In many ways, the rich world has succeeded. It has largely solved the problems of poverty that plagued its populations for millennia by reaching satisfactory levels of per capita consumption. But new problems have emerged and are starting to threaten the hard-fought victory of material well-being. The physical environment is degraded and climate change is in the process of increasing the damage from extreme weather. Rising inequity does not improve the situation. And more fundamentally, it is becoming apparent that increased material consumption, beyond a threshold passed by rich countries several decades ago, no longer leads to a guaranteed increase in well-being. Many have started the search for meaning beyond increased after-tax buying power.
As I see it, the rich nations need a new goal: a new and positive challenge, something meaningful and engaging to pursue over the next generation or two. One option could be to make the poor world as rich as the rich world. But this goal, sadly, does not really engage the rich-world majority. A more promising option—which I recommend—is to pursue “higher subjective well-being.” This positive ambition would be an extension and widening of the past pursuit of “higher consumption.” The shift away from consumption makes extra even more sense today, as total consumption is starting to have negative side effects on the planet and human well-being.1
Higher well-being for all could be an engaging answer to the questions ‘What is the point?’ and ‘What is the goal of our collective effort over the generations ahead?’
Problems Arising from Continued Growth
The rich nations removed large-scale poverty and increased the average level of well-being among their citizens through a continuing process of economic growth. Using capitalism, markets, and democratic decision making as their major tools, the output of goods and services (GDP) increased year by year. The GDP grew faster than the population and led to higher GDP per person and the possibility of increased average per capita consumption.
As a result, many rich nations had already reached satisfactory levels of per capita consumption 40 years ago. Still, these rich nations continued their pursuit of economic growth. But now for a second reason, namely, in order to attain full employment and a reasonable distribution of the output among its working-age people. The rich nations sought to add new sectors to the economy fast enough to absorb those workers who were no longer needed in old sectors, where labor productivity rose as a result of the addition of ever more technology and capital. And largely they succeeded, leading again to an increase in average per capita production and consumption.
But, during the last 30 years, the effort to remove poverty and maintain full employment through economic growth ran into increasing problems because of the finiteness of planet Earth. Ever higher outputs required the use of ever more resources per year and generated an ever stronger stream of pollution, in addition to a growing destruction of biodiversity and wild nature. The emerging cost of climate change appears to be the most serious of the negative side effects of continued economic growth.
The obvious response is to reduce the ecological footprint per unit of consumption. In other words, to reduce the resource use and the pollution output per unit of consumption. And to do it to such an extent that the total footprint fits inside the limits of the planet. The technical term is “decoupling,” which is to use capital, labor, and technology to reduce the ecological footprint per unit of GDP. But it has proven difficult to get majority support (among voters and, especially, among the incumbent workers and owners in the “dirty” sectors) for strong action beyond what is profitable in the short term. The effort to fight climate change serves as an example: although it only costs two percent of world GDP to solve the climate problem (meaning a shift of two percent of the world’s labor and capital from dirty to climate friendly sectors), this has proven politically impossible because it is even cheaper to postpone action. The majority have not been willing to pay an extra two percent tax to get an uncertain benefit for their children and grandchildren.
A New Challenge: Robotization
Over the last decade, and likely to accelerate steeply over the next decade, there has appeared an extra threat to employment, namely, the possibility of the automation of all repetitive jobs. The first line response, namely, a call for retraining of those who lose their jobs so they can get new well-paying jobs in manufacturing, appears insufficient. In the future, very few of us will work in the primary and secondary sectors; we will all be in services, culture, and care. And the demand for such output will only arise if the profits made from robotization is redistributed into higher wages for ordinary citizens. This is certainly not the plan of the robot owners, who plan to keep the profits for themselves. The result will be a lack of demand for services and excessive asset inflation, in other words, higher unemployment.
Traditional Solutions Do Not Work
It is worth noticing that the problems faced by conventional growth policy is made worse—not simpler—by the dual ideals of free trade and free migration. These ideals served the rich nations well during the era when the primary goal was to remove poverty through increased productivity. But increased output is no longer the primary goal. Today higher employment (more jobs) is more important to average well-being in the rich world. And it is much simpler to achieve full employment if one places restrictions on the free flow of goods, services, jobs, and capital. The cost is lower productivity growth, but again, increased consumption is no longer as important as forty years ago.
