The End of Growth: Adapting to Our New Economic Reality (38 page)

The Post-Growth Struggle Between Rich and Poor

If current levels of wealth inequality among the world’s nations cannot be maintained in a non-growing, energy-starved economy, that doesn’t necessarily mean that we are headed toward a future of perfect equity. Rather, the end of growth is likely to lead, in many instances, to a sharply heightened struggle between rich and poor for control of the world’s vanishing wealth.

As GDP per capita has increased during the past two centuries, so has inequality in the distribution of wealth, both among nations and often within nations as well. These trends will not be abandoned without a fight.

The most widely used metric of economic inequality is the Gini coefficient, developed by Italian statistician Corrado Gini in 1912. A value of 0 reflects total equality, while a value of 1 shows maximal inequality. In the world currently, Gini coefficients for income within nations range from approximately 0.23 (Sweden, with the lowest level of economic inequality) to 0.70 (Namibia, with the highest). The US weighs in at 0.45 — between Cote d’Ivoire at 0.446 and Uruguay at 0.452 (some agencies arbitrarily shift the decimal point two places to the right for all scores, giving the US a score of 45 instead of 0.45).

Inequality
among
nations can also be tracked with the Gini coefficient; it turns out that, in recent decades, the richest countries have pulled ahead while the poorest countries fell further behind, with a few in the middle (including China and India) playing a rapid game of catch-up. However, “catching up” has meant increasing wealth inequality within those “developing” nations. Current research shows that global income inequality peaked in the 1970s when there was little overlap between “rich” and “poor” countries. Since then, the rapid industrialization of nations like China, India, Indonesia, and Malaysia has complicated the picture.
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The absolute number of people living in poverty — across a range of definitions — has consistently declined globally during the past 50 years, and the percentage of people living in poverty has fallen even faster.
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Nevertheless, according to a study by the World Institute for Development Economics Research at United Nations University, the richest one percent of adults has continued to pull ahead, owning 40 percent of global assets in the year 2000, with the wealthiest ten percent of adults accounting for 85 percent of the world total. The bottom half of the world adult population owns barely one percent of global wealth.
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The reasons for change in wealth inequality within and among nations are varied: tax policies, capital investment, culture, education, natural resources, trade, and history all play roles. Moreover, there is controversy between those who say inequality within nations is good because it stokes more growth (governments should aim for equality of opportunity, not equality in incomes, according to free-market advocates), and those who say too much income inequality is inherently unfair and tends to become structural and to foreclose economic opportunity for the majority of the world’s people.

The end of growth will no doubt alter the prospects of both rich and poor, in both absolute and relative terms. Those with privilege will no doubt struggle to maintain it, while the poor, driven to desperation by generally worsening economic conditions, may in increasing numbers of instances organize or even revolt in order to increase their share of a shrinking pie.

In her 2008 book
The Shock Doctrine: The Rise of Disaster Capitalism
, Canadian anti-globalization author and activist Naomi Klein argued that modern neo-liberal capitalism thrives on disasters, in that politicians and corporate leaders take advantage of natural calamities and wars to ram though programs for privatization, free trade, and slashed social spending — programs that are inherently unpopular and would have little chance of adoption in ordinary times.
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Klein’s thesis seems confirmed in the present instance: the end of growth is presenting societies with an ongoing economic crisis, and we have already seen how, in the US, well-heeled investors and executives have benefited from government bailouts while millions of workers have lost jobs and homes. Austerity programs in Greece and Ireland have resulted in a similar upward distribution of rewards and downward spreading of sacrifices.

Prior to the financial crisis of 2008 some countries were already seeing a backlash by the poor against the kinds of economic predation that Klein highlights. Within Latin America, the Bolivarian Alliance for the Americas was initiated in 2004 with bilateral agreements between Venezuela and Cuba; the Alliance now numbers eight nations — including Ecuador, Nicaragua, and Bolivia — which are in the process of introducing a new regional currency, the
sucre
, to be used in place of the US dollar. The –sucre is intended to serve as the common virtual currency of the Alliance for now, and eventually to become a hard currency. The Alliance aims for social welfare, bartering, and mutual economic aid rather than trade liberalization led by Washington. Bolivia’s nationalization of its hydrocarbon assets and Ecuador’s declaration of the illegitimacy of its national debt (because it was contracted by prior corrupt and despotic regimes) can be interpreted as expressions of these nations’ rejection of the “shock doctrine” of the global economic elites.

Meanwhile, as we saw in Chapter 2, several European countries are seeing increasingly vocal popular opposition to the austerity plans being imposed by the EU and the International Monetary Fund in response to sovereign debt crises. For example, in November 2010, Ireland received an EU bailout accompanied by a requirement for cuts in domestic social spending. The latter provoked street protests in Dublin by tens of thousands of citizens. A general strike ensued, and there was talk of a change of government and failure of the budget.

