David Fleming The Strategy Workshop, London

Contrary to its intention, the European Commission’s White Paper Growth, Competitiveness and Employment opens up a new debate on the possibility that Europe may have to learn to live with even higher and sustained levels of unemployment. It proposes a strategy for halving unemployment by creating 15 million new jobs by the year 2000, but the measures it suggests, particularly in the avea of demand stimulation, are quite speculative and the plan may not succeed. One, but only one, of the potential constraints on growth could be the need to protect the environment, as the rise in output outstrips advances in eco-efficiency. The precautionary principle would therefore suggest that Europe should make contingency plans for policy in the event of a continued rise in unemployment. These plans should be brought together in a new policy framework: the low Output Economy. Two central principles of the Low Output Economy are discussed, which could be the starting point for a model of sustainable development without growth.

INTRODUCING THE GROWTH DEBATE

So far, the discussion on the environment and development has been polarised between two broad points of view. On the one hand, it is argued that economic growth in the long term is inconsistent with environmental protection, and that the agenda for environmental protection i s therefore to reduce consumption, to revise the definition of needs and to study the practical and cultural implications of the steady state. At the other extreme, it i s argued that it is wrong to make any claims whatsoever about economic growth, without distinguishing between its various forms. Growth i s the essential precondition not only for employment, but also for effective action to protect the environment and relieve poverty; the task is therefore to ensure that economies enjoy the benefits of growth while at the same time learning how to steer it in beneficial ways, and it is this principle of growth which goes under the label, ’sustainable development.’ So far, if influence on policy can be taken as a guide, it is the sustainable development end of the debate which has been the hands-dow n w i n n er.

PROPOSITION THREE

There i s now a third point of view, however, to which we may give the (temporary) name of ’Proposition Three’, and which raises the temperature of the debate considerably. This i s the argument that economic growth, however desirable or otherwise it may be, i s ceasing to be an option. More specifically, the proposition is:

that the ‘critical rate of growth‘ - that is, growth on a scale which i s sufficient at least to stabilise employment - is no longer available; that the first trading block to be afflicted by this problem is Europe, but it can be expected progressively to become characteristic of the global economy as a whole; that this failure to reach the critical rate of growth i s not a short term effect; it is a secular change, taking economies into a situation which will be here to stay; that, in accordance with the precautionary principle, the economic implications should be explored at once, without waiting for conclusive proof, or for the proposition to be borne out in practice.

Until recently, there has been relatively little mainstream analysis to give substance to Proposition Three, but this is now changing, with the publication of the European Commission’s White Paper entitled Growth, Competitiveness, Employment: The Challenges and Ways Forward into the 2lst Century.’ This i s an up-beat paper; it sets out a strategy for creating 15 million new jobs, halving the present rate of unemployment in the EU by the year 2000, and it aims to ’lay the foundations for sound and lasting economic growth’. It i s powerfully- argued, and it suggests that some hard thinking is going on at the European Commission.

However, the real significance of the White Paper is not that it sets out a programme for halving employment in the EU, but that it fails to do so. Although nothing could be further from its intention, it provides powerful and unexpected endorsement for Proposition Three.

EUROPEAN ENVl RONMENT 1 1

c Policy combinations which would

A - Halve unemployment by 2000 a E

, I - Stabilise unemployment at current levels

\ Q

\

Guideline target suggested by the White Paper ‘<

‘ : I \A \,B1

0 I 2 3 4 I I

Annual rate of growth in output (%)

Flgure 1: Combinations of growth In output and employment lntensrty requlred to atablilse unemployment (AA’) or to halve It by the year 2000 (BB)

EMPLOYMENT IN TENSITY

The White Paper lays central emphasis on ‘employment intensity’, which i s the job-content of output (GDP). A high employment intensity means that the economy provides a relatively large number of jobs per unit of GDP, so that even a modest level of growth in output can be expected to produce an increase in employment. A low employment-intensity, on the other hand, means that a unit of GDP embodies a relatively small number of jobs, so that the economy must achieve a relatively high level of growth if it is to produce an increase in the number of jobs. The level of growth which is required to just stabilise unemployment is called the ‘employment threshold’.

