POSTED: April 4, 2019
Economy | Society | System Dynamics | Themes

Managing a Post-Growth Economy: Circularity, Productivity and Inequality

“The circular economy is a very good idea, but it is a better idea when it is placed in the context of delivering prosperity, rather than aimed at increasing growth.” A conversation between Emanuele Di Francesco and Tim Jackson, discussing post-growth concepts of a circular economy, the limits of labour productivity and the dynamics of inequality. (This post first appeared on Circular Conversations, March 2019.)

A ‘Circular Conversation’ with TIM JACKSON

© Emanuele Di Francesco (cropped) | By concept, a painting is assigned to each encounter in the 'Circular Conversations' project—circularconversations.com

EF: Good morning Prof Jackson, it is a great pleasure to have you here for a conversation. As a way of providing the foundations for our talk, let me ask you a first question that goes back to 1972 and, more specifically, to the infamous report of the Club on Rome on The Limits to Growth. Today, almost 50 years since its publication, what are the limits to growth we are facing, leading us to a future in which we must become skilled at managing a post-growth economy?

TJ: I suppose there are a variety of different kinds of limits on growth. The most obvious are the ecological limits and, in particular, climate change and the idea that we have to dramatically reduce carbon emissions in a very short space of time. This isn’t, in itself, a limit on growth, but it does mean putting aside and overcoming the dependency on growth. To me, those carbon targets essentially got to have large-scale investment programmes in new technologies, and some of those investment programmes—interestingly enough—will actually contribute to growth, while others won’t. But to get to a zero-carbon or a net zero-carbon world, you’ve got to, at least, be prepared to do things that might have to sacrifice having growth, and you may have to do things differently than we do in a growth-based economy; thinking differently about employment, about productivity and, certainly, about investment plans.

To get to a zero-carbon or a net zero-carbon world, you’ve got to, at least, be prepared to do things that might have to sacrifice having growth, and you may have to do things differently than we do in a growth-based economy

The ecological limit is a fairly imminent one, but there are other interesting stories. They emerge through this idea of a kind of secular stagnation in growth rates—the slowing down of growth rates—particularly in advanced economies, apparently irrespective of climate change, resource scarcity or any of those things. That means that, eventually, there won’t be growth in advanced economies in about 10 years time. That’s very interesting because it is not entirely sure what that limit is—why growth is being limited in that way—and some of it may go back to things like climate change. There is very interesting evidence that says that productivity declines when you have too many hot weather days—for example, over 30 degrees—and there is also an argument that productivity might be declining overall in the economy because more of the economic activity has to be dedicated towards scarcer resources, which require more energy to extract and put them into production.  And there is a heuristic argument that this would tend to slow down productivity. It is possible that this set of arguments around secular limits to growth could actually go right back to the first one, to some extent, but there are also other factors, such as debt overhang, the remains of a financial crisis, inequality rising; all of those things could actually also be slowing down growth.

EF: These limits appear to inevitably point to a future in which economic growth will not be an attainable target, especially if we are to respect ecological limits and provide a convincing and successful answer to the gigantic problem of climate change. Let me introduce here the story of the circular economy, which—in almost any institutional and policy document—is presented as an economic model able to provide economic growth, decoupling it from material consumption and the extraction of natural resources. I wish to draw two separate scenarios, one for advanced economies and one for so-called ‘developing’ economies. Starting from the former, my question is: is the circular economy better seen as a model allowing for economic growth, decoupled from material consumption, or instead as a model able to create prosperity in the management of a zero-growth, de-growth, post-growth scenario?

TJ: I think it is better to see it as the second. It is very interesting when you look at what the circular economy is; it is a set of strategies to close material cycles and to keep those material cycles within the limits defined by local and global ecologies. And some of those strategies—for example, resource efficiency in certain production processes—are very easy to achieve without disrupting the economic model. I did a lot of work on this back in the 1990s, looking at those strategies of the circular economy in terms of increasing and improving the resource efficiency of businesses, and there were two interesting points about it.

One is that the strategies that save resources for companies that are resource consumers tend to benefit those resource consumers. They benefit those companies, because they are saving input costs and that is always going to add to your profit margin, and allow you to be a more successful company. But that is not the end of the story, because those same resources that you save by being more efficient, they represent costs to you as a resource consumer, but they represent revenues to the resource producers. So, if you have an economy with resource producers in it, they are actually going to decline in output as a result of the decline in the use of those resources by the consuming companies.

