Is the European Green Deal a sign that the structures of power have woken up to the climate emergency? Not quite yet, argues Éloi Laurent. Institutions suffer from inertia, ideas become articles of faith, and interests are stubborn. Reform at the European and national level is essential. From a narrow focus on GDP growth, a new policy paradigm needs to emerge that is capable of thinking broadly and ecologically about wellbeing, sustainability, and justice.
Laurent Standaert: Why do you say that GDP growth is no longer a useful public policy indicator?
Éloi Laurent: Growth needs to be abandoned because it doesn’t help us understand the world in which we live. Nor does it help resolve the crises currently in motion and that will shape the 2020s, for which we should take full responsibility.
The first crisis is inequality within countries. Inequality is increasingly unsustainable and doesn’t just concern income and wealth but also health and education. This crisis doesn’t just affect economic dynamism but also social cooperation. Second is the environmental crisis: you only have to look at the fires in Australia and the Amazon, repeated natural disasters, and the sweeping consequences of global warming. The third crisis is that of liberal democracy. Data from Freedom House shows that many countries which opted for democratic regimes in recent times are now turning away from it. In the 1990s, Central and Eastern Europe was the new frontier for democracy. Now it’s the frontier for authoritarian regimes. Elsewhere, harsh neoliberals are being elected. Democracy is under attack not just in countries that used to dream of it, but in countries once thought to be at democracy’s very heart: Greece, France, the UK, the US, and India.
GDP growth tells us nothing about these crises in terms of comprehension, analysis, or policy solutions. You can look at the GDP growth per capita of any country in the world and not even notice these major crises.
About gross domestic product
Gross domestic product (GDP) refers to the total amount of goods and services made in an economy during a given period. It is measured by tracking the flows of income, expenditure, and value added. Efforts to make sure GDP captures the “real” size of the economy have led to strange accounting practices to bolster figures such as “imputed rent”, which is the rent that people living in their own home would pay if they were in fact renters, or the inclusion of black market activities such as drug dealing. Despite these sleights of hand, many activities vital to society such as unpaid childcare are not included. Growth refers to a real-term increase in GDP. As currently defined, GDP growth only reflects a small part of what determines human wellbeing and says nothing about resilience, sustainability, or distribution
Since the 2008 financial crisis, and even before then, proposals for alternatives to GDP growth were popular in Europe and elsewhere, as well as in the United Nations. Why does moving away from GDP seem such a remote prospect?
Transitions happen – or do not happen – due to three main factors: ideas, interests, and institutions. When it comes to ideas, there is a colossal amount of intellectual training to be done. Since 1934, the idea of GDP and its growth as a kind of compass has been deeply rooted in our imaginations through schools, universities, and other institutions. This doctrine is endorsed by the vast majority of economists and has percolated into society at large. In reality, GDP is poorly understood and seldom questioned. It has acquired an almost mystic dimension. Take President Macron, educated in the best schools in France. For him, the economy is start-ups, finance, and the GDP growth rate. The blindness around GDP speaks to a total absence of consideration for the surrounding reality, an absence of ecology.
The challenge for the 2020s is changing the economy as both a system of thought and a social system. Today, the main stronghold of resistance to the transition is not civil society or the political world but the economic system.
Institutions are ideas embodied as places of power and GDP growth is politically powerful because it is embedded in how government budgets are set. Around the world, laws are adopted to encourage GDP growth. Most of the time, the statistics given to members of parliament concern nothing but GDP and its components – not the data on inequality, the natural world, or the ecological footprint of industrial activities.
Interests are undoubtedly the most difficult to overcome. Some people and organisations think in terms of growth because it is to their advantage. They don’t want to expose things which aren’t measured by this indicator because they are in fact destroying those things.
How can these obstacles to breaking with GDP be overcome?
The green transition should learn from earlier societal advances. On marriage equality, societies have gone from being broadly homophobic to accepting marriage equality in a decade. It took organising, arguments, and deconstruction to penetrate the heart of the ideas-institutions-interests system. The challenge for the 2020s is changing the economy as both a system of thought and a social system. Today, the main stronghold of resistance to the transition is not civil society or the political world but the economic system. Economic imaginaries, which I call economic mythologies, as well as patterns of consumption and production, make transition very difficult in concrete terms.
Signs of change appeared around 2007 to 2009 with the European conference Beyond GDP and the Stiglitz Commission report. In 2015, the United Nations established 17 Sustainable Development Goals and made sure that GDP didn’t dominate the agenda. In 2019, four countries decided to trade GDP for wellbeing indicators as their societal compass: Finland, New Zealand, Scotland, and Iceland. In many institutions – such as the OECD or the French statistics agency INSEE – there are signs that the belief in GDP is waning. What best explains the sometimes irrational centrality reserved for GDP and growth is the imagination: belief is more powerful than thought or reflection among humans. The belief in growth is truly irrational, on the order of mythology. But change is underway, even if it’s not moving fast enough.
The key is how budgets are set. The institutions base their budgetary decisions on indicators, today geared obsessively towards GDP growth. My proposal is simple: base the direction of public policy on different indicators.
Does moving beyond growth necessarily entail moving beyond capitalism?
I don’t know what capital-C capitalism is or what leaving it behind would mean. I know what growth is. Capitalism changes its appearance every decade and has existed, almost everywhere in different forms, for five centuries. There are two general definitions of capitalism: the separation of the means of production and labour, and the manipulation of time to create wealth from profits. These two elements are not necessarily incompatible with the preservation of the biosphere. Finland is one of the most advanced countries on the planet when it comes to sustainability, environmental taxation, health, and the fight against social inequality, and it’s a capitalist country.
