Economic Growth vs. sustainable development

Question 1

Key interrelated factors for global growth

Answer 1

• A sharp downturn in car production and sales
  
  • Weak business confidence amid growing tensions between the United States and China on trade and technology
  • A slowdown in demand in China, driven by needed regulatory efforts to rein in debt and exacerbated by the macroeconomic consequences of increased trade tensions

Question 2

Global value chains (GVCs)

Answer 2

powered the surge of international trade after 1990 and now account for almost half of all trade.
- This shift enabled an unprecedented economic convergence: poor countries grew rapidly and began to catch up with richer countries.

Question 3

Since the 2008 global financial crisis

Answer 3

the growth of trade has been sluggish and the expansion of GVCs has stalled.

	- Meanwhile, serious threats have emerged to the model of trade-led growth. 
	- New technologies could draw production closer to the consumer and reduce the demand for labor. 
	- And conflicts among large countries could lead to a retrenchment or a segmentation of GVCs.

Question 4

Is Globalisation good for growth?

Answer 4

○ Efficiency gains from market forces
○ Comparative advantage and gains from trade
○ Transfer of technology
○ Strong economic growth and rising living standards:
§ in “first era” of globalisation, 1870-1914
§ in post-war globalisation era

Question 5

Globalisation and inequality

Answer 5

○ Access to global markets provides developing and emerging market economies with opportunity for rapid economic development
○ However, domestic economic policies also need to be supportive of growth and development through:
§ Stable macro policies
§ Investment in infrastructure and education
§ Business climate favourable to enterprise
○ Many Asian countries have followed this model
○ Potential for globalisation to adversely affect lower skilled workers in advanced and developing economies
○ Evidence is mixed (IMF study)
○ Domestic policies can help counter this by:
§ promoting labour and business flexibility
§ targeted policies to raise skill levels among disadvantaged groups

Question 6

Globalisation and the environment

Answer 6

○ Rising living standards generally associated with local environmental improvement
○ Corporate reputation and responsibility also a countervailing pressure against a “race to the bottom”
○ But global environmental problems present bigger and more complex challenges, especially the issue of climate change

Question 7

Globalisation has put upward pressure on emissions growth

Answer 7

○ But it has also created greater economic interdependency between nations
○ Recognition of this interdependence can potentially create a political climate of greater international co-operation on major global issues
○ However, national strategies will need to reflect differences in economic development
○ Economic theory and practical experience suggest that globalisation is not inherently in conflict with sustainable development
○ However, the pressures exerted by globalisation have so far been adverse for global emissions growth
○ Significant policy and business actions will therefore be necessary to reconcile a highly integrated global economic system with the transition to a Low Carbon Economy

Question 8

An aging population reduces growth in developed economies

Answer 8

• Globally, the fastest growing segment of the population will be those aged over 60.
• We are already starting to see this demographic change in emerging markets too.
• The old-age dependency ratio of the E7 has been largely flat over the last 20 years, but it is now starting to rise and is projected by the UN to increase from around 0.1 today to around 0.3 by 2050.
• Longer lives are good news, but an ageing population could impede economic growth.
○ As the working-age proportion of the population falls, the workforce will eventually shrink unless people work for longer, reducing output and productivity.
○ Further, a greater proportion of dependents will put a strain on healthcare services and government resources, as tax revenues fall and pension pay-outs swell.
• In our model, a lower average annual growth rate over the period 2016-2050 is associated with ageing populations.
○ Italy and Japan are projected to have an old-age dependency ratio of around 0.7 by 2050, contributing to them being projected to be two of the slowest growing economies over the next 34 years.

Question 9

Rising income inequality creates tensions and economic drag

Answer 9

• In both G7 and E7 economies, levels of income inequality – as measured by the Gini coefficient - have risen since 1980.
• For the E7,
○ inequality has risen (particularly in China) but might moderate in future as these countries develop stronger institutions to provide education, healthcare and social security, and as workers are engaged in more valuable employment and gain more bargaining power
§ (as happened in the US and Europe in the period from the 1920s through to the 1970s with the rise of organised labour movements and associated political parties).
○ Inequality is not just a matter of social justice, but can also act as a drag on economic growth.
• Recent research by the IMF (G7) has found that, on average,
○ a one percentage point increase in the income share of the top 20 percent lowers GDP growth by 0.08 percentage point in the following five years.
§ These findings contradict previous thinking that the benefits of growth will trickle down to those at the bottom.
§ In fact, the findings show that a more equal society could increase economic growth, with a one percentage point increase in the bottom 20%’s income share being associated with a 0.38 percentage point increase in growth over the following five years.
§ This may occur through greater standards of living boosting productivity or equality generating the right incentives for individuals and businesses to invest in education and innovation.
§ Greater economic inequality may also lead to social friction and potentially undesirable political outcomes.

