Austerity and Degrowth – Dealing with the Economic Crisis and the Ecological Crisis Together

August 13, 2015

NOTE: Images in this archived article have been removed.

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This article arises from increasing frustration and irritation about the way that the debate about Greece, and in general about austerity, is framed. My frustration is not only with the policy thugs who are implementing austerity, but also, to a degree, with their critics – which includes the failure of most of the critics of growth to actually get involved in this controversy and argue their own point of view. There have been attempts, for example by Nicola Hinton of the Post Growth Institute. It seems like a tough one to argue for degrowth in the context of the Greek crisis and as an alternative to austerity – but then all the more reason to try. Otherwise a movement for degrowth will never get out of the university lecture rooms into the real world. It will never become a guide or a narrative for the future of society to be realised in practical and popular politics.

Austerity – elite terrorism against ordinary people

So let’s start by reframing the debate about austerity. When Yanis Varoufakis describes what has happened to Greece as “Fiscal Waterboarding” he is part way in the direction that I mean. His description of austerity as a form of terrorism is also right.

The purpose of austerity is to create insecurity and instill fear in the general population in order to protect the finance and banking sector from popular rage against the crimes the participants of this sector have committed against ordinary people. This rage ought to have given rise a long time ago to legal actions and desperately needed fundamental reforms to take away from bankers the right to create money, a right which they have abused at tremendous cost to ordinary people. Instead of a rage focused on collective reforms what we are being subjected to is a policy of deliberately spreading insecurity together with the scapegoating of vulnerable people. Attention and emotion is directed away from the financiers and their political representatives onto easier targets who cannot fight back and who had no part in creating our difficulties. Peoples’ anger and discontent is channelled towards people weaker than themselves which also serves to exacerbate the sense of fear by making the prospect of “social descent” into the vulnerable groups – even more of a frightening prospect. The people who run the mass media and the PR industry have been only too willing to help.

So what, exactly is this fear that is being instilled in people? I am writing here of the sort of ruin in which because one does not have money to pay the rent, one can be evicted from where one lives and through that lose the ability to maintain relationships. Where one can fail in one’s responsibilities to dependents and from this point on fall in a downwards spiral, lose one’s job, lose everything else and that includes one’s emotional and mental equilibrium. Elite terrorism does not operate by setting off bombs but by creating fear of being pushed beyond one’s coping capacities into life management breakdowns. For that fear to be generalised it helps to have scapegoat social groups – “swarms” as David Cameron calls them – whose desperate state is an example of what can happen if you do not pay your debts and work for whatever pittance you are offered. The mentality of the elite can be observed from comments like those of the economist Hayek. Unemployment was necessary, he wrote, as an alternative to corporal punishment for disciplining the labour force. In the absence of a “reservoir” of unemployed, he wrote “discipline cannot be maintained without corporal punishment, as with slave labour” (quoted in Smith and Max-Neef, Economics Unmasked, 2011 p 35)

But if austerity is financial sector sponsored terrorism, if it is the defensive strategy to shift the blame off its own shoulders for the financial crisis, it is clear that what needs to be counterposed is not “growth” – but measures that would help ordinary people feel safe. Safe that they will be able to pay the bills, safe that they will be able to meet their basic needs. A policy against terrorism is a policy that creates security. In this case security can only come about by being part of communities where people are looking after each other.

But surely, one is tempted to ask, is it not true that increasing income and therefore growth plays an important part in personal and collective risk management? If one has more income and wealth is one not further back from the cliff edge of potential ruin? For many people income growth can be thought of two ways. On the one hand it is additional purchasing power to buy new toys to play with so as to entertain and educate, to pursue existing or new interests and aspirations. On the other hand it is also a means to a greater sense of security in life management – that which will help an individual or family get through “rainy days”.

