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The New Limits To Economic Growth

Economics / Economic Theory Mar 09, 2013 - 05:36 PM GMT

By: Andrew_McKillop


In a recent post Brian Bloom gave a list of reasons why he thinks politicians, worldwide, are spitting in the wind by turning their prayer wheel of "reform and recovery" to "relaunch the economy", which for major sectors like carmaking in Europe are facing an endgame scenario. In the recent high profile spat between the CEO of Titan International, who totally rejected any idea of taking over Goodyear's unprofitable tyre factory in Amiens, and France's minister of Industrial Recovery, Arnaud Montebourg, Titan's CEO said he could buy a tyre factory in either China or India where at most he would need to pay the workers 1 euro per hour: say $250 per month. Nobody in Europe can even eat and buy clothes and shoes to put on their backs and feet, let alone buy a house, electricity and water, a car, cellphone, Internet access and all the rest, for that pay. Starvation wages to "relaunch the economy" !

The once-was-global economy, AKA "the globalizing ecnomy" is surely threatened with de-integration and this is only a matter of time. Economic growth is weakening almost everywhere, despite the feel good reassurance pumped out by government-friendly media round the clock. Economic deflation on the back of or twinned with fantastic monetary inflation simply makes the readout more complicated as to how the breakdown process will operate. Breakdown, here, is defined as a new longterm trend of lower economic growth - and massive social change.

Brian Bloom listed the billions of new horsemen who have crowded onto the tilted economic playfield: since 1945 world population has been multiplied by 3.5. Since 1968 it has doubled, adding the equivalent of about 11 entirely new "USA's". Running a few metrics on key industrial goods ownership and consumption per capita, such as cars and key metals, we have the "tilt factor" described by Dennis Meadows as Limits to Growth, in his first study dating back to 1972. For example if world car ownership was ever to attain present US rates of about 700 cars per 1000 population. This creates what we can can call "de facto competitiveness", but it also blunts it, and is self-limiting.

In 1968 with a world population of about 3.5 billion it was not only easy but the consensus forecast that world population would double within 40 years. Trying to repeat that today would need us to forecast world population attaining 14.2 billion by 2053: no demographic forecaster, anywhere, is projecting that. Most forecasts are in the 9 - 10.5 billion range, proving at least that the growth rate of world population is self-limiting. Much more radical but given the reality of now longstanding, regular annual loss of population in a widening number of "old nations", such as Russia, Germany, Japan, Italy, Spain this "self limiting malady" or demographic de-growth process can spread - and will spread as shown by spiraling declines in average fecundity in the MENA region and Latin America. By the end of this century, world population could rationally be the same as today, after a "surprisingly low" peak in the 2030-2050 period.

An interesting potential spinoff from the very rapid fall in MENA region family size and reproduction rates is the treatment of al-Qaeda as a population bulge phenomenon: very rapid population growth in the 1965-1990 period produced a bulge of young males in society, who suffered high unemployment, and tended to rebel. Given local cultural traditions - domination of Islam - this was a major channel for youth rebellion. The new trend of falling family sizes and much slower population growth, could be one more nail in the coffin of al-Qaeda.

Moving to the resource picture, an awful lot has happened concerning mineral resource availability and depletion, even in the last 10 years. Vast changes have happened since the 1970s. The new Surprise Horseman of the oil, gas and coal fossil fuel energy sector is stunning abundance

How this resource endowment is treated is a totally different subject, and current trends are naturally very confused, due to the Horseman of Oil Depletion being a former No 1 bet for inflating prices and asset values across the fossil fuel sector. As we know, governments have sturdily reacted to the challenge of declining real energy prices - by racking up consumer energy taxes, so that average consumers "don't notice" that fossil energy resources are not declining, but have radically increased!

Elsewhere in the mineral and metals resource patch, however, ore depletion certainly continues as a major asset pricing factor - and trigger for rising environment damage for extracting and primary processing of minerals. Neverthless, the process of quantifying and mapping what are called Earth's global "anthrobiogeochemical" metal cycles shows stunning overground or non-virgin metal resources, creating the paradigm of "mining landfill sites" as the next bonanza, operated at much smaller-area production sites.