Question 10

Critical policy challenges

Answer 10

• Slow growth of workers’ incomes
  
  • Perceptions of lower social mobility
  • Inadequate policy responses to structural economic change
  • More meager gains primarily for the relatively well-off
  • Lack of fiscal reforms
  • Sustainable public finances (budgets and national debt)
  • Exposure to critical industries (“too big/important to fail”)
  • Need for regulation/deregulation
  • Monetary policies
  • Self-sufficiency vs. multi-lateralism

Question 11

Reflection

Answer 11

• With your neighbour(s), discuss the economic patterns, policies and challenges in your respective home countries:
○ How has your country been doing economically in recent years?
○ Are you/people satisfied with the national economic situation? Why?
○ Are you aware of significant policy initiatives to stimulate growth?
○ What do people see as the key economic issues?
○ How is this reflected in public debates and politics?
○ What do you/people think about the role of trade?
○ What do you think will happen to economic growth in your country in the coming years?

Question 12

Policy makers face a wicked conundrum or the “paradox of growth”

Answer 12

• “No country has ever ended human deprivation without a growing economy. And no country has ever ended ecological degradation with one. Raworth, 2017: 245.
  
  • So how do we end both social deprivation and environmental degradation?
  • And what are the implications for economic growth?

Question 13

Is “eternal” global economic growth possible? And (why) should we care?

Answer 13

• Limits and critiques of solely relying on GDP
○ ‘Quality of life’, ‘utilitarianism’, ‘happiness’
○ No account of depletion and depreciation
○ No account of the distribution of economic welfare across society
• ‘Triple Bottom Line’ (John Elkington)
○ ‘Three Pillars’ of economic prosperity, environmental quality and social equity
• ‘Prosperity without Growth’ (Tim Jackson)
○ building a sustainable macro-economy
○ protecting capabilities for flourishing
○ respecting ecological limits

Question 14

Are there alternative measures of development?

Answer 14

• UNDP - United Nations Development Programme
○ One of the more important achievements of the human development approach, as embodied in successive HDRs, has been to ensure a growing acceptance of the fact that monetary measures, such as GDP per capita, are inadequate proxies of development.
○ The first Human Development Report introduced theHuman Development Index (HDI)as a measure of achievement in the basic dimensions of human development across countries.

Question 15

“From wealth to wellbeing”

Answer 15

• Using indicators from publicly available sources, we assess country performance for each dimension. The assessment relies on a total of 40 indicators based on the most recently available data.
• “The wealth to well-being coefficient
○ compares a country’s SEDA score for its current level of well-being with the score that would be expected given the country’s GDP per capita
§ and the average relationship between that measure and the worldwide current-level scores of well-being.
§ The coefficient thus provides a relative indicator of how well a country has converted its wealth into the well-being of its population.
§ Countries that have a coefficient greater than 1.0 deliver higher levels of well-being than would be expected given their GDP levels, while those below 1.0 deliver lower levels of well-being than would be expected.”

Question 16

Legatum Prosperity Index™ 2018

Answer 16

• Prosperity based on measures of nine pillars:
1. The Economic Quality pillar
§ ranks countries on the openness of their economy, macro-economic indicators, foundations for growth, economic opportunity and financial sector efficiency.
2. The Business Environment pillar
§ measures a country’s entrepreneurial environment, its business infrastructure, barriers to innovation and labour market flexibility.
3. The Governance pillar
§ measures a country’s performance in three areas: effective governance, democracy and political participation and rule of law.
4. The Personal Freedom pillar
§ measures national progress towards basic legal rights, individual liberties and social tolerance.
5. The Social Capital pillar
§ measures the strength of personal relationships, social network support, social norms and civic participation in a country.
6. The Safety & Security pillar
§ ranks countries based on national security and personal safety.
7. The Education pillar
§ ranks countries on access to education, quality of education and human capital.
8. The Health pillar
§ measures a country’s performance in three areas: basic physical and mental health, health infrastructure and preventative care.
9. The Natural Environment pillar
§ measures a country’s performance in three areas: the quality of the natural environment, environmental pressures and preservation efforts.

Question 17

○ Natural Capital is

Answer 17

§ any stock or flow of energy and material that produces goods and services. It includes:
□ Resources - renewable and non-renewable materials
□ Sinks - that absorb, neutralise or recycle wastes
□ Processes - such as climate regulation
§ Natural capital is the basis not only of production but of life itself!

