Ecological Economics 134 (2017) 57–64 Contents lists available at ScienceDirect Ecological Economics journal homepage: www.elsevier.com/locate/ecolecon Potential Consequences on the Economy of Low or No Growth - Short and Long Term Perspectives J Mikael Malmaeus a,⁎, Eva C Alfredsson b a b IVL Swedish Environmental Research Institute, P.O Box 210 60, SE-100 31 Stockholm, Sweden KTH, Royal Institute of Technology, Environmental Strategies Research (FMS), Drottning Kristinas väg 30, SE-100 44 Stockholm, Sweden a r t i c l e i n f o Article history: Received 13 January 2016 Received in revised form 26 September 2016 Accepted 12 December 2016 Available online xxxx Introduction 1.1 Background, Aim & Scope Since the 1950s economic growth has been an official policy objective in most western countries In general, growth rates have been significantly slower since the 1970s than during the two previous decades And after the financial crisis in 2008 economic growth has, in most countries, not yet recovered An increasing number of economists and commentators are now challenging the (still dominant) assumption that GDP growth will continue to grow at a “normal” rate of 2.5% in the coming century (Alfredsson and Malmaeus, in press) A “new normal” annual growth rate at 1% or lower is proposed by mainstream economists (e.g Gordon, 2012; Grantham, 2012; Piketty, 2014) primarily due to a lower expected pace of technological development and hence lower growth-pace of productivity Outside the mainstream, zero-growth or even catastrophic developments are considered due to a decline in oil production (Ayres and Warr, 2009; Kumhof and Muir, 2012), other resource constraints and negative effects from environmental deterioration and climate change (Turner, 2008; NCE, 2014) While the positive effects of economic growth in terms of, e.g., labor employment and improving public finances are well known, negative effects of continued economic growth on the economy may seem like a contradiction but is increasingly being recognized (Victor, 2013) Various authors have argued that economic growth in many rich countries have gone from being economic to uneconomic, i.e that current economic growth cause more negative effects than positive effects (e.g Daly, 1996; Bartolini and Bonatti, 2008; Victor, 2013) A transition to lower (sustainable) growth rates will however, as suggested by the subtitle of a book by ecological economist Peter Victor (2008), “Slower ⁎ Corresponding author E-mail address: mikael.malmaeus@ivl.se (J Mikael Malmaeus) by Design, Not Disaster”, require management Several authors emphasize the need to address the various implications of reduced growth (e.g., Jackson, 2009; Martínez-Alier et al., 2010) There is hence a need to better understand the potential effects of low or no economic growth addressing social, economic and political consequences of such a development In this paper we are concerned with the economic consequences and primarily aim to explore potential consequences of an unmanaged transition to a new normal, i.e., longterm lower growth levels on a global scale The focus is on exploring effects rather than the reasons behind lower future growth rates, and we will examine a wide range of possible effects in order to get an overview and provide a starting point for further research We define economic growth in conventional terms as rate of increase in real GDP which, by definition, is a monetary measure of economic activity rather than a measure of physical throughput As economic consequences we consider effects on conventional parameters reflecting the functioning of firms, labor markets, capital markets, financial markets and governments as well as productivity, income levels, levels of public and private consumption and income distribution between households The wider societal effects of changing patterns of production and consumption are beyond the scope of this paper GDP growth means that aggregate output increases, but regardless of the aggregate growth rate there may always be businesses growing alongside others that shrink This also comprises economic transformations or creative destruction to use a Schumpeterian term We will encounter this issue further along but initially we would like to clarify that creative destruction can occur also in a low-growth or even a shrinking economy, although the term is usually associated with the process of growth.1 1.2 Methodology In this paper we survey empirical and theoretical evidence found in the scientific literature As there are no real empirical data on effects of a long-term transition from high to low economic growth on a global level the indications used are drawn from recessions or depressions typically played out within the timescale of a business cycle covering single or groups of countries It is however likely that the economic In an environmental context, replacing fossil energy with renewable alternatives may be one example of such a transition which is feasible within the constraints of a non-growing macro economy http://dx.doi.org/10.1016/j.ecolecon.2016.12.011 0921-8009/© 2017 The Authors Published by Elsevier B.V This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/) 58 J.M Malmaeus, E.C Alfredsson / Ecological Economics 134 (2017) 57–64 Table Averages of performance indicators for a number of OECD countries during periods of low and normal GDP growth Data from stats.oecd.org Denmark a GDP growth Unemploymentb Government debtc Inflationa Gini coefficientd Povertye Japan 2008–2012 1987–1991 1997–2001 1982–1986 1990–1994 2.4 4.8 60.2 2.4 0.23 0.23 −0.7 6.4 36.6 2.4 0.25 0.24 5.4 2.4 49.4 1.9 0.1 4.4 98.2 0.1 0.34 0.24 −0.4 3.6 3.1 31.6 16.3 0.52 New Zealand GDP growtha Unemploymentb Government debtc Inflationa Gini coefficientd Povertye a b c d e Mexico 1997–2001 Spain 37.8 74.0 0.45 Sweden 1975–1979 1982–1986 1997–2001 2008–2012 1990–1993 2001–2005 −0.1 0.9 3.1 4.6 14.3 11.7 0.27 0.20 4.5 15.9 51.5 2.6 −1.0 19.1 43.8 1.9 0.33 0.33 −0.9 5.1 52.3 6.7 0.21 0.26 2.6 6.1 47.2 1.5 0.23 0.27 Measured as % per year Measured as % of civilian labor force Total central government debt as % of GDP Gini coefficient at disposable incomes, post taxes and transfers The Gini coefficient measures income inequality; = perfect equality and = maximum inequality Poverty rate before taxes and transfers; poverty line 50% below median income characteristics of such short-term episodes may be quite different from consequences of long-term reductions of the growth rate The synthesis and conclusions are thus drawn bearing this in mind We begin with a review of studies by conventional (including neoclassical) economists regarding economic depressions By “conventional” economics we not refer to any coherent body of research, but we define it loosely in relation to heterodox economic perspectives which are usually not found in standard economic journals We find it convenient to summarize these perspectives together, since they differ significantly in scope and results from the alternative perspectives discussed subsequently In relation to growth the focus of conventional economists is primarily on how it can be promoted By contrast, the growth agenda is often questioned by alternative economists In the heterodox literature more theoretical reasoning and models about possible consequences of low or no economic