Of course there is truth in the idea that money means greater safety – particularly in an individualist and competitive society we are all supposed to look after ourselves individually. In consumer societies there are not enough common arrangements that one can join in order to contribute to communities that, in turn, look after their members. In the absence of protective communities more money appears to be the chief means of greater personal security. This is what the money men want us to think. It is why in time of crisis the owners and managers of the money system can use their control over the financial liquidity in circulation to create financial insecurity as a means of social control.

Running economies for safety…. or for growth?

It was not always like that. To fully understand what is involved here we need to go back to the roots of “economic theory”. Before the rise of the merchants and of the money men communities who managed their local eco-systems through local commons arrangements were not concerned to “grow economies”; they were concerned to keep people in their communities safe, to give them security. Commons management was about sharing decision making about local ecological systems/landscapes so that local resources were shared equitably but so that they were not degraded by overuse. At the same time the market and moneylending activities, which were much more limited than they are today, were subjected to moral frameworks. Markets were regulated to protect the poor and usury was frowned on and regulated too. The economics of these times was considered to be a branch of moral philosophy and its key idea was that power should not be abused. Society was by no means ideal because the monarchs and their aristocratic lieutenants were essentially gangs running protection rackets. Nevertheless, at the base of society commoners managed the local ecological system together and shared its resources in order to survive.

Over several centuries in Britain commoners lost their rights to manage and access the resources of local landscapes. These resources were stolen from them by the elite during the enclosures. British and European merchants allied with mercantilist states to conquer countries on other continents who had no need or wish to trade with Europe. Over time the ideology changed and the moral dimensions of economics were degraded too. The new economics of the 18th century and afterwards was based on the ideology that technological change, production growth and progress were all the same thing. In the new ideology it was fully acceptable to impose insecurity and misery on ordinary people to bring societies and colonies into “the Age of Commerce” as Adam Smith called it. Enclosures, colonialism, slavery were the prices to be paid to achieve “progress”. It is still assumed today that insecurity is needed as a discipline to force people into the labour market on terms that suit employers and to pay their debts.

Economic theorists still teach a rubbish 19th century psychological understanding of what underlies the “economic decision making”. Their banal idea is that we live making calculations about how we can “maximise utility or satisfaction”. It is as if our whole lives were focused on what we can get from shops – as if shopping is the high point of human existence.

In contrast to the simplistic ideas of economists about how people are motivated there is often an undercurrent of fear. People are driven not just, or even mainly, by how can they get more, more, more – but how can they avoid losing what they have already got. Psychologists who have not been contaminated by an economics training have looked more closely about what people do when they make decisions about purchasing things. One of the most important findings of Daniel Kahneman and Amos Tversky was that people are motivated by risk aversion. When they weigh up their options losses are valued twice as much as gains. It turns out that people manage the day to day practicalities of their lives within reference points which they do not like to fall back from. (“This is too expensive. I am already deep in debt. If I purchased this then at the end of the month I would risk going over the edge, be unable to pay the rent and that I cannot risk because my children need a roof over their heads”) Risk averse people take decisions with safety in mind. They are indeed times when they are prepared to gamble but this will be when all of their options seem bad, and they take what appears to be an outside chance by gambling to extricate themselves. Is it because people are feckless that there are so many betting shops in areas of poverty – or is it desperation combined with wishful thinking?

The alternative to austerity – is it production growth or an economics of safety?

It follows from this that a more accurate description of what people want from their economic arrangements is not “growth” but security – and this means a need to feel the assurance of living in a community in which people are looking after each other. It means a need to feel safe because one knows that other people will look after all those who are themselves looking after the community if they are able to contribute. (And look after those too who are too young, ill or disabled to contribute). This is what a commons based economy and a solidarity economy is all about.

In important respects what community arrangements for mutual support imply is a removal of the very need for income growth – because in a community like this there are both interesting and meaningful ways in which nearly everyone (except the very young and very ill) can contribute plus a removal of the fear that comes with being on one’s own in a hostile rat race. The re-creation of the commons is not only about the re-creation of community management of local ecological systems as happened several centuries ago, it is also about sharing and mutual support. To recreate these arrangements is incremental system change from below in favour of social security rather than production growth feeding a consumer and debt economy.

