Tensions in Ukraine: A Scramble for Growth?

by James Magnus-Johnston

The situation in Ukraine is undoubtedly complex, but it may be as much about a scramble for growth and fossil fuel as it is about ethno-cultural identity.

In a statement issued last week, Ukrainian Prime Minister Arseniy Yatsenyuk focused heavily upon energy politics. He accused Russia of using energy as a “new nuclear weapon.” The cold war reference is clear: just as the former Soviet Union used its nuclear arsenal to hold the world hostage to conflict, today it’s fossil fuel that’s used as a bargaining chip in the geopolitical game.

Europe’s dependence upon Russian fossil fuel helps explain why the Russian leadership has been able to act without fear of retribution. Over 50 percent of Russian gas exports to Europe pass through Ukraine, and Europe relies on Russia for 40 percent of its imported fuel.

The energy sector drives the European economy as well as the world’s high-finance casino, in which speculative claims on fossil fuel inflate dividends to inequitable heights. Yatsenyuk acknowledges that “[the Russians] sell oil and gas mainly to the EU and then take Euros, dollars and pounds — and buy weapons [and] military equipment.” This creates a vicious cycle in which super-inflated fossil fuel dividends can be leveraged to buy even more military equipment, which is in turn used to control fossil fuel infrastructure. And voila — uneconomic growth.

Danger in Ukraine

Pursuit of cheap energy and unending growth spell danger in Ukraine and elsewhere around the world (photo credit: Trey Ratcliff).

The resulting concentration of wealth in the hands of the few appears to feed nationalist fervor at home just as it buys political favor abroad. Russia’s biggest players have been investing around the world for years, but references to Russian power and influence belie the extent of Russian inequality. Russia “has the highest level of wealth inequality in the world, apart from small Caribbean nations with resident billionaires,” according to a 2013 report by Credit Suisse. In Russia, 110 billionaires hold a shocking 35% of all wealth; globally, billionaires collectively account for only 1-2% of total household wealth.

My intent is not to characterize Russia as the classic American villain. In fact, Ukrainian nationalists are, by some accounts, as menacing to Ukraine’s future as Putin’s Russia, and there is plenty of Western hypocrisy for a second editorial. What we need to consider is that the remaining Russian carbon should not be removed from the ground, and all of the supposed spinoff benefits — the military buildup, the further fuel extraction, the super-inflated dividends — generate harmful growth that benefits only a few.

Yet according to the outdated neoclassical script for economic success, growth is signalling to some that Russia is somehow on the right track — a display of power, progress, and innovation. Like other present-day examples, including nationalistic rhetoric surrounding tar-sands production in Canada, dogmatic support of growth is more accurately characterized as hubris, stagnation, and ill-advised development.

The planet’s life support system doesn’t have time for a rehearsal of twentieth-century nationalism fed by a rush for cheap oil; nor will the “victors” in any contemporary power struggle have the opportunity to cash in their casino winnings. Without embracing a post-growth paradigm shift, we’ll all be in for a gruesome ride. With cheap oil and the casino economy fading into history, we need to adopt a steady-state economy and give everyone a chance at winning; otherwise we’ll have to accept senseless land and resource grabs in which everyone loses.

James Magnus-Johnston is the Canadian Director of CASSE and a professor of political studies and economics at Canadian Mennonite University.

Fitting the Name to the Named

by Herman Daly

Herman DalyThere may well be a be a better name than “steady-state economy”, (SSE) but both the classical economists (especially John Stuart Mill) and the past few decades of discussion, not to mention CASSE’s good work, have given considerable currency to “steady-state economy” both as concept and name. Also both the name and concept of  a “steady state” are independently familiar to demographers, population biologists, and physicists. The classical economists used the term “stationary state” but meant by it exactly what we mean by steady-state economy—briefly, a constant population and stock of physical wealth. We have added the condition that these stocks should be maintained constant by a low rate entropic throughput, one that is well within the regenerative and assimilative capacities of the ecosystem. Any new name for this idea should be sufficiently better to compensate for losing the advantages of historical continuity and interdisciplinary familiarity. Also, SSE conveys the recognition of biophysical constraints and the intention to live within them economically—which is exactly why it can’t help evoking some initial negative reaction in a growth-dominated world. There is an honesty and forthright clarity about the term “steady-state economy” that should not be sacrificed to the short-term political appeal of vagueness.

A confusion arises with neoclassical growth economists’ use of the term “steady-state growth” to refer to the case where labor and capital grow at the same rate, thus maintaining a constant labor to capital ratio, even though both absolute magnitudes are growing. This should have been called “proportional growth”, or perhaps “steady growth”. The term “steady-state growth” is inept because growth is a process, not a state, not even a state of dynamic equilibrium.