growth can be found In Section we provide a review of how low or no economic growth is perceived from different theoretical perspectives, aiming to provide a contextual understanding of the subject Such an understanding is important since the results often depend on the point of view and therefore we make no judgment of their reliability at this stage In Section 3, on the other hand, we present a synthesis of perspectives and thematically discuss different economic consequences based on the findings in Section 2, complemented with some additional sources A Review of Studies 2.1 Conventional Studies of Economic Depressions If the subject of low GDP growth is viewed through the lens of conventional economics, the term depression is usually defined as a period of unusually low GDP growth The depressing facts are the typical symptoms of such a period as registered in various economic parameters, including low engagement of the labor force and low capacity utilization of fixed capital – resulting in unemployment, loss of profits, falling investments and rising government debt But if we compare periods with low or negative GDP growth with periods of normal or high growth in a number of countries we also find cases where the numbers not match the normal pattern (Table 1) Sweden and New Zealand for example had lower levels of unemployment during low growth periods, and Denmark and Spain reduced their government debts Some changes may reflect global trends rather than national growth levels Inflation for example decreased with time in all countries regardless of growth level while Gini coefficients increased We not infer that growth is unrelated to these performance indicators but that there are few simple lessons to learn from the data There are trends within the periods as well (not shown) which in some cases support the assumption that high growth rates have a positive influence on economic performance indicators and sometimes not More commonplace is however to have a correlation between low growth, increasing unemployment and increasing government debt The association of growth with good economic performance can be traced back to Keynes (1936) and the depression economics of the 1930s Subsequent work by Harrod (1939) and Domar (1946) treated growth as a remedy for unemployment The general problem during an economic slump is short run aggregate demand falling below the economy's long-term productive capacity (Krugman, 1999) The core of Keynesian economics is to ensure short run growth simply in order to avoid economic depressions Notably, Keynes himself was not convinced that long run growth of the productive capacity would be the normal for future generations (Keynes, 1930) In a series of studies (Kehoe and Prescott, 2002; Conesa et al., 2007; Gogos et al., 2014) economic depressions have been studied using neoclassical general equilibrium growth models According to Kehoe and Prescott (2002), if output growth is significantly below trend2 the economy is in a depression In these models depressions are usually explained by changes in total factor productivity and worked hours in the economy The focus of these studies is thus to explain the factors behind low growth rates and these factors are themselves at best illustrative of the characteristics of depressions Low participation of the work force and other factors are thus seen as causes rather than consequences of low growth rates in these models Reinhart and Rogoff (2010) examine a large number of financial crises during the latest 800 years, including numerous defaulting states and bank failures There are different types of crises such as inflation crises, currency crashes, asset price bubbles, banking crises and external debt crises but a typical duration of all sorts of crises is 4–7 years Financial troubles often occur in concert with slowing growth rates, especially Defined as the average annual real per capita GDP growth rate of the industrial leader of the world economy J.M Malmaeus, E.C Alfredsson / Ecological Economics 134 (2017) 57–64 following periods of rapid growth Severe financial crises rarely occur in isolation but more often than not banking crises, for example, are accompanied by other kinds of crises The decreasing output and reduced labor employment during a crisis inevitably results in falling tax revenues which in combination with bailout costs may result in soaring government debt According to Reinhart and Rogoff (2010), the historical average of increase in government debt following banking crises is 86%, and the unemployment rate rises an average of percentage points Taken together there is wide agreement among economists that depressions associated with low economic growth are disastrous and should be avoided But apart from low or negative growth rates there are different symptoms and consequences associated with different cases Typical of depressions is also the relative brevity of their duration and the fact that they are defined in relation to some background trend growth 2.2 Conventional Studies of Long-term Growth Below the Rate at the Productivity Frontier and the Case of Japan Short-term depressions are hence not very informative about consequences of low long-term trend growth The condition of the world economy before the industrial revolution was not one of permanent crisis although before the 19th century the global growth of economic output per capita was essentially zero (Maddison, 2001) On the other hand, starting around 1820 per-capita growth rates have generally been stable above zero in most industrialized countries and it is hard to find empirical cases where long-term trend growth has been really low or negative There are of course countries lagging behind the economic frontiers but this has often been the result of warfare, corruption or general misconduct of the economy In such countries poverty is certainly reflected in an indicator like the GDP but that is more a direct relationship with the low level of output than with the rate of growth The collapse of the Soviet Union also resulted in prolonged negative growth rates in a number of emerging states An exception is the case of Japan which has had virtually zero or very low growth since 1992, i.e significantly longer than the usual shortterm depression As a consequence, the country is apparently poorer than it would have been with growth and this has resulted in slower increases in living standards than in comparable countries The falling rate of growth in Japan was apparently initiated by a bursting financial bubble in 1991 after decades of rapid growth The seemingly endless growth during the previous decades triggered financial speculation in real estate and financial assets which eventually could not be supported by real growth Underlying structural problems in the economy and in particular in the labor market resulting in decreasing productivity growth are often suggested as causes of the slowdown in the Japanese GDP growth (Bayoumi, 2001; Hayashi and Prescott, 2002) The initial phase of the stagnation thus resembles many other economic crises Following the financial turmoil, Japan initially attempted Keynesian policies such as building roads and infrastructures to stimulate the economy These policies were largely unsuccessful and resulted in mounting fiscal debt In response to the insecure