This is very much not framing the issues as a discussion of “how we can get growth going again” – it is framing the issues as “how can we make people secure?” which is not the same thing.

A major reason that it is not the same thing is because continually increasing material production based on fossil fuel production is actually making everyone more insecure – it is bringing on a catastrophic ecological crisis in general and a climate crisis in particular.

Fire and flood – the ecological crisis in Greece

What we want is not production and income growth – it is safety and security. Unfortunately this is not the narrative and counter narrative that we have at the moment. It should be because Greece too will be deeply affected by a climate crisis. Towards the end of July 2015 around Athens and in the south of the country there were around 50 forest fires fanned by strong winds and high temperatures which give a potential feel of things to come.

As a seafaring country and a nation of islands Greece will also be affected by rising sea levels. If one looks closely it appears that few of the islands would disappear until sea levels have risen a great deal. However a closer look reveals that, with even one or two metres of sea level rise, densely developed holiday coastlines, like the coast of northern Crete, packed with hotels and holiday installations would be underwater. Meanwhile places like Thessaloniki could be seriously affected too. The main route into the city from the south west would go under if sea levels rise only one or two metres.

So we need a story that is not solely about the economy of money and debt. Over and again the counter narrative to that of the bankers and politicians who are turning Greece into a debtors prison has been that the deflationary policies of the Eurozone have led to a massive fall in income and this makes it much more difficult for the Greeks to repay their debts.

So there is then a counter narrative that looks like this – it is a situation in which a suite of policies for growth is necessary. According to this counter narrative if incomes recover, and if enough debt is cancelled, it will be possible to service and repay the debts remaining. In this context the policies of countries like Germany appear to be either ignorant or Machiavellian. In the Machiavellian version of the story the perpetual crisis in Greece has multiple benefits for Germany. It disciplines other countries like France, it creates a weak euro that benefits German exporters who are selling outside the eurozone, it draws money into Germany which makes for very cheap borrowing there….and enables a feeling of self righteous indignation among the readers of Bild Zeitung that distracts from internal German difficulties. All of this seems obvious – although not, apparently, to certain German politicians and the sort of condescending journalists who write for Der Spiegel.

Yet….if the solution for Greece is “growth” then what is to be done about the ecological crisis? How does anti-austerity relate to degrowth? We need a different way of understanding the issues. The reframing to counterpose safety and security rather than growth is one part of the answer but on its own this is not enough either. In order to get to the heart of the issues we must develop an alternative narrative to what the future might look like yet further – in a revival of the commons and of a solidarity economy.

Two sides to degrowth – top-down and bottom-up

To get a better understanding of the tasks ahead it would be helpful to see “degrowth” as having two different but complementary sides – one involves the contraction of production down to a safe maximum possible ecological carrying capacity of the planet. The scale of the economy must be made ecologically safe. Then there is the other question of safety for people. There is a need for a credible story of how to make this harmonisation of economy with the ecology safe for people in communities.

More specifically what is needed is structural change so that contracting material production does not mean contracting employment and generalised financial ruin. Under current conditions if production is rising less than labour productivity unemployment of labour will increase. If production falls employment will fall even more rapidly. This is a major challenge for any degrowth approach. Strong state intervention will be needed to create employment.

So one should ask: what kind of meaningful employment creation could occur if production were actually shrinking? Or, in Greece, what kind of meaningful employment could occur that would soak up unemployment given that production and incomes have already fallen by over 25% – and would be employment that does not simply recreate the features of a consumerist and debt focused economy?

