In Bhutan they’ve scrapped GDP in favour of Gross Domestic Happiness.  Is it also time for the West to re-consider its attitude towards growth? Jules Peck weighs up the arguments.

In conventional wisdom, economic growth and higher incomes mean richer lives and improved quality of life. But, as the Happy Planet Index ( www.happyplanetindex.org ) shows, true prosperity goes beyond material pleasures. Surely it resides in the health and happiness of our families, in the strength of our relationships and our trust in the community? Yet in our search for prosperity, we seem to have lost our way.

Growth has delivered its benefits, at best, unequally. Twenty per cent of the world’s population earns just two per cent of global income. Far from improving the lives of those who most needed it, growth has let much of the world’s population down.

And as the economy expands, so do its ecological impacts. We live now as if we have one and a half planets and peaking in key resources – such as oil – may be less than a decade away. Swedish diplomat and former UN weapons inspector Hans Blix notably warned that climate change was a greater issue than global terrorism, and leading figures in the military have been outspoken about the risk to global security in not taking serious and rapid action to deal with threats such as climate change.

So, as the rich world uses far more than its fair share of the planet, surely we in the wealthy world must radically cut back our planetary consumption if developing countries are to have any hope of their own prosperity?

The dilemma of growth

Continuous improvements in technology mean that fewer people are needed to produce the same goods from one year to the next. So if output doesn’t expand, there is a downward pressure on employment and recession looms. Growth is necessary within this system just to prevent collapse.

The global recession of 2008-10 has thrown this into sharp relief. The banking crisis led the world to the brink of financial disaster and shook the dominant economic model to its foundations. It redefined the boundaries between market and state and forced us to confront our inability to manage the financial sustainability – let alone the ecological sustainability – of the global economy. When growth stalls, as it has done recently, firms go out of business, people lose their jobs and governments may fall.

We find ourselves locked between the horns of a deep-seated dilemma: growth may be unsustainable, but ‘de-growth’ appears to be unstable.

Limits to scale

Economic growth goes hand in hand with increasing use of the Earth’s resources. Prevailing wisdom calls us instead to find a way to allow economic growth to occur but dissociate it from the growth in resource extraction and manufacturing. However, even though we are finding ways to improve efficiency these are continually offset by increases in scale. Global carbon emissions rose by 40 per cent even as the carbon intensity fell. In a world of seven billion people, all aspiring to ever-increasing Western incomes, carbon intensities would have to fall by over 11 per cent per year to stabilise the climate, 16 times faster than they have done since 1990.

To return to living within our planetary means, and share access to prosperity with all, we simply cannot avoid the fact that we need to limit the scale of overall global macro-economic activity.

Prosperity without Growth

There is now rising support for creating prosperity without growth  from people as diverse as New York Times journalist Thomas Friedman, HRH Prince Charles, Archbishop Rowan Williams and American economist Joseph Stiglitz, to name but a few.

This new form of Dynamic Equilibrium economics aims to achieve an equilibrium in our economy but still requires business to be dynamic, creative and innovative as ever.

The issue is also the subject of a recent book by Tim Jackson and TED talk (www.ted.com), outlining 12 steps for transition to a new economics in three areas. These three areas are around: establishing resource and environmental limits; developing a new macro-economics for sustainability that does not rely for stability on relentless expansion of material throughput and growth; and finally freeing people from the social logic of materialistic consumerism.

An end to capitalism?

Robert Solow, Nobel Economics Laureate and one of the architects of the modern theory of economic growth, sees no incompatibility between zero growth and capitalism. And others argue that capitalism needs an urgent update anyhow.

Things are changing. Already a number of leading global companies and organisations like the Aldersgate Group and the World Economic Forum are exploring the innovation opportunities in a direct equilibrium economy. Indeed, in March 2011 WWF, Eden Project and Abundancy Partners will run a corporate conference on this subject with speakers including MP Caroline Lucas and Financial Service Authority Chair Adair Turner. But business can do little without leadership and market evolution by governments.

Governance for prosperity

The transition to a direct equilibrium economy raises questions of governance. How is shared prosperity to be achieved in a pluralistic society? How are the interests of the individual to be balanced against the common good? Which parts of the economy can grow and which should not? What mechanisms can achieve these balances?

Governments are currently conflicted. Although they have a role in ‘securing the future’, as long as macro-economic stability depends on economic growth, governments will have a tendency to support social structures that reinforce materialistic, novelty-seeking individualism.

What is urgently needed is a new political philosophy and vision. None of this will happen without the political will to make space for audacious change, but, for those brave enough, there is voter support for government action on these issues.

Prime Minister David Cameron has in the past been outspoken about the need to dethrone growth and he commissioned the Quality of Life Review which I directed and which gave recommendations on a new well-being economics. But more recently we have heard little about this from him and his Big Society vision is as yet untested.

The UK government’s Sustainable Development Commission has been working on ideas for a Growth In Transition Commission which would carry on the great work done for President Nicholas Sarkozy by the Stiglitz Commission.

Luckily, work by think tank nef is already under way in the UK to model what an economy no longer reliant on growth would look like. In Canada work has shown such an economy could bring high employment, greater equity, a stable economy and combat climate change.

Other leaders are engaging with this debate. German politician Horst Köhler has been clear that growth does not bring happiness. President of the European Commission, José Manuel Barroso, has said: ‘GDP is unfit to reflect many of today’s challenges such as climate change… We cannot face the challenges of the future with the tools of the past’. Meanwhile EU Environment Commissioner Stavros Dimas has stated: ‘There is political consensus on the need to go beyond GDP’. The OECD and European Commission are currently seeking ways of measuring progress and well-being more broadly than by taking GDP as the sole measure which Angel Gurria, OECD Secretary General,  has said ‘will constitute a major contribution to stability and democracy’. As well as at EC and OECD level, countries like Austria, Finland and New Zealand are examining these issues. Bhutan uses an alternative to GDP in their Gross Domestic Happiness measure. And many US states are now developing their own indicators of progress beyond GDP.

Flourishing within limits

True prosperity consists in our ability to flourish as human beings – within the ecological limits of a finite planet. The challenge for our society, for government and for business is to create the conditions under which this is possible. It is the most urgent task of our times and one that is certainly achievable.