situation private consumption decreased which in turn reduced tax revenues and escalated the debt crisis Due to the logic of deflation many investments were postponed and the aggregate demand collapsed as prices were expected to continue decreasing Rather than spending the consumers increased their saving, in particular in the form of government bonds Japan is also characterized by an aging population where many older people are saving for retirement (Hashimoto, 2004) As a result the Japanese government owes most of its debt to its own citizens Excessive government debt (183% of GDP in 2009) is the most apparent consequence of the stagnation in Japan But the general insecurity is affecting the economy in many ways including the financial and labor markets, resulting in shorter contracts and lower wages which in turn tends to increase income inequality However, there is no explosion in unemployment, rather a slow erosion of employment 59 opportunities Japan still has among the lowest rates of unemployment in the OECD, less than 5% And since Japan imposes a large inheritance tax the savings of the elderly will largely come back to the government in due time The lack of growth is worrying in its own right, since it is a sign of failure as Japan is following a growth policy The failure of the fiscal expansion in the 1990s has been followed by a failing monetary policy in which the country appears to have fallen into a liquidity trap Zero interest rate has not been enough to obtain a positive rate of inflation which would make debt levels more manageable and possibly regain economic growth (Krugman, 1999; Hamada and Okada, 2009) 2.3 Ecological Economists Within the field of ecological economics concepts such as degrowth and steady-state economy are suggested as potentially sustainable solutions (Latouche, 2009; Martínez-Alier et al., 2010; Kallis, 2011) Such concepts generally involve large societal transformations, and some authors in this field discuss the positive and negative effects on the economy that may occur on the way and propose solutions to some of the problems A general claim, however, is that much research is still needed in order to understand the implications of reduced economic output and how to avoid economic collapse, financial chaos, mass unemployment and social upheaval (Jackson, 2009; Martínez-Alier et al., 2010; Research and Degrowth, 2010) In their analyses, ecological economists have often lent from and contributed to Marxist economics (Section 2.4) and monetary reformists (Section 2.5) Before the ecological economists, an early proponent of a future steady-state was John Stuart Mill (1848), dedicating a chapter to the subject in his Principles of Political Economy Mill considered each step in economic progress as an approach toward the stationary state, emphasizing that “a stationary condition of capital and population implies no stationary state of human improvement (p.692)” Also John Maynard Keynes (1936) pondered on a future “quasi-stationary community where change and progress would result only from changes in technique, taste, population and institutions (p.220)” In addition to these sources, the steady-state and degrowth movement in ecological economics take major inspiration from the work of Georgescu-Roegen (1971, 1977) and the Club of Rome (Meadows et al., 1972) who argue that there are strictly physical limits to growth which will inevitably end the growth of the economy With a constant and sustainable level of physical throughput as the fundamental boundary condition, Daly (1977, 1996) outlines the features of a steady-state economy in some detail Like Mill and Keynes, Daly does not see any limits to the quality improvements within the economy Hence the steady-state economy does not per definition assume zero GDP growth Still, the quantitative constraints challenge the prevailing economic model in a profound way The most trivial observation is that the needs of the poor (and everyone else) are more difficult to satisfy without growth There is less room for an unequal distribution of income and resources in a full world Daly also has some concerns that a steady-state economy may not be able to maintain full employment, and that there will be fewer investment opportunities causing the financial sector to shrink in such an economy (Daly, 2005) Another obstacle, assuming that zero growth is more relevant for the rich North than the poorer South, is that the North will not be able to function as a growing market for Southern exports (Daly, 1996) Generally supportive of the steady-state economy as outlined by Daly (1977, 1996) admits that we still miss “the ability to establish economic stability under these conditions” In particular, Jackson points to the difficulty to obtain balance between supply and demand without economic growth, and the importance of this balance for the labor market Given continuous improvements in labor productivity, consumption needs to grow fast enough to absorb the growing output in order to keep labor employment constant Hence low or no economic growth tends to increase unemployment 60 J.M Malmaeus, E.C Alfredsson / Ecological Economics 134 (2017) 57–64 Financial stability is another matter of concern according to Jackson Financial markets collapse if their expectations on economic growth are not fulfilled Profit is key to the system not only for capitalists, but also to attract savings from households The availability of money for lending to investments (also including re-investments to maintain existing structures) depends on the average rate of profit of financial instruments In the wake of financial crises both households and public finance face hardship, and the level of indebtedness in society increases The health of the modern economy hangs on the health of the financial sector, Jackson concludes Jackson regrets the lack of studies on how to configure macro-economic variables such as consumption, investment and public spending in such a way as to reduce the growth imperative while maintaining economic stability The exception to which Jackson turns his scientific hope is the modeling work by Peter Victor Victor's macro-economic model (LowGrow), which in essence is based on a neoclassical production function, explores the conditions necessary to finding a balance between aggregate demand and supply by regulating levels of public and private investment, labor supply and fiscal policy When economic growth is set to zero in a scenario for the Canadian economy termed “a no growth disaster”, unemployment skyrockets as does the level of public debt However, with proper adjustments such as reductions in business investment and working time it is possible to avoid disastrous outcomes in terms of unemployment, public debt and a poverty index (HPI) even without economic growth (Victor and Rosenbluth, 2007; Victor, 2008) Similar results were obtained when the model was applied for the Swedish economy (Malmaeus, 2011) One of the more optimistic thinkers in the field of ecological economics is Philip Lawn, working in the tradition of Herman Daly In accordance with Jackson and Victor, Lawn identifies a number of potential problems associated with low or no economic growth including unemployment, loss of investments, capital flight and the functioning of the monetary system (Lawn, 2005, 2011) The main