Are institutions the levers for changing our relationship with growth?
The key is how budgets are set. The institutions base their budgetary decisions on indicators, today geared obsessively towards GDP growth. My proposal is simple: base the direction of public policy on different indicators. That requires action at the European and the national levels. The statistics available on the state of each country need to be improved to include indicators on wellbeing and sustainability covering, for example, inequality, infrastructure, health, education, and the environment. The same needs to be done at the level of regions, cities, and communities, as well as in the world of business. Modified accounting rules could make businesses internalise costs and take responsibility for the social and environmental impact of their production processes.
At the EU level, the European Semester that obliges member states to apply budgetary discipline criteria tied to growth must be reformed. (1) The idea promoted by the Stability and Growth Pact, whereby discipline and growth are the two pillars of the European project, is dangerous. If cooperation between states and wellbeing were to be measured rather than discipline and growth, it would be real progress at the European level. For that to happen, there’s no need to bury the von der Leyen Commission, just to bring it up to date. This Commission needs to realise that it hasn’t come to power in the Europe of 1995 but of 2020.
The European Commission has announced its European Green Deal. Is this the beginning of the green transition?
As it stands, no. President von der Leyen has said repeatedly that the European Green Deal is a new growth strategy. A week before it was presented by the Commission, the European Environment Agency published a report confirming that if the European Union continued to promote economic growth, it would not succeed in allying human wellbeing with the preservation of the biosphere. (2)
If growth’s new clothes in the Green Deal are decoupling and material efficiency, then Europe’s climate strategy is doomed to fail.
The plan’s climate objectives are disappointing but what is most problematic is the idea of decoupling. Decoupling GDP growth from CO2 emissions and the use of natural resources is an illusion. It’s enough to look at the global energy mix, of which fossil fuels make up 80 per cent, or the fact that economies are consuming more natural resources than at any point in the 20th century. GDP growth is synonymous with worsening environmental catastrophe, in Europe as in the regions where Europe obtains its resources. GDP growth masks reality and, by pushing growth to the maximum, there is an impression of an extraordinary relative decoupling. Since 1990, CO2 emissions at the global level have increased by 60 per cent, while GDP has increased by 380 per cent. GDP has increased 30-fold since 1970, overshadowing the fact that the consumption of natural resources has tripled.
If growth’s new clothes in the Green Deal are decoupling and material efficiency, then Europe’s climate strategy is doomed to fail. (3) The numbers and experience prove that this doesn’t work and we continue to rely on irrelevant indicators. Today, the European Union increases its ambitions as it misses its targets and neglects to sharpen its tools. What’s more, social justice is missing as an objective of the Green Deal. From the outset, Roosevelt’s New Deal used environmental measures as the means to achieve social justice. Alexandria Ocasio-Cortez’s Green New Deal in the US deals with inequality, not growth.
In Brussels, they would tell you that overly restrictive climate policies will lead the EU to lose its competitiveness and that jobs could be lost.
No study shows that climate policies would lead to Europe losing its competitiveness. Job losses were caused by austerity, macroeconomic policies, and the Stability and Growth Pact. Climate policies have nothing to do with the recession that devastated the euro. This straw man argument has been around for 20 years. China hasn’t lost any competitiveness by venturing into the solar panel business. The reality is that renewable energy is excellent for job creation, that environmental taxation is too low, and that the environmental policies are nowhere near where they need to be.
You would also be told that we’ll have to compensate for all the jobs lost due to the transition towards a greener economy.
The notion of a just transition makes very few appearances in the European Commission’s Green Deal proposal, and, when it does appear, it’s too restrictive. Just transition concerns much more than financial compensation for workers in the fossil fuel sector. 10 years ago, International Labour Organization reports limited the link between the social and the environmental to employment and compared green jobs with already existing jobs. But the link goes beyond employment, particularly employment in the sense of the 20th-century compromise between workers and capital. Today, the link between the social and the environmental concerns health and ecology. Urban pollution in Europe kills 500 000 people a year. Air pollution and its health consequences, access to quality food, and prevention of chronic diseases are subjects that also affect workers insofar as they are citizens.
You argue that just transition in the 21st century requires a “social-ecological state”. How does that differ from the welfare state, albeit much weakened by neoliberalism, as it exists today?
The social-ecological state emerges from the same philosophy as the welfare state. The welfare state aims to protect individuals from those collective social risks that can devastate their wellbeing. The difference is the nature of the risk: it is no longer just illness, old age, maternity, or poverty, but also droughts, heatwaves, and floods. The social-ecological state represents a public power strong enough to regulate the short-termism of the market, moderate the headlong pace of the financial world, and face up to the challenges of the 21st century.
1. Each year, the European Commission scrutinises the policies and budgets of national governments to make a series of recommendations. If government borrowing is deemed excessive in relation to GDP then governments face fines and sanctions from the European Commission.
2. European Environment Agency (2019). The European environment – state and outlook 2020: Knowledge for transition to a sustainable Europe. Luxembourg: Publications Office of the European Union.
3. For a full analysis, see: Éloi Laurent (2020). “The European Green Deal: Bring back the new”. Policy brief (63). OFCE, Centre de recherche en économie de Sciences Po.
This interview is part of our latest edition, “A World Alive: Green Politics in Europe and Beyond”.