Question 18

Human Capital

Answer 18

§ consists of people’s health, knowledge, skills and motivation. All these things are needed for productive work.
§ Enhancing human capital through education and training is central to a flourishing economy.

Question 19

Social Capital

Answer 19

§ concerns the institutions that help us maintain and develop human capital in partnership with others;
e.g. families, communities, businesses, trade unions, schools, and voluntary organisations

Question 20

○ Manufactured Capital

Answer 20

§ comprises material goods or fixed assets which contribute to the production process rather than being the output itself –
□ e.g. tools, machines and buildings.

Question 21

○ Financial Capital

Answer 21

§ plays an important role in our economy, enabling the other types of Capital to be owned and traded.
§ But unlike the other types, it has no real value itself but is representative of natural, human, social or manufactured capital;
□ e.g. shares, bonds or banknotes.

Question 22

Alternative model:

Answer 22

○ Natural capital
§ Land; water; biotic; mineral resources; climate and atmosphere; biodiversity etc.
○ Human capital
§ Human population (size, distribution, health, education, other capabilities)
○ Manufactured capital
§ Buildings (homes, factories and their products); infrastructure (transport, energy, information)
○ Social capital
§ Laws, norms, rules, customs; institutions (political, judicial, economic); trust
○ Knowledge capital
§ Codified knowledge (conceptual, factual, practical, know-how)
○ Financial capital part of social capital?

Question 23

Meme

Answer 23

word coined by biologist Richard Dawkins, are ideas, behaviors, and styles that spread within cultures (i.e., similar to traits in natural biology)
				□ Flourishing. 
Wellbein
				□ Plenitude. 
				□ Enough. 
				□ Thriving or thrivability.

Question 24

□ Flourishing.

Answer 24

® Management scholars John Ehrenfeld and Andy Hoffman urge a focus on “the fullness of life, not some material metric,” and specifically on caring for oneself and others.
® “Corporations’ basic strategies would move from satisfying needs (or wants) to enabling care,” Ehrenfeld writes.

Question 25

Wellbeing.

Answer 25

® In our recent book SEE Change, Malcolm McIntosh and I argue that humans crave community, balance, connection and artistic and spiritual development for wellbeing, not just material goods and money.
® A focus on wellbeing could create a saner, more interpersonally connected, and more sustainable world.

Question 26

Plenitude.

Answer 26

® Sociologist Juliet Schor urges households to diversify income sources and explore small-scale enterprises.
® She calls for appreciation of “undervalued sources of wealth”: time, creativity and social relationships.

Question 27

Enough.

Answer 27

® Writing from a religious perspective, Will Davis also emphasizes caring for others.

Question 28

Thriving or thrivability.

Answer 28

® This quote incorporates sustainability without that word’s connotation of status quo, recognizing that we cannot “sustain” the meme of growth

Question 29

“Degrowth” or “decroissance” to the rescue?

Answer 29

• “Voluntary transition towards a just, participatory, and ecologically sustainable society”
  
  • Process that the wealthiest countries should go through to achieve a “right-sizing” of both national economies and the global economy
  • Abolition of economic growth as a social objective
  • Equitable downscaling of production and consumption to reduce societies’ throughput of energy and raw materials
  • Developing a “steady-state economy” or “prosperity without growth”
  • Already reality in some economies?

Question 30

Different forms of “post-consumerism” for new policies, economies and business models

Answer 30

• A growing willingness to assert that well-being, as distinct from material success, is the aim of life.
  
  • Sustainable degrowth: “downscaling of production and consumption that increases human wellbeing and enhances ecological conditions and equity on the planet”.

Question 31

“Degrowth” or “decroissance” to the rescue?

Answer 31

• “Voluntary transition towards a just, participatory, and ecologically sustainable society”
  
  • Process that the wealthiest countries should go through to achieve a “right-sizing” of both national economies and the global economy
  • Abolition of economic growth as a social objective
  • Equitable downscaling of production and consumption to reduce societies’ throughput of energy and raw materials
  • Developing a “steady-state economy” or “prosperity without growth”
  • Already reality in some economies?

Question 32

Different forms of “post-consumerism” for new policies, economies and business models

Answer 32

• A growing willingness to assert that well-being, as distinct from material success, is the aim of life.
  
  • Sustainable degrowth: “downscaling of production and consumption that increases human wellbeing and enhances ecological conditions and equity on the planet”.