risk for unemployment according to Lawn (2005) is the loss of investments Since investments make up a substantial part of the GDP in modern economies (usually 20–30% of the GDP), they also represent a significant portion of the job opportunities in these economies However, Lawn (2005) is far more optimistic regarding investment opportunities in a steady-state economy than other observers, arguing that a steady-state is not a status quo and hence there could be plenty of investments also in such an economy As new and better products are replacing older inferior ones, investments in new productive equipment will be needed Still, the risk of lower profits in a country that grows slower than the rest of the world may deter investment and induce capital to move abroad Restricting the international mobility of capital is thus, according to Lawn, a necessary policy adjustment in a transition to a steady-state economy Within ecological economists the branch of biophysical economists uses ecology and thermodynamics to analyze the economy Arguing that economic growth is tightly connected to access to relatively cheap energy with high return on investment,3 Murphy and Hall (2011) predict that future growth will be negative due to decreasing sources of fossil energy Put another way, since the industrial revolution the increasing utilization of energy and other resources has resulted in a larger and more complex network of economic activities Past civilizations collapsed when their resource bases could not be sustained, and biophysical economists have characterized the typical collapse dynamics in some detail The implication is that a degrowth scenario triggered by a shrinking resource base might result in a prolonged period of increasing commodity prices without economic growth to support consumption (stagflation), increasing wage disparity and sociopolitical instability (e.g Turchin and Nefedov, 2009) Frequently referred to as energy return on energy invested (EROIE) 2.4 Marxist Economists A frequently held view among Marxist economists is that capitalism is a system that must continually expand by amassing profits and wealth by capital accumulation “Grow or die” is supposed to be a general law of survival for businesses as well as for the system itself (O'Connor, 1994; Smith, 2010) Under slow or no growth no new investments are made and profits are closed off To some extent, the system can continue to move forward as a result of financial speculation and growing debt, but this only means growth in bubbles that will eventually burst (Magdoff and Foster, 2010) In simple reproduction, as defined by Karl Marx, no economic growth occurs But capitalism is characterized by expanded reproduction including capital accumulation and perpetually increasing productive capacity Capitalism is prone to overproduction crises when consumers cannot absorb the increasing production of commodities This happens since capitalists try to minimize the consumption of the workers and maximize the surplus value of production in the form of profits, and this constitutes the fundamental contradiction of capitalism (Lebowitz, 1982) The Marxist conclusion is that zero growth is incompatible with a capitalist system and that the consequences of low or no economic growth are reflected in economic crises The familiar effects of downturns and depressions – unemployment, capital destruction, bankruptcies – are thus the inevitable results of faltering growth And although the effects are manifested in the short-term, there is no long-term solution to the problems under capitalism except resuming economic growth (Magdoff and Foster, 2010; Smith, 2010; Blauwhof, 2012) In one publication ecological economist Philip Lawn (2011) confronts the Marxist argument that capitalist economies must grow to survive The paper is generally written as an argument against the statement made by Smith (2010) that steady-state capitalism is impossible Lawn maintains that the steady-state is compatible with a capitalist system, if proper adjustments are made to the institutional framework, for example regarding the labor market We will have to rely more heavily on the redistribution of income and wealth to overcome poverty, and governments will need to intervene to ensure that people are not solely dependent on the market for the provision of work and income Blauwhof (2012) summarizes the controversy between Smith and Lawn and concludes that a steady-state economy is theoretically possible but unlikely to be feasible within the social relations of capitalism This conclusion is of course contingent on what are actually the defining properties of a capitalist economy It is possible to argue that capitalism and the steady-state economy may be seen as two different phases within the same system at different points in time (Boonstra and Joosse, 2013) 2.5 Monetary Reformists Another strain of thought can be found in the tradition of problematizing the monetary system and the way money comes into circulation, including propositions for monetary reform and an interest-free economy (Kennedy, 1995; Lietaer, 2001; Benes and Kumhof, 2012; Robertson, 2012) The monetary system is largely based on credit expansion in private banks, but even central banks create money through buying interest-bearing government bonds The argument here is that new money is constantly required to service principal and interest payments on new and existing loans Since there is a need for the money supply to increase, there is also a need for the economy to expand In the words of Margrit Kennedy, this tends to create a “pathological growth imperative” (Kennedy, 1995) Property economics demonstrates a necessary link between the monetary and the real economy to facilitate a stable currency (i.e avoiding inflation and deflation), in effect imposing an addiction to real growth by the credit based monetary system (van Griethuysen, 2012) J.M Malmaeus, E.C Alfredsson / Ecological Economics 134 (2017) 57–64 In theory, money is only withdrawn by the banks in connection with principal payments Interests received by the banks stay in circulation, primarily in the form of wages and profits to bank associates This means that contraction of the money supply occurs simultaneously with decreasing debts, and that a decreasing money supply as an effect of decreasing GDP does not have to generate rising levels of debt But interest tends to accumulate wealth in the hands of the creditors and drain economic resources from the debtors The existence of interest in combination with absence of growth may lead to increasing wealth inequality between creditors and debtors which is not compatible with a sustainable economic development The problem of having this tendency built into the monetary system is precisely the concern of the monetary reformists The consequences of this may resemble those associated with the contradictions of capitalism as perceived by the Marxist economists (Section 2.4), as well as those described by Thomas Piketty (see the following section) 2.6 Recent Studies of Growth and Inequality French economist Thomas Piketty working on income and wealth distribution in a historical perspective describes the relation between economic growth and inequality, using a large dataset covering a variety of countries during several centuries (Piketty, 2014) The central