Owing to the limits of eco-efficiency and the need to liberate environmental space for the global poor, new policy instruments should be designed to bring about ecological fair sharing between countries and a new economy based on the concept of sufficiency, writes Riccardo Mastini for the Green European Journal.
EU economic policies should pursue an equitable downscaling of Member States’ environmental ‘throughput’, namely the rate at which they use energy and raw materials. Since a constant increase in the transformation of natural resources into goods and services is ingrained in our current economic system, this downscaling challenges the dominant economic belief in the feasibility and desirability of infinite economic growth. This implies a new direction for societies, one in which they will organise and live differently from today.
The sufficiency transformation would mean that people work fewer hours in paid employment, share jobs and services, and lead more social and less materialistic lifestyles. Although economic activity would be more localised, the state would have an important role both to limit material and energy use, and redistribute income and wealth. Many new policy ideas for an economic paradigm shift have been developed and discussed at the academic and grassroots levels in recent years. And finally NGOs have started talking about this too with Friends of the Earth Europe recently publishing the booklet Sufficiency: moving beyond the gospel of eco-efficiency which includes several policy proposals to advance the debate towards a post-growth economy.
Why the economics of enough
We live in a world where more than 2 billion people still live on less than 3.10 international dollars per day. While the global share of people living under this poverty line has been in steady decline for the past few decades, there is very little hope that this trend can continue without a change of paradigm. For the past century, economic growth has been the preferred method for reducing poverty, but those days are over if we are serious about preserving the ecological foundations on which our civilisation rests. The evidence that it is not possible to decouple economic growth from constant depletion of natural resources is now incontrovertible.
For too long growth has been craftily employed as a substitute for redistribution. So long as there is growth there is hope, and that makes large income differentials tolerable. But if growth is a substitute for equality, then could not equality be a substitute for growth?
The term ‘sufficiency’ refers to a strategy of introducing hard limitations to unsustainable trends—in particular to overconsumption—coupled with an emphasis on distributional justice to make sure everyone has access to enough resources to meet their needs. Between the unsustainable extremes of overconsumption and material poverty lies sufficiency, which is about using ‘enough’ for humans to flourish without compromising the stability of the biosphere.
Intragenerational equity and the ecological debt
Countries in the Global South have a clear ‘right to development’ that requires an increase in per capita consumption of raw materials and energy. However, as argued by the ecological economist Joachim Spangenberg, the majority of the world’s poor now live in middle income countries. As a result, the growth imperative does not apply to countries any longer, but rather to disadvantaged households in every country. China, for instance, is home to the second biggest population of billionaires in the world and yet is still arguing that it needs to keep growing its economy to lift the millions of its citizens still living under the poverty line.
Between 1980 and 2016, the richest 1 per cent of humanity reaped 27 per cent of the world’s income. Meanwhile, the bottom 50 per cent, by contrast, got only 12 per cent. This uneven distribution implies the need for redistribution of wealth from the rich to the poor within countries, not further spurring economic growth in the hope that it will lift poor households out of poverty.
The basic principle of intragenerational equity calls for wealthy households in all countries to consume less to free up the ‘environmental space’ needed for justifiable consumption increases among the poor. At the global level, the richest 10 per cent is responsible for almost half of total lifestyle consumption emissions while the poorest 50 per cent is responsible for around only 10 per cent. The priority should be enhancing material well-being of the poor worldwide while simultaneously reducing global aggregate material and energy use, thus affording to the global poor an opportunity to obtain their fair share of the global commons.
One way of achieving intragenerational equity is through the principle of ‘contraction and convergence’. It consists of reducing the overall use of natural resources to a safe level (contraction) by each country harmonising its consumption per capita to an equal global level (convergence).
However, a flaw of the ‘contraction and convergence’ model is that it fails to consider the ‘ecological debt’ that exists between the Global North and the South. Ecological debt looks to account for what is owed by Northern industrialised countries to countries in the Global South due to resource plundering and waste dumping. In fact, the environmental space that underpinned the wealth accumulated by certain countries in the past two centuries is no longer available for the rest. Since the Industrial Revolution, countries such as Belgium have been producing goods that increased their own wealth, but which saturated the atmosphere—a global common—with CO2 emissions that now make it impossible for developing countries to use their fair share of the atmosphere’s absorptive capacity. Environmental space allocated per capita should take into account these historical ecological inequalities as well.
But focusing on any single policy will not be enough to achieve the sufficiency vision. A variety of policy changes will be to collectively transform consumption and production patterns, legal frameworks, financial instruments, and individual behaviour, in such a way to reconcile ecological stability with global economic justice.
What would policies to achieve sufficiency on the global level look like? The first would be the hard cap. A hard cap would dictate that a resource cannot be harvested or a type of waste cannot be disposed of beyond an established amount over a certain period of time. The hard caps solution is simple in concept and planning. It requires biophysical knowledge plus some social or political decisions to determine how fast to use certain resources. Caps on carbon emissions and resource consumption could be adopted with target levels both based on planetary boundaries and a just global distribution.
On a macroeconomic level, environmental caps could be introduced for large economic and administrative units (e.g. countries or economic and political unions). On the other hand, implementing caps at lower levels would mean per capita quotas. These two perspectives could be combined by establishing an overall limit for a country and then sharing the capped amount among citizens, a ‘cap-and-rationing’ system.