Any additional growth above the employment threshold will produce a rise in employment. However that does not mean that it wil l also produce a fall in unemployment, since the workforce rises each year, as a result of a rise both in the number of people of working age, and in the rate of participation in the workforce. The ‘critical rate of growth’ (a term not used in the White Paper), which i s the rate of growth which the economy must achieve just to stabilise unemployment, is therefore the sum of both these factors - growth in the workforce plus the employment threshold.

How high, then, i s this employment threshold? The answer is, at first sight, quite surprising and encouraging. It has fallen from 4.5% in 1969 to just under 2.0% in 1993. It is worthwhile noting that we might have expected it to have risen over that period, since so much of the rise in output has been due to improvements in production technology, or ’jobless growth’. The main reason for the decline (not discussed in the White Paper)

is that as the manufacturing sector, the main driver of productivity improvement, continues to shrink, the jobless growth which it generates affects a smaller pool of people. This employment threshold, together with the 0.3% rise in the population of working age and the 0.7% rise in the participation rate, gives us a critical rate of growth of around 3% per annum. That i s the rate of growth at which, on the assumption that employment intensity remains unchanged, the EU’s economy must grow i f it i s to stabilise unemployment. Any reduction in unemployment would require a yet higher rate of growth.

POTENTIAL RATE OF GROWTH

Is a 3 % rate of growth feasible? Enter the ‘potential rate of growth’ which, however you look at it, is bad news. This is the rate of growth at which the economy can grow for many years without experiencing overheating problems. Of course, this may invite the question, ‘Who cares about a spot of overheating when there are jobs at stake?’ but in plain English ‘overheating‘ means that growth simply burns off in inflation, perhaps after a short- lived burst of euphoria. The potential rate of growth therefore sets the ceiling to sustainable growth.

The problem i s that the potential rate of growth has fallen, along with the employment threshold. This i s not really surprising, since the potential rate of growth is in part determined by the employment threshold; moreover, the measurement of both variables is inaccurate. Nonetheless, the figures presented in the White Paper do show up the problem very clearly: the potential rate at present is estimated to be around 2%, that is less than the critical rate of growth at 3%, so we have clearly hit

12 ~~ ~~ _ _ ~

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a snag. The economy cannot grow fast enough even to stabilise unemployment at the present at the present level, let alone reduce it.

On what basis, then, can the White Paper possibly be talking about halving the rate of unemployment? Clearly, there can be only one way of achieving this objective, and it must consist of a combination of both the following:

a. raise both the potential and actual rate of economic growth, using a set of Macroeconomic and labour- market measures; lower the employment threshold, for instance by increasing the employment intensity of the economy - in other words, increasing the employment content of growth by making output more labour-intensive,

b.

This two-pronged strategy i s adopted by the White Paper, and it is extremely interesting. It amounts, for the first time, to an official recognition that growth cannot take on the whole burden of stabilising unemployment, and that a parallel policy, to increase the employment intensity of output, must be implemented at the same time. This means that the format of the policy can (notionally) be illustrated by a range of choices, as shown in figure 1 . Employment could be stabilised by achieving any combination of points on the line A-A‘; the more demanding target of halving unemployment by 2000 could be achieved by any combination on the higher line B-B’; The White Paper says it would not be ’wise’ to specify targets for the two prmgs of the strategy, but it does suggest guidelines - a 3% rate of growth, and a 0.5 - 1% annual increase in employment intensity. On the evidence of the policies set out in the paper, what are the chances of success in reaching either of these two targets? Indeed, what are the chances of reaching the lower target of reaching some point on the lower, unemployment-stabilising line AA’?

The only possible answer to these questions is ’don’t know.’ But that should not stop us from making a reasonable judgment, and a close scrutiny of the policies suggests that the probability even of stabilising unemployment by the year 2000 within this policy Framework i s not high.

POLICIES FOR ACHIEVING GROWTH

The two most striking weaknesses in the growth promotion policies belong to those policies which deal with demand expansion and foreign trade, each of which will now be addressed.

