Economic Growth in the Channel Islands

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Economic Growth in the Channel Islands

Post by Stuart Syvret on Sun 22 Jun 2008, 5:06 pm

POLITICS vs. THE LAWS OF PHYSICS.

Human Nature vs. Reality.

And Why Politicians can’t Solve that Contradiction:

A Thought Experiment.


“Let us not talk falsely now, the hour is getting late.”
Bob Dylan, ‘All Along the Watchtower’.

This is my first – extremely late – post on the Channel Islands Forum. I’m grateful for the administrators of this site for the opportunity to address Channel Island issues.

Some of you will be familiar with my controversial blog, which can be found at http://stuartsyvret.blogspot.com/ .When I first began producing it early this year, I intended it to be a general outlet for my various political and philosophical musings – and things that the C.I media just won’t cover. But the Jersey child abuse disaster has, sadly, come to dominate the blog.

But in those early days in January – it seems like a decade ago – I was able to focus on issues of a more general nature.

And amongst my early posts, I wrote about the world’s economy, peak oil and the limits to growth. All subjects which loom ever-larger – and which are particularly implacable so far as the Channel Islands are concerned. And it is those themes I address in this post.

I would like readers to accompany me through a thought-experiment; one based on mathematics and some speculations. In this experiment, I want to address the questions, ‘why aren’t politicians honest with the public?’ and ‘what happens when our mutually agreed deception runs up against reality?’

I call my blog ‘Thoughts on the Microcosm’, because Jersey, like Guernsey, is a microcosm – an environment and a community which is a miniature version of the world – with all the attendant fundamental problems faced by humanity. And I do mean ‘all’ – as I will explain later.

But amongst the developed world – the Channel Islands are ahead of the curve, as far as the boundaries and ultimate fate of complex, industrialised societies are concerned.

And that is something we should be very worried about.

On the face of it, we are amongst the most prosperous places in the world. Let us be honest, and admit that Guernsey and Jersey discovered Thatcherism before Margaret Thatcher. De minimus government, de minimus taxation, economic growth at all costs, “trickle-down” economics – and a devil-take-the-hindmost attitude on the part of our respective oligarchies.

So we’ve “been there – done that”; where we sit today is where most of the rest of human society is striving to get to. So is that destination at which we’ve arrived worthwhile and secure? Having achieved that fabled sunny upland of ridiculous prosperity and material consumption – do we in the Channel Islands lounge in utopia?

Or – are we doomed, like Sisyphus, to an unending and futile labour in which we perpetually strive for the unattainable?

Generally speaking, politicians – Left or Right – simply aren’t honest with their populations. But before we condemn them all utterly, let us be honest about why politicians in democratic societies do not speak the truth. And in this context, I’m not talking about how many affairs they’re having or whether they’re fiddling their expenses. What I’m referring to is a failure to honestly confront communities with unpleasant truths.

Politicians don’t do this – because if they did, they’d never get elected.

And I’m not just speaking of Channel Island politicians; we see the very same syndrome in national and international politics.

Democracy is the best form of government we’ve ever alighted upon – or are ever likely to. So, for good or ill, we must live with its imperfections. Such as the fact that politicians and political parties rarely look any further forward than the next election. And that the understandable immediate interests of individual voters may not coincide with the best interests of society in the long-term.

We can demonstrate this problem by considering what the average voter wants – indeed, expects - to hear from candidates at election time.

The voters’ wish-list will be very much like this:

• That public expenditure be constrained.

• That the scope and quality of public services like health & education will always increase.

• That taxes can be lowered.

• That wages will always continue to out-strip inflation.

• That inflation will be controlled.

• That the value of voters’ houses will forever continue to appreciate.

• That home prices will be constrained so your children can afford to buy, and not leave the islands.

• To have more roads and car-parking.

• That there be less congestion on the roads.

• That the environment gets protected.

• That there will be lots of building to provide cheaper homes for you & your family.

• That your particular social band should pay less tax & that it should be foist upon someone else.

• That population growth in these very small islands be controlled.

• That there be a supply of cheap labour to do the necessary jobs which locals won’t do.

• That we play our part in protecting the world’s environment.

• That economic growth can, and will, continue indefinitely.

• That the unpleasant side-effects – the ‘externalities’ – of that growth can be avoided.

You get the picture. Most people would agree that, broadly, the above-list is a pretty accurate reflection of what voters expect. It is on this territory that democratic battles are fought – that seats are won or lost – and that the future of our communities remains at the mercy of short-term and unsustainable policies.

But, there are two profound problems with this voters’ wish-list.

