Degrowth and Recession

The Same or Different?

Daniel W. O’NeillSustainability Research Institute

University of Leeds

Economic Degrowth for Ecological Sustainability and Social Equity

18 April 2008

2

Motivating Questions “The US might be heading into a recession but think of how

much pollution will be kept out of the landfills as fewer shoppers cruise the malls 24-7 for something to do.” (Recent comment on CBC News) Are recessions good for the environment?

“As it happens, the country has just gone through a real-life tryout of ‘zero growth’… The period is remembered, of course, not as an episode of zero growth but as the worst recession since the 1930s.” (Fortune Magazine, 1976) Is a Steady State or Degrowth Economy

different from a recession?

3

To Answer These Questions… Comparison of recessions in the U.S. with

examples of “pseudo steady state” economies

Quantitative analysis using indicators Economic

Gross Domestic Product (GDP) Unemployment Inflation

Social Life expectancy Self-reported wellbeing

Environmental Per capita CO2 emissions Per capita Ecological Footprint Population growth

4

Recession: Some Definitions Two consecutive quarters of decline in real GDP

“[A] significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.” (NBER 2003)

“A recession is when your neighbor loses his job; a depression is when you lose your job.” (Sidney J. Harris)

5

Recessions in the U.S. (1950–2007)

-4

-2

0

2

4

6

8

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Ch

ang

e in

Per

Cap

ita

Rea

l G

DP

(%

)

0

2

4

6

8

10

12

Mo

nth

s of R

ecession

in Y

ear

Source: U.S. Bureau of Economic Analysis

6

Recent Recessions in the U.S.

Start End Months Cause

Nov 1973 Mar 1975 16 - Oil shock

Jan 1980 Jul 1980 6 - Oil shock

Jul 1981 Nov 1982 16 - Tight monetary policy to combat inflation- High interest rates

Jul 1990 Mar 1991 8 - Tight monetary policy- Savings-and-loan crisis- Fall in consumer confidence

Mar 2001 Nov 2001 8 - Bursting of the dot-com bubble- 9/11 terrorist attacks- Scandals (Enron/WorldCom)

2008 ? ? ? - Sub-prime mortgage crisis - Housing market correction

7

Recession and Unemployment (U.S.)

Jobs are lost during recessions “Okun’s Law”

0

2

4

6

8

10

12

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Un

emp

loym

ent R

ate

(% o

f Lab

ou

r F

orc

e)

y = -0.1475x + 0.3393

R2 = 0.101

-3

-2

-1

0

1

2

3

4

-4 -2 0 2 4 6 8

Change in Per Capita GDP (%)

Ch

an

ge

in U

ne

mp

loy

me

nt

Ra

te (

%)

Source: U.S. Bureau of Labor Statistics

8

Recession and Prices (U.S.)

Prices may increase or decrease during a recession (i.e. inflation or deflation)

-15

-10

-5

0

5

10

15

20

1915

1920

1925

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Infl

atio

n R

ate

(%)

Source: InflationData.com

9

Recession and Happiness (U.S.)

There is no clear relationship between recessions and self-reported happiness

0

1

2

3

4

5

6

7

8

9

10

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Sel

f-R

epo

rted

Hap

pin

ess

(0-1

0)

-8

-6

-4

-2

0

2

4

6

8

10

12

14

-4 -2 0 2 4 6 8

Change in Per Capita GDP (%)C

han

ge

in S

elf-

Rep

ort

ed

Hap

pin

ess

(%)

Avg ≈ 7.4

Source: World Database of Happiness

10

Recession and CO2 Emissions (U.S.)

Energy use and CO2 emissions decrease during recessions

0

5

10

15

20

25

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005P

er C

apita

CO

2 E

mis

sio

ns

(to

nn

es/p

erso

n)

y = 1.0557x - 1.7797

R2 = 0.6184

-8

-6

-4

-2

0

2

4

6

8

10

-4 -2 0 2 4 6 8

Change in Per Capita GDP (%)

Ch

ang

e in

Per

Cap

ita

CO

2 E

mis

sio

ns

(%)

Source: Energy Information Administration

11

Recession and Ecol. Footprint (U.S.)