contradiction of capitalism4 according to Piketty is the fact that the average rate of return on capital usually exceeds the rate of economic growth, which in itself is a force for divergence between the rich and the poor During the last 200 years economic growth varied more than the rate of profit (which is typically 4–5%) and hence growth may be seen as a factor for equalization For Piketty, this is mostly a matter of historical fact where the inequalities in income and wealth seem to decrease in periods of rapid growth, most notably during the postwar period in Europe and North America If global growth slows down and international competition for capital heats up the central scenario suggested by Piketty is characterized by an increasing capital/income ratio and hence a growing inequality in the world as a whole – a process that has already begun A competing view can be found in Keynes' General Theory of employment, interest, and money (1936), questioning whether there are any intrinsic reasons for the scarcity of capital (Ch 24, p 376) In short, the need for investment may be small in a low growth environment and hence the rate of return of capital might fall Arguing that the elasticity of substitution between capital and labor needs to be greater than one for the rate of return on capital to be consistently higher than the rate of overall growth, Rognlie (2014) finds that a scenario of increasing inequalities based on the reasoning of Piketty (2014) is unlikely Indeed, the answer seems to depend on whether the demand for capital is high or low relative to the existing stock, which in turn depends on a number of factors In neoclassical growth models the return on capital is diminishing in the absence of technological change (e.g Solow, 1957), which in itself is one potential reason (out of several) for a low growth regime to occur Thematic Synthesis Based on the findings in Section and by mobilizing additional sources, in this section we summarize and develop our understanding of potential consequences of low or no economic growth regarding a number of aspects of the economy By comparing different perspectives we hope to illuminate the probability of different outcomes under various circumstances Reminiscent of but not identical to Marx' fundamental contradiction of capitalist production, see Section 2.4 61 3.1 Government Finances Governments have ministries of economic affairs that their best to promote growth in order to keep the economy stable, but they also have an interest in enhancing their tax base Without economic growth tax revenues cannot increase but stagnate as long as tax rates are unchanged With stagnating tax revenues there are obviously firmer prioritizations needed than if the economy was growing If costs for existing operations increase – such as health care due to aging populations – the budgetary margins decrease For labor intensive services, including education and health care, wages tend to follow the GDP so that in a growing economy the budgetary gains are offset by increasing labor costs, as described by Baumol (1967) In practice wages can of course grow faster or slower than the GDP, but in general there are no clear gains from growth in terms of increasing welfare services (Hartwig, 2008) In this respect, low or no economic growth should have minor consequences for the provision of these services As demonstrated by Reinhart and Rogoff (2010) debt levels tend to increase in connection with economic crises The credit based monetary system also tends to create increasing debts that require economic growth to service (Douthwaite, 2012) Governments may go into heavy debt if they are forced to bail out failing banks and businesses, and if tax revenues decrease In the long term excessive debt does not have to follow from low or no economic growth as long as governments and individuals adapt and balance their incomes and expenditures 3.2 Labor Employment Sustaining employment is one of the key objectives of many governments and one reason why economic growth is promoted The low capacity utilization associated with economic recessions is one reason why unemployment often occurs and one of the major consequences of economic crises According to “Okun's law” (Okun, 1970) there is a three-to-one ratio between variations in output and unemployment over a business cycle According to Lee (2000) this is statistically valid for most countries Keynesian policies aim at promoting growth in order to increase effective demand and employment But there are also negative effects on employment resulting from economic growth By Schumpeterian creative destruction jobs are lost when innovations destroy jobs in old varieties (Aghion and Howitt, 1992) See also Neto and Silva (2013) for a comprehensive review of possible feedback mechanisms where unemployment directly or indirectly affects the rate of economic growth As noted in Section 2.3, if labor productivity continues to rise due to innovation and technical change, less labor is needed to maintain a given level of production and hence in the absence of growth the result can be a long-term decrease in labor demand In addition, lower investment rates in new production capacity may also induce a downward pressure on labor demand On the other hand, if labor productivity does not continue to increase – which is one reason why some economists project lower growth rates in the future – such negative long-term effects on the labor market may not come about There may be a tradeoff between labor productivity and resource productivity where labor productivity may decrease as an effect of a resource squeeze (Spangenberg, 2010) Proposals to reduce working hours in order increase the number of jobs (Victor, 2008) are thus more relevant if low growth is voluntary than if forced by resource constraints 3.3 Poverty and Income Distribution An obvious circumstance is that lower growth rates impose restrictions on economic expenditures in general, and could potentially affect average levels of poverty This is, for example, one outcome in the LowGrow model presented by Victor (2008) During economic 62 J.M Malmaeus, E.C Alfredsson / Ecological Economics 134 (2017) 57–64 downturns poverty may result from rising unemployment and deteriorating fiscal position of governments In the longer term, both private and public expenditures are related to the general level of output growth Distributional conflicts are likely to be intensified in the absence of growth (Spangenberg, 2010) As discussed above, Piketty (2014) argues that lower growth rates tend to increase inequalities in wealth and income This has apparently happened in Japan (see Section 2.2) but is also part of a global trend and is consistent with historical data It should be noted that this hypothesis assumes that the average rate of profit is higher than the rate of economic growth As expressed by Piketty himself – too much capital kills the return on capital – but currently the international competition for capital is high which tends to increase inequalities in the face of decreasing output growth (Piketty, 2014 p.233) This condition may nevertheless differ between alternative low and no growth scenarios In a modeling effort Jackson and Victor (2014) find that there are certain conditions under which inequality can be significantly reduced, or even