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Growth? Which growth… and why?

Photo by Ravi Roshan on Unsplash

By Carlota Perez and Andrés Schäfer

This is the fifth and final instalment in the authors’ ‘After the pandemic’ series. The first, second, third and fourth essays in the series can be read here, here, here and here.

The overwhelming size of the environmental challenge and the need to face it as soon as possible leaves no time to waste for humanity. And after almost fifty years of financialisation of the economy, it has become clear, once again, that free markets alone will not do it.

Although globalisation has lifted millions out of poverty, especially in Asia, the process has been highly unequal. In some cases, after advances with protected import substitution, the movement backward with forced free-market policies has been very painful in the Global South. Big inequality has also beset the advanced societies during this period, from the weakening of the welfare state to the winner-takes-all free-market economy.

It was all part of a framework that enabled the process of “creative destruction” to install the revolution of digital technologies while taking a high toll: millions of jobs were destroyed, regions and even entire nations decayed, a new tiny elite of super-rich captured the lion’s share of the new wealth. And whereas several countries have made giant leaps from behind, most of the developing world is either stagnating or losing out and millions are going hungry.

The consequences have been resentment, violence, populism and desperate migrations, while the environment suffers from impending climate change.

Digital technologies are now ripe to be broadly deployed, but much of their potential is being unused or misused in irrelevant innovation. They are, however, powerful tools precisely to overcome environmental and social problems, but they need directionality and common purpose to achieve synergy.

We are still having a hard time to even grasp the possible new and original solutions. Indignation among the young in the advanced world has led many to embrace proposals for ‘degrowth’ as the only way out. If capitalism is about growth and profiting from it — so the reasoning goes — and if seeking growth and profits has brought us to this calamity, the solution would be to stop seeking growth and save the planet and the people.

Interestingly enough, ‘degrowthers’ and free-marketeers share three common assumptions. First, that GDP and growth are equivalent; second, that growth is necessarily energy- and materials-intensive, as it has indeed been since the deployment of the mass production revolution; and third, that government action towards a green transition is a leftist thing to do.

Obviously, each side takes those premises to different conclusions and to different proposals. Advocates of free markets expect GDP growth to be the solution to all social problems, they expect nuclear energy, geo-engineering or carbon capture to solve the energy needs and they believe that the market will naturally lead to greener solutions. An example of this faith is Andrew McAfee’s book More from Less, but many in the business world and some right-wing politicians don’t even want the market to transition to green or to social sustainability.

Before we move on, let us be clear: when we talk about growth, we do not equate it to GDP or GDP per capita. These are not appropriate measures of wealth creation nor of wellbeing, not even of growth. Although they do have some other practical uses.

The degrowthers want growth to stop, because they see it as a way for the rich to get richer while increasing inequality, and thus advocate income redistribution instead. Seeing energy and materials intensity as the form growth currently takes, they find it difficult to imagine a radical change in the nature and direction of growth, rather than in its rhythm. They do not believe that the current ICT revolution could massively transform the whole economy to move from tangible products to intangible services, from disposable products to durable ones that last 100 years, are regularly maintained and upgraded, and made from renewable and recyclable materials. Degrowthers therefore cannot envisage a completely different mode of growth that could indeed improve the lives of all the inhabitants of the earth, but with radically different and sustainable technologies. Finally, since they believe that the only way to better society and save the planet is for government or the community to force degrowth and redistribution, they don’t try to get business on board. Only radical left wingers can support their programme.

Ironically, degrowthers may be fighting the social and environmental consequences of the control over the economy by the ideology of the free-marketeers. Yet, for both positions, the attempt to achieve the green objectives would bring times of further constraint and austerity, either because environmental regulations would hamper growth or because only by hampering growth can the environment be saved.

One side believes in the power of markets to deliver alone; the others don’t believe either in the power of technology nor in that of the state to shape it in synergistic directions.

But austerity and constraint are not the solution. On the contrary, what must now be done is to deploy a new positive-sum game between business and society, as occurred after the Second World War to shape the mass production revolution. In the current case, as we laid out in previous posts, we should aim for a smart, green, fair and global shaping of the ICT revolution. This means enabling the shift from one set of socio-institutional conditions to another entirely new one. Rather than slowing down the pace, the challenge is to completely change the nature of growth AND the distribution of its fruits. Green cannot be attained without massive technological innovation, and redistribution alone without new wealth creation in a different direction cannot go very far. And neither can unfettered markets.

This time we must shift from a necessarily wasteful economy of scale by volume and standardization, facilitated by cheap energy and materials, to an economy of scope, facilitated by cheap information technologies, reflecting a heterogeneous society whose great challenge will be to find the social consensus on which to deploy the platform to unfold prosperity.