Firstly, many of the objectives may be achievable, but are mutually exclusive.

Secondly, some of them are simply not achievable.

To cite just two examples; people want economic growth – and people want to protect the environment. But the truth is – and it is the truth - these two generally accepted objectives are mutually exclusive. And if we were all being honest, we’d admit that we must choose one - or the other.

But the problem is even more implacable. Even if we chose unceasing economic growth as our dominant objective (which, in truth, is what we do) such an objective is unattainable. Indefinite economic growth cannot happen. And we can demonstrate that fact with some simple calculations.

The ‘Rule of 70’is a method you can use to calculate the approximate doubling period of a growing system. You take 70, and divide that figure by your percentage growth figure. The result is an approximate ready-reckoning of the period of time your system will take to double. I took the Rule of 70 and applied it to some Jersey statistics.

Taking planned economic growth in 2007 and moving through forecasts to the year 2013, States’ spending is predicted to grow at an average rate of 3.91% over that 7 year period.

So, let’s take 70, and divide it by the average growth rate of 3.91%. This gives us a doubling period of around 18 years. This means that a sustained 3.91% growth rate would lead to States of Jersey expenditure doubling to around a billion in 18 years. Is this kind of exponential growth possible indefinitely?

No. Clearly it is not.

For in another 18 years, it will double to £2 billion

And in another 18 years, it will double to £4 billion

Another 18 years and the sum becomes £8 billion.

So, let’s just think about that: in about one human lifetime – 72 years – States of Jersey expenditure would have risen from half a billion to £8 billion – in real terms - a year.

Can we imagine an economy in Jersey that had the capacity to deliver a tax-take to the States of £8 billion pounds per year – at a value uplifted for the intervening inflation?

I don’t think so. If you just do the maths - the impossibility of it all becomes inescapable.

But growth in public expenditure is just one mere fragment of societal activity which is exposed under the implacable gaze of the mathematics.

We used the Rule of 70 in the exercise above to describe growth in expenditure. Let us apply the same formula to another growing system; the economy.

I am repeatedly frightened, for that is the word, when I speak to otherwise intelligent and educated people who just haven’t - or won’t - do the maths when it comes to economic growth within a finite resource base.

It is as though the Second Law of Thermodynamics just didn’t exist.

So let’s do our exercise again. Economic growth in Jersey was, in real terms, 2.8% in 2005. The average real growth in the Jersey economy over the time period of 1976 - 2005 is estimated to be in the region of 3-3.5%. The States target for economic growth is 2% annually. We have three possible figures to work from, so let’s take the middle one of 2.8% - the actual economic growth in 2005.

Using the Rule of 70 to give as an approximation of doubling time, we divide 70 by 2.8%.

And we get a doubling period of 25 years.

If, hypothetically, we were to enjoy 2.8% growth consistently – the entire value of our economy doubles in 25 years – because that is the effect of the exponential growth.

But it is this continuous growth – manifestly unsustainable – to which we are wedded. And economies do not thrive or survive without meaningful resources to feed them. The credit-crunch shows just what happens when societies become gripped by the hallucinated-economy; vast pyramid schemes which are built of worthless bits of paper in the form of “securities”. Billions upon billions of pixelated pounds flowing through the electronic ether – with about as much substance and worth as the IOUs of an alcoholic gambling addict.

Real economies have to be built on something. And the source of that material is ultimately nature. Unless you’re some kind of irrational, utopian fantasist – like a member of the Institute of Directors, say – you can see that humanity has badly over-drawn its environmental account – and that nature is in the process of foreclosing.

Let me illustrate this point with an analogy that ecologists like to use. You have a lily pond. At first, there is only one lily pad in the pond. The next day, it has doubled to two lily pads. The next day, those two have doubled to four. And so on until the lily pond is full after 30 days.

The question is this: when is the pond exactly half full?

It is half full on the 29th day.

One half of your pond was empty - suddenly it’s full. What this illustrates is a fact well known to ecologists. That when systems locked into growth hit a limiting boundary – the collapse of that system can be very sudden indeed. Shockingly dramatic and unexpected.

As the economist, Kenneth Boulding famously remarked: “anyone who believes exponential growth can go on forever in a finite world is either a madman - or an economist.”

Earlier, I said that the presently well-fed and generally comfortable populations of the Channel Islands would come to face all of the problems we see around the world. It seems implausible, doesn’t it? When we look around Jersey & Guernsey – and see communities wallowing in a veritable Jacuzzi of conspicuous consumption; shops over-flowing with ‘goods’; embarrassingly ridiculous SUVs monstering upon the roads – we just can’t imagine that scenes of wide-spread poverty, starvation, illness and lawlessness could ever disturb our smug tranquilities.

