Speech at ”The future of work in the transition to Inclusive Green Economics” in Turin, October 3rd, 2016
The conflict between the global economy and the natural world has been a topic for discussions since decades. From Silent Spring in 1963 – and the Club of Rome ”Limits to Growth”(LtG) Report in 1972 – to the Bruntland Report in 1987. More recently we can refer to numerous scientific reports and to the emergence of two important concepts – the Ecological Footprint and the Planetary Boundaries. The common concern has been the increasingly fragile relationship between rapidly growing economies and populations and the planetary life-support systems.
The main message of Limits to Growth was ”that a depletion of vital resources and increasing pressures from pollution would create high risks for the global economy in the future”. Many people read the report as if the world economy would come to a standstill after a few decades. But that was never the message. The report had a fifty to hundred years time perspective.
Moreover, the focus of the report was the increasing physical impact of economic growth – the ecological footprint – not growth itself. Few reports have become so controversial and, not least among economists, so criticised. The main critique was that the report had not factored in “the ingenuity of man”. Innovation would help mankind to deal with problems of pollution and scarcity, was the reasoning. Furthermore, it was argued that resource scarcity primarily was a question of pricing.
Here I must give the critics partly right. The treatment of innovation was too static in the Limits to Growth. The computer model used at the time was rather primitive, compared to today. Technology has helped address both resource scarcity and pollution in the recent past. This being said, there are of course limits to what technology can achieve.
With regard to resource scarcity the picture is complex. When it comes to renewable resources, excess use – like overfishing, groundwater depletion or deforestation – and ecosystem degradation and pollution are the main challenges. Here we do experience enormous challenges in many regions of the world. For finite resources the picture is more varied. For some materials – like iron ore – there is no risk for scarcity. For others – like certain rare earth metals and phosphorus – there risk for scarcity is obvious. A common problem is that when man has used up of the richest ores – which is the case today – further extraction will normally be more expensive, require more energy and generate more pollutants.
Limits to Growth dismissed far too easily
Returning to Limits to Growth, I would submit that conventional economists dismissed the warnings of the report far too easily. Their understanding of the functioning of the natural world was – and is – limited. Most economists make no distinction between financial and industrial capital on the one hand and natural capital on the other. The different forms of capital are treated as more or less perfectly substitutable. “As long as financial capital increases we are fine” – so goes the thinking. But we cannot eat money.
The general debate in society, however, is sobering up. A series of international reports have emerged in recent years that essentially confirm many of the conclusions of the Limits to Growth. Among these, one report – ”Imperative to Act” – launched in 2012 by all the eighteen recipients of the Blue Planet Prize, among them Gro Harlem Bruntland, James Hansen, Amory Lovins, James Lovelock, Susan Solomon and Bob Watson, conveys a particularly stark message: ”The human ability to do has vastly outstripped
the ability to understand. As a result civilization is faced with a perfect storm of problems, driven by overpopulation, overconsumption by the rich, the use of environmentally malign technologies and gross inequalities.”
The statement continues: ”The rapidly deteriorating biophysical situation is more than bad enough, but it is barely recognized by a global society infected by the irrational belief that physical economies can grow forever.”
Earth has crossed several planetary boundaries
In 2009, Professor Johan Rockström and 27 leading academics proposed a framework of planetary boundaries designed to define a “safe operating space for humanity.” What Rockström et al did was to identify and quantify a set of uantities which must remain within certain limits – the planetary boundaries – for the earth to continue to thrive for generations to come. Going beyond
these boundaries could lead to abrupt or irreversible environmental changes, while remaining within the boundaries would reduce the risks to human society. The group identified nine “planetary life support systems” – such as climate change, stratospheric ozone depletion, atmospheric aerosol loading, ocean acidification, biochemical flows, freshwater use, land-system change,
and biosphere integrity – essential for human survival.
Recent analysis by Rockström’s team has shown that humanity has already crossed four of the nine boundaries: climate change, biosphere integrity, landsystemchange, and biogeochemical cycles (phosphorus and nitrogen cycle).
We are in ecological overshoot
Another way of looking at our predicament is through the lens of the Ecological Footprint. For tens of thousand of years humans have lived within the planet´s ability to regenerate itself … until about 40 years ago. The Global Footprint Network calculates that humanity now uses the equivalent of 1, 5 planets yearly to provide the resources we need and absorb the waste we
generate. This can go on for a while, but not indefinitely.
The impacts of “overshoot” are well documented, such as – the build-up of GHG:s, soil erosion, tropical deforestation, the depletion offreshwater resources, the acidification of the oceans, the destruction of coral reefs, collapsing fisheries, the rapid loss of biodiversity and pollination systems at risk.
