Commentary

This week, E3 economist Juliet Schor (Boston College) contributes a guest post based on her latest book Plenitude: the new economics of true wealth (Penguin Press 2010).

The Plenitude Path to Sustainability by Juliet Schor

Despite the lack of policy progress on climate change and ecosystem degradation there is no shortage of solutions currently on offer. While the specifics may differ, those getting most attention share one characteristic—they focus on technological change. Whether it’s Pacala et al’s wedges, Jeffrey Sachs’ plan to reduce carbon emissions through plug in hybrids and carbon capture and storage, McKinsey’s cost abatement curve approach, or Jacobson and DeLucchi’s 100% renewables by 2030 plan, the emphasis is on technology. Most conspicuously lack a number of obvious changes that would reduce emissions and footprint. They barely address households’ lifestyles and “behavioral” changes (the first McKinsey report calls these too “difficult”), ignore changes in distribution of assets and structure of enterprises, and are light on the conditions of knowledge generation and dissemination. Furthermore, with the exception of the green jobs literature, they generally fail to integrate their analyses with current labor market conditions. As readers of this blog are well aware, the dominant discourse also pays scant attention to the equity implications and opportunities of environmental policy.

In Plenitude: the new economics of true wealth, I argue against the techno-fix approach. We also need deeper, systemic change that incorporates economic structures, the rate and pattern of growth, as well as alterations in cultural and social norms. Technology is heroic, but the task of making a grossly unbalanced system sustainable on its back alone is asking too much. Grappling with not only emissions reductions, but the full material requirements of a shift to a new energy paradigm, plus an additional 2 billion people requires technology plus.

But even more importantly, a wider array of changes is also a desiderata for a transition to a truly sustainable economy. That’s because what was efficient (or even just profitable, to put a finer point on it, and differentiate between true efficiency and profitability) in an industrial economy is not what is efficient, optimal or profitable in an ecologically-oriented economy.

Both for households and firms, shifting to sustainability opens up new possibilities, and intersects with ongoing changes in the economy. In Plenitude, I lay out a number of principles that should inform our thinking about how to solve the climate and eco-crises. These include re-thinking the question of scale, knowledge transmission, the role of informal economies and social capital, new consumer patterns, and the relation among productivity growth, output and hours of work. Here I will address two of these: scale and worktime.

Mainstream thinking on the shift to clean energy has a bias toward large-scale installations, such as nuclear power stations, big wind farms, concentrated solar, CCS and other capital intensive approaches which will be dominated by large energy providers. Both the technologies and the firms are outsized. But is big and even bigger the right future as we transition out of the industrial era? There are good reasons to think not, and that small is finally becoming not only beautiful, but also efficient. Information technology is key to why. We need a lot more research on this issue. But at a minimum, scale is one of the variables that needs to be seriously raised as we contemplate economic futures. The argument that the optimal scale of enterprise is falling relies in part on the role of information technology in undermining the need for the (classically inefficient) command and control functions of the modern corporation and making possible efficient, low-cost communication among distributed networks. Networks can share certain functions, while competing on others. Indeed, the experience of the US economy over the last few decades suggests that it’s the small and medium firms who have provided the bulk of innovation and employment growth.

There are other reasons why leaving the sustainable future to large corporate entities is problematic: their excessive political power makes them capable of blocking needed policy reforms, a problem that will only get worse in the US after Citizens United. Furthermore, resilience models suggest that highly centralized systems are vulnerable, a point hammered home by the financial meltdown of 2008. With climatic uncertainties predicted to increase, and financial crises occurring regularly, a shift to smaller enterprises, operating in a more de-centralized way is both prudent and likely to be more efficient. These arguments are in addition to the more conventional one that local or regionalized economies are less transport and energy intensive. Finally, de-centralization promotes equity, by making small-scale ownership, either in cooperatives or small businesses, more economically feasible. 

A second area is the nexus of output growth, productivity and hours of work. There is now growing evidence that de-carbonization and de-materialization (the de-linking of production from materials flow) are only occurring on a limited basis. The material flows associated with a dollar of GDP have been declining by about 1% a year for decades, a phenomenon known in the literature as relative de-coupling. However, increases in total production have lead to rising materials use, including fossil fuels and their emissions. Since 1980, total materials use (including fossil fuels) climbed 45%. GHG emissions have also continued to rise, with a sharp acceleration since 2000. We haven’t yet cracked the nut of translating efficiency gains into lower emissions, nor are we likely to without addressing the rate of growth of output.

One approach, which is getting more attention in the last few years, is that the wealthy countries of the global North should reduce their growth rates in order to provide ecological space for the global South. (Indeed, even mainstream figures such as Lord Stern and Anthony Giddens have begun to question Northern growth. See also the recent statement of a global group of economists, of which I and other E3 economists are a part.

But how to achieve such a feat? As I first argued in 1991 in World Development, and have elaborated in Plenitude, the key is to reduce average hours of work. The economy will continue to produce productivity increases. If they are not absorbed by rising output, then equilibrium needs to be restored through declines in hours. People can work shorter weeks or years, or less of their lifetimes. That’s flexible. What matters is that productivity growth isn’t channeled into more production, but into more time off the job. Shorter hours are associated with lower emissions and less ecological impact.

This path also has two other virtues. It yields a significant benefit to employees in the form of more time off the job. It won’t be possible to get global North populations to accept slow or no growth without a corresponding benefit. This at least creates the possibility of political feasibility. And once hours reductions begin, they tend to be popular.

Second, if average hours fall, it becomes far easier to create new jobs, because firms need to generate less revenue for every new position. In the long-hours US it is now necessary to generate between 15 and 25% more revenue per job than in shorter-hours Western European countries. To date the recover has failed to produce job growth anywhere near the pace which is required to restore pre-crash levels, and opposition to additional federal stimulus is hardening. Hours reductions represent a fresh, possibly politically feasible approach. States are turning to the unemployment insurance system to subsidize hours reductions, and these policies are currently seen as politically neutral and even business-friendly. Reducing hours of work is a policy reform that satisfies the three E criteria: it reduces eco-impact, improves economic efficiency, and enhances equity.

Taken together a decline in enterprise size and a reduction in average hours of work can facilitate the growth of a low-impact sector of self-providing households, self-employment and small-scale businesses and coops. That’s because people will have more time away from their formal jobs and the competition from large enterprises will abate. Fostering such a sector will help individuals build skills and assets, reduce their personal footprints, and lay the groundwork for functioning local and regional economies. The web and digital technologies are central to this vision: because so much knowledge and skill can be readily transmitted digitally, it is far more feasible to have high productivity household and small-scale production. Indeed, household production should no longer be seen as an antiquated pre-industrial paradigm. Rather, it’s one of the new possibilities that are available to us in the 21^st century. In addition to its economic and ecological aspects, it can also be a highly desirable lifestyle, allowing people more creativity, freedom and flexibility.

The silver lining of the recession is that we could use it to accelerate a movement toward this kind of systemic change.  We could re-balance the labor market with policies that facilitate shorter hours, the development of cooperatives and small businesses, and skills-training in small-scale green technologies and knowledges. In the process, we’d be on the road to reducing CO2 emissions, lowering footprints, and creating a more equitable and well-functioning economy.

You can read more by Juliet Schor on her blog Plenitude.