That was very evident to me in a case-study around toxics’ use reduction—which was a strategy in the United States, where people began being very worried about using toxic substances and began to invest in campaigns to stop using these substances. What they found, across the US, which is a federal country—so that individual States have their own individual governance structures—is that the States which were on the whole toxics’ use consumers, enacted this legislation to prevent the use of toxics. In doing so, they had an economic advantage, they had to import less toxics into their state, and therefore the state budget as well as the individual companies budget was improved as a result of this toxics use legislation. The States that were slow in enacting this legislation were the ones who were primarily the producers of toxics, because that meant that they could produce less toxics, have lower revenues and therefore the state as a whole would be worse off.

The most fundamental strategy in the circular economy is not to recycle or to reuse, it is to rethink the product itself and ask the questions: is this product really necessary?

This idea that reducing resource use at the individual company level adds up to an economy in which you have overall reduced resource use is actually wrong. There are some people who are consuming resources; they will be better off. There are some people producing resources; they will be worse off, as a result of reduced resource production programme. And, of course, what ultimately decides what happens is the consumption of products by households and government, which drives the demand for these resources in the first place. And, if in the same token of making your company more efficient in the use of resources, you create bigger profit margins, you pay higher wages, and you distribute more profits to your shareholders—which means there is more money in the economy as a results of this action—then actually your demand for resources might still go up; you may have a rebound from this efficiency.

That was one of the interesting findings. The other one was about some of the strategies, like re-thinking the product. You know that the most fundamental strategy in the circular economy is not to recycle or to reuse, it is to rethink the product itself and ask the questions: is this product really necessary? Does it contribute to welfare and human wellbeing? Is it a service that we actually want? Is it an effective way of delivering that service? This strategy of rethinking the product—product reformulation—was there in the very earliest articulations of the circular economy, in theory. In practice, it rarely or never happened. There were very few cases in those early circular economy initiatives and still today, where companies’ response to the idea of the circular economy was to reformulate the product entirely. And that too was really an interesting finding.

The circular economy is a very good idea, but it is a better idea when it is placed in the context of delivering prosperity, rather than aimed at increasing growth.

Therefore you got—on the one hand—that even if you make things more efficient, you might end up consuming more, and—on the other hand—that the hardest thing for a company to do is to get a completely different business, change the product entirely, and actually stop selling things, beginning to structure their business differently. If you are driven by the idea that the circular economy should lead you to more growth, then these two outcomes are both inevitable. On the first one, you get a rebound effect, and on the second one, you get a resistance to undertake strategies that dramatically reduce your resource consumption. And that’s my argument for saying that the circular economy is a very good idea, but it is a better idea when it is placed in the context of delivering prosperity, rather than aimed at increasing growth.

EF: When it comes to “developing” economies, you clearly stress that the story is different and that a certain amount of growth in material consumption is necessary to meet basic needs and allow for fundamental capabilities of individuals. In this case, can the circular economy represent a model of growth that allows to grow having less or no environmental impact, or are people in these countries—at this stage in time—condemned to the dismal scenario of an environmentally destructive and socially corrosive model of growth?

TJ: No, I don’t think they are condemned.  I do accept and I made the argument very clearly, as you said, that some kind of growth is absolutely essential in the poorest economies and, inevitably, some of that will be an increase in material demand, because there are real material deficiencies in housing, in nutrition, in healthcare, and in education. Providing decent standards in all of those basic fundamentals of wellbeing is likely to lead to some material increase. Nonetheless, of course, you want to be leading to as little material increase as possible, which means having as high level of material efficiency as possible, which means engaging in circular economy strategies, and having those as the basis of a new economic system.

Some kind of growth is absolutely essential in the poorest economies and, inevitably, some of that will be an increase in material demand.

In a way, you could say that also such countries should not be driven by a growth-based strategy, by the dependency on growth in either economic or material throughput terms, but you may have to accept that economic growth—both in dollars and in materials—takes place in those economies if you want to meet your wellbeing targets.  There is a sense in which what those advanced economies and developing economies should do is meeting certain wellbeing targets and ensuring that the way society is designed, the way the institutions work—and the industrial system that supports those—are dedicated towards delivering wellbeing outcomes in nutrition, in housing, in health, in energy, in education, in social care and community. If you can organise the economy in that way—whether you are an advanced economy or a poorer economy—that is really the priority, rather than chasing growth for its own sake.