But such things could happen – and happen a good deal faster than people imagine.

Two or three years ago, there was some disruption to shipping; I forget the cause, very bad weather, engine breakdowns – something of that nature. What is not widely known is just how close Jersey came to running out of food because of this disruption to shipping. The Jersey General Hospital was within a week of exhausting its supplies, and in a matter of even fewer days, there would have been hardly anything edible on the shelves of food retailers.

Imagine something similar happening now. You go to the shops today – you can choose from a vast array of foodstuffs from around the world. Something happens to disrupt supply – and within two weeks - the shelves are bare. If, in fact, it took that long.

This illustrates that what we blithely take for granted, is often very fragile and tenuous; that things can change profoundly – and at a speed people wouldn’t have thought possible.

So let us imagine: the shelves are bare; the fridge is empty; energy supplies have failed or are intermittent; there is no fuel for transport – and you and your family are suddenly starving. Along with pretty much everyone else.

How does human nature make us act under such circumstances? Do we cheerfully wait in some kind of civilised and calm acceptance? Or do our hard-wired Darwinian instincts dictate our actions? Given that it is those same instincts of short-term self-interest which drove unsustainable short-term policies – when we had the luxury of contemplating our contradictory wishes – it is extremely difficult to imagine people suddenly becoming selfless.

On the contrary, our hardwired, evolutionary conditioning renders – at the best of times - global and temporal perspectives largely non-existent when faced with some short-term need of our own or of our family’s.

For some insight into what emerges in people when faced with such calamitous circumstances, you might wish to read ‘The Road’, by Cormac McCarthy. The book won the Pulitzer Prize for its author, and George Monbiot, writing in his Guardian column, described it as the most important environmental book ever. The book recounts the journey of a father and son through a post-apocalyptic wasteland. Although not explicitly stated, the cause of the apocalypse seems to be a nuclear war. But the book is a kind of thought-experiment, in which the author has imagined what happens to humans if the biosphere is destroyed – to the extent that people are the only things left living on the face of the planet - and the dominant human response of those who have survived.

It is not a book I could recommend to the easily depressed. There are scenes in it which are unspeakable. But what is truly disturbing about the book is that you just know, when reading it, that McCarthy has accurately captured the true awfulness of human nature.

Is the extreme dystopia of McCarthy an illustration of the fate of the Channel Islands? I certainly hope not. I said this was a thought-experiment of sorts, and by undertaking it we have explored some of the unspoken – yet inescapable – realities which ultimately limit all societies, but which are particularly imminent insofar as these small rocks are concerned.

The path taken by the Channel Islands during the post-war decades cannot go on indefinitely. And any politician who tries to tell you otherwise is a lair or a fool; actually, probably both – as this is island politicians of which we speak.

The greatly reduced communities that these islands will host in future will survive as steady-state economies. Probably as societies which will deliver a better quality of life, and be a good deal more civilised compared to the materialistic barbarism and decadence which dominates today. But getting from where we are now – to that steady-state of low resource use - will not be voluntary.

And it certainly won’t be pretty.

But it is going to happen.

We can no more wish away the physics that decree this outcome, than we could wish away the force of gravity as we fell from a cliff.

And you needn’t take my word concerning the problems I describe above. Instead, read the books I list below.

Look – nobody said this would be fun, OK?

Stuart.

The Party’s Over: Oil, War and the Fate of Industrialised Societies, by Richard Heinberg.

Collapse: How Societies Choose to Fail or Survive, by Jared Diamond.


Last edited by Stuart Syvret on Sun 22 Jun 2008, 7:50 pm; edited 1 time in total

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Re: Economic Growth in the Channel Islands

Post by ageofaquarius on Sun 22 Jun 2008, 7:10 pm

Well that just about sums up our smug little world. what can I say but WE'RE DOOMED!!!

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Re: Economic Growth in the Channel Islands

Post by Digger on Sun 22 Jun 2008, 7:14 pm

Thank you for that Stuart its good to see you on here and you have certainty given us something to think about. What a refreshing change to have a politician that is not scared to speak his/her mind we could do with you over here.


"The best way to predict the future is to invent it".


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Economy and growth

Post by st_ouennais on Mon 23 Jun 2008, 10:42 pm

Senator Syvret, that's an interesting post and worthy of debating. I agree with the general sentiment and tenor of the piece, and pretty much all you wrote as far as the two profound problems with the voters wish list. En passant it seems to me that critique of electors demands is a good argument as to why electing
representatives supporting a thought out manifesto should be preferable to individuals with diverse agendas. There is simply more chance that a manifesto will have made some of those compromises to acheive a semi-believable proposition to put to the electorate. Perhaps that means its the more believeable of two fairy tales?

