Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.

Kenneth E. Boulding
Economist and co-founder of General Systems Theory

So, this week’s big news is that we are finally “out of recession” - even if it is by the smallest of error-prone margins. But is it perhaps a timely reminder that whilst GDP growth may still be a valid measure of our economic well-being, it is by no means the only one, and there are many economists who question its continued relevance, and some are brave enough to point out the bleedin’ obvious - that continued growth is neither sustainable nor desirable.

I’d like to share with you the latest report from the New Economics Foundation (nef) which puts forward the case for a new macro economic model “that allows the human population as a whole to thrive without having to relying on ultimately impossible, endless increases in consumption.”The report starts with a quote from Lord Adair Turner, head of the FSA, and hardly a radical leftie, plus one from John Stuart Mill:

If you spend your time thinking that the most important objective of public policy is to get growth up from 1.9 per cent to 2 per cent and even better 2.1 per cent we’re pursuing a sort of false god there. We’re pursuing it first of all because if we accept that, we will do things to the climate that will be harmful, but also because all the evidence shows that beyond the sort of standard of living which Britain has now achieved, extra growth does not automatically translate into human welfare and happiness.

Lord Adair Turner, Chair of the UK Financial Services Authority

Towards what ultimate point is society tending by its industrial progress? When the progress ceases, in what condition are we to expect that it will leave mankind?

John Stuart Mill (1848)

The report is nothing if not ambitious; it ranges across a history of economics, philosophy, spends considerable time looking at the state of the world’s energy resources, before coming back finally to its starting point - that a new philosophy of economic well being is needed if we are to find a way to live sustainably and in harmony with our planet and our humanity.

The report draws extensively on the writings of Herman Daly, John Stuart Mill, and E F Schumacher.It introduces some key concepts - ‘biocapacity’, ‘ecological footprint’, ‘doubling period’, ‘planetary boundaries’. It establishes early on the physical constraints on economic development, provides a good summary of the Peak Oil issue - plus Peak Gas and Peak Coal, which I suspect are overstated - and spends probably too long looking rather pessimistically at the potential for alternative energy supplies.

Along the way there is a rather tortuous discussion of Thermodynamics leading off from C P Snow’s famous comment in 1959 that although a scientist might be expected to have read Shakespeare, most arts graduates would not even know the Second Law of Thermodynamics. (Personally I think Michael Flanders and Donald Swann made a much more entertaining riff on this theme!) Although I did like the anecdote about the representative from a conservative economic think tank who was questioned on where the resources to fuel infinite economic growth would come from. After thinking for a moment, his answer was confidently asserted, ‘We could mine asteroids,’ he said. I do think we need a few more scientists and engineers in government - but I would say that!

The central thesis, that continuous growth is neither possible, nor necessarily desirable is well made.

Some of the key points it makes are quoted as bullets below:

• We are consuming the earth’s resources at a rate 44% faster than nature can regenerate, and if everyone were to live like Europeans we would need 3.4 planets.
• At a rate of growth of 3.3% an economy’s ‘doubling time’ is 23 years. Each doubling period will consume the resources of all the preceding periods put together (as 8 exceeds 1 + 2 + 4).
• As long ago as 1848, John Stuart Mill recognised that ‘the increase of wealth is not boundless: that at the end of what they term the progressive state lies the stationary state,’ and that ‘It is only in the backward countries of the world that increased production is still an important object: in those most advanced, what is economically needed is a better distribution.’
• Trickle down economics does not work - the facts show that economic growth in its current form actually works to increase inequality (see this week’s Hills report!) and to raise the lowest level of income globally to $3 per day would consume the resources of 15 planets, and would bring even greater misery on the poorest on the planet in the process.

The report’s sections on Climate Change, Peak Oil and alternative energy only serve to paint the picture of resource depletion clearer, and there is little new in here - although some good points made:

• Peak Oil is treated as a given - at least in terms of the end of cheap oil - and doubt is cast on the gas and coal resources available too.
• The slow capital stock turnover for large energy infrastructure means that energy decisions made now will influence the trajectory of emissions over the next 25-60 years, with obvious implications for the speed at which a transition to a low carbon economy can take place.
• Despite being pessimistic about the pace of installation, the report is “unequivocal” that “renewable energy is a very good thing and has enormous potential to expand”

The report ends back where it started with Mill and Daly.

• “Mill thought that an intelligent application of technology, family planning, equal rights, and a dynamic combination of a progressive workers movement with the growth of consumer cooperatives could tame the worst excesses of capitalism and liberate society from the motivation of conspicuous consumption.”

• “In his parting address from the World Bank, where he worked for six years, Daly left his colleagues with a formula for sustainability: stop counting the consumption of natural capital as income; tax labour and income less, and resource extraction more; maximize the productivity of natural capital in the short run and invest in increasing its supply in the long run; and most contentiously, abandon the ideology of global economic integration through free trade, free capital mobility, and export-led growth.”

I believe these are principles we should be exploring and expounding with some urgency as Liberal Democrats. There is after all something comforting in the idea that our philosophical father might still be able to provide guidance when dealing with problems two centuries later.

(For further reading look at the nef website - their other recent publications  ‘The Great Transition’ and ‘The Happy Planet Index 2.0′ are well worth reading)