Saturday, April 23, 2011

Is Japan the Future? (part 2)

3. Questioning Growth

We can see that the religion of endless growth — like any religion based on blind faith rather than reason — is a kind of mania, a form of lunacy, indeed a disease … The one disease to which the growth mania bears an exact analogical resemblance is cancer. Growth for the sake of growth is the ideology of the cancer cell.
Edward Abbey, One Life at a Time, Please

So, is all of this bad? After all, Japan is already overpopulated - it is the world’s tenth largest country in terms of population, crowded onto a small set of mountainous islands. The population that can live on the Japanese archipelago sustainably has been estimated at 30-40 million, as opposed to the 127 million there today. Is less people necessarily a bad thing? After all, populations cannot grow forever, they have to shrink eventually. In addition, Japan's high living standards are entirely dependent on outside exports for its food and energy needs, that is, it must rely on the food and energy surpluses of other nations. That's OK as long as those surpluses are there, but what if they go away? Japan is the least self-sufficient of any industrialized nation, a precarious position to be sure. It depends on imports from other countries for 78 percent of its energy, 60 percent of its food and 82 percent of its timber consumption. Wouldn't a shrinking economy place less pressure on Japan's natural systems and reduce the dependence on imports? Wouldn't there be more to go around for everyone?

And if the population shrinks, why shouldn't the economy? Certainly growth is sometimes good. No one argues that - raised living standards do often emerge from growth. But Japan is one of the most advanced countries on the face of the earth, with advanced infrastructure and technology, functioning democratic systems, an educated population, successful companies, high-tech factories, well-run schools, modern entertainment, the world’s longest life spans, and stores full of food. If there is price deflation, does it not mean that things were overpriced to begin with? Why should things always get more and more expensive every year? What if the Japanese just decided to live within their means, rather than restart a consumerist rat race?

To conventional economists, however, it is nothing less than a catastrophe. The economy, measured by GDP - Gross Domestic Product - must grow, because conventional economics insists that the economy must grow, period. We define a Recession (and a Depression) as an economy that is shrinking or not growing. This raises the question - why must economies always grow? Why can they not shrink, or even hold at a steady-state, without collapsing or imposing unnecessary hardship on people? Surely nothing can grow forever, can it?

The reasons are complex, and too involved to delve into in much detail here. In brief, one reason is in a modern wage economy a small fraction of people own the companies, factories and the land, forcing most people to sell their labor in exchange for wages to allow them to participate in the economy and secure a basic standard of living. The economy must continually grow to provide ways for new entrants into the workforce to earn a salary. Obviously, this is not as pressing when population growth is limited. Somewhat related to this is that in societies that provide retirement pension schemes to older workers, economic and population growth is required to keep money flowing to retirees. This is due to the essentially Ponzi dynamic of such an arrangement - you need a large base of working age people to contribute to a smaller apex of nonproductive retirees. If you have more retirees than workers, the system obviously does not work. Finally, and perhaps most importantly, the economy is chiefly based on the buying and selling of debt. Even money is nothing more than debt - it is created ex nihilo when loans are taken out. Those debts must be paid back with interest, the amount of which increases exponentially over time. Thus, to repay the interest on the debts, the economy must also grow exponentially to create enough money to pay back the previous debts. If debts are not repaid, confidence is lost and defaults begin, cascading like dominoes, leading to the boom-and-bust cycle so typical of modern economies. If loans default, the money supply contracts, leading to economic recession (remember, money is just an IOU). This constant need for more economic activity to pay the interest on previous economic activity is also, in essence, a Ponzi scheme. This is a bit of an oversimplification, but it is fairly close. It leads to an economy that is less like a natural cycle than a jet airplane – it’s forward velocity is the only thing that keeps it in the air; without it, it would drop like a stone. What this amounts to is that we have institutionalized growth, that is, we have built it into the core institutions of our society, the foundations of which were laid down during the period of rapid expansion of Western European trading economies after the Renaissance. Capitalism cannot run in reverse.