To realise the magnitude and potential involved let us consider the following. It is well known that under the pressure of wars impressive advances in science and technology have taken place. During the Second World War penicillin (discovered in 1928) was massively produced to save innumerable lives; computers made a leap to decipher enemy encryption; and airplanes went from taking several days to manufacture to being produced at a rate of 14 per day. In our times, we’ve already seen a hint of this. In the early days of the Covid-19 pandemic nobody believed that a vaccine could be available in less than two or three years. But, as governments poured billions into the pharmaceutical companies and public labs, these succeeded in record time and government approval was fast-tracked. These are all specific achievements and good examples of the possible.

And still: the big paradigm changes brought about by technologies are far more than that, and have always been complete societal overhauls. The world as we know it was the result of such an overhaul after the Second World War: massive suburbanisation, mass education, mass healthcare, a pervasive network of freeways, mass tourism, mass media, mass consumption, the UN, the IMF, the World Bank, NATO, the EU, the Warsaw Pact, Bretton Woods… It was that greater productivity we just talked about that led to a major improvement in the way of life for millions of blue-collar workers in the advanced countries. And it was the massive and directed state funding of production and innovation, much of it for military purposes during the Cold War, that helped provide that result.

To transition now from fossil fuels to renewables will be only one part of a much bigger deal.

Since every new technological paradigm comes along with a significant increase in productivity, it cannot be deployed without economic growth. Reorienting economic growth by globally unfolding the digital revolution in a green (and socially fair) direction, through a new socio-economic and political paradigm is the way out of the dead end of gigantic problems caused by the mass production paradigm. And the new ecological, dematerialised and digital economy can create many more jobs than is possible now within that old paradigm. If instead we continue to grow in the current finance-led, winner-takes-all, unsustainable economy, we are doomed.

Such has been the path of history with each technological revolution. This would not be the first time there are fundamental changes in lifestyles, and they are not superficial. The very practices that we inherited from the mass production revolution and the suburban ‘American Way of Life’ were a huge leap from the once also self-evident habits of the Belle Époque, as shown in the table below.

The shift made possible by new technologies is only emerging now, and will be a difficult transition for many. But it is no more radical than the previous one. Then, cheap energy and mass production completely transformed the cumbersome work involved in the lifestyle of the Belle Époque into the comfortable suburban life of the majorities in the post- war golden age. High productivity allowed the salaries of blue-collar workers — with the security of unemployment insurance and pensions — to afford a home, a car and the lives of father, mother and two kids.

We have all been parting with that standardised model and increasingly facing more diverse life scenarios. There are clear increases in the intrinsic value of education and lifelong learning, in self-employment and gig-economy business models, as well as in longer and healthier lives, outdoor and wellness activities and so on. It is a shift towards dematerialised aspirations that shapes social realities anew. This also means that the welfare state that catered to the needs of the mass production and consumption society is increasingly becoming inadequate and must be changed.

Regarding the loss of jobs and skills, as has been pointed out by Robert Pollin and others, clean renewable energies can create many more jobs than traditional fossil fuels, especially through a granular ICT-driven implementation instead of the large scale, centralised one, so characteristic of the mass production paradigm.

Furthermore, and adding to the enormous development of wind and solar energy, low energy demand (LED) scenarios point to conservation and energy efficiency as the major “energy source” of the future; and to granularity instead of bulk as the new way to go to reach both sustainability and resilience.

The need to retrofit some 99% of the world’s buildings to make them energy efficient, and the construction of new ones in the Global South, could create millions of jobs alone and require new skills and innovation in sustainable materials and architecture. A circular and rental economy that does away with planned obsolescence will also require more skills and jobs than the old traditional mass production model while respecting the environment. The same goes for the recycling and managing of plastics and other waste generated by the previous paradigm, as well as for the design of new materials that are biodegradable and reusable.

We can also promote a major rethinking of agriculture to regenerate the soil and to give priority to nutrition and taste over appearance. This is all new work filling the void left by obsolete work and generating new wealth, global social fairness and saving the planet. And it cannot be done without growth.

We are talking here consistently of activities that address environmental concerns and reduction of emissions. But also our consumption will keep shifting from accumulating low-quality stuff to sharing, to learning, to experiences and to the highest-tech truly durable goods. Less but much better products, less materials, less energy…and more innovation through growth.

Mega-cities in the Global South like Lagos, Jakarta, Mexico D.F or Sao Paulo, to name only a few, pose enormous challenges regarding the provision of current and drinkable water, waste-water treatment, electrification of all activities, and public transport. Simply to eradicate energy poverty, in a world where 3 billion people are still cooking with solid fuels, facing health hazards and pollution, and where 1.4 billion are without access to electricity, will demand massive technological and social innovation… and therefore growth.

Neither degrowth nor unfettered free markets are fit for purpose in a globalised world where much of the innovation potential of the ICT paradigm is unused and misused. Fostering science, technology, innovation, entrepreneurship, investment and profits, paying fair wages and taxes, is the way to go. We need growth that is clearly shaped in a smart, green, fair and global direction. If we take that path, we may well be surprised by exponential results in environmental sustainability and social wellbeing.

Read the first, second, third and fourth essays in the the authors’ ‘After the pandemic’ series here, here, here and here.

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