The designing of cap-and-rationing schemes is still in a theoretical phase and mostly focused on carbon emissions. Specifically, a climate policy framework has been suggested—known as personal carbon allowance—combining a hard cap on emissions with the distribution of quotas beneath the cap. In this proposal, the total number of carbon units issued into the economy would be determined by the national carbon budget. The question on how to divide up the world’s remaining carbon budget fairly among nations is still being negotiated within the United Nations Framework Convention on Climate Change.
But once this has been agreed, the personal carbon allowance at the national level would cover all sectors within a national economy, including households, with the goal of maximising well-being under a tightening cap while pushing countries to make progress toward innovative energy demand reductions. The basic idea is that when fuel or non-renewable electrical energy is purchased, buyers pay for it as usual using money, but must also surrender units corresponding to the carbon content of their purchase.
In the shift towards a post-growth economy—after dismantling unsustainable subsidies on energy and resource consumption—taxation policies can be very important. They can be designed to provide additional incentives to operate below the physical resource cap to redistribute the profits of market activities towards supporting more just society within the biophysical capacity of its environment.
Currently, citizen and corporate taxes are primarily based on revenue. Hence, a major worry for any government wanting to shift to a post-growth economy is that sources of state revenue will decline, based on the assumption that with shrinking resource throughput the overall values generated, and thus the tax base, will shrink as well. To address this issue, proponents of green taxation argue in favour of transforming the tax system from one based principally on labour to one based on the use of energy and natural resources.
Consequently, the tax base for goods and services would shift from ‘value added’ (the amount by which the value of an article is increased at each stage of its production through labour) to ‘that to which value is added’, namely the natural resources that are the base for all economic activity.
Another goal of a green taxation is to disincentive ‘public bads’, namely what provides disutility to people when consumed and therefore reduces our economic welfare. For instance, economic growth is also generated by ‘conspicuous consumption’, meaning the drive for people to consume commodities because it sets them apart from others and acts as social signifiers. This drive for positional consumption fuels anxiety in society and causes welfare to stall even if revenues and expenses increase. What lasting satisfaction can bring buying the latest TV model when one month later your neighbour will have an even more recent model? Taxing luxury and resource-intensive goods and services higher than goods of everyday demand—through a ‘progressive VAT’—would help address positional consumption. Such a proposal points in the direction of a new debate in public policy: the patterns and levels of production and consumption become as important a subject of public debate as the distribution of incomes. Just like a fuel tax is aimed at disincentivising the use of gasoline, so a tax on luxury goods is aimed at discouraging positional consumption that does not contribute to social welfare.
Maximum income is essentially an income ceiling and there are two main proposals to implement it. One suggestion is to set the income ceiling in proportion to the minimum wage so that the maximum wage would be, for example, twenty times the legal minimum wage. The other suggestion is to implement a progressive tax system, including both income and capital gains, with a tax rate of 100 per cent for the top tax bracket. Both proposals achieve the same purpose, but in different ways.
A ceiling on income could be used to halt conspicuous consumption and eliminate the incentives for excessive earnings. In this way, maximum income provides less of an incentive to work and produce in abundance, supporting human health and reducing environmental pressures.
A maximum income has been criticised for not seeking profit maximisation, as the current form of shareholder capitalism does. But in a post-growth economy, resource conservation and responsible business should be prioritised. In 1980 when the US top tax rate was 92 per cent, the market economy did not collapse and the economic innovation rate was higher than today. Moreover, since a maximum income would affect the top 1-5 per cent richest in a society, it is likely that most the economic activity discouraged would be speculation in the real estate or financial sectors. Super-rich individuals do not consume their income, stimulating the economy, but invest it in speculation, blowing up stock exchange bubbles and letting them go bust, at the expense of small investors.
A transition towards sufficiency is politically inevitable
The three policy proposals listed in this article are just few of the many that could be implemented to transition towards a post-growth economy. Sufficiency is not predominantly an appeal to consumers, but rather a political challenge, a call for transformative change. As our individual behaviour within the system can bring about only marginal changes, we have to collectively engage in changing our economic model if we want to revert the current ecological overshoot and build a sustainable economy.
Such wide-ranging transformations will encounter various degrees of resistance from citizens, politicians, trade unions, NGOs, and—particularly—businesses. After all, more than half a century of ‘growth propaganda’ supporting the dogma that pursuing never-ending growth is plausible and desirable cannot be shaken off easily. Besides, growth economies collapse without growth. To prosper without growth we have to establish a radically different economic system and way of living. This is no minor challenge. And people are caught up in the dilemma between either maintaining the little economic comfort they might have today or acknowledging that our current way of life is unsustainable and accepting that it must be changed. As Henry David Thoreau once wrote, “what is the use of a house if you haven’t got a tolerable planet to put it on?”
The multidimensional crises impacting our world call for visionary thinking and a bold societal debate. The goal of progressives in Europe and beyond should be to develop alternatives to existing policies, and to keep them alive and available until the politically impossible becomes the politically inevitable. Ultimately, the laws of physics trump the laws of economics. And, in the words of Kenneth Boulding, “anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.”