By Janet Stephenson & Etienne Nel*
This article was first published at Interest.co.nz
(This article is part of Interest.co.nz’s Election Series).
Right now, New Zealand looks like a shining beacon in the global scene. We’ve got on top of Covid (for now, at least) through an early and hard response, and we’re living close-to-normal lives while most of the rest of the world is under some form of restriction, and we’re doing better with jobs and the economy than was predicted.
But can we expect to return to the same economy that we left behind in early 2020? Perhaps more importantly, can we expect to be as wealthy as we were before? Or are global conditions dictating that we need to do better with less?
The dual impacts of Covid and climate change
It is increasingly clear that Covid (in the short term) and climate change (in the longer term) will result in a declining global GDP, loss of jobs, growing poverty and challenging social conditions.
The World Bank is projecting a 5.2% contraction in global GDP in 2020 alone due to Covid, with advanced economies shrinking even more, at 7%. Other recent evaluations suggest global losses from Covid at $46 trillion to $82 trillion in a worst-case scenario over 5 years. The International Labour Organisation estimates that over 400 million people have already lost their jobs. Global poverty is on the rise again after 30 years of slowly decreasing numbers, and an estimated 100 million people will be pushed into extreme poverty.
The scale of state investment to support people and jobs during Covid is appropriate but it will seriously aggravate already high global debt levels, and will be felt particularly acutely by low- and middle-income nations that are already highly indebted. Covid’s repercussions will worsen the lives of the world’s poorest, create inter-generational debt, and in developed countries may also force a collapse of property and mortgage bubbles. This situation is potentially reminiscent of both the 1980 debt crisis in the Developing World which often led to debilitating structural adjustment in many countries in that part of the world, and the Great Depression which fundamentally altered state economic management.
But it doesn’t stop there. By the time the global economy is recovering from Covid, the impacts and costs of climate change will be worsening. Globally, hurricanes, wildfires and floods cost the world US$150 billion in 2019 and according to Munich Re, one of the world’s largest reinsurance companies, these losses are expected to increase due to climate change. New Zealand’s newly-released National Climate Change Risk Assessment identifies risks to New Zealand’s economy, society and infrastructure that will become extreme by 2050-2100.
Global greenhouse gas emissions are likely to temporarily decrease by up to 7% in 2020 as a result of the Covid lockdowns around the world, but this is unlikely to be sustained. Wealthier nations that implement post-Covid economic stimulus packages, ironically, could worsen greenhouse gas emissions unless they are purposefully invested in establishing a low-carbon economy.
Assuming current emissions trends continue, climate change impacts and costs over the next 30 years will be substantial, affecting human health, food systems, physical assets and ecosystems, and through these, economies and ways of life. A recent study by The Economist suggests the global economy will be 3% smaller in 2050 than today due to climate change, with $7.9 trillion costs by mid-century from increased drought, flooding and crop failures. By 2100, if we continue the high-emissions trajectory, there may be a 7% reduction in global GDP.
A future without growth?
Have we passed ‘peak wealth’ in GDP terms?
If a healthy economy requires perpetual growth in the value of income and expenditure, which is current mainstream economic thinking, such news paints a gloomy picture of the future. But a negative-growth future looks like something we’re going to have to get used to. Climate change (and Covid) show that humans cannot endlessly destroy the natural systems we depend on without repercussions to our welfare. If we don’t adjust our consumption expectations we will suffer the consequences of a high-emissions pathway for current and future generations.
Increasingly, it seems time to rethink current economic assumptions that adopt ‘growth’ as the assumed norm.
The options seem stark: We either stick with the growth orthodoxy and continue on a crash course with global environmental change. Or we adjust our approach to the economy so that growth and financial wealth are no longer measures of success.
The government has gone a step down this track with the living standards framework, which introduces measures other than GDP with which to assess progress. And from the early 2000s, ‘green growth’ has been mooted as the way forward, whereby we could have our cake and eat it too by fostering economic growth and sustainable development together. But there is a growing voice even within mainstream economics that endless growth, even if ‘green’, cannot continue without delivering serious financial and environmental consequences for future generations, and serious disparities across different parts of the globe.
As economist Kate Raworth puts it, the most important role of an economic theory is to simultaneously ensure that we don’t overshoot earth’s life-supporting systems and that no one falls short of life’s essentials. Currently we are failing at both. Occupying this ‘safe and just space for humanity’ will require, for many in developed economies, adjusting our consumption expectations to having less rather than more, and focusing on wellbeing rather than wealth, and on the possibilities of a post-growth world.
GDP growth is central to current economic thinking. But now that we are facing what is possibly the start of the world’s continued slide into negative growth, and the necessity for ‘post-growth’ approaches, it is timely to ask how our political parties plan to respond.