1. Demand Expansion

If economic output i s to rise by 3% a year, then the people and governments of Europe must increase their consumption by 3% (give or take any imbalances in trade with countries outside the Union). The White Paper addresses this frankly. It refers to ‘our capacity to think up new individual or collective needs which would

provide new job opportunities,’ and states that ‘many needs are still waiting to be satisfied.’ Yet when it actually gets down to telling us what needs can be stimulated so as to soak up the needed 3% growth, it is not very convincing. It refers to ’home help for the elderly and handicapped, child care, meal preparation and housework’, ‘minding pre-school age children and schoolchildren before and after school, including taking them to and from school’, ’assistance to young people facing difficulties, comprising help with schoolwork, provision of leisure facilities especially sports, and support for the most disadvantaged’; and so on.

Then it moves on to ’renovation of old housing’, ‘development of local public transport services‘ and (that’s better) to environmental protection: ‘maintenance of natural areas and public areas’, ’water purification’, ’monitoring of quality standards’, and ‘energy-saving equipment.‘ It i s impossible to disagree with any of these suggestions, which would al l be steps along the right road - but the road to sustained growth of 3 % p.a. i s a very long one indeed, requiring some ECU 180 billion (f140 billion) in the first years, rising to a doubling of current output in the year 2020, by which time (if the 3 % growth rate were maintained) the output of the present 12 member states would have to reach some ECU 12 trillion (f 9 trillion). Europe’s environment protection industries in their various forms are growing fast, but maybe we should pause before looking to them to shoulder much of a burden of growth of this magnitude.

The Paper also suggests some really large new demand- sectors - notably a huge expansion in the transport, information and energy network, which would cost ECU 400 billion by 2000 - but there i s only a short term demand stirnolus here; after the turn of the century, investment in all three networks would fall off rapidly.

It is therefore hard to see where the new demand i s to come from, and the weakness of the need-creation strategy is not just that it seems inadequate to achieve the 3 % target, but that it does not sit very well with the EU’s stated commitment to environmental protection. In the very last pages of the paper, as if in a death-bed confession, this difficulty is acknowledged:

‘A more adequate policy should therefore be to offer society a better quality of life with a lower consumption intensity and as a consequence with a reduced stress on environmental resources.‘

The paper then suggests a number of sensible ways in which needs or ‘consumption intensity’ could be reduced -more reuse and recycling, demand-side management for energy, more efficient use of transport. These are good suggestions. The only problem is that they would do nothing to help the EU achieve the necessary 3% rate of growth.

2. Free Trade

The paper insists that prptection ‘would be suicidal for open trading blocks (such as the Community), and the

EUROPEAN ENVIRONMENT 13

DAVID FLEMING * * 0 * * *

European Union’ and insists that differences between protected areas represent:

‘a chronic growth deficit a t world level. Resolute support for initiatives to bring about a concerted recovery in demand and for the opening-up and industrial modernisation of the protected countries is essential in order to make up this ‘shortfall’ in growth’.

But the opening-up of overseas markets i s demand- creating only in a rather specialised sense. First, it hastens the day when the overseas country sets up its own industries from which it wil l wish to export (with the advantage of cheap labour) to the EU. Since the Union is already scraping around in some desperation to sustain demand for its own output, then any further diversion of demand to overseas suppliers will act as a brake on progress towards the target of 3% growth. The net effect of expanded demand oterseas, and loss of market share in the Union would of course be ambiguous, but the reciprocal feature of international trade means that the gung-ho rhetoric about overseas markets as a means of bringing about ‘a revival in demand for community industry’ needs to be put into context.

Secondly, the writers of the last chapter of the White Paper (surely a different team) evidently have grave doubts about the feasibility of opening up new markets as a means of solving the ’growth deficit’. They state that:

‘Extrapolating current . .. consumption and production patterns to the entire world would require about 10 times the existing resources, which illustrates the scope for possible distribution tensions at global level i f current tendencies are not curbed.’

This recurring discord between the main body of the report, apparently written by economists, and the final chapter, apparently written by people who have actually heard of the environment, suggests that the former would have liked to put the latter in a cage and drape a cloth over it to guarantee their silence. We can only wonder why they did not succeed in doing so.

3. Conclusion

It i s possible that the European Union may be triumphantly successful, hitting its growth guideline of 3% from 1995 to 2000. But it looks unlikely. Does the programme fare any better when considered against the target of increasing employment intensity?