EF: From your words, it becomes evident to me that it is not a matter of growth per se being right or wrong, but it’s rather a matter of the growth imperative that guides our actions and affects our measures of progress. Now, I come to a very complicated question. We basically know that in the future we will be living in a post-growth scenario—at least in advanced economies—but, at the same time, you stress how much economic growth is nowadays linked to the structural stability of the system.  Just see how a comma or a decimal in a country’s growth figure can easily lead politicians and financial markets into panic. Then, here is my question: what strategy can we formulate to move away from this structural dependency on growth in our political institutions? One element that immediately comes to my mind is changing the measurement model altogether, for instance relying on the Sustainable Prosperity Index (SPI) instead of GDP growth.

TJ: I think you can have two, three different strands to it. And I do think that the measurement one is important because the measurement of GDP is taken on a symbolic significance in modern societies. We live in an almost religious relationship to the concept of growth so that it appears that—in political terms—we need to pay homage to it whenever we make any statement about anything. We have to somehow bypass that symbolic significance. To me one of the strategies is to recognise that this is a cultural attachment that can be shifted. Simply not talking about growth in those terms, not being so obsessed with that particular indicator, leaving it out of our political statements, rather than insisting that we include it in each of them, is—at this point in time—a really useful strategy to decouple our sense of progress from a kind of fetish with this one particular indicator. So, that idea of just nuancing things, finessing the argument rather than assuming that we have to pay homage to growth is, in itself, one of the strategies.

We live in an almost religious relationship to the concept of growth so that it appears that—in political terms—we need to pay homage to it whenever we make any statement about anything. We have to somehow bypass that symbolic significance.

Another strategy, of course, is to have another set of indicators or a single other indicator. The difficulty then is deciding what sort of indicator do we want, but if we put our attention on different kinds of measures, they become the important ones, the ones with which we measure our success and can also deliver political legitimacy. And, then, a further step—the one that we most engage in with the research work that we do—is to define the conditions for an economy that is not simply being driven structurally by an increase in growth, and to look at what has to be in place there to safely escape from this growth dependency. As you suggest, there is no kind of single, easy answer to it, but it does seem to me that there is a set of strategies weaning ourselves from a kind of addictive fetish to this one particular, not very good measure.

EF: We come now to what you define as the crucial question of managing inequality in a context of declining growth rates. Economist Thomas Piketty makes the argument that decreasing economic growth implies widening inequality, but in some of your articles you do not find evidence for this claim. Together with economist Peter Victor, you are also running some scenarios for the future of the Canadian economy and one post-growth scenario—the ‘Sustainable Prosperity’ one—sees, actually, a situation of decreasing inequality. Under what conditions—in a situation of no growth or degrowth—is inequality widening, and under what conditions it is not? And, to get to the desirable outcome of decreasing inequality, what are the measures that we should put in place?

TJ: It is quite a complicated question, but there is actually a sort of simple way of addressing it. The causes of the inequality that we have seen over the last little while have been really the result of two things. One is the concentration of the ownership of wealth within a minority of the population, and the other is a set of power relationships that has protected the interests of those owners of wealth over and above the interests of ordinary working people in society. In the system that we have—which is already skewed towards a minority—we have a set of incentives that allows that minority to protect their own interests, in which sometimes even the government is complicit in creating institutions that protect the interests of the owners of capital over and above the interests of ordinary wage-earners. And those two things combined—unequal distribution of capital assets on one hand, and the protection of the interests of the owners of these assets on the other—are the two factors that lock us into rising inequality as the growth rate declines.  And so, by comparison I suppose, the strategies for reducing inequality, as growth rates decline, are to change those two factors. Either that means reducing the concentration in the ownership of capital assets, or it means protecting the interests of the working population over and above—preferentially above—the interests of the owners of capital.

Those two things combined—unequal distribution of capital assets on one hand, and the protection of the interests of the owners of these assets on the other—are the two factors that lock us into rising inequality as the growth rate declines.

Either or both of those strategies will have the effect of breaking this vicious circle of increasing wealth creating increasing influence over the rules of the game, which protect the interests of those who own that wealth, which makes them even more wealthy.  It is that dynamic that has created the inequality that we are assisting to at the moment, and breaking it has to sit within governance, within the body politic, and it has to have a new form of social contract, which is to break the power of increasing capital and return a sense of equality, not just in a redistributive way—using the tax system to redistribute to poorer people—but to actually recognise that you have to protect the interests of ordinary people, even more in a situation in which you have unequal ownership of assets. If you had a perfectly equal ownership of assets, it wouldn’t be a problem that part of our income came from profits rather than from wages, but we don’t have that. We know that the dynamic of this wage-profit split is going to lead to increasing inequality in an unequal distribution of assets, unless we are prepared to protect the interests of workers. And those two things are, in principle, a strategy for reversing the inequality rise that we have seen in recent decades.