Having made my terminological preference clear, I should add that there is nothing wrong with other people using various preferred synonyms, as long as we all mean basically the same thing. Steady state, stationary state, dynamic equilibrium, microdynamic-macrostatic economy, development without growth, degrowth, post-growth economy, economy of permanence, “new” economy, “mature” economy. These are all in use already, including by me at times. I have learned that English usage evolves quite independently of me, although like others I keep trying to “improve” it for both clarity and rhetorical advantage. If some other term catches on and becomes dominant then so be it, as long as it denotes the reality we agree on. Let a thousand synonyms bloom and linguistic natural selection will go to work. Also it is good to remind sister organizations that their favorite term, when actually defined, is usually a close synonym to SSE. If it is not then we have a difference of substance rather than of terminology.

Out of France now comes the “degrowth” (decroissance) movement. This arises from the recognition that the present scale of the economy is too large to be maintained in a steady state—its required throughput exceeds the regenerative and assimilative capacities of the ecosystem of which it is a part. This is almost certainly true. Nevertheless “degrowth”, just like growth, is a temporary process for reaching an optimal or at least sustainable scale that we then should strive to maintain in a steady state.

Some say it is senseless to advocate a steady state unless we first have attained, or can at least specify, the optimal level at which to remain stationary. On the contrary, it is useless to know the optimum unless we first know how to live in a steady state. Otherwise knowing the optimum level will just allow us to wave goodbye to it as we grow beyond it—or as we “degrow” below it.  Optimal level is one thing; optimal growth rate is something else. Once we have reached the optimal level then the optimal growth rate is zero; if we are below that level the temporary optimal growth rate is at least known to be positive; if we are above the optimal level we at least know that the temporary growth rate should be negative. But the first order of business is to recognize the long run necessity of the steady state, and to stop positive growth. Once we have done that, then we can worry about how to “degrow” to a more sustainable level, and how fast.

There is really no conflict between the SSE and “degrowth” since no one advocates negative growth as a permanent process; and no one advocates trying to maintain a steady state at the unsustainable present scale of population and consumption. But many people do advocate continuing positive growth beyond the present excessive scale, and they are the ones in control, and who need to be confronted by a united opposition!

Nicholas Georgescu-Roegen, adopted by the “degrowth” movement as its posthumous founder, indeed recognized that the very long run growth rate must be negative given the entropy law and the final dissolution of the universe. But he did not advocate speeding up that cosmic result by negative growth as an economic policy, nor for that matter did he in the least advocate a steady-state economy! In fact he speculated that the destiny of mankind might be to have a short, fiery, and exciting life rather than a long and uneventful one. He did, however, tentatively suggest a “minimal bio-economic program”[1] that would surely reduce growth. In general he was interested in what is possible more than in what is desirable. The question—given the limits of the possible, what is the most desirable policy for mankind?—was not his main focus, although he did not entirely ignore it. The closest he came to explicitly dealing with that question was in the following footnote[2]:

Is it not true that mankind’s problem is to economize S (a stock) for as large an amount of life as possible, which implies to minimize sj (a flow) for some “good life?

In other words, should we not strive to maximize cumulative lives ever to be lived over time by depleting S (terrestrial low-entropy stocks) at an annual rate sj that is low, but sufficient for a “good life”? There is no point in maximizing years lived in misery, so the qualification “for a good life” is important. I have always thought that Georgescu-Roegen should have put that question in bold in the text, rather than hiding it in a footnote. True enough, eventually S will be gone and mankind will revert to what he called “a berry-picking economy” until the sun burns out, if not driven to extinction sooner by some other event. But in the meantime, striving for a steady state at a resource use rate sufficient for a good (but not luxurious) life, seems to me a worthy goal, a goal of maximizing the cumulative life satisfaction possible under limited total resource constraints. This puts at the very center of economics the questions:

Needless to say these questions have not been central to modern economics—indeed, not even peripheral!

Georgescu-Roegen did not like the idea of “sustainability” any more than that of a steady-state economy because he interpreted both to mean “ecological salvation” or perpetual life for our species on earth—which of course flies in the teeth of the entropy law. And he was right about that. So sustainability should be understood as longevity, not eternal species-life in the sense of perpetuity. Clear scientific thinking about “forever” seems, interestingly, to lead to the religious model of death and resurrection, new creation, not perpetual continuation of this creation. Perpetuity in this world is just a glorified perpetual motion machine! To think about forever we must cross from science into theology. But longevity (a long and good life for both individual and species), even if it falls short of forever, or “ecological salvation”, is still a worthy goal both for scientists and theologians, not to mention economists. A steady-state economy is arguably the best strategy for achieving longevity—regardless of what we call it.

[1] N. Georgescu-Roegen, “Energy and Economic Myths”, reprinted in H. Daly and K. Townsend, Valuing the Earth, MIT Press, 1993, p. 103-4.

[2] Ibid. p. 107, fn 11.