POLICIES FOR INCREASING EMPLOYMENT INTEN SlTY

These proposals are in many ways excellent. There i s substantial emphasis on the shorter working week, setting out objectives which could form the basis for systematic policy development on working time. The paper also makes a distinction between two levels of productivity, recognising the need for specific policies designed for

each sector:

’There is no contradiction between calls for increased productivity growth in all sectors open to international competition and at the same time calling for measures which increase the weight of sectors where productivity increases are low.’

This i s positively enlightened. But i s there not something wrong here? On the one hand there is the conventional growth-based policy, covering the European Union with another 15,000 km of motorways, expanding the gas- distribution network, opening up areas both in the Union and abroad to the thrusting competitive economy. Yet, on the other hand, the programme defends low productivity in the sectors which are not open to international competition and acknowledges that ‘lowering the employment threshold means lowering the overall productivity of the economy.’ There i s everything to be said for two sectors, complementary with each other, with appropriate policies for each, but what we have here is a growth-focused policy which crowds out the complementary policy of building employment-intensity and gives it barely a chance.

For instance, it i s perfectly true that taking children home from school is not a sector which i s terribly exposed to the winds of international competition, but i f the policy of increasing employment intensity is reduced to such by-ways by the steadfast refusal to contemplate any form of economic protection to enable it to develop, then the enlightened policy objective of raising the level of employment intensity in the economy is reduced to triviality. The problem is that there is a trade-off between the growth and employment intensity: an economy which is committed to the overriding objective of competitive growth will not offer ideal conditions for the development of a strong labour-intensive sector. But the trade-off in the other direction may be a good deal more hopeful: an economy which contains its growth ambitions somewhat, and gives serious support to improving employment-intensity, may find that it actually benefits in terms of international competition, because lower unemployment levels wil l help to keep down its costs.

An excessive emphasis on growth, and failure to follow through with employment intensification, could therefore have the perverse effect of reducing the rate of growth and increasing unemployment. The targets are quite likely to prove impossible in any event, but the EU‘s crushing commitment to motorways, and to the destruction of every sheltered local economy in every little valley of the Union, could be more successful in destroying employment-intensity than in creating growth. It will also make stabilisation policy harder, should unemployment in the Union continue to rise.

A RESTATEMENT OF AIMS

On the evidence of this brief review, then, there is a significant possibility that the European Union will not

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succeed in its aim of ’reversing the disastrous course which our society, bedeviled by unemployment, i s taking’ - and there i s no doubt that ‘disaster’ i s indeed the right word for it. A sustained rise in unemployment would mean poverty, a catastrophic funding crisis, with loss of government resources for welfare benefits and a collapse of environmental protection programmes.

Nonetheless, the possibility has to be faced that the critical rate of growth may not fall within the range of feasible policy options. In a situation of considerable uncertainty as to whether a disaster can be avoided, the correct response is to refer to the precautionary principle. In the present case, that would suggest that economic planning resources should begin to be deployed in developing and, in due course, phasing in, policies built round the new concept of the Low-Output Economy.

The starting-point is to draw up a clear statement of aims, corresponding to two policy sectors. First, there is Sustainable Labour Policy, whose aim is to achieve the maximum level of participation in the economy, providing jobs, and redistributing time and incomes when the limits of job provision have been reached. These aims are rather similar to those of the White Paper - the difference i s one of emphasis, which now shifts (significantly but by no means entirely) away from job- creation in the context of international competitiveness, towards a coherent programme of raising employment intensity and distribution policy. A distinction can certainly be drawn (as in the White Paper) between that part of the economy which is open to international competition and the part where productivity increases are low - but the logic of this must be followed through. The latter (lower-tech) sector cannot just be left to fend for itself as a low-pay backwater; it needs to be fully promoted and protected under a programme of economic stewardship. This i s the ‘complementary sector’* which i s defined not only by its high employment intensity, but also by the opportunity it offers for far higher standards of quality and environmental protection.