Ecological footprint decreases during recessions

0

2

4

6

8

10

12

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Per

Cap

ita E

colo

gic

al F

oo

tpri

nt (

gh

a/p

erso

n)

y = 1.2215x - 1.2624

R2 = 0.5534

-8

-6

-4

-2

0

2

4

6

8

10

-4 -2 0 2 4 6 8

Change in Per Capita GDP (%)

Ch

ang

e in

Per

Cap

ita

Eco

log

ical

F

oo

tpri

nt

(%)

Source: Global Footprint Network

12

Recession and Population Growth (U.S.)

Population continues to increase during recessions (mainly through immigration)

0

50

100

150

200

250

300

350

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

To

tal P

op

ula

tion

(mill

ion

s)

0.0

0.5

1.0

1.5

2.0

2.5

-4 -2 0 2 4 6 8

Change in Per Capita GDP (%)

Po

pu

lati

on

Gro

wth

Rat

e (%

)

Source: Economic Report of the President

13

The Alternative: SSE or Degrowth What is a Steady State Economy (SSE)?

Constant population Constant stock of physical artefacts Constant rate of maintenance throughput

Energy and material flows are minimizedand within ecological limits

What is Degrowth? My definition: the transition to a Steady State Economy Developed countries need to reduce their population,

stocks, and throughput to: Become environmentally sustainable Make room for developing countries

Daly’sDefinition

14

In Search of a SSE or Degrowth… Are there any countries that come close to a

Steady State Economy or Degrowth?

My criteria: Stable or decreasing population

Population growth rate < 0.5%/year Stable or decreasing energy/material throughput

Change in per capita energy use < 0.5%/year Change in per capita ecological footprint < 0.5%/year

Politically stable World Bank “Index of Political Stability” > 0

15

Countries Satisfying these Criteria

- Data are for the period 1995-2005, and are per capita- Averages are weighted by population

- Sources: UN Common Database, Energy Information Administration, Global Footprint Network, World Database of Happiness

Country

Population Growth Rate (%/Year)

Energy Use Growth Rate (%/Year)

Ecological Footprint Growth Rate (%/Year)

Life Expectancy (Years)

Life Satisfaction (0-10)

Unemploy-ment Rate (%)

GDP(2005$ PPP)

Ecological Footprint (gha)

Germany 0.1 0.0 -0.8 78.7 7.2 9.4 29,461 4.5

Poland -0.1 -0.1 -1.2 74.6 5.9 15.6 13,847 3.3

Romania -0.5 -1.2 -0.7 71.3 5.0 7.1 9,060 2.4

Slovakia 0.0 -0.2 0.4 73.8 5.5 15.7 15,871 3.2

Sweden 0.2 0.3 0.3 80.1 7.7 5.9 32,525 6.1

Switzerland 0.4 -0.2 0.3 80.7 8.1 3.5 35,633 5.1

Average .. .. .. 76.8 6.6 10.3 23,148 4.0

16

SSE and GDP

Most countries still show positive growth in GDP SSE ≠ Recession

In a SSE, GDP can grow (temporarily) through efficiency gains. After this, only qualitative growth is possible

-8

-6

-4

-2

0

2

4

6

8

10

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

An

nu

al C

ha

ng

e in

Re

al G

DP

(%

)

Germany

Poland

Romania

Slovakia

Sweden

Switzerland

Source: UN Common Database

17

SSE and Inflation

Inflation varies widely between more affluent and less affluent countries Transition from communism to capitalism; unrelated to SSE?

Convergence to low inflation?

0

5

10

15

20

25

30

35

40

45

50

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

Infl

ati

on

Ra

te (

%) Germany

Poland

Romania

Slovakia

Sweden

Switzerland

Source: UN Common Database

18

SSE and Unemployment

0

5

10

15

20

25

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

Un

em

plo

ym

en

t R

ate

(%

)

Germany

Poland

Romania

Slovakia

Sweden

Switzerland

Wide variation in unemployment rates Some countries have low unemployment, so it is possible in a SSE

Source: UN Common Database

19

SSE and CO2 Emissions

CO2 emissions are relatively constant or decreasing Limiting the material/energy input to the economy results in a limit on emissions (1st Law of

Thermodynamics)

0

2

4

6

8

10

12

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

Pe

r C

ap

ita

CO

2 E

mis

sio

ns

(to

nn

es

/pe

rso

n)

Germany

Poland

Romania

Slovakia

Sweden

Switzerland

Source: Energy Information Administration

20

SSE and Ecological Footprint

Only Sweden and Romania have ecological footprints less than their national areas Stable does not mean sustainable!

