| No Growth Economies

Environmental

No Growth Economies

1055

This article by Simon Gear was first published in 2011

I lie awake at night and think about my pension plan.

Our parents and grandparents lived in a world where they could sock away 10% of their income and the growth of the economy would do the rest. But I worry that we may well be entering into a period where long term growth, (the thirty year horizon I’m working on) could struggle to get much above 0%.

All of our economy is underwritten by our ability to do the following:

• Produce energy

• Produce food

• Mine resources

Energy may have a magic bullet, food may have hidden efficiencies yet unplumbed, but resources are already showing price response to scarcity. Not absolute scarcity, we’ve just mined all the easy stuff. In addition, while theoretically we could discover how to power an economy on unicorn farts, the reality is that we seem to have at least another 50 to 80 years of fossil fuel use left before it becomes too scarce to be viable at current demand. During that time fuel will become more expensive, and I don’t see energy technology keeping pace.

So, we have a future where the prices of resources and energy (and almost certainly food) increase faster than they have over the last century. That, right there, is a recipe for near zero growth. There will be periods where innovation or a good growing season or the opening of the Arctic oil reserve gives us a few years respite, but overall, we’re going to see less growth and more volatility as we bounce against the ceiling forced by absolute supply.

Overlying all of this is climate change and environmental degradation. I really do have a horrible feeling things could go pear really quickly. I don’t think that climate is necessarily going to hammer economies directly, but I do think that the destabilising effect of higher food prices and increased food insecurity is going to lead to the collapse of more than a few emerging markets. The Arab Spring looks like it was catalysed by high food prices. Darfur and the Sudanese break up looks like it was initially sparked by extensive drought in the early 80s. North America, Europe and China have the buying power to buffer themselves against food price volatility. We (and just about everyone else) don’t.

The industries with the really great growth potential at the moment (IT and high finance) aren’t the ones that can rescue us here. There is absolutely no indication that the energy industry is going to suddenly experience an explosion . All improvements there are incremental when what is needed is massive innovation to come out of left field.

I’ve always wanted to live in times of great and fascinating change. I should have been careful what I wished for.

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