By Karl North | April 6, 2013

A recent Cornell report on how to convert New York state energy consumption to alternative fuels perpetuates the nonsense that in a declining economy we can convert NY or anywhere else to “clean” wind and solar energy, maybe dimming the lights a bit, and thus continue the party (industrial civilization and the US way of life) indefinitely. The report merits criticism as an example of many such plans that promote large scale conversion to alternative energy, because it epitomizes the narrow technological lens through which we are taught to see problems that need to be viewed in a much larger systemic context. Because of its unstated reductionist assumptions, the study fails on at least three counts:

Resource Consumption and Associated Pollutions. Construction of such massive projects inevitably chews through an increasingly scarce and therefore ever more expensive global pool of fossil energy and other finite materials. At one time, there existed a window of opportunity to develop energy alternatives like wind and solar on a large scale, a window that is now closed. Thirty or forty years ago when energy, copper, neodymium, etc. were relatively cheap, such a project was feasible and might have bought our way of life a temporary reprieve. No doubt attempts at such projects will continue to be made, but will founder as an economy that is going into permanent decline (due to the same resource depletion) cannot afford the costs. The costs of the attempts will be born all the same, by our children and grandchildren if they survive the man-made ecological holocaust, in the form of a world ever more depleted of raw materials and ecological services that are essential to our quality of life. So the results of such attempts will be anything but “clean” for those who inherit them.

Permanent Economic Decline. The industrial phase of human history of last two centuries has been possible only because of the cheap, high quality energy of fossil fuels. The end of cheap energy is sending the mature industrial economies (and eventually every energy-intensive economy) into permanent decline. The US economy is at least as hollow and debt ridden as the collapsing economies of Greece and Spain but has used its superpower status to maintain a pretense of stability and living standard a little longer than Mediterranean Europe. This cannot last; when it falls apart all bets are off on energy conversion plans of the scale analyzed in the report.

Consumption of any kind of energy at this scale is toxic. There is a fundamental flaw in the thinking that the ecosphere can handle as much “clean” energy as the amount of “dirty” energy that we presently consume. In the last 250 years humanity has been using fossil energy at levels far above what the ecosystems of the earth evolved to handle over their several billion years of existence. The fossil fuel era has been a freak accident of natural history. Energy substitutes of any kind that could approach current fossil fuel production levels will be used to prop up the industrial way of life, whose ecological footprint already overshoots earth’s carrying capacity by half. Wind and solar energy at replacement scale will continue to chew up raw materials, creating landfill garbage, destructive sinks, and sheer dissipated heat that the planet cannot cope with. The current increasingly visible climate change is only one manifestation of the problem.

Hence the goal of maintaining current levels of energy production by other means will simply perpetuate resource consumption habits and associated ecological damage and depletions that are now destroying the resource base needed for survival of our species. Why have the engineers of plans like the Cornell report not thought of that?

What Is To Be Done? Human society existed for millions of years without greatly overshooting the carrying capacity of the planet, and can adapt to a more sustainable way of life. The looming failure of the debt-reliant economy offers such an opportunity. The economy controlled by private capital that currently grips most societies manufactures the desire for massive unsustainable consumption in order to maximize private profit. As that economy goes into decline and can no longer service debt, it will collapse. Therein lies the opportunity to adapt to a lower energy way of life, because eventually we will have no other choice.

Richard Heinberg was right, the party is over. In the long run attempts to prolong it by any means whatsoever just make the situation worse. But those who can kick the consumption addiction can potentially adapt to the new era.

Norman Pagett writes:

We face three nightmare scenarios – climate change, a scarcity of global resources (the most critical being energy food and water) and all the unknowns of climate change.
We can see these converging, yet remain in collective denial about it, while watching as competition melds itself into unrest, then rebellion and outright conflict.
We cannot forecast the outcome of this tsunami that is gathering to overwhelm us, but we can be sure it is there.
We have evolved to fight for survival so having made our lives entirely dependent on the discovery, extraction and use of cheap hydrocarbons, we have made cataclysm a certainty.
It’s kicking off already. The succession of famines across Africa are not unconnected. They are caused by populations outgrowing their resource base and having access to modern weapons to fight over what’s left. But this is nothing new. The Japanese invaded Manchuiria in 1931 to secure food and resources for their home population. Germany was driven to do the same to Poland and Russia in 1939 and 1941.
Their economies were unsustainable without continued looting of other weaker territories.
It is important to remember that Hitler’s intention was to secure Poland and Russia as ‘rural peasantries’ sending food back to the ‘Fatherland’ (the most critical energy resource)
In a sense the USA did the same thing, but simply pushed westwards over 300 years, extracting the resources of the First Nations as they went.
Resources, (oil and essential minerals) were supposed to last forever. Which they will; unfortunately we are converging on the point when they will cost too much to extract.
Absolute depletion isn’t necessary for resource wars to kick in. We depend on resources for employment and infrastructure support, and run our economies on a ‘just in time’ basis. It only requires that there is a tight enough supply bottleneck to bankrupt dependent economies as factories close and financial institutions disintegrate.
Two collapse scenarios There are lots of others)
It is inevitable that in the short term some nations will grow richer than others, so our free market economy will channel scarce materials to the highest bidder. Thus China’s growing wealth will eventually outbid Europe and the USA for oil and other commodities. This will leave the USA with a choice, either to allow its population to sink back into rural peasantry, or fight to secure the fuel it needs to sustain the ‘American way of life’.
Voters will put a President in office who promises jobs and prosperity, myth though that may be.
Jesusfreaks nearly made it into office last time; when the economy really starts to nosedive by 2016 or 2020, the electorate will be prepared to believe anything if it offers an alternative to starvation.
Resource wars of the future will hinge on the perceived wellbeing of the participants, we will not allow our accustomed standard of living to drop without a fight.
Whether rioting over the price of bread in a Cairo market, or facing down nuclear armed fleets in the Pacific or the Persian Gulf, the driving force is the same. It is conflict over the energy necessary to maintain the (impossible) status quo.
Egypt can be seen as a warning to the world: A desert nation of 80 million people with a growth rate of 2.2%. Already 30% of its GDP is used in food and fuel subsidies; bread is sold at one seventh of its cost to keep its poor alive. In 35 years the population will have doubled. Nations around the Nile headwaters are taking more and more water for their own use so less is reaching the field of the delta.
So there you have it in microcosm, converging catastrophe in food energy and population. There is no possible way that Egypt can support 160 million people.
This disaster will explode across the middle east, (it is already) and take down the Saudi oilfields, as the sheiks lose their ability to buy off unrest. (They have already spent $50bn) When that happens, the cost/scarcity of oil will shut down western industry.
After that, we do not have an economy.
With acknowledgement to Michael Klare

