages were considered a big environmental problem in 19^th century cities, because of the horse manure and horse cadavers on the streets. And these carriages created other negative externalities, such as the noise of the horse hooves and accidents by unexpected movements of horses. But economic or resource degrowth policies were not necessary to solve these problems. Technological innovation, in particular the invention of the car, solved it. 

The inconsistencies of degrowth

The above discussion showed several inconsistencies of degrowth. There are at least four examples where degrowthers inconsistently neglect problems. 

First, degrowthers argue that increasing GDP per capita is not effective to increase well-being, because of the non-linear, concave relationship between well-being and income. But they neglect the similar non-linear relationship between GDP per capita and environmental impact. This concave relationship means that limiting GDP (e.g. with an income ceiling) is not effective to reduce environmental impacts.

Second, degrowthers argue that technological innovations that improve resource efficiency are not so effective to reduce environmental impacts, because of potential rebound effects. But they neglect similar rebound effects of some of their own policy proposals, such as an advertisement ban.

Third, degrowthers argue that technological innovations do not allow for a sufficient decoupling between GDP and environmental impacts. But they neglect that a decoupling between economic wealth (GDP) and well-being is less realistic. Many countries already show a decoupling between GDP and climate impact, i.e. an increase in GDP together with a reduction of greenhouse gas emissions, but there are no countries that show an increase in well-being together with a decrease in GDP.

Finally, degrowthers argue that we should not be too optimistic about technological innovation, as it is merely a so-called techno-fix that doesn’t change the economic-sociological-cultural structures that are at the root of the environmental problems. But they neglect that an econo-fix that drastically changes the economic system towards degrowth, or a socio-fix that changes cultural norms about consumption, are at least as difficult, unfeasible or intractable as a techno-fix. Degrowthers are not able to argue why change of the economic-political system is more feasible than a change in technology. A lot of clean technologies are not invented yet, but a degrowth economic-political system is not yet invented either.