Beyond growth: reinventing Europe to save the climate

It’s September 2021, leaving nine and a half years in the “decisive decade” to change our economic world from top to bottom, to avoid ecological collapse and the consequent humanitarian catastrophe. In this context, continuing to pursue infinite growth is clearly a self-destructive and irrational economic strategy. The recent joint IPCC-IPBES report recommends “moving away from a conception of economic progress based solely on GDP growth” to preserve biodiversity and ecosystems. The new IPCC report posits a viable climate scenario (the shared socio-economic pathway 1) that envisions a world where “the emphasis on economic growth shifts toward a broader emphasis on human well-being”.

But isn’t GDP growth essential to sustaining purchasing power, social policy and overall prosperity, especially in Europe? While moving beyond growth is in our own best interest, can we really afford such a move? In a recent paper for the European Trade Union Institute, I argue that we really can.

---

Managing climate transition with GDP as a compass is like trying to grab hold of an object with your hands while continuing to push it further away with your foot.

---

A widely shared view among policymakers goes something like this: economic growth may be increasingly destabilizing for the Biosphere, but it is stabilizing for the welfare state. In fact, they say, without growth, there would be no welfare state.

This supposed co-dependency between the welfare state and growth is mediated by two key nodes: growth and employment, and growth and income. In theory, the first node guarantees that when Gross Domestic Product (GDP) grows, so does employment, allowing social contributions to increase and social policy to be properly financed. However, this is no longer the case: Germany has been widely considered the European success story when it comes to employment and growth for at least the past thirty years, yet the longest and strongest employment upswing in the country of the past half-century between 2006 and 2018 was accompanied by a decline in real GDP. 

This absolute decoupling is also true for the euro area as a whole, with real GDP growing and employment declining (for example, between 2002 and 2005 or between 2010 and 2012). This is even more pronounced for the European Union as a whole: the largest increase in the employment rate of the past two decades in the region (which occurred between 2013 and 2019, from 64 to 69.3 percent) occurred while GDP growth was only moderate (around 2 percent) and experiencing ups and downs. By the same token, there is a disconnect between national income and personal income due to the rise in inequality, as well as between GDP and fiscal capacity, due to fierce European social and fiscal competition.

Even more fundamentally, we need to realise that the real underlying indicators of human development are labour productivity, health and education, which are fostered by the welfare state, not by economic growth, which they in fact sustain. The economic narrative according to which the welfare state is a luxury that only growth-rich societies can afford can thus be turned upside down: the welfare state has been the backbone of developed economies over the past 70 years, especially in Europe, and a major source of human development and economic growth for more than a century. What is more, economic growth in fact plays a marginal role in stabilising social policies compared with socio-demographic structural parameters such as population growth for pension scheme sustainability.

While this very real double decoupling of growth on the one end and employment and purchasing power on the other goes unacknowledged, the illusory decoupling of growth from environmental damage is, contrary to all evidence, affirmed. An absolute decoupling of growth and greenhouse gas emissions is obviously possible in a single country (like in Sweden), but this isolated result vanishes when emissions are accounted for at the only level that matters: globally.

In Europe as in the rest of the world, the increase in income per capita is the main accelerator of climate change. Without a “net zero growth strategy”, there is no chance that the Green Deal targets can be met. Managing climate transition with GDP as a compass is like trying to grab hold of an object with your hands while continuing to push it further away with your foot.

But can we imagine and pursue a European social-ecological transition, leading to a simultaneous decline in environmental destruction and social inequality, without growth? The short answer is yes. At least three strategies can be implemented to achieve this goal.

In the short term, a first strategy consists in mobilising the reservoir of economic inequalities to foster transition by introducing, at constant growth, socially compensated progressive ecological taxes based on two tax bases: wealth and CO2 consumption. By taxing wealth, past unequal growth would be taxed without the need for additional growth. Governments can also choose to directly “tax inequality”, that is to say, design and enact progressive social-ecological taxation based on income levels and/or carbon footprints. However, as the 2018 Gilets jaunes protests in France have shown, these taxes should be designed carefully, with substantial social compensations for the most economically vulnerable.

A second strategy would be to finance the social-ecological transition through savings in social spending achieved by ambitious environmental policies aimed at improving human health outcomes, such as curbing air pollution, which is the most serious environmental threat Europeans face today. The Covid-19 pandemic provides a striking illustration of the nexus between preserving the environment, preserving health and preserving the economy. The recent call by medical journals stresses the fundamental link between the degradation of the biosphere and the global degradation of human health. 

A third and final strategy would be to build robust social-ecological protection financed by ending fossil fuel subsidies: ecological crises are a social risk threatening lives and livelihoods, especially those of the most vulnerable, necessitating collective protections like those built in Europe at the end of the 19th century, which have proven crucial in the face of Covid-19.

As bold as all this may seem, we have many reasons to believe that, in the nine and a half years that lay before us, we are fully capable of a social-ecological transition beyond growth, beginning with Europe.

---