Norman Pagett writes:
“Greece might be the first Western country to discover that you cannot keep running up debts to pay for a lifestyle you did not earn. She will not be the last. The laws of mathematics are universal.” Douglas Carswell MP
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“We used to think you could spend your way out of recession and increase employment by boosting government spending… I tell you that option no longer exists. And so far as it ever did exist, it only worked on each occasion… by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.”Jim Callaghan. Ex UK Prime Minister
We used to be a rich and powerful nation; many still insist that we are, so what happened to all our money?
We can trace much of our difficulty back to new years day, 1909.
That was the date when we kickstarted our welfare state.
Lloyd George decided that a proportion of national taxation should be redistributed to support people in their old age.
A magnanimous gesture?
Hardly.
It was to be the princely sum of 5 shillings a week to men when they reached 70, but as the average age of death was 48, vast payouts were not anticipated. In fact only half a million men qualified. Three score years and ten was an extreme, not an expectation.
Great Britain was wealthy, with a vast empire. The welfare state was regarded as a trivial expense.
But this act of largesse set in motion the social security system we have today, and founded the expectation that it will continue into infinity.
We have become accustomed to the idea that governments produce money in order to dole it out to citizens. Welfare was and is a vote winner, and the fundamental duty of any government is to sustain itself in office.
The industrial economy seemed set to grow forever. The welfare state grew in lockstep with it, which of course was perfectly reasonable and civilized. Such concepts kept out the extremes of fascism and communism and built a balanced state.
But industrial growth was not due to the ingenuity of mankind. It was the result of ever-expanding industry that dug up oil coal and gas and burned it in bigger and faster machines.
Without fossil fuel energy input, the industrial world could not have existed, nor could the welfare state it gave us.
We built our welfare system on cheap energy,
We expect to continue the same bounty with expensive energy. It can’t be done.
A raft of new laws promised ‘cradle to grave’ care for everyone, with the result that everyone lived longer. Instead of an average life expectancy of 48, it’s now 80, with far fewer workers to support them.
Or to put it into really frightening perspective, the national commitment to pension payouts alone now stands at £5 trillion, or about 4 times the annual output of the economy.
That takes no account of schools, medicine and everything else we take for granted.
In effect it is a debt on our future that can only grow as everyone gets older. Changes to the retirement age doesn’t alter the basic arithmetic. It is a debt that will not be met because our children will not be able to support it when they enter the workforce, assuming they can get jobs of course.
But our welfare system must be maintained, because to do otherwise would mean politicians being removed from office, and replaced by others willing to borrow more money to sustain the delusion for a while longer.
This delusion was supportable as long as our industrial base continued to manufacture ‘stuff’ and sell it for a profit.
But we no longer turn a profit. Growth has stopped because there’s no cheap energy available to drive it forward.
Our financial situation means that we have to borrow more than we earn, and that makes financial collapse a certainty because we have no means of paying back what we owe. We can only roll the debt over year on year.
This is the situation in almost all the ‘industrial economies’ of the developed west. The borrowing is frantic to keep everything looking normal, investors put money into our system because it offers a degree of stability
But ultimately debt is unsustainable, the same rules apply whether at a domestic or national level

Norman Pagett writes:

“The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty, and we must rise with the occasion. As our case is new, we must think anew and act anew. We must disenthrall ourselves and then we shall save our country. Abraham Lincoln 1862”

At this stage on our journey down the millennia, one cannot but be reminded of fantasy voyages between stars, where spacetravellers tell a robot what they want to eat, and it just appears through a little hatch in a few seconds. We have perhaps come to think of spaceship earth like that. Our food is there when we need it, and in such overwhelming quantities that a third of it is wasted. In terms of emotional perception, there is little difference between a spaceship foodhatch and a Walmart. Having disconnected ourselves from the gritty unpleasantness of food production, we now demand any kind of food, all year round, regardless of season or true cost.
The same applies to money: we press buttons, colored bits of paper slide out of the wall so that we can go and buy more ‘stuff’. We ask for anything we want, and it’s there for us. Right now, we’re having a little fiscal difficulty, so more colored bits of paper are being printed. That way we can sustain ourselves a little longer, by believing that colored paper and plastic represent real wealth. We can go on having it all, while ignoring the unpleasant warning that the real cost of endless money is endless debt.
Our wealth has not been created by technology, but by draining the earth we live on. The underlying prop of our rising prosperity during the last century had little to do with industry or politics; instead it was our ability to constantly increase the production of food and energy. That meant that the developed west ate well and at a cost that was constantly reducing in real terms, which left spare money that could be used to make and sell ‘stuff’ to each other. Because only 9% of our income, on average, was needed to buy it, food became incidental while ‘stuff’ became essential because shiny toys gave us pleasure as well as employment.
But we cannot go on extracting more from less, though every nation holds itself together under the delusion that we can. No captain of industry or politician can hope to keep his job without promises of ‘more’.

If you’re familiar with the thesis set out in Perfect Storm, you’ll appreciate two things about our approach to economics. First, there has been an ever-widening divergence between the “real” (energy-based) economy and the “financial” economy of money and debt. Second, the unavoidable reconciliation of the real and the financial economies must involve the degradation of the value of money as an energy claim (and of debt as a future energy claim). Seen through this analytical prism – which must lead us to expect both money-printing and the deliberate stoking-up of inflation – Japan’s new economic strategy looks ultra high-risk (well, that’s a polite way of putting it).

Of course, I can see where Prime Minister Shinzo Abe and central bank chief Haruhiko Kuroda are coming from. Japan’s famous “lost decade” has in fact stretched into twenty years of stagnation characterised by deflation. If stagnation is one problem that the deliberate injection of inflation (through running the printing presses) is designed to solve, the other is Japan’s truly frightening level of public debt, now nudging towards 250% of GDP. Inflation, it is hoped, will boost nominal tax revenues and devalue historic debt whilst simultaneously persuading the public to spend (which, understandably, they are reluctant to do if the purchasing power of their money tends to increase over time).