While rising employment is needed falling production is needed too. To achieve this ideally requires both top down and bottom up components. The drive for a new economy of social and ecological safety needs to have an energy and ecological dimension. That’s why if there is to be any contraction then it should not be driven through the money system or through fiscal means but directly by reducing the amount of carbon fuels that are allowed into the economy. This is because it is the burning of carbon fuels that is dangerous to the wellbeing of global society, not money creation and employment creation.

Top-down degrowth – driven through energy system transformation and cap and share

Most people probably assume that administering policies to bring down carbon emissions must be hopelessly complicated given the huge number of users and uses for fossil fuels. From this it looks as if the logistical nightmare of bringing down emissions will be too great. But this is to look to the wrong place for where the control must be placed. As an increasing number of climate change activists are realising the key thing is to keep fossil fuels in the ground. The focus needs to be on policies that prevent fossil fuels being extracted in the first place. Cap and share or cap and dividend are similar policies of this type. They ban the extraction of fossil fuels without a permit for the amount of carbon extracted and limit the number of permits. The number of fossil fuel extraction permits needs to be reduced rapidly year on year to reduce the amount of carbon fuels allowed out of the ground. If this were done at the pace that climate scientists now say is necessary it would undoubtably contract many forms of material production – particularly those which are energy intensive. Above all such policies would contract the lifestyle of rich people – and rightly so, because it is the rich that have the most carbon intensive lifestyle.

If extraction permits are auctioned the money raised should be distributed back to the public on a per capita or some other agreed equitable basis. That is the share bit of the policy. Strictly speaking cap and share is not one but two policies. The cap, if strictly enforced, would prevent carbon being dug up and burned. That’s the climate policy. The share is a policy for social equity – to make the burden of adjusting the energy system fair to all, rich and poor alike. Given that most of the world’s carbon is burned to power the lifestyle of the rich, such a policy would have its impact mainly on the rich and would actually be likely to re-distribute income to the poor. Companies that would be paying more for the fuels and the products made with them would put up the prices of their products to recoup the cost of buying the shrinking number of permits. The poor would thus have to pay more for the limited amount that they do buy but given their carbon light lifestyle it is likely that the share of the carbon revenue that they receive would initially exceed this extra that they have to pay out in increasing prices. On a net basis the poor would tend to gain.

Thus a policy like cap and share would ensure that the contraction in material production happens in the areas that it needs to contract – that part of production that caters for the lifestyle of the rich. Because the poor might even gain we can expect that their consumption might rise to some degree initially. If you redistribute income from rich to poor then, in the jargon of economics, you are likely to increase the marginal propensity to consume. A rich person saves the bulk of their income and if a chunk of their riches are given to poor people then the poor people are likely not to save but to spend their new cash on consumer goods. So redistribution could actually increase expenditure and that would generate employment. But would this not then undo the beneficial effect in reducing carbon emissions? The answer is not if the cap is strictly maintained – it would still be the case that only as much carbon as permitted comes out of the ground.

It is important to get this point because some well meaning climate activists are pushing another policy called “fee and dividend” which misunderstands this point. The fee and dividend promoters want to increase the price of carbon by putting a price or a fee on all fossil fuel coming out of the ground and then redistributing that money to everyone in a share rather similar to the way described. However putting a price on carbon in this way leaves indefinite how much carbon will be extracted. But, as we have shown, the redistribution involved in a carbon price combined with a share is likely to increase the consumption of the poor – but without a cap there is no clear guarantee that this increase in consumption goods produced and consumed in aggregate may not end up with the paradoxical effect of increasing the amount of carbon coming out of the ground. This is because an increase in goods produced and consumed by the poor would require an increase in energy to produce and to run them.

(The reason that some prefer a “fee” to a “cap” probably varies. Some advocates are probably economists and thus ascribe importance to things having “the right price” because they are true believers in the “religion” of market and the price system. Others may have become opposed to “caps” because of the experience of “cap and trade” systems like the European Union’s shambolic Emissions Trading System where the “cap” is a misnomer. But the problem with “caps” that are not maintained as such is a problem of the lobbying power of the fossil fuel sector and that will apply to any scheme. If a “fee and dividend” system were adopted it there would be a political wager around the carbon price waged just the same. Multiple means would be deployed by the usual suspects to undermine a fee system too ).