eliminated entirely, as growth declines According to the Kaldorian view (Kaldor, 1956) a certain degree of inequality favors investment and growth since high income groups save more in proportion to their wealth than low income groups By contrast there are, of course, concerns that inequality itself may affect the rate of economic growth Among others, Acemoglu and Robinson (2012) argue that economic inequality tends to erode the societal conditions for growth By creating uncertainty in the politico-economic environment, for example, income equality may reduce investment (Alesina and Perotti, 1996) growth in output is considered as the normal and healthy state of the economy In the long term, effects on the overall rate of profit and the size of the financial sector seem reasonable but there is more research needed regarding long-term effects on capital markets 3.4 Capital Markets and the Financial System 3.6 Globalization and Trade The basic function of capital markets is to connect financial capital stocks with profitable investments, and the average rate of profit is related to the growth rate of the economy There are different opinions about the severity of low or no growth for the functioning of this system Lawn (2005) is confident that there will be both incentives and opportunities for investments in any dynamic economy whether it is growing or not Others, including Marxist economists, maintain that the system must either grow or die Daly (2005) simply assumes that there will be fewer investment opportunities in a low growth environment and that the financial sector therefore is likely to shrink Banks would need to be more restrictive in allowing credits to firms and households (Spangenberg, 2010), and only the concerns with the highest profitability would get access to the limited stock of capital (van Griethuysen, 2010) Tokic (2012) specifically addresses the financial dimensions of degrowth and the role of expectations of growth in the stock market In stock market valuation models the stock market value is estimated as the present value of future cash flows, and these in turn depend on the expected rate of economic growth Any indications of lower future growth rates would affect the present value of capital stocks and thus induce negative reactions on the stock market As actors buying and selling stocks on the margin would be forced to sell their stocks, sharp declines in all risky assets are expected which in turn could extend to significant effects on the real economy, including vicious cycles of deflation and credit crunches In the increasingly complex and globalized economy there are many vital functions maintained by the financial system which makes modern societies vulnerable to financial instability (Korowicz, 2010) This is an obvious reason why governments and central banks are dedicated to maintaining positive expectations of future growth In addition to capital markets the monetary system is also potentially affected by lower growth rates as levels of debt increase in relation to the GDP (Section 2.5) As demonstrated by Reinhart and Rogoff (2010) a variety of different types of financial crises tend to coincide with declining rates of growth There is little doubt that economic growth enhances stability in the short-term, at least in the current situation where steady Economic growth is often linked to trade and globalization and high growth rates often coincide with extensive trade flows (e.g Frankel and Romer, 1999; Dollar and Kraay, 2003) Slowing growth might therefore be associated with a lower level of globalization Some ecological economists see the strengthening of local economies as more compatible with ecological sustainability, reduced transports and lower energy demands than the globalized economy (e.g Kallis, 2011) However, it is difficult to pin down de-globalization as a direct effect of lower growth rates if it is part of a larger transition of the economy and society at large In a globalized world fast growing economies tend to attract more capital investments, and slower growing countries face the risk that investors will transfer their capital abroad (Victor, 2008; van Griethuysen, 2010) This might act toward currency depreciation and worsening terms of trade for some countries which in turn might induce regulations and trade policies that will reduce the level of globalization As discussed by Daly (1996), if slower growth rates primarily occur in the richer North this may reduce the market for growing Southern exports and hence reduce the global trade flows 3.5 Businesses According to Marxist economists the capitalist law of survival – grow or die – applies at the firm level as well as on the system level “Big fish tend to eat the little fish Capitalist market competition is cut-throat competition” (Schweickart, 2010) Productive capital is attracted to growing business, discouraging or eliminating less competitive agents Hence even individual businesses fall prey to expectations of ever-increasing revenues And when growth fails, decisions based on the prospect of increasing revenues turn out to be inappropriate, in some cases leading to economic failures or bankruptcies In the long term, lower growth rates impose a ceiling on total economic activity This means that any market share seized by one competitor must be lost by another It would become more difficult for innovators and start-ups to enter the market, and more difficult to receive credits for investment (Spangenberg, 2010) A likely outcome is that businesses and business relations in the long term would take on new forms which would be better adapted to lower growth rates Already today there are companies that thrive financially and, at the same time, have proved more resilient than traditional companies at times of economic downturns and recessions (Holmberg and Robert, 2000) Time Perspectives Many of the potential effects of low or no economic growth discussed above are related to temporal instabilities and are likely to occur in the short term This would for example include unemployment, financial meltdown and rising levels of debt caused by economic depressions Secondary effects including poverty and inequalities resulting from unemployment or deteriorating government finances would also take place on the same time horizon, although possibly with a time lag, and the same would be true for some effects on trade and globalization Any effects related to the level of production as such would also play out in the long term Levels of poverty, government spending and the struggle for economic resources including distributional conflicts should reasonably be affected by the rate of economic growth Specifically, the relation between economic growth and inequality as discussed by Piketty (2014) and others operate in the long term However, many J.M Malmaeus, E.C Alfredsson / Ecological Economics 134 (2017) 57–64 Table Economic effects of unmanaged low or no economic growth in the short and long term Government finances Labor employment Poverty Inequality Indebtedness Financial sector Businesses Globalization and trade Short term Long term Negative impact Negative impact Negative impact Unclear impact Negative impact Negative impact Negative impact Negative impact Potentially balanced Potentially balanced Potential effects Potential effects Potentially balanced