As to whether economic growth is compatible with protecting the environment, whether indefinite economic growth is possible, and whether people really want economic growth at all comes down to what is an economy, and how do you measure it? It is self evident that indefinite material consumption is unattainable. Given the concomitant pollution and environmental destruction I would say its not at all desirable either.

However material consumption is only a part of the usual definition of an economy. Most definitions of economy include societal organisation of production, distribution and consumption of goods and services. Conceptually economic growth could come from the continual redistribution of services. That probably sounds absurd to most readers. That usually is because they have only one model in their mind of the societal organisation element. There are models such as the Buddhist economics as described by Schumacher (he of Small is Beautiful) where these ideas are plausible.

Measurement is the second element to understand. The most commonly used measure of the size of an economy is GDP, or some variant thereof. There are two fundamental problems with this metric. First it measures only activity involved in the movement of money. Non monetary transactions do not have any affect. Second all monetary transactions are viewed as positive to the economy. Hence car accidents are positive -they create activity that involves monetary exchanges. Intriguingly on this measure thieves, and criminals in general do a lot of good for the economy. There are lots of monetary ramifications to their activity - paying for replacement goods, insurance , a court system, prison service, and probation service, much of which would not have to exist therwise. Logically a quick way to grow your economy is to increase crime!

Just as there are different societal organisations to give different economic systems there are other measures of an economy too. what is an appropriate measure depends on what is the economic system you espouse. For example in Bhutan they do keep a national account for happiness. I could cope with growth in that sort of economy.

What does all this tell us? A growing economy does not have to be incompatible with protecting the environment. It so happens that the way we have organised our society and the metrics we have chosen to measure our economy are thoroughly incompatible with the environment. We could chose to do otherwise because an economy is a man made and man measured artefact. By contrast the global ecological system is not a human artefact, it does not play by our arbitrary rules. It makes far more sense to chose and tailor an economy to work within the constraints of our planet and environment and ecosystem than attempt the inverse. I like to think of that as the sustainability of natural ecologics over the futility of human economics.

I have no doubt that selling a new economy is going to be very hard. Telling people that they will have less material stuff in their lives is going against generations of polemic that such stuff is good. However it is not all negative. Where there is not material stuff there may be culture, sport, family time, creativity, sociability and camaraderie. People can be convinced at least some of those items are in fact priceless. No extant modern western economy offers anything that valuable.

A view from the West


Last edited by st_ouennais on Mon 23 Jun 2008, 10:48 pm; edited 2 times in total (Reason for editing : typo)

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Re: Economic Growth in the Channel Islands

Post by Nick Palmer on Thu 03 Jul 2008, 2:26 pm

St ouennais is correct that an economy is defined by what is measured about it. Look at the "New Economics Foundation"

http://www.neweconomics.org/gen/

which puts forward alternative ways of measuring the success and growth of an economy beyond the brutal and simplistic GDP and GNP. Here is a link to their "Happy Planet index" report

http://www.neweconomics.org/gen/z_sys_publicationdetail.aspx?pid=225

They propose Environmental or Green economics indicators which measure well-being, avoided pollution, avoided resources deterioration etc. In short, they harness the undoubted power of the free market economy to get things done and motivate people to do such things by putting the environment and social well-being into the accountant's bottom line when they audit a company's accounts - a company that exploited Third world children, or created more than average greenhouse gases or polluted rivers etc more than usual would be straight away less profitable than more responsible competitors. Problem solved (all of them!).
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Re: Economic Growth in the Channel Islands

Post by Nick Palmer on Wed 30 Jul 2008, 11:47 pm

St Ouennais wrote:However material consumption is only a part of the usual definition of
an economy. Most definitions of economy include societal organisation
of production, distribution and consumption of goods and services.
Conceptually economic growth could come from the continual
redistribution of services. That probably sounds absurd to most
readers. That usually is because they have only one model in their mind
of the societal organisation element. There are models such as the
Buddhist economics as described by Schumacher (he of Small is
Beautiful) where these ideas are plausible.

Conventional growth is, as you say, self evidently impossible to sustain indefinitely on a finite planet. However, in ecological economics what they define as development has no such limits. What you refer to in the quoted section could more properly be defined as development. A tree that grows forever upwards is doomed to get blown over some day but a pruned , even bonsai'd, tree can attain great age and complexity... quality rather than brute quantity is the type of enviro/economic development we need in future.
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