However, a growing number of people are beginning to question our constant need for growth. In 1972, a consortium of scholars and businessmen called The Club of Rome published The Limits to Growth. The controversial book modeled the whole planet as a closed system and came to a conclusion that should have seemed obvious - that infinite growth on a finite planet was not possible. Eventually, non-renewable resources, including coal and oil, would be exhausted. The book furthermore asserted that those limits were being reached. People became aware of the consequences that unchecked growth were having on the natural world on which all life depended. Smog hovered over world cities. Rivers became toxic, and the fish were too laden with heavy metals to eat. Forests were being clear-cut and mountaintops were being removed for coal. Topsoil was being depleted. Landfills were piling up with trash. Oceanic fish stocks were collapsing from overfishing. The rain forests of South America were being burned down to make pasture for cattle grazing. Aquifers were being overpumped to provide water for agriculture. Not only that, people were working longer and harder than ever before, desperately trying to keep growth going at all costs via frenzied consumption. Vast industrialization has already put so much pollution into the atmosphere that the earth's climate is changing, leading to potentially catastrophic results. The whole economy could be viewed as little more than a system for transforming natural resources into waste for temporary use.

In the 1990’s former World Bank economist Herman Daly publicized the idea of uneconomic growth. The concept is simple: it states that there are types of growth where the negative consequences outweigh the benefits. Investopedia defines it this way:

When economic growth produces negative external consequences to the extent that the growth is unproductive with respect to the broader global systems in which it is viewed. Uneconomic growth occurs at a faster rate than what is considered sustainable. Uneconomic growth studies deal with the negative social and/or environmental impacts of too much growth in a broad economic sense (such as a nation's gross domestic product).

Negative consequences include negative impacts to social welfare and environmental damage. These outweigh the short-term value of an extra unit of growth. Uneconomic growth is generally attributed to poor planning, not negative intentions. The term's proliferation has centered mostly on the environmental movement, as data suggests that certain areas of growth, such as an increased use of fossil fuel, has uneconomic consequences.

The classic case is growth in automobile use. More cars on the road is seen by economists as beneficial - more sales, more jobs, more growth. Yet it also leads to being stuck in traffic gridlock, stressful commutes, more smog and air pollution, more acid rain, more medical problems like asthma attacks, increased dependence on imported oil, more road wear and tear, more need for road widening and new highways, disposal issues for all the vehicles, polluted water runoff, and more injuries and traffic accidents. Do the benefits of those extra cars outweigh all the costs? Economist's don't care - they don't look at the downsides - as long there is growth, it's good. As Clive Thompson, who wrote an article for Mother Jones entitled Nothing Grows Forever about no-growth economies points out:

"One of the big problems with using GDP as a yardstick for national well-being is that GDP rises when really bad things happen, too. If a company leaks PCBs into a reservoir and local cancer rates spike, the result is a flurry of economic stimuli: Doctors treat the cancers, crews clean the reservoir, lawyers busy themselves suing and defending the polluter. It's still growth--uneconomic growth."

Economists also put no value on things that are outside the money economy. A woman staying home to raise her own child generates no value according to economists, but paying someone else to do it on her behalf does, and this is considered better as it leads to more growth. Making things for yourself generates no growth, but paying someone else to do it for you does. Leisure time and recreational activities also have no value in the economist’s calculus. Only paid work matters. In conventional economics, the natural world provides goods "for free", and thus nothing in nature has any value until it is converted into products for human use. Thus a loss of a forest or wetland due to human intervention is recorded only as an economic “gain,” with no corresponding loss to the ecosystem or future generations.

There is also some confusion between growth and development, and growth and prosperity. If an African dictator builds palaces, golf courses and luxury hotels for his friends, this measures as a growing economy, even if most of the citizens of the country are poor and starving. This is an example of growth without development. Similarly, a country's GDP can grow while most of the citizens actually become poorer, as has happened in the United States, where all of the income growth over the last decade went to the richest 10 percent of citizens, while the median income actually declined. An economist seeing a room full of unemployed people and Bill Gates would see a room full of billionaires. Growth can also occur through leverage, rising asset values and financial trading, which creates “hallucinated” wealth rather than actual wealth, such as through increased goods and services. These types of growth primarily benefit those with large amounts of money to gamble, while threatening the the wider society by introducing higher levels of instability and fragility. Increased growth has not yet brought about full employment, eliminated poverty or reduced the burden of the economy on the environment, and there is little evidence to believe that it ever will.

