ROLE OF BUSINESS IN SOCIETY
Businesses provide society with the prosperity that is needed for “things to go well”, “according to our hopes and expectations”. (Heinberg 1) Economy provides people with jobs and income through businesses. In the times of crisis, businesses should focus on preserving the values provided for the citizens, instead of growth. According to Heinberg, irresponsible businesses were to blame for the rise of commodity prices, which triggered inflation and made the crisis worse. The above statement, among some others quoted by the same author and Jackson will be examined in detail during the book reviews to determine the validity of the different claims related to the responsibility of businesses, government and other economic forces towards modern society.
While Jackson concludes that there is a new era coming and he states: “Economic growth as we have known it is over and done with”. The statement draws a pessimistic image of the future; re-mapping the roles of society, businesses, governments and economy sub-sectors. The below review will look at the statement as well in order to determine whether these changer are inevitable, and if they are, what the main impacts of them on the modern society will be.
Both authors agree that the economic crisis that hit the Western world and affected the rest of the economies worldwide was predictable and inevitable. However, the future is depicted somewhat differently by the two books. The following two book reviews will focus on highlighting the ideological differences and similarities between the views and reflect on the ideas about the role of businesses in the society in particular.
END OF GROWTH
Heinberg confirms that there are three different obstacles in the way of future economic growth:
- depletion of minerals, fuel and fossils
- environmental impacts
- existing debt and insecurity of the financial systems
One of the interesting examples Heinberg (3) mentions in regards to the relationship between businesses and the population is the BP Deepwater Oil Spill. It obviously had an environmental impact, and the deepwater drilling was concluded as a result of scarcity of oil nearer the surface. The company’s loss of reputation has also impacted millions of funds, including personal or company pension accounts when the share price was decreased.
The author also states that the crisis of global economies was easy to predict. He quotes the revolutionary report by the Club of Rome (Meadows et al.), stating that the growth of population and consumption will eventually end economic growth. The book quoted predicts that the end of the growth would arrive at a date between 2010 and 2050.
According to the author, the financial systems created all require growth. This means that when the economy does not grow as expected, people suffer; debt levels rise, jobs are lost and the quality of life is affected. (6)
One of the most revolutionary ideas of the book is the “peak oil scenario”. (15) Heinberg concludes that the industrial revolution should really be called “Fossil Fuel Revolution”, as it needed energy for production within every industry. Even today, it is evident that for the irrigation of fields, the production of food and goods, there are endless fossil resources needed, just like for transportation. The scenario – according to the author – became reality in 2008, when the fuel prices rose causing incredible inflation. The author also concludes that as a result of the “bursting bubbles” in the economy; housing system and financial institutions, the growth cannot continue if economies go back to “business as usual” operation. According to the author, the recovery of the economy will “not come in the form that many would wish: as advice that can return our economy to a “normal” state of “healthy” growth. One way or the other — whether through planning and methodical reform, or through collapse and failure — our economy is destined to shrink, not grow.” (87) He states that business cycles have changed due to the “mad money” effects, and this impacted the social structures; resulting in loss of jobs, income and increase of business and personal debt levels. Figure 15 on page 131 confirms the growth of the household debt ratio and the rise of the financial obligations of households between 1980 and 2010. This combined with high levels of central government debt led to lower income levels, higher inflation and unemployment. One of the other elements that sped up the end of growth is the demographic structure of the western societies. Baby boomers are entering retirement but only a few have substantial savings. (142) The simple conclusion the author provides is: “All loaned up and nowhere to go”. (161) This also means that “The end of growth is the ultimate credit event, as everyone gradually comes to realize there will be no surplus later with which to repay interest on debt that is accruing now.”. (200)
Further in the book, Heinberg concludes that most of the economic experts are wrongly assuming that there is an impending recovery of markets. He highlights the main factors that stand between struggling economies and the prospect of recovery. The first one is oil. While the world is using non-renewable energy sources, there is no possible growth, as we are running out of fuel. It is becoming more scarce and harder to access, therefore, prices are going to increase. If economists and businesses focused more on developing technologies for providing renewable energy sources, today’s society would not face this problem. This, alongside with reduced energy intensity ratio can create a great force that might alone stop growth. However, Heinberg also mentions the scarcity of water, food, metals and minerals, in the light of growing demand and reduced production. Environmental disasters can also reduce the speed of commodity supply or completely stop it.
The single answer the author provides to the questions is changing the system and transitioning both the economy and society. Educating people and working alongside governments to tackle challenges together is the only way to change direction, as there is no way forward on the path the civilization is now.
PROSPERITY WITHOUT GROWTH
Jackson’s book starts with a quote of Barack Obama from 2008: “I think all of us here today would acknowledge that we’ve lost that sense of shared prosperity.” (Quoted in: Jackson, 1.) The author asks a similar question to Heinberg’s: “What can prosperity possibly look like in a finite world, with limited resources and a population expected to exceed 9 billion people within decades?” (2) He also concludes that prosperity on a global scale does not deliver better life for individuals. He states that there is still an uneven delivery of the benefits. He also reflects on the limitations and the “peak oil” scenario. Jackson also mentions the price and scarcity of other commodities, such as raw materials, food and water as a challenge for future generations.