Secondly, there is Sustainable Design Policy. The concept of eco-efficiency is well-established in the field of industrial policy; companies are learning how to maintain or expand output while at the same time cutting resource-inputs and environmental impact to a minimum. But the same principle has not been applied to the way in which households use resources to derive well-being. On the contrary, economic management (as we have seen) is still looking to ways of increasing households‘ consumption, thereby lowering their efficiency. Sustainable Design Policy therefore looks to a radical change in this respect. Opportunities for improvements in eco-efficiency affecting the economy as a whole must be developed not only by the application of high- efficiency technologies but through principles such as (1) changing the way in which space is used, with transport policies becoming based on minimising distances travelled and maximising the space-efficiency of society; and ( 2 ) combining quality of output and environmental protection in a single low-impact technology: the agricultural and food sector i s an illustration of the huge

scope for this reform. Sustainable Design Policy does not have the specific

aim of environmental protection; its purpose i s to enable society to use the smaller stock of resources that is available to it in the most effective way. The logic is therefore reversed: at present we say, ‘We have this behaviour pattern; we do things in this way. How can we reduce the environmental impact?’. That is, the variable is the environmental impact of our actions; the behaviour pattern itself is essentially non-negotiable. In the case of Sustainable Design Policy, the emphasis is the other way round: ‘These resource limits are binding; how can we now use them in the most efficient way, to get best advantage from them?’. This, of course, i s not specifically a question of eco-efficiency, but of efficiency in a more general sense, and the two meanings can, in this context, be used interchangeably.

There is an ambiguous relationship between the volume of output and extent of environmental destruction; high output provides resources for environmental protection, but these benefits may be outweighed by the environmental impact of the output itself; low output provides fewer resources for environmental protection, it may be grossly inefficient, and it may coexist with a total .lack of control over environmental destruction. Nonetheless, limits to output may in the long term be imposed for environmental reasons as unavoidably as they could be imposed for economic reasons.* The match between the strategy for environmental protection and the strategy for stabilising policy in the low output economy is therefore not perfect. There i s no guarantee that low output which occurs for economic reasons is as low as the output required for environmental sustainability, even under best-practice conditions. A stabilised low-output economy is not automatically sustainable. The actual level of low output will be set by the binding constraint, economic limits or environmental limits, whichever is the less.

Sustainable Design, then, wil l be an integral part of stabilisation policy in the low-output economy, for whatever reason the conditions of low-output develop, and however deep the restriction may be. It is no coincidence that instruments for maximising well-being in the mature, scale constrained economy should also be the instruments for achieving environmental sustainability. We are dealing with a system here, and it i s characteristic of systems solutions that they solve a number of problems at once; they are spherically sensible; they look the same however you approach them.

The two sectors of policy - Sustainable Labour Policy and Sustainable Design Policy - are mutually dependent; they have to be developed at the same time. If rising unemployment is the prospect which we have to face - i f we have no choice in the matter - then the solution i s to adapt physical conditions and lifestyles to the circumstances of a less well-resourced, poorer society. Sustainable Design Policy tailors economic policy to those limited resources, to achieve the objective of well- being, bringing eco-efficiency out of the industrial closet

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* * DAVID FLEMING 0 * * *

and applying it to the economy as a whole, and pulling together a convergence between the two policy sectors: i f the transformation in the households’ efficiency that can be derived from sustainable design is acknowledged and implemented, then higher unemployment becomes thinkable, and the programme for sustainable labour - based on the presumption that the critical rate of growth is not a feasible option and that growth could even become negative in the future - begins to become thinkable too.

The European Union (and the global economy as a whole) must make provision for a firmlyestablished, long-term failure to achieve the critical rate of growth. The White Paper, like a bridge under construction, extends towards that new age; it is a remarkable instance of public policy in transition between the familiar past of economic growth and the undiscovered future of low- output. What is now needed is work on the far side, building new foundations for the sustainable Low-Output Economy.

ACKNOWLEDGEMENTS

The support of Green College Centre for Environmental Policy and Understanding, Oxford, at the early stages of research into the economics of low-output is gratefully acknowledged.

REFERENCES

1. Commission of the European Communities (1993). Growth, Competitiveness and Employment: The Challenges and Ways Forward into the 21st Century, White Paper. Luxembourg: Office for Official Publications of the European Communities.

2. Fleming, D. (19931, ‘Qualitative Growth and Complementary Technology: Beyond the Technical Fix’, revised reprint of paper originally published in Business Strategy and the Environment, vol. 1, no: 4, winter 1992. Available from ERP Environment.

Dr David Fleming, Director of The Strategy Workshop, i s a consultant in economicsenvironment studies. 104 South Hill Park, Hampstead, London NW3 2SN, UK. Tel: +44 (0)71 794 5644. Fax: +44 (0)71 435 3818.

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