Are there alternatives to growth pessimism? ‘Challenges for Europe in a new age’ Utzon-Center, March 2013 Björn Johnson and Bengt-Åke Lundvall Aalborg University

The relationship between economic growth and sustainable development has been discussed in different ways. It tends to resurge in different shapes. In the paper we focus on if and how learning and innovation may contribute to a “solution” Defining the problem Biophysical limits to growth?: Georgescu-Roegen (1971) and the thermodynamic perspective: 2

The economic process inevitably transforms valuable natural resources (low entropy) into waste (high entropy). Limits to the substitutions of physical capital for natural capital. Absolute scarcity of natural capital Kenneth Boulding: The real factors of production are not labour and capital but materials, energy and knowledge. Can we develop an economic and social system with a “throughput” of matter and energy that respects the ecological limits? 3

The question “resource productivity”: Is sufficient decoupling of production from resource use possible? Can resource use per unit of production grow faster than GNP? How many times is it possible for the amount of wealth extracted from one unit of natural resources to increase within a certain time span (as a result of technological improvements) and is this sufficient for sustainable development?” 4

The key (interrelated) problem areas: Resource depletion, pollution, loss of carrying capacity and resilience of ecosystems, loss of soils, loss of fresh water supplies, loss of biodiversity, desertification and deforestation, ocean acidification, loss of environmental amenities (services and pleasantness), global warming and climate change, uncertainties about the effects of human activities on nature. 5

Limits to limiting growth 1.Unplanned reductions of economic growth generally don’t solve environmental problems. 2.Measures to reduce growth may be Pareto suboptimal 3.Short term focus in economic policies 4."Capitalism works best when it is flexible” 5.The growth of labor productivity and unemployment 6.The power of financial capital 6

Economic growth and human well-being: 1.Economic growth is not the same as economic development 2.The quality of relationships determines our happiness 3.Consumer needs are endogenous to the economic process – “sour grapes” 4.Positional competition 7

The “solution”: New directions of learning and innovation New processes (production, transport and logistics) requiring less resource input per unit of production Substituting non-renewable with renewable resources New consumer products which are more long lasting and more recyclable A change in the sectoral composition of the economy toward less resource intensive production activities A change in the location of economic activities that reduce resource use for transport New forms of agglomerations and new principles for housing that reduce resource use 8

The required changes Values, structure of production and consumption, institutions and policies, city planning and development, and some more… Values Environmental values do not change in proportion with environmental problems The international crisis retards the development of environmental values Individualism and consumerism Consumer learning and international demonstration effects 9

Structure of production and consumption Structural change is an integrated aspect of economic growth. More attention to resource productivity and energy efficiency Knowledge about how different structures of production and different production methods affect the environment More (not less) investment is required Input-output analysis can give as full a picture of the overall economy as general equilibrium but it is free from the ideological assumptions of supremacy of market allocation of resources. 10

Institutions and policies. Which kinds of institutions and policies are needed to cope with sustainable development? Institutional learning, policy learning Inclusive institutions (social capital, “class cooperation”, democratic procedures) The regulation power of nation states, green international competitiveness Global/international environmental regulation Can there be a change in the accumulation pattern without reducing the power of financial capital, which totally lacks ecological perspectives? 11

Policy learning on broad fronts is necessary. Taxes, carbon trading, regulation, technology support, and measures that halt deforestation have been mentioned. Deeper environmental awareness and new visions about the relations between environment and society, foresighting, data collection, theory development, new environmental bureaucracies, nudging, new forms of cooperation between the research system and the political system, new legal and regulatory frameworks have to be developed. 12

City planning and development Cities are increasingly important actors Cities demonstrate problems that need to be solved and provide creative environments (density, diversity and interaction) for the solution of these problems. Dense populations use far less energy and materials per capita on living, heating, and transport than more dispersed populations. Waste management and treatment are much more efficient in cities than in less urbanized areas 13

Conclusion It is important not to “confuse the limits of one particular development paradigm, with the limits to growth of the system in general” (Freeman 1992). However, the political and institutional barriers are huge and the scale of the problem requires radical changes not only in technologies but also in values, institutions, policies and consumption patterns to develop what Christopher Freeman (1992) two decades ago termed a “green techno-economic paradigm”. Inspired by the suggestive title of his book (1992) “The Economics of Hope”, we may take a conditionally optimistic stance. 14