Monday, October 13, 2008

Robert Solow On The No Growth Economy

Prof. Robert Solow, who won the Nobel Prize in Economics for his theory of economic growth, says that that capitalism can function in a slow-growth or no-growth economy, and that he does not know whether economic growth can continue, given current ecological constraints.

He is quoted in the current Harper's magazine:

As Solow said to me, “There is no reason at all why capitalism could not survive without slow or even no growth. I think it’s perfectly possible that economic growth cannot go on at its current rate forever.” This does not mean that productivity will cease to increase our quality of life; it means that people might find it increasingly costly to turn productivity into the kinds of things they are now accustomed to buying with their earnings. “It is possible,” says Solow, “that the United States and Europe will find that, as the decades go by, either continued growth will be too destructive to the environment and they are too dependent on scarce natural resources, or that they would rather use increasing productivity in the form of leisure. . . . There is nothing intrinsic in the system that says it cannot exist happily in a stationary state.”

This is important, because those of us who call for shorter work hours and slower growth often hear the objection that growth is essential to capitalism. In fact, most classical economists believed that capitalism was leading to a "stationary state." Only Marxists claimed that the end of growth would mean the end of capitalism, and they believed this as the result of ideology, not as the result of analysis.

Now that we are facing ecological constraints, such as resource limitations and global warming, mainstream economists like Solow are beginning to say once again that capitalism can survive without growth, as the classical economists did.

Solow is quoted in the the excellent article "Fear of fallowing: the specter of a no-growth world" by Steven Stoll. I recommend reading the article, which is at:
http://harpers.org/archive/2008/03/0081958

(PS: Despite the confused triple negative at the beginning of the quotation, Solow clearly means that capitalism could survive with slow growth or no growth.)

3 Comments:

Blogger Patrick McCleery said...

Charles, I'm afraid I don't understand how capitalism could function without growth. If you introduce savings into the picture, than the flow of money between consumer and producer becomes blocked and will eventually lead to an economic crisis (because the producer will not have enough money to produce the same amount during the next cycle). The way around this is that the savings becomes available as credit for the borrower who uses it to fund various projects to channel that money back to the consumer/producer. Except now you have increased production due to these new projects coming online, so you need additional purchasing power. This can be remedied by again re-investing the savings into new projects, but this endless spiral cannot continue forever. This is just my basic understanding of the situation, please correct me if I am missing something.

Sincerely,
Patrick McCleery
http://sustainablecity.blogspot.com

7:02 AM  
Blogger Charles Siegel said...

Patrick: You are missing the idea of shorter work hours. What you say about savings is the typical economic theory of post-war America: people work a standard 40 hour week, so cutting back on consumption will make savings exceed investments, causing recession and unemployment. But that wouldn't happen if people could cut their work hours as much as they cut back on consumption, so they wouldn't increase their savings.

With choice of work hours, instead of the post-war economic problem of stimulating growth to provide everyone with standard 40-hours jobs, we would have the new problem of stimulating growth to provide everyone with the amount of work hours that they actually want. If people continue to decrease their work hours, there could be slow growth or even no growth. For more on this, see my book _The End Of Economic Growth_ at http://www.preservenet.com/endgrowth/index.html.

I haven't seen Solow's reasons for saying that capitalism can survive without growth. He seems to have mentioned this in an interview but I don't know that he has published anything about it. But it seems very obvious to me that, as productivity per worker hour increases, slower growth or no growth must involve shorter work hours.

11:09 AM  
Blogger Peter said...

I am encouraged by Solow's comments but I would like to know more about his reasoning that underlies them. Readers of this blog may be interested in my new book 'Managing without Growth. Slower by Design, not Disaster' (Edward Elgar Publishing 2008)

8:03 AM  

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