For the US, recent history suggests that for the time being popular resistance to efforts by wealthy to shift bailout costs onto the middle and poor classes is likely to be muted. In the 1970s, corporations and wealthy individuals began a process of political organization by pooling funds and investing them in think tanks and media outlets. The number of registered Washington lobbyists rose from 175 in 1971 to nearly 2,500 in 1982. Money flooded into political campaigns as never before, mostly favoring business-friendly, anti-tax candidates. The trend has only accelerated in recent years (today Washington lobbyists number almost 35,000).

At least partly as a result, the income gap between the richest and poorest Americans has grown. In 2010, according to the Gini index, US income inequality reached its highest level since the Census Bureau began tracking household income in 1967. The US has also achieved the highest disparity in household incomes among Western industrialized nations.
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This situation is largely accepted as a given by most Americans, and seldom discussed in the media except by marginalized leftist intellectuals. The super rich are more often idolized as role models than scrutinized for their methods of wealth accumulation. The payout of enormous Wall Street bonuses at a time when hundreds of billions in taxpayer dollars were being used to bail out the street’s biggest firms drew expressions of dismay, but few organized protests. In short, there appears to be little basis within the nation for the mounting of an effective citizen-led movement to reduce economic inequality in the face of worsening financial conditions. In December 2010, Congress extended Bush-era tax cuts for the wealthiest Americans, signaling political leaders’ disinterest in reducing inequality by way of the tax structure — the quickest and most effective means to that end. Altogether it would appear that, in the US, the economic consequences of the end of growth (unemployment, homelessness, and hunger) are likely to be viewed by most members of the poor and middle classes as evidence of personal failure; whatever anger comes from suddenly losing a job or from being unable to find one is likely to be directed against irrelevant scapegoats provided by politicians.

At the end of the previous section it was suggested that poor nations with large self-sufficient rural populations may fare relatively well in adapting to the end of growth. Such will not be the case with poor nations that depend largely on foreign aid. As food surpluses and loan packages disappear, many citizens in these nations are likely to be left without access even to the essentials of life. Victims of natural disasters in already aid-dependent nations will face especially dire conditions, and (as argued in Chapter 3) the number and intensity of natural disasters will almost certainly increase in the years and decades ahead. The current situations in Haiti, which is still struggling to recover from the earthquake of January 2010, and Pakistan, where millions continue to suffer from the effects of that year’s floods, give some indication of just how abject life could be for many tens of millions of humans in the near future if efforts are not invested now in helping poor nations become more self-sufficient and resilient.

In the first three chapters we examined evidence that world economic growth is ending. In Chapter 4, we saw why market mechanisms that many assume can keep growth on track in the near future, if not indefinitely, are in fact incapable of doing so. This chapter paints a fairly dismal picture of a post-growth world characterized by heightened geopolitical and demographic competition, in which hundreds of millions who are currently enjoying or aspiring to a middle-class lifestyle may sink into poverty, and in which many millions more who are already poor may lose access to the barest elements of survival.

It is natural for readers to find this distressing. I may seem to have gone out of my way to focus relentlessly on negative prospects, discounting possibilities and opportunities while highlighting limits and dire outcomes.

It has been necessary to frame the issues this way because the end of growth is an inherently unattractive notion, and so most people are likely to avoid considering it, deny evidence that it is occurring, and fail to contemplate its implications, unless presented with an airtight case in its favor. The end-of-growth argument therefore has to be made carefully, thoroughly, even somewhat redundantly. But it must be made. If the observation that growth is ending is in fact valid, and if policy makers and citizens don’t see or understand that economic expansion is no longer possible, they will continue to assume the impossible — that growth can and will continue indefinitely. In doing so they will increasingly be operating in a delusional state. People who are deluded this way may do things that make no sense in terms of the actual economic environment that is emerging, and will likely fail to do things that could help themselves and others adapt to new conditions. Opportunities will be wasted and human suffering will be increased unnecessarily.

Readers may think that by asserting that humanity can’t continue to expand global economic activity the author is in effect saying that people aren’t smart or innovative. That would be an incorrect interpretation. Humans certainly are adaptable and ingenious. However, there are always constraints on what we can do. Engineers take practical limits (such as the tensile strength, compression limits, and melting points of various materials and the load limits of structures) into account in every project they undertake. A smart, creative engineer can maximize performance within relevant limits, creating masterpieces in efficiency.

Inventors can reveal entirely new worlds in which former limits are transcended, but then new sets of limits come into play. For example, the Wright brothers overcame previous constraints on human mobility — and put succeeding generations of aviation engineers to work maximizing lift-to-drag ratios.

No matter how much creativity we bring to the table, blind disregard of limits can lead to disaster.

Humankind has been seduced by a temporary abundance of cheap fossil energy into ignoring limits to Earth’s resources, and limits to the ability of economies to keep piling up debt. Our task now is to understand these limits so we can intelligently and inventively back away from them and begin to maximize our opportunities within them.