If developments continue the way they are – given rising population numbers and billions of new global consumers – we will need at least three planet Earths by the middle of the Century. Virtually every scientist who has looked at the deteriorating state of the earth’s environment has sounded the alarm. Leading human rights proponents have voiced concern as well, Bishop Desmond Tutu being one of them. Tutu recently said: “Climate change has become the human rights challenge of our time, responsible for many of the challenges that the impoverished face, including loss of life, lack of fresh water, the spread of disease and rising food prices.”
Low-lying coastal areas are particularly vulnerable but the same goes for low latitudes. Such regions – already hot and dry – will become increasingly difficult to survive in, at least for people who are not air-conditioned and who have to eke their living from farming and husbandry. One likely consequence is that the warmer and drier climate will send many millions of migrants from
poor regions to rich countries.
Anthropocene
Perhaps the most conspicuous way of describing the human-dominated era of the Earth is the calculation that humans and farm animals combined constitute 97% (!) of the bodyweight of all living land vertebrates on earth! Meaning that elephants and kangaroos, bats and rats, birds, reptiles and amphibians combined make up a mere three percent of the world’s vertebrate
bodyweights on land.
The ‘Anthropocene’ has emerged as a popular scientific term used by many scientists to designate the period of Earth’s history during which humans have an increasingly decisive influence on the future of the Earth system. The current epoch, the Holocene, is the 12,000 years of stable climate since the last ice age during which all human civilisation developed. But the striking acceleration since the mid-20th century of carbon dioxide emissions and sea level rise, the global mass extinction of species, and the transformation of land by deforestation and development mark the end of that slice of geological time, many experts argue. The Earth is so profoundly changed that the Holocene must give way to the Anthropocene.
To underpin the argument that the Anthropocene era is now underway we can look at the curves describing the changes of a variety of parameters, both physical and social, observed during the past fifty years. The figure below offers a selection of such parameters. It is pretty clear that our steeply rising consumption did cause massive changes of the atmosphere and the biosphere.
(The Anthropocene. 24 curves showing the dramatic changes of human population, of the chemical composition of the atmosphere and of human construction and consumption patterns. The dramatic changes occurred during the past fifty years. Adapted from Steffen et al, 2007).
So, whether we use the LtG report, the Planetary Boundaries concept or the Ecological Footprint the evidence of our overuse of nature is overwhelming. Let there be no doubt, if we continue to pursue conventional growth policies – growth of GDP, where the throughput of energy, most of it fossil fuels, and materials keep increasing – the result in terms of an increasingly unstable
climate, resource depletion, ecosystem decline and biodiversity loss will sooner rather than later constitute a serious threat to human survival.
Social challenges equally serious
Parallel to the overuse of nature and its increasingly serious consequences, we are confronted by a host of social challenges. The French economist Piketty´s work has demonstrated that – as the economy presently is organised – there seems to be an almost irresistible force to widen the gaps between those in the top of the pyramid and the rest. In a forthcoming report to the Club of Rome Jorgen Randers and Graeme Maxton argue that economic growth has done little to provide jobs in the recent past. In a few countries – like my own, Sweden – the number of people being part of the work force has gone up. But in most OECD countries the
unemployment rates are higher today than thirty years ago. According to Randers and Maxton growth policies were successful up till the late 1970´s – both in terms of raising living standards and providing jobs. But after that policies have run into increasing problems, partly because of the finiteness of the planet.
A new and emerging challenge is the digitization of the economy and the automation and robotization of an increasing number of jobs. We already see the effects. According to the authors of ”The second machine age” – Brynjolfsson and Mc Afee – the almost perfect correlation that used to exist in the US between productivity gains in the private sector and the creation of
new jobs has been broken.
US Dep:t of Labor, Bureau of Labor Statistics
To Brynjolfsson and Mc Afee economic growth could be seen as a direct threat to employment. ”The faster growth is the more companies tend to invest in automation and robotization.” There will be new jobs created in this process, as well, but probably far fewer than those being lost.
The debate on robotization and jobs is still in its early phases. Some people contend that robots arrive timely. Most OECD countries experience aging populations and hence a shrinking work force, the argument goes. Robots could be a way out.
Two things are clear to me. First of all: We have to understand much better what technology disruption will mean. Secondly, the notion that growth in the economy will automatically provide new jobs is no longer a given. Rather, I think, we may expect ”jobless growth” to be an increasing phenomenon. Another problem related to the digital economy is income distribution. “In the long run, automation makes us more prosperous overall, but it creates income distribution challenges, with the people towards the bottom being crowded out,” according to David Autor, professor at MIT. Here we are confronted with challenges that will require a rethinking of institutions, of education, of taxation – to name just a few.
