How Do We Stop The Growth Machine?

By understanding the economy as a complex, self-regulating system, we can make it compatible with human and environmental wellbeing.

Geoff Davies
Nov 14, 2019 · 5 min read

Not only do many people agree we need to change our economic system, many are already doing really good things, like forming cooperatives or firms with a social purpose, promoting repair and recycling, growing healthy local food, reducing greenhouse gas emissions, and so on. But all these good efforts struggle against the ever-rising tide of ‘growth’. What if our economic system supported the good things instead of subverting them? Could that be possible?

To usefully sort out these issues, and hope to find some answers to them, we need to have a clear understanding of how our economic system works. Mainstream economics is no help here, because its theoretical version of a market economy is an irrelevant abstraction. That is a big part of why we are making such a hash of managing our societies and living in our biosphere.

A more useful approach has been developing below the radar for some time. It identifies a modern economy as a complex, self-organising system. Complex systems, for short, have radically different behaviors from mainstream predictions. They alternate periods of reasonable stability with small or large erratic shifts. This has some rather big implications.

The myth of market equilibrium

For example, there is no basis in the theory for expecting an unregulated market to be efficient, nor for it to yield desirable results. Perhaps that’s why economies globally are performing so poorly, for example by booming and crashing, promoting extreme inequality, degrading the land, and threatening planetary apocalypse.

Mainstream economics has nothing to say about booms and crashes because its central ‘neoclassical’ theory of markets is contrived to predict a general equilibrium, in which all supplies balance all demands. This mythical equilibrium is, in its abstract world, an optimal state, hence the evangelical claim that free markets deliver the best possible world.

If, however, you allow a little reality back into the theory, by changing some of its assumptions, the theoretical system becomes an erratic, metastable, shifting, complicated, far-from-equilibrium complex system. The economy goes from looking like a gentle rocking horse to a herd of wild horses.

Does that mean we have to give up on markets because they are unmanageable? Well, no — we just need to treat them sensibly, like the living systems they resemble. A good horse trainer understands the horse and works with it, not against it.

We can work with markets too, by managing their financial incentives. Markets will go where the profit is. If it is profitable to exploit people and trash the planet, then people will be exploited and the planet will be trashed. If we make it profitable to support people and nurture the Earth, then perhaps we’ll get a better result. For example, a price on carbon emissions is supposed to make it more profitable to use clean energy.

Adjusting the financial incentives under which markets operate is nothing new, we do it all the time with taxes, subsidies and regulations. The problem is we manage markets incoherently, often perversely, and with feigned reluctance because we’re not supposed to have to do it.

Lessons from nature

But there is a very positive message here as well. Living systems are also complex systems. This means there is no reason in principle why our complex economy could not be made compatible with living things, including people. It means we might shift our economy so it supports all the good work many people are already doing to improve life and save the planet.

To begin to sensibly manage our economy we need economists who understand the kind of beast they are dealing with. Most economists have no experience with unstable or complex systems, so we need to teach a new kind of economics. Kate Raworth’s Donut Economics does a great job of identifying key issues, but is not meant to get into much analysis.

My new book, Economy, Society, Nature is aimed at beginning economics students, and anyone else who would like a better grasp of what is going on. It has minimal mathematics and focuses on getting ideas clear. It uses simple examples to illustrate, for example, the role of feedback in generating complex behaviour, explaining basics as it goes.

The book also covers a number of other aspects of economies. Some are fundamentally misunderstood by mainstream economists, including money, social interaction, accounting and land, whereas others need better consideration, such as excessive financial trading and collective ownership. Money, for example, profoundly affects the behaviour of the system. It intrinsically involves debt, yet mainstream economics excludes debt for spurious reasons — which is why the Global Financial Crisis appeared to come out of nowhere.

An economy is also deeply affected by the social interactions of people, but social interactions are also excluded from the mainstream theory. This pretence that we are asocial, calculating brutes has had extremely negative effects on our societies. It is important to be aware of the modern evidence that we are in fact highly social, cooperative beings.

We also need to use proper accounting, with balance sheets, instead of the deficient and conflicted Gross Domestic Product. The financial system needs to be reduced and stabilized, possibly with transaction taxes. We need to treat ‘land’ and natural resources appropriately. We can use a wider range of collective ownership models, so wealth flows more fairly. Governance systems are pertinent, because an economy is not separate from the society it is supposed to serve.

To address ‘growth’, it helps to distinguish quantity of resources, which can and must be reduced, from quality of life, which can be improved indefinitely. We need to recognize that unfettered competitive markets drive new technologies and growth of resource use, taking us, in effect, to armageddon on automatic. Taming those drives will be no easy task but correctly identifying the beast we are dealing with is the essential beginning.

Find out more about the Post Growth Institute on our website.

Post Growth

Guiding the way to a full circle, #postgrowth economy beyond capitalism.

Geoff Davies

Written by

Dr. Geoff Davies is a scientist who has been exploring economics for two decades. He is author of Economy, Society, Nature.

Post Growth

Guiding the way to a full circle, #postgrowth economy beyond capitalism.

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