No to growth?

No to growth?

Efforts to slow the pace of climate change have focussed on improving energy efficiency and switching to renewable energy sources. Some argue that the world needs a more radical approach, one that limits carbon emissions by ending the drive for economic growth itself. The environment has suffered as economies have grown. As the Japanese economist, Yoichi Kaya, observed, carbon emissions are a product of population, GDP per capita, energy efficiency and carbon intensity. Freezing GDP per capita at current levels would stop a major source of emissions.

• Discussions on the so-called ‘de-growth’ today focus on its potential to reduce carbon emissions. But de-growth has other supporters. Some think that advanced economies are ‘rich enough’ and should shift away from the pursuit of growth to the pursuit of leisure and the betterment of society. An older idea, one dating back to the early days of the Industrial Revolution, contrasts the excesses of urbanisation and industrialisation with a supposedly gentler, uncompetitive world of cooperation and mutual aid. Supporters of de-growth are united in their criticism of GDP, pointing out how it fails to capture everything from inequality to mental illness, declining biodiversity and, indeed, happiness.

• De-growth is an idea, not a set of policies. There is, for instance, no consensus among de-growthers as to whether it would apply only to richer countries and environmentally damaging activities, or to all countries and all economic activity.

• Let’s assume de-growth does mean an end to growth, one that aims to rapidly reduce carbon emissions. Would such a policy work?

• The old relationship between economic activity and carbon emissions is changing. A significant and growing number of countries – 33 with a combined population of over 1bn, according to The Economist – have broken the link between economic growth and carbon emissions. They are getting richer and producing less carbon. 

• Since 2005 US GDP has risen by about 50% while carbon emissions, including, those embedded in imports, have fallen. Greater energy efficiency and a shift to renewables have played a significant role. But so, too, has the shrinkage of energy-intensive manufacturing and declining levels of carbon in imports (China has decarbonised its exports faster than the wider economy).

• Richer economies demonstrate that growth and reducing carbon emissions need not be in conflict. An advocate of de-growth might retort that western emissions are still too high and emissions from emerging economies, such as India and China, are growing rapidly.

• Yet growth seems to offer a more plausible solution to these challenges than de-growth. The energy transition requires vast amounts of investment and rapid innovation in areas as diverse as batteries, freight transport, energy management systems and networks. It is a struggle to imagine such a transformation taking place in economies that are stagnating. Risk-taking, innovation and investment are fuelled by, and in turn contribute to, growth.

• Meanwhile, freezing economic activity would condemn much of the world’s population to poverty, low incomes and shorter, less healthy lives.

• The development of new energy sources, and more energy-efficient technologies, will allow for lower carbon growth in emerging economies, much as has happened in richer economies. But it won’t get there without more investment and cheaper, better technologies.

• What about the politics of de-growth?

• The pursuit of growth has been a central aim of modern governments. Growth raises standards of living and strengthens public services. Voters want prosperity and opportunities, not just for themselves but for their families and communities. Even in rich countries, unmet needs, in terms of health care, inadequate incomes, housing and infrastructure, are enormous. Unmet needs are, of course, far greater still in many emerging economies.

• The losses suffered by incumbent governments in elections around the world this year were in large part a backlash against the high inflation and weak income growth of recent years. As James Carville, Bill Clinton’s political adviser said, it’s “the economy, stupid”.

• De-growth would mean economic stagnation in the West. People living in developing countries would have to abandon hope of escaping poverty, or would require a massive redistribution of wealth from advanced economies to developing ones.

• For all the progress of emerging economies like China the world is still a poor and unequal place. Nearly one in ten people still live on less than $2.15 a day, the UN’s definition of extreme poverty. 58% of the world’s population live on less than $10/day. To get income everywhere to the global average of about $14,000 would require incomes in the West to be collapsed with vast transfers going to emerging and developing economies.

• The idea that voters in democracies would accept this – and that governments in more authoritarian countries would give up on growth – requires near infinite levels of optimism. In its pure form de-growth is not in the realms of political reality.

• For all of the challenges that growth brings, it offers a more realistic path to net zero than no growth.

OUR REVIEW OF LAST WEEK’S NEWS
The UK FTSE 100 equity index ended the week up 2.5% at 8,262 as falling UK business activity increased market expectations of future interest rate cuts.