The threats to employment and an increasingly skewed income distribution have already lead to increasing social tensions in many parts of the world. The crucial question is: “What will become of the general level of trust in society if this development continues?” The election campaign in the US but, as well, developments in Europe – not least Brexit – bear witness not only of a
loss of social capital and trust but of a strong tendency of populism to gain ground. People look for easy solutions and politicians of the extreme right are happy to offer them.
The loss of trust in society, in my view, is a particular problem when trying to address the global challenges. Unless people have reasonable trust in government institutions they are far less likely to agree that financial resources are spent on addressing problems like climate change instead of more immediate needs.
A world in crisis
So the world is in serious trouble. So much change happening – both in terms of economic, social and environmental factors. Add to that increasing tensions and armed conflicts in many parts of the world. And on top of, it the emergence of a host of disruptive technologies – some of them offering fascinating opportunities – but whose social consequences, not least on employment, are difficult to predict.
Yet another dimension of this debate is the emerging discussion on secular stagnation. The implication is that Western societies have reached a point where it is going to be increasingly difficult to uphold economic growth. The economies suffer from an imbalance in the form of too much savings and too little investments.
One particular aspect worth mentioning is related to the digital revolution. By focusing on growth alone we tend to miss the great advances made thanks to technology disruption; many services provided on the Internet at low or no cost. This is positive for prosperity, but is not reflected in GDP statistics.
Beyond GDP
So from whatever angle we look at it there is good reason to question whether growth of GDP can continue to be the main objective for policymaking in the future. Let me be challenge you: I do not think we will have a chance to address neither of the problems of overuse of the planet, the social problems or the challenges of automation if we do not reconsider our policy objectives. Growth of GDP is not the right policy objective.
The origin of national accounting – and the focus on growth in GDP – was in the 1930´s. Simon Kusnetz was asked by President Roosevelt to provide him with an indicator how the economy was doing. Already at the outset Kusnetz warned that the growth of GDP – a pure quantitative measurement – should not be equalised with an increase in welfare and wellbeing. In spite of
Kusnetz´warnings, growth of GDP has progressively become the main policy objective in countries all over the world.
What we need instead are policy objectives that give priority to welfare and wellbeing and a development that is sustainable – not growth of GDP at all cost. The Bruntland Report in 1987 touched upon this dilemma. It referred to sustainable development as a balancing act – often illustrated by a chair with three legs in the form of economic development, social development and
environment integrity. In practice this has so far meant that priority has been given to the economy – boosting growth – while the social and environment dimensions have taken the back seats.
I would like to suggest a different approach. Let social sustainability be the main objective – while respecting the planetary boundaries. The economy then would be the tool box for these two other objectives to make happen. For this to happen we need a set of new indicators to be able to measure the right things.
Moreover, we have to move away from a situation where people – i e labor – is seen primarily as a cost to be shedded. And we have to stop seeing environment protection – and investments in clean technology – as merely a cost and a threat to competitiveness and jobs.
Jobs and environment
What can we then say specifically about employment in the context of climatechange, environment degradation – and in the context of resource depletion? Moreover, how is employment affected by a green structural transition? And more specifically, what would the employment effects be by moving towards a circular economy?
A general comment would be that our understanding is limited how employment is specifically affected by a more unstable climate, ecosystem decline and pollution. But just as ”there will be no business on a dead planet”, in the words of ITUC: ”there will be no jobs on a dead planet” either. According to an interview with Sharan Burrow, secretary general of ITUC: ”Working people are on the frontlines of climate change, with more than 2.5 million people displaced from their homes. And workers will be on the
frontlines of the industrial transformation that is a necessity for a zero-carbon future.”
Let me quote Peter Poschen, director of ILO Enterprises Department, from his recent book ”Decent Work, Green Jobs and a Sustainable Economy”: ”Already, there is growing evidence of the dramatic effects that severe weather ….can have on economies and societies. As climate change continues to alter weather patterns, unpredictable weather conditions remain the most significant factor causing volatility in the price of agricultural products. High prices for maize and soybean following drought in the United States in 2012 illustrate the nature and the scale of the problem.
The number of people suffering from malnutrition and hunger stands at 805 million worldwide, of whom 791 million are in developing countries. The food price increases in 2008 pushed more than 105 million people into poverty and triggered food riots in a number of countries.