One of these overground stockpiles, of course, is the gold pile: about 170 000 tons, compared to annual fresh output from mines of around 2 700 tons, 2011, possibly declining on a multi-year basis.

Brian Bloom rightly lists topsoil loss and deterioration as a major Horseman for agricultural yields and possibly total world food output, the close-linked subject of world fertilizer needs, and themes such as Peak Phosphorus, but Peak Fertilizer is the reality. For the US, the annual peak was reached in 1981 at 23.7 million nutrient tons and is very unlikely to be ever attained again. In some European countries, like Germany, the retreat from intensive fertilizer use has been extreme - national consumption has halved since the 1990s. World fertilizer demand forecasts and outlooks are rigorously low growth

Along with the retreat from fertilizers, which in the long run rebuilds soil quality, the probable biggest remaining Agro Horseman is the biocides - where annual world utilisation is close to peaking, and is in full retreat in the developed countries. The structure of biocides use is also radically changing, away from the most persistent and dangerous types, with herbicides remaining the main, or only growth component. This is shown even in China, despite its rapidly intensifying agriculture. In 2012, China's insecticide, fungicide and herbicide output was 812,000 tons, 144,000 tons and 1.646 million tons, with YOY falls of 12.3% and 7.7% in the first two categories.

Water shortage is another corporate and political favourite, for profit and tax gouging, shown by the "marketizing" of water and its morph from a public service to a "scarce commodity and precious resource". The major real problems with water supply feature underinvestment in water infrastructures, and major pollution problems, linked in many areas with overintensive fertilizer utilisation, but mainly due to metals, minerals, chemicals and biocides pollution.

Brian Bloom also rightly lists the probable real cause of climate change - the continuing clearcutting and destruction of vast swathes of Earth's forestland, a classic "one time gain" predatory industry. Here again however, this industry is being forced, slowly but surely to become more responsible and more resource efficient, in the same way as a similar predatory industry - sea fishing - which has over-predated its resource base. As we know, forest replanting is a major growth subsector in an overall slow growth forest products sector.

This may or may not be an argument Brian Bloom would accept: the limits we looked at above are all longstanding partial limits to economic growth. Many or most of them are self-limiting, even self-resolving. Some, like Peak Oil and fossil fuel depletion are now unreal.

An example of why these are self-limiting, self-resolving crises is high tech intensive sea fishing or forest clearcutting - when these are pushed to the limit, the resource base will be destroyed and the red-blooded capitalist heroes who "didnt know" they were killing their business have to give up and move on. In a very few "classic" cases like the wipeout of the American Passenger Pigeon (Ectopistes migratorius), in the late 19th century this was perfect and total extinction, but sea fish species, like North Atlantic cod, will not be exterminated - they will "only" need 50 - 100 years for their numbers to reconstitute. This triggers the shift to mariculture and aquaculture, now supplying roughly 30% of world total seafood, freshwater fish and crustaceans, with a clear potential for reaching 50% within a decade. At present these are resource intensive, energy intensive businesses, but both are becoming much more resource efficient, and above all can be integrated with other economic activities.

When we search for the real reasons for declining and weakening economic growth, these in fact must be looked for elsewhere.

As I remark elsewhere, the present cocktail of debt-based growth, repeated asset bubble creation and collapse, plus technological unemployment and market saturation for key consumer goods, like cellphones and cars, makes the search for growth a basically political, social or cultural challenge.

The present "only model", above, is the absolute opposite of sustainable growth, it goes without saying. When this model is grafted onto to what we have today - either ageing, or ageing-and-declining populations - the potential for new surges in consumer demand for new industrial goods and services has to be seen as being as likely as a woman being voted as new Pope.

The subject of declining growth is an economic issue, to be sure, but the mix of reasons why growth is declining are primarily political, social and cultural. The "best before" date on Western market-based democracy, or pseudo democracy is surely approaching, and this shopsoiled good will have to be taken off the shelf. Slow economic growth is the perfect opposite of the underlying rationale or paradigm of this social-economic model, which trades social equality for individual greed, material acquisition for knowledge and information, and consumption for culture.

By Andrew McKillop


Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2013 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

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