Adaptions required Adaptions required Adaptions required effects depend very much on political prioritizations and are not mechanically determined by the rate of growth If lower growth rates result in fewer investment opportunities and a shrinking financial sector it would occur in the long term It is also possible that other forms of businesses and business relations will develop that are better adapted to a low growth environment If labor productivity increases without increasing levels of production this might cause unemployment in the long term But as observed in Section 3.2 there are other possible mechanisms that might work in the other direction Due to social inertia, resuming business-as-usual tends to be the dominating response to any interrupted development, and this may delay adaptions to alternative growth paths In the long term, however, our review indicates that a new balance may be found in the economy stabilizing government finances, levels of indebtedness and the labor market The financial sector, the business sector and global trade patterns will need to adapt to survive in a low growth economy A very brief summary of potential effects of low or no growth in the short and the long term based on the findings in our survey is presented in Table Concluding Remarks In a very general sense, many effects of low or no economic growth are directly or indirectly linked to failed expectations Decisions made on the premise that growth will continue turn out to be wrong decisions, with various consequences following the realization of an unexpected growth trajectory This may involve private, corporate, financial as well as public decisions Adapting to new realities may be more or less dramatic processes depending on the context, but is likely to be primarily short-term events A wide range of lock-in situations may further contribute to an unwillingness to accept lower future growth rates Due to so-called sunk-cost effects, decisions are often based on past investments rather than expected future returns, which is one possible explanation why some ancient societies collapsed when they failed to adapt to less favorable future prospects (Janssen and Scheffer, 2004) Sanne (2002) explains how consumers may find themselves locked into patterns of increasing consumption while van Griethuysen (2012) provides a theoretical explanation why producers are locked-in by property relations to continuously increase their incomes In this paper, we have attempted to survey potential consequences on the economy of low or no economic growth as identified by researchers from different branches of economics Further analysis is required to assess the likeliness of these various effects and the causes behind them, and how they may interact with one another It should also be pointed out that the functioning of the economy – including consequences of low growth – cannot be isolated from other social dynamics The justification for this overview is to provide a platform for further research Combining different scientific perspectives such as Neoclassical, Marxist and Ecological Economics naturally involves the risk of reaching contradictory results We also found that conflicting effects could be reached in terms of unemployment and income distribution depending on the scenario Furthermore, interactions between different effects or 63 between different sectors of the economy are very likely For example, high unemployment and rising inequalities may increase the risk for financial crises if poor people go into debt, such as during the banking collapse of 2008 Or reduced supply of capital due to financial troubles may affect the income distribution and the labor market We have touched upon a few such interactions in the previous sections but it is beyond the scope of this paper to make an in-depth analysis of such effects We have presented effects on the economy coinciding with low levels of economic growth as potential consequences of low growth rates in the future However, the effects may not be primarily caused by the level of growth, but by other factors affecting several aspects of the economy including the level of growth The real cause behind the effects may be a productivity slowdown, resource constraints or financial imbalances And the effects on different parts of the economy will probably differ significantly depending on the underlying cause Beyond the scope of this survey is also the risk of negative feedback loops and threshold effects, which together may trigger collapse dynamics (see e.g Greer, 2008; Korowicz, 2012) Further efforts are needed in order to better understand the links between causes and effects and to develop strategies to face the apparent risk of low economic growth in the future We believe this article may be a useful starting point Important questions for future research to address include the understanding of how market economies can become more resilient to crises in the absence of growth in the short-term, and how different institutions can adapt to lower rates of growth in the long-term Acknowledgements The authors are supported by a FORMAS project grant (Grant number 2013-1842) We are grateful to three anonymous reviewers whose comments significantly improved the manuscript References Acemoglu, D., Robinson, J.A., 2012 Why Nations Fail: The Origins of Power, Prosperity and Poverty Crown, New York Aghion, P., Howitt, P., 1992 A model of growth through creative destruction Econometrica 60 (2), 323–351 Alesina, A., Perotti, R., 1996 Income distribution, political instability, and investment Eur Econ Rev 40, 1203–1228 Alfredsson, E.C., Malmaeus, J.M., 2017 Prospects for economic growth in the 21st century – a survey covering mainstream, heterodox and scientifically oriented perspectives Econ Issues (in press) Ayres, R.U., Warr, B., 2009 The Economic Growth Engine: How Energy and Work Drive Material Prosperity Edward Elgar, Northampton Bartolini, S., Bonatti, L., 2008 Endogenous growth, decline in social capital and expansion of market activities J Econ Behav Organ 67, 917–926 Baumol, W.J., 1967 Macroeconomics of unbalanced growth: the anatomy of urban crisis Am Econ Rev 57, 415–426 Bayoumi, T., 2001 The morning after: explaining the slowdown in Japanese growth in the 1990s J Int Econ 53, 241–259 Benes, J., Kumhof, M., 2012 The Chicago plan revisited IMF Working Paper 12/202 Blauwhof, F.B., 2012 Overcoming accumulation: is a capitalist steady-state economy possible? Ecol Econ 84, 254–261 Boonstra, W.J., Joosse, S., 2013 The social dynamics of degrowth Environ Values 22, 171–189 Conesa, J., Kehoe, T., Ruhl, K., 2007 Modeling great depressions: the depression in Finland in the 1990s Fed Reserve Bank Minneap Q Rev 31 (1), 16–44 Daly, H.E., 1977 Steady-State Economics Island Press, Washington DC Daly, H.E., 1996 Beyond Growth: The Economics of Sustainable Development Beacon Press, Boston Daly, H.E., 2005 Economics in a full world Sci Am 2005, 100–107 (September) Dollar, D., Kraay, A., 2003 Institutions, trade, and growth J Monet Econ 50, 133–162 Domar, E.D., 1946 Capital expansion, rate of growth, and employment Econometrica 14, 137–147 Douthwaite, R., 2012 Degrowth and the supply of money in an energy-scarce world Ecol Econ 84, 187–193 Frankel, J.A., Romer, D., 1999 Does trade cause growth? Am Econ Rev 89, 379–399 Georgescu-Roegen, N., 