What Jackson calls a “collective blindness” (p. 14.) is really a chain reaction. Because modern economies need growth for stability, when it stops, politicians have no tools in their hand to make adjustments. In the economic crisis businesses struggle and people lose jobs, income and their homes. The economy enters a downward spiral. As Jackson puts it: there is only way to go forward: to question the validity of growth. As all measures and interventions focused on short term and temporary fixes, according to Jackson, there is a need to look beyond our generation and question the sustainability of the current system. The high level of supply at a reasonable price triggered consumer debt and the reduction of savings. Figure 2.1 on page 23 shows the decline of the UK household savings ratio and the sharp increase of debt between 1994 and 2008. This created an illusion of social status and well-being, while the bubble kept growing and eventually burst.
Johnson attempts to redefine prosperity. He states that prosperity and subjective well-being are not simply defined by one’s social-economic status. Family relationships, communities and health are also significant. Quoting a GfK survey in Figure 3.1 he highlights that money and financial situation only accounts for 7 percent of one’s subjective well-being. He also reinstates the utility, opulence and capability for flourishing characteristics of prosperity.
The book also questions the idea of decoupling as an answer to the challenges ahead of growth. Jackson concludes that relative decoupling has decreased between 1997 and 2000 in the western world. Describing the engine growth of market economies, he highlights the relationship between businesses and households (consumers). The key to the system is profit, simply put, and this means that firms try to sell people more things to increase production and profits. The social logic of modern society says that status and happiness can be achieved by “having stuff”. People assign symbolic roles to material goods, and this ideology is influenced by advertisements created by companies trying to sell them the product.
In Chapter 6, however, Johnson offers a real alternative to growth; called the “green new deal”. (103) Quoting the program and consensus created by the UK based NGO, he states that investment, job creation, innovation and better living environments can be created by going through the program.
According to the book, there is a need to change the “engine of growth”, on the macro-economic level. He finds that economical investment is the answer. Describing the foundations of ecological macro-economics, he states that there is a need to preserve economic stability. He highlights the role of the government and the importance of sustainable investments ensuring that natural resources are protected adequately. Outlining the transition process, Jackson states that there is a need for changing messages and ideologies across the board; governments, businesses and the society need to share the same vision about the sustainable future.
In a 2010 report, published before the book, (Jackson), he concluded that the society is locked in an iron cage because of the fixed economic structure and the social logic. He finds that a new driving force for economic growth could be created by green technology markets and service-based activities. He describes the three steps towards change as:
- establishing caps and limits to promote sustainability and ecosystem protection
- fixing economics by smart investments and making macro-economics sustainable
- changing social logic by reducing inequality, reversing consumerism, improving individual life quality.
CONCLUSION AND PERSONAL REFLECTION
Looking at recent official reports (EDIE Energy website, 2013) confirming that the CO2 levels in the atmosphere are the “highest in human history” confirms that apart from a credit crisis, a social and economic problem, societies need to face the effects of environmental change and global warming. High CO2 levels would not only reduce the quality of life, but also affect weather, food production, trigger environmental catastrophes, increase the number of droughts and wildfires.
Still, the ideas delivered within the two books reviewed would require a full paradigm shift within the economy. In the current crisis, governments and businesses are still thinking in short term profits and consumers are still “locked up in their iron cage”. (Jackson, 2011) It is not evident from the actions of governments that they would be ready to change their ideologies, and while the new challenges quoted by Heinberg are well known, mainstream economists do not agree that creating a new sustainable economy and taking a new direction is the only solution. It is possible that after a few more unsuccessful attempts they will realize the validity of Jackson and Heinberg’s claims, however, it is likely that it will be too late. In a world where all businesses are built upon production and profit and the economy is driven by resources, it is hard to change the thinking of governments, businesses and people. While ecological investments would have a long return period, they will not be appealing to companies looking for the most profits in the shortest period of time. As Turner (33) predicts that the global collapse would happen before the middle of the century, comparing measures and scenarios with the 1972 report (Meadows et al.), there is no sense of urgency in the modern society, economy and politics that would prove to be stronger than the need for immediate results. Therefore, while the pessimistic image of the future is confirmed, there is very little chance that there will be a substantial change soon enough to avoid the collapse of businesses, economies and societies.
Jackson, T. Prosperity Without Growth: Economics for a Finite Planet. Earthscan, 2011. Print.
Heinberg, R. The End of Growth: Adapting to Our New Economic Reality. New Society Publishers, 2011. Print.
Meadows, D. H., Meadows, D. L., Randers, J. and Behrens, III. W.W. The Limits to Growth: a Report for the Club of Rome’s project on the Predicament of Mankind. New York. Universe Books. 1972. Print.
Turner, G. A Comparison of the Limits to Growth with Thirty Years of Reality. Working Paper for the CSIRO Working Paper Series 2008-9 Print.
Edie Energy Website. (2013) Atmospheric CO2 levels reach ‘highest in human history. 13 May 2013. Web. <http://www.edie.net/news/6/Atmospheric-CO2-levels-reach-highest-in- human-history/24595/>