EF: Time for a last question, to be named Building An Economy that Works, after the inspiring cross-cutting project you are leading at the Centre for the Understanding of Sustainable Prosperity (CUSP). I am aware of some of the measures and principles that you have been proposing for a prosperous post-growth economy—reduced working week, a more distributed ownership of firms, better distribution of the rewards from innovation, the new role of the enterprise as a service, and investments and money as a driver of social good.  Could you provide an overall perspective on this set of measures? And, in relation to what you refer to as the iron cage of consumerism, are you in favour of putting a limit on the maximum total income of individuals as a way to stop this ill-fated trend of excessive material consumption?

TJ: Yes, I am in favour of that. Herman Daly proposed that some 15-20 years ago and I still think it makes a lot of sense as a way of reducing the spread of income. In a sense, it is a way of protecting the rights of those who are the poorest in that system, because those high incomes are often associated with high power and with high ownership of capital assets. That same principle of protecting the interests of capital owners which has led to a greater inequality in the distribution of assets, it has also led to a greater inequality in the distribution of income levels themselves. So, if you want to put a cap on that, that is a way of protecting the interests of those lower in the income scale and ensuring that these high levels of inequality do not play a structural role in increasing inequality further and reducing the ability of the poorest to have a decent life.

One thing I would say about the general set of conditions, which I think is quite a profound challenge to conventional economics—and not so often picked up in these arguments about working time and the problems of employment in a low growth economy—is that there is, to me, a strategy that asks us and asks economic systems to forego the obsession with labour productivity growth. Because it is this obsession with labour productivity growth that makes the situation difficult when the economy itself is not growing. If you can produce more and more output for every hour that you work, year on year on year, then unless your economy grows year on year on year, you need fewer and fewer people to do it. This is how this idea around limited working hours comes in; that’s the way of sharing around this less availability of work amongst more people.

When you look at the sectors where that labour productivity growth might be growing slower, they are essentially those sectors where the value proposition is the time that human beings spend in the service of other people.

To me, there are really strong reasons for reducing the obsession with labour productivity. When you look at the sectors where that labour productivity growth might be growing slower, they are essentially those sectors where the value proposition is the time that human beings spend in the service of other people. And those are places where you don’t necessarily want to hurry your nurses and rush your doctors, have your teachers having bigger and bigger classes, because the quality that you deliver through chasing that labour productivity growth begins to be undermined by the pursuit of labour productivity. I am very keen on the idea that—at the level of the economy as a whole—we don’t always want to be chasing labour productivity. We want to be thinking more in terms of maximising the quality of the services that are provided by people employed and that, sometimes, might mean to employ more people. Of course, you have to work out the economics of that, because it goes against the grain of neoclassical economics, but it also sits with this idea of protecting the rights of workers, in particular the rights of workers to be doing a decent job with a decent wage, not hurried all the time to increase productivity targets and able to allocate their individual time to the improvement of the lives of other people.

That is the huge benefit that could come from a rethinking of how labour productivity, in particular, should work within economic institutions. It shouldn’t always work to the maximisation of profit and profit margins, it must sometimes work towards the removal of drudgery from jobs that are too hard, and other times it must be labour productivity growth itself; it must be sacrificed if we are to protect the quality of working lives. In a sense, that one principle of protecting this idea of work, and the rights of people who are engaged in work, is a very powerful one and it leads to a set of institutional suggestions, of which one is to think about the ownership model of firms and to think more in terms of collective ownership, distributed ownership, and employee ownership. And, sometimes, of public and communities ownerships. A lot of the work we are doing here is on the economic side, but also on the social side and the psychological side. It’s a kind of passion of mine to think what this new economy means in psychological and social terms. But, this is, probably, the subject of another, separate conversation.

EF: Absolutely. I do believe that today we have been touching upon some fundamental ingredients in the design of a new economy, but I guess one day I’ll have to come back to you for this other conversation. For the moment being, I thank you for sharing your ideas and leave you the time and space to further elaborate on them. Ad Maiora, Prof Jackson!

The newly established circular conversations platform is a creative interview project by Emanuele Di Francesco, dedicated to host a critical exchange of ideas on what the next society and economy should look like and how to get there. By concept, a painting is assigned to each encounter.

March 2019

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