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03R

ati

o o

f E

co

log

ica

l Fo

otp

rin

t to

Bio

ca

pa

cit

y

Germany

Poland

Romania

Slovakia

Sweden

Switzerland

SustainabilityThreshold?

Source: Global Footprint Network

21

Comparison: SSE and Recession Similarities

Environmental pressure is reduced Lower energy use, CO2 emissions, ecological footprint

Differences Population increases in a growth economy,

exacerbating unemployment during recession GDP may continue to grow for some time in a

SSE (through efficiency gains) Low unemployment is possible in a SSE Recession is a transient phenomenon (the

failure of a growth economy), whereas SSE is a long term solution

22

Conclusions A few countries have managed to achieve

a “pseudo-SSE” Indicators for these countries are encouraging How would things look if the steady state were

an active policy instead of an incidental outcome?

Degrowth/SSE and Recession are not the same thing Need to educate policy makers, the media, and

the average citizen GDP is not a meaningful indicator in a SSE

Merci!

Questions?

24

Characteristics of Recession Economic

GDP decreases Production and consumption decrease Investment decreases substantially Prices may increase or decrease (i.e. inflation or

deflation) Social

Unemployment increases (Okun’s Law) Happiness is unaffected?

Environmental CO2 emissions decrease (energy use decreases) Ecological footprint decreases Population continues to increase

25

Characteristics of SSE Economic

Inputs to production (materials, energy, labour) are constant

GDP may continue to increase (in the short term) Inflation is low (driven by resource prices in long run?)

Social Unemployment can be low or high Life satisfaction ranges from average to high

Environmental CO2 emissions are constant or decreasing Ecological footprint is constant or decreasing Population is constant or decreasing

26

Recession and Energy Use

Energy use decreases during recessions

0

20

40

60

80

100

120

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Per

Cap

ita E

ner

gy

Use

(MW

h/p

erso

n)

y = 0.9452x - 1.2426

R2 = 0.5959

-8

-6

-4

-2

0

2

4

6

8

10

-4 -2 0 2 4 6 8

Change in Per Capita GDP (%)C

han

ge

in P

er C

apit

aE

ner

gy

Use

(%

)

27

Recession and Poverty

Recessions increase the number of people living in poverty (based on income)

0

5

10

15

20

25

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Per

son

s in

Po

vert

y (%

of P

op

ula

tion

)

y = -0.2782x + 0.3958

R2 = 0.5455

-3

-2

-1

0

1

2

-4 -2 0 2 4 6 8

Change in Per Capita GDP (%)

Ch

ang

e in

Per

son

s in

P

ove

rty

(%)

28

Recession and Happiness (1-3 Scale)

There is no clear relationship between recessions and self-reported happiness

1.0

1.5

2.0

2.5

3.0

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Sel

f-R

epo

rted

Hap

pin

ess

(1-3

)

-15

-10

-5

0

5

10

15

20

25

-4 -2 0 2 4 6 8

Change in Per Capita GDP (%)

Ch

ang

e in

Sel

f-R

epo

rted

H

app

ines

s (%

)

29

GDP and Energy Supply

y = 0.9846x + 0.7195

R2 = 0.8967

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

-0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

Total Primary Energy Supply (Log)

GD

P (

Log)

30

Ecological Footprint and GDP

y = 0.5881x - 1.9464

R2 = 0.8019

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

2.0 2.5 3.0 3.5 4.0 4.5 5.0

Per Capita GDP (Log)

Per

Cap

ita E

colo

gica

l Foo

tprin

t (L

og)

31

Recession as Motivator for SSE

“A situation of nongrowth can come about in two ways: as the failure of a growth economy to grow, or as the success of conscious policies aiming at a SSE. No one denies that when a growth economy fails to grow, the result is unemployment and suffering. The main reason for advocating a SSE is precisely to avoid the suffering of a failed growth economy.” (Daly 1993)

32

Institutions in a SSE (Daly)

Stable population Transferable birth licences Immigration policy

Constant stock of physical artefacts sustained with minimum throughput Depletion quotas

Just distribution Minimum income Maximum income and maximum wealth