Growth can also be unsustainable. Overpumping aquifers, overharvesting fish stocks and deforestation are all methods of producing growth, but they come at a cost. In essence, you are robbing from the future. The use of any non-renewable resource must eventually end. Environmental and other catastrophes can wipe out all gains from economic growth. The devastation from an oil spill can cancel out any economic benefit from the use of the oil in the first place. Devastating hurricanes and droughts caused by global warming are already wiping out any benefits that accrue from industrialization which pumps more fossil fuel emissions into the atmosphere.

Author Richard Heinberg has written a number of works on resource depletion, including the Peak oil situation. In a book to be released later this year, he argues that economic growth as we have known it, whether desirable or not, is no longer possible. He argues that we are achieving or nearing the peak production of the word's primary energy sources and that this will put constraints on future economic growth. The highly condensed, easily transportable, "free" sources of energy that were locked into the earth's geological strata are all entering the downward slopes of their depletion curves, causing their costs to rise, and this will place unbearable burdens on industrialized economies which are wholly dependant upon these sources of energy. None of the potential replacements on the horizon deliver the same economic punch - energy returned on energy invested - as conventional fossil fuels - coal, oil, and natural gas. In addition, the remaining sources of these resources are of lesser quality and in harder to reach locations, since the most accessible and highest quality sources were obviously used first. Even so-called renewable sources of power are dependent on fossil fuels for their construction and distribution, and these will function as replacements, not agents of exponential growth the way fossil fuels did. Shortages of other vital resources, such as fresh water, phosphorous, copper, rare-earth metals, uranium and topsoil will add to these difficulties, supplying even more constraints. In addition, most of the "low-hanging fruit" of growth has already been harvested, leading to naturally lower growth rates in the future. Other commentators such as Chris Martenson have made similar cases on similar grounds. If Heinberg and others are right, no major industrial society, Japan or any other, can expect to grow at the rates they did throughout the glut of fossil fuels that existed during the nineteenth and twentieth centuries.

A growing chorus of economists are finally starting to question productivism as the end-all and be-all of economic thought. They include not only Herman Daly (who published Steady State Economics in1977), but also Peter Victor's Managing Without Growth, Tim Jackson's Prosperity Without Growth, and Brain Czech's Shoveling Fuel for a Runaway Train. The emerging fields of Ecological Economics and Biophysical economics and Behavioral Economics also look at the economy in broader ways than just elaborate models concerning monetary transfers, debts and prices. They actually take into account the human behavior and the realities of the physical world.

The work of The Club of Rome, Daly, Heinberg and others helped spawn the Degrowth movement (also known as Decroissance), with Frenchman Serge Latouche as one of its most preeminent spokespeople. The Degrowth movement actively advocates for a scaling back of advanced economies and a reduction in consumption in the belief that this will actually be more beneficial for human beings in terms of quality of life and more sustainable for the planet. They claim that most of the growth in Western Industrialized economies has been uneconomic, has come at the cost of quality of life, and has compromised the quality of the products themselves. They believe that the planet cannot continue to support such massive overconsumption, and that environmental and social devastation awaits us if we continue to insist that we can grow forever. They argue that we must begin preparing now, by reforming our economy and social institutions for this inevitable phase, so that it does not cause chaos when it is thrust upon us by circumstance.

While Degrowth can too often be seen as nothing more than a pie-in-the-sky theoretical movement, some have engaged in speculation that whether they like it or not, Japan is actually the world’s first test case of how a society can function in a post-growth world. A widely circulated blog post posed exactly that question in February of this year. In Japan: the World’s First Post-Growth Economy, author Jeremy Williams describes Japan’s dire economic situation and concludes:

[…] And yet, the lights are still on, everything still works. Literacy is high, and crime is low. Life expectancy is better than almost anywhere on earth – 82 years to the US’ 78. The trains run to the second. Unemployment is only 5%, and levels of inequality are enviable. Real per capita income growth matches America’s at 0.7% over the past decade. It’s hardly a basket case. In fact, it is living proof that growth isn’t necessary to deliver a high standard of living.