What does not seem to have occurred to the government is that twenty years of comparatively comfortable stagnation might be regarded as something of a “soft landing” after the madness of the 1980s, which saw asset values escalate to such an extent that the paper value of the Imperial palace came to exceed that of the whole of California. The fall-out could have been very, very much worse than stagnation.

Hitherto, Japan has got away with running enormous public (and private) debts because its domestic propensity to save has been very high, but this advantage is eroding fast. As Japan’s population ages, the ability to save is declining just as the need to draw on accumulated capital increases. This means that the government can no longer rely on domestic savings to fund its deficits, and this, you might think, is no time to punish savers (which seems to be an unavoidable result of printing money), let alone to increase public spending.

Moreover, the likelihood of a greater reliance upon global capital markets coincides awkwardly with a probable need to import even more energy in the wake of the damage inflicted on Japan’s nuclear industry by the Fukushima disaster.

To be sure, the yen has long traded at a premium to its PPP (purchasing power parity) value, but this should not blind policymakers to the fact that competitiveness has already improved markedly, and yet an export boom has not resulted.

In short, Japan looks like a classic case of divergence between the physical and the financial economies, a divergence whose potential consequences are worsened by the overhang of huge accumulated debts. Indigenous resources of energy are minimal, and Japan’s welfare needs are rising inexorably as the population ages. Injecting inflation may indeed devalue historic debt, but this will be achieved at a high price if, as a result, market interest rates rise, the willingness of the population to save declines, and energy costs surge.

Japan has been described elsewhere as “a bug in search of a windscreen”. Japanese people must hope that I’m wrong, and that Abe and Kuroda have not turned the economy to face the oncoming traffic.

Norman Pagett writes:

It is an interesting quirk of history and geography that the European Union has been created roughly on the same map outline of the old Roman empire, and just like the Romans, the EU is proving harder and harder to hold together, through inherent conflicts of territories and national temperaments.
When times were good and the living was easy, the nations of Europe got along fine by selling stuff to one another, going along with the delusion of infinite growth and profit.
Who listened to the voices of warning, that infinite growth needs infinite energy? The economists said that spending money made everyone wealthy, and we all wanted to believe them.
But as an economy expands, whether nation state or economic union, it can only be held together by the continuing input of the forces of energy that drove that expansion in the first place.
Thus the Roman empire held together only as long as the marching legions found new territories to conquer and exploit. The Roman army had the latest in military technology, and they were fighting little better than stone age tribes—no contest. Roman citizens had subsidized food and slave muscle (their energy sources) from the provinces shipped in as tribute to Rome itself.
 When the out thrust of the Roman armies weakened and stopped, the Roman empire ceased to be a unified whole and split into independent states, and Rome itself collapsed and ceased to be the world’s superpower.
Italy itself broke up and remained a series of divided states until the 1860s. Now fast forward 2000 years. The empire of the contiguous land area of the United States finds itself in exactly the same situation. It is a nation that was created only because sufficient energy was available to do it. The US army used the energy of their modern technology, helped by European diseases to wipe out a few hundred thousand primitive people—again, no contest.

But it was not the army that created the new nation, it was the power of the steam engine and the technology that could manufacture and deliver thousands of miles of rails, followed by thousands of miles of roads in the ensuing century. That allowed territories to be exploited, and just as with ancient Rome, energy, whether as food or fuel, could be shipped around the country to give people an unreal concept of the real cost of their food intake.