The standard economists’ solution to the challenges facing the conventional growth strategy is to tax what we do not like (pollution, climate gas emissions, and destruction of biodiversity) and to stop taxing what we like (jobs, repair, and adaptation work). The idea is to make it more profitable to do the right thing and less profitable to do what harms the planet or the future. The hope is that this will shift the composition of investment, and later production and consumption, in directions that involve less resource use, less pollution output, less biodiversity decline, more jobs, and less inequity. This has proven difficult—after 20 years of hard work, we do not yet have a sufficiently high price on carbon emissions to shift the direction of investment from dirty to clean sectors. Internalizing the externalities remain the recommended approach, probably because there is no generally known alternative. Many understand that the era of economic growth is nearing an end, but there is no agreement on where to go next.
A New and Politically Feasible Solution
Luckily, there does exist a new way, a new political framework that can improve well-being in rich nations toward 2050. The framework does not require a revolution; it suffices with a pointed modification of the main tools of the growth era, namely, capitalism and democracy. And this new framework consists of policies that each convey a short-term advantage to a majority of voters, not only a sacrifice today for a benefit in the far future. This framework has the chance of obtaining majority support in the rich nations of today—in spite of their being dominated by short-term voters and investors.
This new political framework consists of seven new policies, each with a clear objective, and each—as mentioned—formulated in such a manner that it provides a net benefit in the short term to a majority of voters.
A Guaranteed Annual Income for All
In order to establish a credible floor under which no citizen is allowed to fall, even when unemployed or sick, rich nations should convert (and enhance) all current support schemes into a guaranteed minimum annual income for all. The minimum income should be paid regularly by the state and financed through a broad based progressive tax, where the richer minorities pay more than they receive back. This tax-based, minimum income system will provide a net income increase to all those who earn less than the minimum income, since the tax revenue will be earmarked for immediate repayment to the recipients, each of whom will get the same amount of money. Thus more voters will win than lose, and the scheme should gain majority support in a well-informed democracy. To simplify administration, the minimum income (perhaps USD$10,000 per year) should be paid to all from birth to death, and should replace all the other forms of income transfers from the state (for sickness, unemployment, pension, child care, nursing homes, etc.). The cost of a minimum income of say USD$10,000 per year would be some 25 percent of the GDP in a rich nation. This means that 25 percent of the population would need to work to guarantee the basic needs of the whole population. To avoid initial misuse, and to help lower population growth rates, the third child of a couple will not receive its minimum income before it is 15 years of age.
More Compulsory Vacation
To make sure that everyone has a job, and the opportunity to participate and contribute, rich nations should introduce a gradual shortening of the work year, so that there is a paid job for everyone. Every year a nation has a certain amount of work that needs to be done. Full employment can be achieved if this work is split among all the people of working age. If there is not enough work, it makes sense to reduce the number of hours worked per person per year (i.e. having 100 percent of the people working 90 percent of the time rather than having 10 percent unemployed and the rest working full time). The total cost of an organized shortening of the work year is zero. This policy simply shifts the burdens and benefits of work within the population.
Still, the shortening of the work year will be opposed by many of those that are in full time jobs. They will not necessarily want to give away part of their income to the unemployed. But the policy could be re-engineered to garner majority support. It could be introduced gradually as a legislated increase in the number of annual vacation days (e.g. two new days of vacation every year and no increase in annual salary). If such a policy was introduced in the US, after 25 years Americans (who currently work 2,000 hours per year in a full-time job) would work as little as the Germans (who currently work 1,600 hours per year). The total effect of more compulsory vacation will be lower growth in GDP, consumption, and resource use—and more time for everything else, for example, family, friends, hobbies, and provision of free services.
An Increasing Pension Age
In order to solve the problems arising from the ongoing rise in the number of old people in society, rich nations should introduce an increasing pension age. This allows those people who want to continue working to do so, while allowing those who want to exist on their minimum income to do so while pursuing other nonpaid activities. Notice that the growth in the need for care in rich nations is smaller than normally assumed, since the increase in the number of (care-needing) old is logically accompanied by a decline in the number of (care-needing) young. Hence, the total need for care in a rich society will not increase by more than 30 percent in the rich nations by 2035 (and much less in the US). In quantitative terms, the “dependency ratio”—which equals the number of old plus the number of young divided by the number of working age—will only rise slowly in the decades ahead (after having declined in most places since 1970). Increasing the pension age among those that are willing to continue to work for pay will not cost anything at the national level. To the contrary, it will increase the labor force and the productive capacity of society. If it leads to fewer job openings for the young, this can be handled by a further reduction in the length of the work year.