There are also direct losses of jobs and incomes. For example, as a result of Hurricane Katrina in the United States in 2005, New Orleans lost some40,000 jobs; the hardest hit were women, mostly African American. Cyclone Sidr in 2007 disrupted several hundred thousand small businesses and adversely affected 567,000 jobs in Bangladesh; the estimated value of nonagricultural private assets fell by some $25 million.
In both cases, poorer households were more exposed because they live in more vulnerable areas and have fewer resources to enhance resilience to climate change.” In ”Economic Risks of Climate Change”, a recent book by a team of researchers headed by Robert Kopp, a climate scientist at Rutgers, and Solomon Hsiang, a professor of public policy at the University of California, Berkeley, the authors have identified the regions in the US that are likely to be mostly affected by climate change. Coastal regions are on the top of the list due to the rise in sea level. Moreover, states such as Iowa and Nebraska, which depend heavily on farm crops vulnerable to rising temperatures and more severe droughts, could see annual per capita income decline by thousands of dollars. One particular effect will be on labor productivity, particularly for workers who toil outdoors or in environments significantly affected by hotter temperatures.
No sector will be affected more than agriculture. In 2015 alone, the California drought cost the economy $2.7 billion and eliminated some 21,000 jobs, according to the Center for Watershed Sciences at the University of California, Davis. Kopp and Hsiang found that parts of the U.S. Midwest, Southeast, and Great Plains—some of the most fertile farmland in the country
—could see annual crop yields fall 10 to 50 percent by midcentury. “When you look at regions that we consider heavily impacted by the Dust Bowl, we saw agricultural declines of 15 percent,” says Hsiang. “What we’re saying is that according to our projections, there’s a 50 percent chance that we’ll see what looks like a perpetual Dust Bowl situation.”
Switching to a low-carbon economy – which is a must if we want to avoid run away climate change – will inevitably lead to structural unemployment. Jobs will be lost in activities that depend on fossil fuels. But parallel to that, investments in climate action is already creating jobs. In renewable energy, the US solar industry is creating jobs twenty times faster than the overall
economy, while the world’s largest renewable energy job market is in China, with 3.4 million working in the industry. In Germany, 370,000 people are employed in renewable energy, the largest number in Europe. Giving more priority to energy efficiency would create millions of jobs in retrofitting old buildings.
Greening the economy
Returning to the fragile relationship between a growing economy and the life-supporting systems. I want to reiterate that future economic development – with decent work and improved human well-being – will critically hinge on preserving, managing and restoring the natural assets on which all life and economic activity ultimately depend. The notion of “grow first and clean up
later” is not an option. Increasing natural resource use and pollution will aggravate the growing scarcity of fresh water and fertile land in many regions, it will pollute our cities and the air we breathe and accelerate the loss of biodiversity and climate change beyond tolerable levels. One type of intervention that would aim at addressing quite a number of the
problems identified – in the form of economic gains, reduced pollution and the creation of additional jobs – would be serious decoupling, i e efforts aiming at cutting the link between economic growth and demand for natural resources. While there has been a lot of focus on energy use recently, material flows have been more or less neglected. Energy use is of crucial importance –
not least in a situation when fossil fuels make up 80 % of supply – but the same goes for material use.
Global material consumption is increasing rapidly and is estimated to continue to rise. OECD counts on 1-3 Billion additional middle income consumers until 2030. Furthermore, an estimated 50% of the urban fabric that will be required in 2050 is yet to be built. The materials required for these investments are huge. The anticipated increase in resource and energyintensive extraction and production will, no doubt, be accompanied by ever increasing pressures on the climate and environment in general.
The production and use of raw materials like steel, cement and aluminium account for almost 20% of global GHG emissions. Switching to renewables and improved energy efficiency in the production processes will help. But just important will be to reduce material throughput through activities like reuse, remanufacturing and recycling.
Against this backdrop, the only possible way forward – not least to buy time – would be to aim at seriously decoupling resource use and associated environmental impacts from economic growth. Decoupling has been happening in the past but at modest rates and the gains have been rapidly eaten up by continued economic growth and rebound effects. This time we have to be really serious.
Circular Economy is win-win-win
Industrial society was essentially built on linear resource flows. Energy and materials were cheap and companies did not have to pay for pollution. Natural resources were perceived as almost infinitely large. The logic of business was built around as rapid turnover of consumer goods as possible. There are, as we have seen, serious problems, however: Pollution, depletion
and wastefulness. Emissions to air and water are directly proportional to the energy and material throughput in society. Moreover, most of the products and components that are thrown away today represent significant value and could be used again – and again.