Walmart can only sell you cheap food because of the cheap transport and farm energy that puts it on your plate.
Right now, everyone is realising that roads have to be maintained, involving still more energy input. But suddenly we find that there’s no cheap energy available any more, so the communications network that built the American empire is starting to collapse—just like the Roman one.
Energy collapse means nation collapse, and again, reflecting the Roman model (remember the distances involved are comparable– 900 miles Rome to London) the nation will disintegrate into disparate states. The differences in language geography and culture are already in place.
Just as with ancient Rome, there will be violent resistance to this, but it’s not a political or military problem, it’s that old killer, the laws of thermodynamics and the energy returned on energy invested. Ultimately every enterprise, whether village store or colonial empire has to return more energy than is invested in the creation of it.
That is the truth that our economists and politicians refuse to acknowledge.
Rome couldn’t afford to keep its empire together. The Spanish and the Brits tried it and failed too. The collapse of the British empire left three major English speaking ‘independent dominions’, Canada, Australia and New Zealand, most of the rest are reverting to the violent tribal factions that defined them 200 years ago. The lines we drew across the map of Africa in 1885 and India in 1947 now provide the source of ongoing conflict, while our modern weapons supply the means. Hitler tried empire building, and his 1000 year Reich lasted just 12 years. The USA has forced itself down the same road of infinite expansion in the pursuit of hegemony, and will also fail

Posted Mar 25, 2013 by Tom Whipple

As the term “China syndrome” has already been taken, I am terming what is happening in the country these days the “Beijing syndrome,” for China’s capital seems to be shaping up as the epicenter of a great upheaval to come. A “syndrome” is a group of symptoms that, when taken together, point to a more serious underlying disease; which, of course, is what we see emerging in the contention between China’s rapid growth and its environment.

Thirty-five years ago, after China got over its bout of “cultural revolutions” and “great leaps forward” to become serious about economic growth, numerous reforms were undertaken. China’s leaders obviously got something right, for their economy grew in the vicinity of 10 percent or better for most of the intervening years and became the envy of the world – at least until recently.
We all know that economic growth requires the consumption of energy at roughly the same pace as GDP increases, and indeed this is what has happened in China. Although the Chinese built lots of dams for hydropower, drilled lots of oil and gas wells, and in recent years imported lots of oil, some 70 percent of the primary energy that powers its rapidly growing economy comes from extremely dirty coal. Indeed since 2000, China’s coal consumption has increased threefold and is now over 4 billion short tons a year, nearly half the world’s coal consumption. Beijing plans to increase this consumption to 4.4 billion short tons in 2015. They are going to need it because they apparently plan to build another 360 coal-fired power plants in the foreseeable future.

China is also on track to consume about 10 million b/d of oil this year, slightly more that half that of the US. The Chinese, however, currently are selling themselves 20 million new cars and trucks a year (and there are not many trade-ins) so unless there is a major turn of events they will be up with the US’s oil consumption in another decade or so.

All this, of course, ignores the dark side. Like many other industrially developing countries in the last 200 years, China largely ignored the ever-accumulating environmental problems brought about by its policy of growth-at-any-cost. Five years ago during the Beijing Olympics, China’s government was forced to take draconian measures to insure that the air was at least minimally acceptable for athletes and visitors, but after the event restrictions were relaxed and growth of coal-fired boilers and motor vehicles continued unchecked.

China now has a number of very serious environmental problems that, when projected ahead for a few decades, likely add up to a country that will be partially uninhabitable for its 1.3 billion + citizens. These problems can be summed up as air pollution, water pollution, soil pollution, desertification, and climate change. The litanies of woes in each of these areas are too long to recount here but they add up to a growing numbers of premature deaths from cancer, respiratory and other illnesses, and the forced movements of peoples from their traditional homes.

Someday historians might tell us that the trigger for a major change in China’s environmental policies was the great smog of January 2013, when for 19 days the air was too unsafe to venture outdoors. The interesting thing about air pollution is that it affects all living things that breathe – from the most elite to the most humble, with only a handful able to enjoy the luxury of filtered air. When the troubles become this widespread, and without an immediate solution in sight, a paradigm change has occurred.

In the last two months, numerous top Chinese officials have stated that there must be a change in policy. At the recent National Peoples Congress fully a third of the delegates refused to rubber stamp meaningless environmental reports – a unprecedented development showing how seriously China’s elite is taking this matter.

For now, Beijing has responded to its pollution crisis with the obvious steps. It is closing down coal-fired boilers in the capital. It is nearly impossible to license a new car in the city (electric ones are OK, however). Cleaner diesel is to be produced. The share of hydro, wind, and solar power is to be stepped up. Energy efficiency is to be increased. The question is whether these are Band-Aids for a country that still seeks to grow its GDP at 8 percent a year into the indefinite future.