Education That Enhances Urban Living
In order to help people enjoy the life they are going to live, rich nations should introduce education that enhances urban living rather than preparing students for specialized jobs. Towards 2050, ever fewer people will be working in agriculture, manufacturing, repetitive office operations, and energy production. The vast majority (more than 80 percent) will work in services, culture, and care—in jobs that are difficult to automate and robotize. Nearly all will live in cities. They will typically work short days, although for most of their life. The challenge is to make people thrive in this reality. They certainly will not if they are educated to fill jobs that will no longer exist.
The obvious solution is to educate people in what they find interesting—hobbies, research, family, sports, creative activities. This is what will occupy most of their time. Most paying jobs will be relatively simple, something everyone will have to put up with part of their time (in exchange for their minimum income). Furthermore, the pay per hour will not rise fast. This is because productivity growth (the increase in output per person-hour and hence potential income) will be slower in the decades ahead—simply because most people will work in tertiary jobs. In this sector, it is hard to increase productivity either because the service is inherently hard to automate (writing novels or doing research) or because we actually want the human touch (personal training or old age care). Again, the challenge is to educate people so they will thrive in this future of urban service-based leisure.
More Green Stimulus Packages
In order to accelerate the effort to reduce the ecological footprint per unit of GDP, rich nations should introduce a “war chest for decoupling.” This would be a fund to pay for the not-yet-profitable investments necessary to cut greenhouse gas emissions, introduce renewable energy, and protect biodiversity. The fund would be tax-based and used by the state or politicians to solve the major societal problems that do not (yet) provide a sufficient economic return on investment as seen by private investors or ministries of finance. The war chest would enable society to build the nation according to plan and not only restrict itself to what is profitable. As an example, the People’s Congress in China has set aside USD$800 billion to clean the nation’s air over the next decade. This means paying some eight million Chinese engineers to produce clean air rather than producing consumer goods and services. It is a clear political choice, which is likely to increase average well-being in the long run, while creating paid jobs in the short term, but also sacrificing some consumption growth.
In order to solve all the well-known problems associated with resource scarcity, environmental damage, climate change, and biodiversity loss, the war chest needs to be supplied with two percent of the nation’s GDP every year. In the long run it would mean that society will use two percent of its labor and capital to solve those societal problems that do not yet have profitable solutions. It could be financed through higher taxes (or by printing money and thus spreading the cost evenly in society through higher inflation) and the short-term benefit would be the increased number of interesting jobs in the clean-up sector. The “green stimulus packages” adopted by some rich nations after the financial crash of 2007–8, can serve as a model. The green stimulus packages found political support because they accelerated the economic growth after the crash.
Measure Progress in Well-Being
Finally, there is the issue of what should serve as the main guide for societal development, to replace the guide of “higher GDP” in the past era of economic growth based on cheap fossil energy. To this end, rich nations should introduce “higher well-being” instead of “higher consumption” as their central goal. This can be made operational by regular measurement of the fraction of the population who thinks there is progress. The answer can be derived from annual polls where everyone must respond to two questions: Do you think life is better/same/worse now than five years ago? Do you think life will be better/same/worse in another five years? If a respondent answers better on both, he or she is scored as thinking that society is on a good track. (Notice that it is not enough to ask how satisfied people are at the time of measurement. Experience has shown that rich world citizens give the same answers over time, irrespective of the conditions under which they live. As an example, UK citizens have given roughly the same answer since the late 1970s.)
Use Regular Polls as the Guide
And finally, rich nations should introduce direct democratic governance via a regular questionnaire to all citizens. Questionnaires will make it possible for voters to signal to the politicians what aspects of current society they find acceptable and what are most in need of improvement. It will help to make sure that the nation’s politicians actually use the nation’s common resources to solve those problems that the citizens find most bothersome. This system is already in use in Bhutan, where citizens fill in forms where they rate their satisfaction on 109 issues. The ministry tabulates the response, and the parliament is allowed to work in peace on improving the situation until the next measurement ahead of the next election.
Enlightened Majority Rule
By implementing this new political framework, the rich nations will be able to shift smoothly from the era of consumption growth to the new era of higher average well-being. The shift is simple in principle. It amounts to passing the seven policies described above, all of which are politically feasible as they provide a short-term advantage to a majority of the voters. The total effect of the framework is to use part of the productive capacity of the nation to produce more well-being rather than more consumer goods and services.
It is not elitism, communism, right-wing thinking, socialism, leftism, or green politics. But it will redistribute, taking from the few privileged and give to the large majority. The new era in the rich world could be described as ”enlightened majority rule.”