Bottom up degrowth – efficient sharing, efficient repairing, local and smaller inputs

In current circumstances it would be necessary to drive production system contraction of the luxury sector in particular through a policy like cap and share. This top down policy would then need to be complemented by bottom upwards policies from the community level.

Let us remind ourselves that the task in hand is to ensure employment, a reduction in poverty and above all a reduction of insecurity and fear, while at the same time material resource, energy use and production is, if possible contracting. How can this be achieve from the grass roots level? Here’s a few examples. For example someone newly employed in a tool library, community workshop and resource centre is not producing tools but is facilitating an arrangement to share them. Their job is helping to cut the demand for new products and thus to cut waste production. Someone employed in a workshop to help people repair furniture is reducing the need to create new furniture – likewise, clothes, bicycles, electronic equipment and so on. A sharing economy has a different kind of idea of efficiency. Efficient resource use means efficient sharing, easy repair, use of local inputs and a smaller requirement for energy throughput too. An economy like this has to be administered and supported and this requires employment too. It requires the kind of employment that state money creation should be supporting or if not, local authority created IOUs that can circulate as local liquidity. At the same time it requires much less new production and transport.

This would largely be a bottom upwards process and the structural changes would be so wide ranging and varied in their features and effects that it simply could not be pre-directed in detail by governments. However, to occur properly these changes happening with communities would have to have the tacit support of governments – forms of support that do not try to take over.

In conclusion

What I hope I have done is shown that “degrowth” is nothing like austerity but is about making our economic and community arrangements safe – ecologically safe and safe for people as members of communities. Safety can no longer be found in “growth” and so a very different way of thinking about the issues is needed. What the crisis in Greece and elsewhere has done is force people out of their comfort zone into a fear zone but it has got them actively supporting each other looking at new ways of organising to reduce the insecurity to manageable levels via mutual aid and help.

In Argentina at the turn of the century there was also a financial crisis that ruined large numbers of people – but, in a very similar way to what is happening in Greece communities came together to respond as best as they could at the “grass roots”. What happened in Argentina and is now happening in Greece consists of a mix of self employed and freelancers coming together in small start up companies; volunteers and self help projects establishing a variety of health, social welfare, cultural and artistic projects; emerging networks for sharing and local exchange; projects re-connecting local farmers with local consumers to the exclusion of more expensive supermarkets and international brands; digital networking arrangements; experiments with renewable and other computer controlled locally clustered energy systems; and workers who have taken over factories that would otherwise be closed and restarting production in more appropriate forms. All of these things are happening but require their own support arrangements and complementary state support too.

With the right kind of top down and bottom up policies it ought to be possible to create a different way of thinking about the future that is neither based on conventional growth economics nor austerity – one which, as members of communities, we all have an important part in creating.

Brian Davey

I now live in Nottingham in semi-retirement. This means doing much the same as when I was 64 but with a state pension and tiny private pension as well. In 1970 I got a 1st in Economics at Nottingham University – and then in 1974 an M.Phil. for a thesis on a Marxist approach to the economic development of India. This led to a varied career working with mainly community projects both in the UK and abroad. In 2003 John Jopling of Feasta followed a suggestion of Richard Douthwaite's and invited me to a yearly group discussion by the sea – at Rossbeigh in Kerry. I have been going virtually every year since then and have spent much of my spare time involved in the ecological and economics discussions of Feasta, particularly in its climate work. After Richard's passing I stepped into part of a teaching role that he had had at Dublin City University teaching on a degree in Religion and Ecology. This teaching led, in turn, to this book.

Tags: austerity policies, building resilient communities, cap-and-share, degrowth, policy, sharing economy, solidarity economy, the commons