Much of what is being proposed will only clean up the dirt in the air and will do little about carbon emissions, which threaten to eventually result in flooding of China’s coastal cities. Polluted water is still a bigger problem. About 40 percent of China’s farmland is irrigated from underground aquifers, about 90 percent of which are believed to be polluted. While recent surveys of water and soil pollution are treated by the government as “state secrets,” Beijing recently admitted that there are “cancer villages” with extremely high rates of the disease due to nearby industrial pollution.

In the US and Europe, the most egregious forms of air and water pollution as seen in China today were largely dealt with through regulation 40 or 50 years ago. The carbon emission question, which is more subtle as the effects are latent, continues to be a matter of debate in the US. In China, however, there are obviously serious problems staring everyone in the face, especially the growing middle class.

Currently we have vows from the new leaders that something will be done. The problem will come when reducing pollution to safe levels clashes with the cherished 8+ percent growth rate. Given new and different technologies, it might be possible to have both someday; for the immediate future it seems unlikely that the measures announced so far will reverse the numerous problems. Beijing has a syndrome that could engulf us all.

Originally published at Falls Church News Press

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by Stephan Schmidt on March 25, 2013

Lorenzo Fioramonti is a political scientist and specialist on governance issues who teaches at the University of Pretoria where he directs the Centre for the Study of Governance Innovation. His work on global and supranational governance with a focus on regional integration brought him to the attention of the United Nations University Institute on Comparative Regional Integration Studies (UNU-CRIS), where he was appointed Associate Fellow in 2012.
In January 2013 he published his latest book, Gross Domestic Problem — The Politics Behind the World’s Most Powerful Number . We recently spoke with Prof. Fioramonti regarding his perspective on the world’s most “powerful” economic indicator.
What motivated you to choose the topic of GDP?
I wrote this book to popularize the critique of Gross Domestic Product (GDP). For too long, this theme has been limited to a small circle of experts, while conventional economic thinking has dominated policymaking and the public debate. Time has come to turn the critique of GDP into a matter of popular debate, by which I mean a serious open discussion among citizens and civil society.
If GDP has so many flaws and numerous attempts were made at finding ‘better’ numbers, then why are we still using GDP?
While in Italy in 2010, I was invited by the Head of the Italian Statistical Institute to a gathering of statisticians and economists aimed at discussing the limits of GDP and identifying potential alternatives. This was just after the so-called Stiglitz Sen Fitoussi Commission had released its report on measuring economic performance and social progress. I had been questioning GDP myself for a few years and during the gathering I realized that, while many economists had tried to replace GDP for years, nobody had ever analyzed the very politics of GDP.
My question was: if GDP has so many flaws and numerous attempts were made at finding ‘better’ numbers, then why are we are still using GDP? Is it possible that there are specific interests supporting the nexus between GDP and policymaking? What are the political dimensions of this almighty number? So I set out to do my research on the history of GDP and realized that this story needed to be told. The story of GDP is the story of how we built the type of society we live in. It is the story of how economics took over all other sciences to become the servant of power.
Who “invented” GDP? And why?
GDP was developed in the late 1930s in the US to help governments tackle the Great Depression and afterwards it was used to plan America’s involvement in the Second World War. How does one use GDP for the war? Imagine you are a government and you need to know what type of involvement you can afford and over what time frame. You don’t know how long the war may take and you want to ensure that you have enough resources to fight it successfully to the end. The US government used the national income accounts, which is the statistical survey upon which GDP is based, to map areas of the economy that were underutilized and that could be successfully converted to a full-scale munitions programme. Another aspect was to estimate the rate of economic output that would be necessary to pay for the war. The US government managed to coordinate its involvement in the war by supporting internal consumption, which in turn reinforced industrial production and pushed up economic growth.
Other countries, especially Nazi Germany, which did not have GDP accounts, forcefully converted internal industries to the war efforts and basically stifled internal consumption. Germany ultimately suffocated its capacity to wage the war for a prolonged period of time. The US had enough money and resources to play on two fronts (Europe and the Pacific), while Americans were consuming more than ever. An intact industrial sector and pent-up consumer demand for durable goods also triggered America’s economic expansion after the war.
What is GDP (today)?
GDP is a measure of economic output. It measures all of a nation’s consumption, private investment and government spending plus exports but minus imports. It is a market measure, which means that the value of the various dimensions mentioned above is calculated in terms of their market prices. What does not have a price tag is not included in GDP.
This leads to the exclusion of important elements of economic performance such as the ‘core’ economy, which includes services rendered within the household, the informal economy, the odd jobs and all types of voluntary activities that reinforce social cohesion and also make economic growth possible. According to the International Monetary Fund, informal economies account for about 45 percent of economic output in developing nations, 30 percent in transition economies and roughly 20 percent in industrialized countries. Yet, they are neglected by GDP.