That’s not to say that Japan is to be envied or emulated. A legacy of failed stimulus ideas has left it with big debts, and the future is as uncertain as it is anywhere. Neither is it a steady-state economy in the way that matters most – in its materials. Japan consumes considerably more than a one-planet share and is not sustainable in that sense.

The point is that for well over a decade, one of the world’s most important economies hasn’t grown. And at the end of that stint, it’s still a great place to live.

So maybe Japan isn’t a failure. Maybe it’s just ahead of its time – not ‘stagnating’, but settling into the plateau of ‘enough’.

After 15 years of fretting, maybe it’s time Japan embraced its post-growth state and told the economists where to stick their theories. Professor Norihiro Kato recently suggested that Japanese youth culture was doing just that, downsizing and taking a more measured approach to consumerism. Japan’s population had already leveled [sic] off, he noted. He even suggested Japan was entering a post-growth era. “Japan is a small country” people are saying, “and we’re O.K. with small. It is, perhaps, a sort of maturity.”

The Economist declared this “one of the saddest things I’ve read in a long time” in an article entitled ‘Pity Japan‘, but the Economist has not yet entered the 21st century. Kato’s comments certainly struck a chord with others. Environmnental [sic] campaigner Junko Edahiro agreed that young Japanese are beginning to aspire to “a kind of prosperity not based on resources.” You might expect that from Adbusters magazine, but how about this from the Financial Times: “If the business of a state is to project economic vigour, then Japan is failing badly” wrote David Pilling. “But if it is to keep its citizens employed, safe, economically comfortable and living longer lives, it is not making such a terrible hash of things.”

Japan, whether it likes it or not, is the world’s first post-growth economy. It won’t be the last, and I suspect several other countries are dropping onto a growth plateau, perhaps including the UK. If so, let’s work with it. Japan proves that growth isn’t necessary to safeguard the things that matter most in life. There’s nothing to fear in leveling [sic] out, and if the alternative is boom and bust, then the plateau is a far safer place to be. [all emphasis mine]

This generous assessment is corroborated by Wikipedia:

This led to the phenomenon known as the "lost decade", when economic expansion came to a total halt in Japan during the 1990s. The impact on everyday life was muted, however. Unemployment ran rather high, but not at crisis levels. This has combined with the traditional Japanese emphasis on frugality and saving to produce a quite limited impact on the average Japanese family, which continues much as it did in the period of the miracle.[emphasis mine]

and by the BBC:

On the streets of Tokyo, shoppers seem content enough.

Some might feel that falling prices is not too harsh an economic burden to bear. Japan's low crime rate suggests a better quality of life than in many other countries. Health provision, one reason for longer lifespans, is highly regarded. [emphasis mine]

I do not intend to make light of things - clearly Japan is not a paradise, and the recession and decades of zero-growth have extracted a heavy toll on the Japanese people and workforce. Yet contrast Japan with the United States since 2008: massive worker layoffs, widespread unemployment, longer periods of unemployment, reduced worker benefits, endemic foreclosures, downsized and furloughed government workers, rampant union-busting, soaring education and healthcare costs, massive cutbacks in all levels of education, shuttered schools, crowded classrooms, millions without health care, closed libraries and parks, slashed government budgets, declining investment in public transportation, rising property tax burdens and fees, shredded social safety nets, crumbling infrastructure - while at the same time corporate profits are soaring, companies are sitting on mounds of cash, and taxes on the wealthy are being reduced or eliminated. Many municipalities are literally selling off their infrastructure to sovereign wealth funds, shutting off streetlights to save money, bulldozing entire portions of cities and turning paved roads back into gravel. If this is happening after two years of no growth, what will America look like after twenty?

Please read part 1 of this article

Continue to Part 3

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