A first important step towards a more efficient use of materials would be to significantly increase recycling rates in society. We know – not least from various metals the benefits of recycling. Demand for energy, for example, is being reduced by 50% at least through recycling. But enhanced rates of recycling is just one of several necessary steps. Reuse and reconditioning, product life extension and to better utilise what has already been produced are other elements in a strategy to enhance material efficiency.
The benefits by moving in the direction of enhanced material efficiency are striking. Mc Kinsey did a study on the European economy in 2015 – “Growth within” – which showed that Europe could gain significantly in terms of welfare and wellbeing by moving towards a circular economy. The estimate was made that Europe is losing 95 % of the original material value after the first use cycle. A colossal waste of resources! The study concluded that by moving towards greatly enhanced material
efficiency, primary material consumption – measured by car and construction materials, real estate land, synthetic fertilisers, pesticides, agricultural water use, fuels, and non-renewable electricity – could drop 32% by 2030 and 53% by 2050, compared with today. The conclusion from the study was that the European economy could gain a lot by enhancing material efficiency – in the
form of lower costs, an increase in GDP, greatly reduced pollution levels and the creation of new jobs.
Recent reports from the Club of Rome has studied the likely macro-economic effects by moving towards a more circular economy. Seven countries – the Czech Republic, Finland, France, the Netherlands, Norway, Poland, Spain and Sweden – have been analysed using a traditional input / output model. The question posed was: How would the economies perform today if they were 25% more energy efficient, had reduced the use of fossil fuels by 50% in favour of renewable energy and achieved a far more efficient use of
materials?
The result is promising. If the countries studied were to introduce all the three actions in parallel, the effects would be substantial: CO2 emissions would be between 65 and 70% lower. The impact on jobs would be highly positive as well: an estimated 75 000 additional jobs in Finland, 100,000 in Sweden, 200,000 in Holland, 400,000 in Spain and half a million in France. The result should not come as a surprise. An economy giving priority to caring for what has already been produced – through repair, maintenance, upgrading and remanufacturing – is more labor-intensive than both mining and manufacturing (often in highly automated and robotized facilities). We need a new business logic. More circular business models must replace the linear economy, featuring practices like:
– construction materials designed so that they can be reused and recycled,
– electronics designed for longer life, and for components to be used again;
– car plants, like is the case with Renault, taking back old engines, renovating
them and making use of them in new vehicles;
– tyre manufacturers, like Michelin, offering tyres for lease, charging per km
of use;
– clothing companies, like Mud Jeans and Houdini – and more recently also H&M
– offering take-back of used textiles and clothing for rent,
– lighting companies, like Philips, providing lighting as a service, and
– different forms of sharing with regards to mobility and buildings
Incentives needed
A circular economy will not happen by itself. Policy measures – as well as targeted investments – will be needed. The scope here is too limited to dwell into this. But among the measures needed will be a strengthening of recycling and reuse targets, promotion of energy efficiency and renewable energy, design criteria for new products for ease of repair and maintenance and countering obsolesce and rethinking taxation – lowering taxes on labor and increasing taxes on the use of nature and exempting secondary materials from VAT.
To sum up
Let me reiterate. The time when we could grow first and clean up later is definitely over. The pressure on both the atmosphere and the biosphere is such that we have to develop policies that fully integrate the social and ecological objectives with economic objectives. Judging from the decision in the UN General Assembly in 2015 on the SDG:s such an integrated approach is envisaged. In the Vision Statement of the SDG:s it is said: ”(9) we envisage a world in which development and the application of technology are climate-sensitive, respect biodiversity and are resilient. One in which humanity lives in harmony with nature and in which ildlife and other living species are protected.”
To stay true to the vision statement means that the altogether 17 SDG:s have to be pursued in different ways than in the past, i e conventional growth policies will not suffice. The International Resource Panel (IRP) did a preliminary assessment of nterlinkages and trade-offs between different SDGs,_ finding that a large number of goals for human well-being, (11 of the 17) are ‘contingent on the prudent use of natural resources’. This is a very diplomatic way of saying that achieving the socio-economic goals while applying the prevailing growth policies and non-prudent use of natural resources is simply impossible.
So the challenges are great, indeed. Most of the responsibility rests with industrialised countries to help mobilise the financial resources for technology and innovation and for technology leapfrogging in developing countries. In many areas the technologies needed are already there – solar and wind is one example – but the costs may still appear prohibitive not least in low-income countries. Parallel to that policy frameworks – included new indicators – have to be designed for a truly integrated approach to the SDG:s.