Turning the clock back

Green growth is an alternative to economic growth

Most of us believe that the present recession will end.  They always have done in the past. 

In a recent speech by President von der Leyen at the Beyond Growth Conference in the European Parliament on the 15th of May.  She said:

If we look back, a little over 50 years ago, the Club of Rome and a group of MIT researchers published the ‘Limits to Growth’ report.  It mapped the interaction between population growth, the economy and the environment.  And 50 years ago, it came to a drastic conclusion: Stop economic and population growth – or else our planet will not cope.  As you know, this report has sparked a long controversy.  For instance, about the role of new technology in countering climate change.

But instead of prolonging these debates, I today want to concentrate on one point, and that is a point that the report got right beyond any doubt: That is the clear message that a growth model centred on fossil fuels is simply obsolete.  This assessment has been confirmed, time and again.  The recent IPCC report is just the latest reminder that we need to decarbonise our economies as quickly as possible.

She was commenting on a European Parliament briefing on ‘Beyond Growth’.

If she is right, and I believe she is, we must get used to the fact that the recession will go on and on, and on.

Which means we must now turn our mental clocks back. And think about the reverse of how the economy grew in the past. 

For maybe 25 years after World War II, growth in the domestic economy was limited to essentials.  Discretionary (non-essential) spending was almost non-existent except for those well-off.

Then consumerism burst upon us in the late 1960s.  Discretionary spending grew until it was about half of the UK’s total spending.  We bought cars, wined and dined and had holidays in faraway places.

Growth occurred in cycles of recession and recovery – decline and growth – within a process of overall growth.  This is why we think growth will resume in due course.

In the 2000s, growth depended on government borrowing (quantitative easing).

Gradually, a 40 per cent gap developed between the financial economy propped up by QE and the real economy of goods and services.  As a result, a misleading impression of economic growth was created.

The financial economy, boosted by lending, was growing.  Yet the real economy of goods and services was shrinking.

The economy is now in distress.  Inflation is outpacing wages.  It is becoming realised that wage settlements can only be paid for by further QE.  Otherwise, employment shrinkage cannot be avoided. 

These are all symptoms of the shrinking economy.

According to previous CBI director general Tony Danker: “Britain is in stagflation – with rocketing inflation, negative growth, falling productivity and business investment.”

So, what now?

Quantitative Tightening (QT) will probably be applied. 

 According to Wikipedia: “Whereas QE (quantitative easing) caused the substantial rise in asset prices over the past decade, QT may cause broadly offsetting effects in the opposite direction.”

The value of assets will now gradually decrease by up to about 40 per cent, referred to earlier.

We don’t know how long this reconciliation between the two economies will take.  It will be hidden within the overall shrinkage of the economy. 

To understand how shrinkage may develop, we must consider what happened during the economy’s growth.  

Essential spending is now under pressure and discretionary spending and associated employment are declining.  It is the opposite of 50 years ago. 

The costs of essentials are increasing, and families are reviewing their discretionary spending, which is becoming increasingly unaffordable.

Further economic shrinkage and declining wages will worsen the current mêlée. 

The reality of what is going on is confused by inflation.

And yet, at the grassroots

Migration from top-down jobs, especially from discretionary markets, will generate new grassroots activities.  All kinds of activities.  Employment, self-employment, undeclared work, unpaid caring and bartered activities.

New individual and collaborating businesses will develop.

Local economies will develop.  Mostly in essential markets.  Food producing, processing, selling and distributing and related support services. 

Wages for those coming down from top-down jobs will be much lower than they had before.  And  the consumer culture of the industrial era will decline.

Remember 60 years ago when average wages were about £1,000 per annum, and new houses cost less than £4,000?  That is the direction we are heading. 

My experience of life in the UK, when the economy was much smaller than today and much nicer!

In today’s terms, it was also much greener.

There were fewer cars.  Rural landlords didn’t allow tenant farmers to take hay, straw or manure off their farms.  Most of us had pedal cycles or walked to work,  school and shopping, with local bus services for journeys above three miles. 

Smallholders sold their fruit and vegetable on roadside stalls and sent them to city wholesale markets on early morning trains.  Dairy farmers sold their products from daily milk rounds.  Bakers and grocers had their products delivered on bicycles.  Heavy goods and parcels were delivered to local railway stations, with few lorries on the roads.  You could travel virtually anywhere by train.

Most of us grew our fruit and vegetables; some kept hens to barter eggs with neighbours.

I could go on from my memories.  Not all so nice!

The essential point was that the economy was much smaller, as it will be in the future.

If we let it happen, the future will be green.

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