What is a steady state economy?
Also referred to as zero growth or post-growth, the steady state economy is one that is no longer focused on economic growth. When the economy reaches a certain point of maturity, attention is turned towards increasing national well-being or sustainability, rather than an infinite, restless search for economic expansion.
Who came up with the idea?
The idea has a long and honourable pedigree. Adam Smith, the ‘father of economics’, assumed that some kind of stability would be the eventual result of growth. The famous Victorian liberal philosopher John Stuart Mill believed that the “increase of wealth is not boundless… the end of growth leads to a stationary state”. And John Maynard Keynes thought that economic growth should not be infinite, that eventually we should reach a place where we could focus on more spiritual issues.
But it was in the 1970s that a few economists began to really look at the idea. Global think tank, the Club of Rome, commissioned a report that appeared in print as The Limits to Growth in 1972, and E. F. Schumacher (described by Keynes as a man who could “make figures sing”) published Small is Beautiful in 1973. In the following years, these ideas were further developed by economists like Herman Daly and John Cobb, James Robertson, Marilyn Waring, Paul Ekins and others working in a field that would eventually be classified as ecological economics.
Who are the principal exponents?
The UK’s New Economics Foundation (NEF), established by James Robertson and Alison Pritchard in 1986, is well known for developing these ideas.
Tim Jackson at the University of Surrey, UK, author of the recent Prosperity without Growth, is currently working with Peter Victor (York University, Toronto) on developing green economy macro models. At Heidelberg University, Malte Faber is concerned with environmental and ecological economics. Meanwhile, Rupert Read and Molly Scott Cato, both members of the UK Green Party, are developing a post-growth model through the Green House think tank.
Rupert Read has pointed out that, “accidentally, we are already there” in the UK. He also suggests that Japan has, to all intents and purposes, been a steady state economy for the last ten years. However, no country has actually announced it as policy.
What is economic growth and why is it a problem?
Most politicians and international bodies now work on the assumption that a healthy economy increases its GDP by 2-3 percent a year. But ecological economists see a number of difficulties with this. David Boyle and Andrew Simms of NEF argue that current UK government policy is focused far too heavily on GDP as the main measure of success. They point out that GDP, as a measurement, only came in to mainstream use after World War II, but it has since become the international yardstick by which a country is deemed to be succeeding or failing.
Marilyn Waring, a professor of public policy in New Zealand, argued in 1988 that to measure a country only by economic activity creates a misleading picture: “A country that cut down all its trees, sold them as wood chips and gambled the money away playing tiddlywinks would appear from its national accounts to have got richer.”
Research in recent years has shown that after a certain point, increasing income does not improve well-being, and some psychologists, such as Oliver James, author of Affluenza, argue that the quest for infinite growth is in fact damaging for human happiness. The radical field of ‘happiness economics’, based on Abraham Maslow’s hierarchy of needs theory – that money is not the prime motivator but that man has more complex, subtle requirements – also builds on this idea and it is currently the subject of substantial research.
Ecological economists argue that infinite growth is just not sustainable, given finite resources. There is increasingly substantial work on “planetary boundaries”. Roderick Smith, a professor of engineering, has pointed out that the 3 percent growth rate aspired to by developed countries would result in the economy doubling every 23 years, but with each successive doubling period the country would consume as much as all the previous doubling periods combined.
Some mainstream economists believe that human ingenuity and technology will be able to overcome this barrier. Although most economists and politicians accept that environmental threats such as climate change mean that we are seeing the effects of industrial development, they believe that with technological innovation we can either overcome these problems, or decouple economic growth from environmental limitations.
How would it work?
There are various theories about how it might work in practice. Governments would concentrate on well-being growth and on redistribution rather than economic growth, and measurements would be focused on these areas.
What are the drawbacks?
There are many arguments against the idea of a steady state economy. Nemat Shafik, deputy managing director of the International Monetary Fund, has said, “I can’t accept a no-growth scenario because there are still a lot of people in the world who need a lot of growth in order to reach acceptable living standards.” She also argued that “the variable that makes the most difference [to the economic performance of a country] is growth. If you’re growing you can spend more on lots of good things, fiscal adjustments are easy, debts are serviceable – [growth is] hugely important in terms of keeping modern economies ticking along.” Politically, ‘steady state’ is seen as a toxic message that voters absolutely will not accept. In the UK, the Green Party is the only party currently advocating zero growth as economic policy.
Around the world, many national economies run near-permanent budget deficits and depend on growth and on rising tax incomes just so that they can maintain the status quo. Structural changes, which might be painful, would be required in order to alter course.