GDP is gross because it does not measure the overall capital inputted in the economic process, which means that it neglects, for instance, the depletion of natural resources used for economic growth, as these are provided free of charge by nature, nor does it consider the costs associated with economic growth, which include social risks, environmental degradation and the like.
You mention twice that “GDP is built on a great lie. This lie says that markets are the only producers of wealth.” What do you consider to be true wealth?
For me, wealth is primarily found in the health of my body and the context of my ecosystem (which also include effective and social relations). As Amartya Sen argues, poverty is about unfulfilled capabilities rather than limited cash. A person without good health, isolated and living in precarious environmental conditions would be poor irrespective of the size of his/her bank account. We create wealth every day when we support our communities, educate our children and spend time together strengthening social bonds.
We create wealth every day when we support our communities, educate our children and spend time together strengthening social bonds.
When we grow or cook our own food, produce our own energy and share our knowledge and expertise free of charge, we build the pillars of our economies — that is the essential difference between poverty and wealth. Markets could not even function without these important components. No growth would be possible if everything we need to function was provided at a cost. Yet, none of these fundamental spheres of ‘production’ count for GDP, which I found paradoxical.
The UNU released the Inclusive Wealth Index. Where do you see the strengths and weaknesses of this form of measure?
The Inclusive Wealth Index is a laudable attempt to quantify the contribution of natural capital to economic growth. GDP entirely neglects the natural capital fueling the growth process and, by doing so, it undervalues the economic importance of natural resources.
In an attempt at showing how significant these contributions are, economists have devised so-called genuine progress indicators, which subtract the value of natural capital used in the production process as well as the costs of negative externalities from GDP. To a certain extent, the IWI follows this tradition by incorporating the most recent advances in the field of the economics of ecosystem services and biodiversity. However, there is a big risk. All these indicators are based on the assumption that natural capital can be monetized, which is a precondition for it to be deducted from the GDP computation. The monetization of Mother Nature is very problematic and controversial and it can ultimately lead to a marketization of natural wealth, which we are seeing more and more in the field of forestation, conservation and offsets championed by the REDD+ scheme of the Kyoto Protocol. Just like in the case of GDP, we need to realize that there are powerful interests supporting such monetization efforts.
GDP is was developed in the United States. The HDI (Human Development Index) is based on the Scandinavian model. GNH (Gross National Happiness) is based on the model of Bhutan. Is the idea of a universal index invalid?
I believe that there is room for a universal index, although it may not be necessary or desirable. If what we want is a fulfilling life, then I see no reason why all countries should measure this according to one standard. We need a more mature global governance system, which favours diversity rather than homogenization. Technocrats controlled the GDP but we now need citizens to be involved in the process of defining what really matters to them. And Bhutanese people may have different views from Americans. While we can (and should) learn from one another, there is no reason why policies in Asia or in Africa should be driven by the same standards adopted in America or Europe.
You explain alternative indexes in your book. Is there one index you are in favour of and why?
No alternative to GDP will ever be perfect. What matters is not statistical efficiency but social relevance. We should measure what we want rather than wanting what we measure.
We should measure what we want rather than wanting what we measure.
I personally think that in the 21st century our societies have reached a level of maturity that allows policymakers to use a set of indicators (like a dashboard) rather than hold onto one single misleading number — a variety of indicators showing us whether we are achieving what we really aspire to would be a good way forward.
Japan has been a fast growing economy for most of the 20th century, but it has been stagnating for roughly two decades. What has happened?