1971 The Entropy Law and the Economic Progress Harvard University Press, Cambridge Mass Georgescu-Roegen, N., 1977 The steady state and ecological salvation: a thermodynamic analysis Bioscience 27 (4), 266–270 Gogos, S.G., Mylonidis, N., Papageorgiou, D., Vassilatos, V., 2014 1979–2001: a Greek great depression through the lens of neoclassical growth theory Econ Model 36, 316–331 64 J.M Malmaeus, E.C Alfredsson / Ecological Economics 134 (2017) 57–64 Gordon, R.J., 2012 Is US economic growth over? Faltering innovation confronts the six headwinds Centre for Economic Policy Research, Policy Insight No 63, Sorthwestern University and CEPR Gordon (Available from: http://www.cepr.org/sites/default/ files/policy_insights/PolicyInsight63.pdf, [Accessed: 17th April 2015]) Grantham, J., 2012 On the road to zero growth GMO Q Lett 2012, 2–17 (November) Greer, J.M., 2008 Long Descent: A User's Guide to the End of the Industrial Age New Society Publishers Hamada, K., Okada, Y., 2009 Monetary and international factors behind Japan's lost decade J Jpn Int Econ 23, 200–219 Harrod, R.F., 1939 An essay in dynamic theory Econ J 49, 14–33 Hartwig, J., 2008 What drives health care expenditure? – Baumol's model of ‘unbalanced growth’ revisited J Health Econ 27, 603–623 Hashimoto, K.-i., 2004 Intergenerational transfer and effective demand Econ Bull 5, 1–13 Hayashi, F., Prescott, E.C., 2002 The 1990s in Japan: a lost decade Rev Econ Dyn 5, 206–235 Holmberg, J., Robert, K.-H., 2000 Backcasting from non-overlapping sustainability principles — a framework for strategic planning Int J Sustain Dev World Ecol 7, 291–308 Jackson, T., 2009 Prosperity Without Growth? The Translation to a Sustainable Economy Sustainable Development Commission, UK Jackson, T., Victor, P., 2014 Does slow growth increase inequality? - a stock-flow consistent exploration of the ‘Piketty hypothesis’ PASSAGE Working Paper 14/02 Guildford: University of Surrey (Online at: www.prosperitas.org.uk/publications html) Janssen, M.A., Scheffer, M., 2004 Overexploitation of renewable resources by ancient societies and the role of sunk-cost effects Ecol Soc (1):6 (http://www ecologyandsociety.org/vol9/iss1/art6) Kaldor, N., 1956 Alternative theories of distribution Rev Econ Stud 23 (83), 100 Kallis, G., 2011 In defence of degrowth Ecol Econ 70, 873–880 Kehoe, T., Prescott, E., 2002 Great depressions of the 20th century Rev Econ Dyn 5, 1–18 Kennedy, M., 1995 Interest and Inflation Free Money Seva International, Michigan (USA) Keynes, J.M., 1930 Economic possibilities for our grandchildren Essays in Persuasion W.W Norton & Co., New York, pp 358–373 (1963) Keynes, J.M., 1936 The General Theory of Employment, Interest, and Money McMillan, London Korowicz, D., 2010 Tipping Point Near-term Systemic Implications of a Peak in Global Oil Production An Outline Review Feasta, Irland Korowicz, D., 2012 Trade off financial system supply-chain cross contagion – a study in global systemic collapse http://www.feasta.org/wp-content/uploads/2012/10/ Trade_Off_Korowicz.pdf Krugman, P., 1999 The Return of Depression Economics London Kumhof, M., Muir, D., 2012 Oil and the world economy: some possible futures IMF Working Paper, WP/12/256 Latouche, S., 2009 Farewell to Growth Polity Press Lawn, P., 2005 Is a democratic-capitalist system compatible with a low-growth or steadystate economy? Soc Econ Rev 3, 209–232 Lawn, P., 2011 Is steady-state capitalism viable? A review of the issues and an answer in the affirmative in “Ecological Economics Reviews” In: Costanza, R., Limburg, K., Kubiszewski, I (Eds.), Ann N.Y Acad Sci Vol 1219, pp 1–25 Lebowitz, M., 1982 The general and the specific in Marx's theory of crisis Stud Pol Econ 7, 5–25 Lee, J., 2000 The robustness of Okun's law: evidence from OECD countries J Macroecon 22, 331–356 Lietaer, B., 2001 The Future of Money: Beyond Greed and Scarcity Century, London Maddison, A., 2001 The World Economy: A Millenial Perspective OECD Magdoff, F., Foster, J.B., 2010 What every environmentalist needs to know about capitalism Mon Rev 61 (10), 1–30 Malmaeus, M., 2011 Ekonomi utan tillväxt – ett svenskt perspektiv (in Swedish) Cogito Report nr 10 (http://www.cogito.nu/artiklar/ekonomi-utan-tillvaxt) Martínez-Alier, J., Pascual, U., Vivien, F.-D., Zaccai, E., 2010 Sustainable de-growth: mapping the context, criticisms and future prospects of an emergent paradigm Ecol Econ 69, 1741–1747 Meadows, D.H., Meadows, D.L., Randers, J., Behrens, W.W., 1972 The Limits to Growth Universe Books, New York Mill, J.S., 1848 The Principles of Political Economy Longmans, Green, Reader and Dyer, London Murphy, D.J., Hall, C.A.S., 2011 Energy return on investment, peak oil, and the end of economic growth In: Costanza, R., Limburg, K., Kubiszewski, I (Eds.), Ecological Economics Reviews Ann N.Y Acad Sci Vol 1219, pp 52–72 NCE, 2014 Better growth, better climate: the new climate economy report http://www newclimateeconomy.report/ Neto, A., Silva, S.T., 2013 Growth and unemployment: a bibliometric analysis on mechanisms and methods FEP Working Papers N 498 July 2013 O'Connor, J., 1994 Is sustainable capitalism possible? In: O'Connor, M (Ed.), Is Capitalism Sustainable?The Guilford Press, New York Okun, A.M., 1970 Potential GNP: its measurement and significance In: Okun (Ed.), The Political Economy of Prosperity Norton, New York, pp 132–145 Piketty, T., 2014 Capital in the Twenty-first Century The Belknap Press of Harvard University Press Massachusetts, Cambridge Reinhart, C.M., Rogoff, K.S., 2010 This Time is Different Eight Centuries of Financial Folly Princeton University Press, New Jersey Research & Degrowth, 2010 Degrowth declaration of the Paris 2008 conference J Clean Prod 18 (6), 523–524 Robertson, J., 2012 Future money Breakdown or Breakthrough?Green Books Ltd., Totnes Rognlie, M., 2014 A note on Piketty and diminishing returns to capital http://www.mit edu/~mrognlie/piketty_diminishing_returns.pdf Sanne, C., 2002 Willing consumers – or locked-in? Policies for a sustainable consumption Ecol Econ 42, 273–287 Schweickart, D., 2010 Is sustainable capitalism possible? Proc Soc Behav Sci 41, 6739–6752 Smith, R., 2010 Beyond growth or beyond capitalism? Real-World Econ Rev 53, 28–42 Solow, R.M., 1957 Technical change and the aggregate production function Rev Econ Stat 398 (3), 312–320 Spangenberg, J.H., 2010 The growth discourse, growth policy and sustainable development: two thought experiments J Clean Prod 18, 561–566 Tokic, D., 2012 The economic and financial dimensions of degrowth Ecol Econ 84, 49–56 Turchin, P., Nefedov, S.A., 2009 Secular Cycles Princeton University Press, New Jersey Turner, G.A., 2008 Comparison of the limits to growth with 30 years of reality CSIRO Working Paper Series 2008–9, June 2008, p 37 van Griethuysen, P., 2010 Why are we growth-addicted? The hard way towards degrowth in the involuntary western development path J Clean Prod 18, 590–595 van Griethuysen, P., 2012 Bona diagnosis, bona curatio: how property economics clarifies the degrowth debate Ecol Econ 84, 262–269 Victor, P.A., 2008 Managing without growth Slower by Design, not Disaster Edward Elgar, Cheltenham Victor, P.A., 2013 The costs of economic growth The International Library of Critical Writings in Economics Series, #275 York University, Canada Victor, P.A., Rosenbluth, G., 2007 Managing without growth Ecol Econ 61, 492–504