Economics

• Early estimates of business activity in November from surveys of purchasing managers suggest a sharp upturn in the US but contractions in the UK and euro area
• The cryptocurrency bitcoin reached a new record of over $99,000
• UK inflation rose to 2.3% in the year to October, up from 1.7% in September, driven by higher domestic energy prices 
• Bank of England governor Andrew Bailey said that the Bank will take “a gradual approach to removing monetary policy restraint” in part due to potential inflationary effects of the Autumn Budget. Markets expect the Bank to maintain interest rates at their current level in December 
• UK retail sales fell by a more than expected 0.7% between September to October as retailers reported that sales were affected by uncertainty about the Autumn Budget
• UK government analysis estimates that cutting winter fuel payments could lead to an additional 50,000 pensioners falling into “relative poverty after housing costs” in 2024–25
• UK pensions minister Emma Reynolds said the government may consider mandating pension funds to invest in the UK if current reforms do not boost investment
• Official UK figures could have underestimated employment by 930,000 workers since 2019 due to low survey response rates, according to think tank the Resolution Foundation 
• The lobby group British Retail Consortium and 81 retail CEOs said that the recent Autumn Budget could lead to increased costs of up to £7bn a year across the retail industry
• Negotiated wages in the euro area increased 5.4% in the three months in September compared with the same period last year, the largest increase since 1993
• Euro area consumer confidence fell more than expected in November to its lowest level in five months
• The European Central Bank warned of deepening sovereign debt vulnerabilities in light of “policy and geopolitical uncertainty, weak fiscal fundamentals and sluggish trend growth”

Business

• The US Department of Justice asked a federal court to make Google sell its Chrome search browser
• The US has imposed sanctions on Russian state-owned lender Gazprombank, restricting it from the international financial system, in an attempt to restrict Russia’s ability to finance its war effort in Ukraine 
• US businesses are stocking up on imported goods ahead of potential import tariffs under Donald Trump’s presidency, The Wall Street Journal reports
• US carmaker Ford plans to cut 4,000 jobs in Europe amid strong Chinese competition and waning demand for electric vehicles
• Battery manufacturer Northvolt filed for bankruptcy in the US, with the outgoing CEO saying that up to $1.2bn was needed for the business to operate as a going concern
• HMRC received £220m in fines for late filing of tax returns in 2022–23, a five-year high, the FT reports. Late filing fines have totalled £980m since 2018–19
• The value of Royal Mail was written down by £134m by its owner, International Distribution Services, in part due to the additional £120m increase in employer’s National Insurance Contributions from the Autumn Budget
• UK water regulator Ofwat said it would block nine water companies from using customer funds to pay executives’ bonuses, impacting £6.8m of bonus payments, as part of new rules imposed by the regulator
• The UK energy regulator Ofgem will increase the energy price cap by 1.2% in January 2025 due to rising wholesale costs, following a 10% increase in October this year
• UK farmers attended demonstrations in London to protest against the government’s changes to inheritance tax charges for the sector
• Santander announced a £295m provision to cover potential costs regarding the British Court of Appeal’s ruling on car dealership commissions paid by banks without knowledge of car finance customers
• Spain’s Ministry of Consumer Affairs fined five low-cost airlines, including Ryanair and EasyJet, a total of €179m for “abusive practices” such as additional charges for hand luggage
• European plastics production and recycling fell in 2023, as plastics manufacturers closed plants amid cheaper global alternatives 

Global and political developments

• Donald Trump nominated former state attorney general Pam Bondi as US attorney general after former US congressman Matt Gaetz withdrew from consideration
• US president Joe Biden authorised Ukraine’s use of its long-range missiles to strike Russian territory. Ukraine also launched UK-made missiles into Russia for the first time
• Russia fired hypersonic ballistic missiles at Ukraine for the first time, in response to Ukraine’s use of US and UK missiles to strike Russian territory
• The FT reports that Russia has recruited hundreds of Yemeni men to fight in Ukraine in a development that underscores the links between Moscow and the Houthi rebels in Yemen
• The EU is expected to impose new requirements for Chinese businesses to have factories in Europe and share intellectual property as part of a bidding process for grants worth €1bn to develop batteries, the FT reports
• Germany and Finland are “deeply concerned” about possible intentional damage to a severed undersea communications cable between the two countries
• French National Rally Party leader Marine Le Pen said her party would vote for a no-confidence motion in the current government if it did not meet demands over the upcoming fiscal budget aimed to reduce France’s public spending
• Marine Le Pen, alongside 24 other members of the French National Rally Party, is on trial for embezzling European parliament funds, with prosecutors seeking a five-year ban from running for public office
• UK business secretary Johnathan Reynolds warned that the UK would be “much more exposed” than the US to a trade war between China and the West, amid escalating global trade tensions
• UK prime minister Sir Keir Starmer will hold face-to-face talks with Chinese president Xi Jinping, the first face-to-face discussion between the Chinese president and a UK prime minister since 2018

And finally… an artwork, titled “Comedian” and consisting of a banana taped to a wall, was recently sold at auction in New York for $6.2m. The buyer, a Chinese cryptocurrency entrepreneur, outbid six others to secure the artwork - apeeling investment