I’m not an expert on the Japanese economy, but I believe it is an interesting case. Japan led the global economic expansion in the 1980s, similarly to what China has been doing for the past decade. It achieved high rates of GDP growth and led the world in terms of exports. In order to do that, it built a culture of long working hours, frenetic consumption and high-paced social life, which resulted in social distress and a competitive mentality in a hitherto cooperative Confucian society. Ever since the late 1990s, and also because of the plummeting birth rate, the economy has been stagnating, which partly explains the fact that Japan is the most indebted country in the world. This is a worst-case scenario for a society modeled around GDP — a growth society that does not grow! On the bright side, Japan has the most long-living population on earth. If the country were to reject GDP growth as a key policy objective and focus on rebuilding its internal social cohesion, it would be better positioned to deal with current and future challenges.
Keynes prediction in 1930 was that the average citizen in industrialized societies would work a maximum of fifteen hours per week by 2030. Why are we still working such long hours?
Because GDP growth is a shifting target and ultimately becomes a vicious circle. In order to produce more and compete globally, workers are forced to increase their productivity. Whereas innovation helps, it also frees up new space for production, which requires people to work longer hours in spite of technological advancements.
GDP growth also generates new wants. While a few years ago, an average household would own one car and two TV sets, nowadays we feel poor unless we have at least two cars and a handful of TVs, let alone the seemingly endless amount of gadgets we fill our homes with. Deprivation is often a relational concept. If the people around me have more stuff, I also want more stuff and feel deprived if I can’t get it. Moreover, as GDP sustains market goods (which must be bought) and neglects non-market goods, what in the past was free (e.g., parental care, hobbies, leisure, etc.) is nowadays a costly experience. All of this requires more money and, as a consequence, more work.
You are Professor of Political Science at the University of Pretoria, Republic of South Africa. What is your perspective on GDP in your country of residence and other African nations?
In South Africa we tackle a lot of social issues. My interest is on how to build alternative forms of governance that will allow this region to prosper without having to grow in the conventional sense and destroy its natural resources.
The problem is most African economies are designed. These countries rely on exports of raw materials, which have been leading to a significant growth of GDP. A country like Angola, for instance, has experienced an average growth rate of 18 percent for the past couple of years as a result of oil exports. In the short term this leads to the illusion of enrichment, but it is simply based on an unsustainable sale of the country’s most precious energy and natural resources. In this type of growth, only a few benefit from the ‘cash’ while most people suffer the social and environmental consequences of the systematic exploitation of natural capital and the privatization of communal resources, which is a precondition of the GDP growth model.
Only a few benefit from the ‘cash’ while most people suffer the social and environmental consequences of the systematic exploitation of natural capital and the privatization of communal resources, which is a precondition of the GDP growth model.
By contrast, African countries would need a different model that places emphasis on well-being and ultimately addresses the issue of deprivation and unemployment. Labour is relatively cheap in African countries. If these countries were to focus more on areas which are labour intensive (just as health, education and care services), they would be able to create more jobs while costs would remain relatively low. The GDP growth model fuelled by the expansion of big industries tends to use a lot of imported technologies, thus reducing the amount of labour over time. So, in order to keep jobs constant, industries have to produce more and more, and consumers have to keep consuming, thus leading to the dogma of infinite growth. By fostering the service sector rather than relying on industrial labour, unemployment might be reduced and these new jobs would also have a positive effect for society, as our well-being is closely correlated with the quality of our health, education and social capital.
Like many other African countries, South Africa too should recognize the pitfalls of the GDP model and plan for a ‘ steady state economy’.
Do you plan to continue on the topic and what research questions remain unanswered for you?
This is the most important topic I can think of. It brings together politics, economics and sociology. I could not think of a more relevant theme for academic research.
I am hoping to have the book translated into Chinese because China is one of the countries where such a debate needs to happen. Beyond that I hope to spread the message to Brazil, Russia and India as these countries have become the new beacons of GDP growth and that is where we need to encourage a genuine debate on the type of economic paradigm we want for the future. Building on my work on GDP, my second book (to be published in early 2014) looks at political and economic interests behind the growing field of monetary valuation of nature.