The Limits of GDP

“Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what.” – Simon Kuznets, developer of the measurement of GDP on the limitations of the statistic.

There’s a measurement of technological advancement in science and science fiction circles known as the Kardashev Scale. It measures how advanced a civilisation is by how much energy it consumes or is able to harness using its technology.

A Type 1 civilisation is able to use the same amount of energy as falls on their home planet from their home star. For Earth-Sol, this is a power consumption of about 7×1017 Watts.

A Type 2 civilisation is able to harness the entire energy output of its home star – either by colonising many star systems or by fully enclosing their home star by energy gathering technology like a Dyson Sphere. For our star, this is about 4×1026 Watts or about 500 million times the energy consumption of a Type 1 civilisation.

Finally, a Type 3 civilisation has the technology to harness the entire energy output of a galaxy – a feat rarely reached in even the most ambitiously scoped sci-fi but see Stephen Baxter’s Xeelee Sequence for beings which are capable of at least this and more. This level of tech involves the consumption of about 4×1037 Watts or about 100 billion times the power used by a Type 2 civilisation.

And where does our wee planet sit in all of this? Carl Sagan extrapolated from these points to create a more comprehensive mathematical formula for calculating a given civilisation’s Kardashev number. He also estimated in 1973 that humans generated an average of 8 Terawatts of power which gave us a Kardashev Number of about 0.70. As of 2015, our energy generation has increased to an average of about 19 TW which makes us now a Type 0.73 civilisation. Extrapolating out linearly, we should hit Type 1 around the year 2325.

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Imagine that the only thing that the scientific community really cared about was our progress up this scale. All of science was bent towards our expanding our power generation and consumption base. And all that politicians cared about was their “Kardashev Growth per year”. It wouldn’t matter if your discipline was physics, chemistry, biology or whatever. Anything that grew the Kardashev number was funded. What would we be missing if that was all we cared about?

(For my academic friends who want to draw parallels with the current obsession with citation number and impact factors…you’re not wrong, but…next time.)

It’s worth noting that whilst total global power generation has increased by a factor of 2.4 since 1973, global population has only increased by a factor of about 1.8. The “global average human” today is using about 33% more power than the “global average human” of 1973. This is due to a massive reduction in global poverty and an unbelievable expansion of buying power and access to technology around the globe.

Of course, there are limits to this kind of measurement. Technology doesn’t just get more powerful and more widespread as it develops, it also gets more efficient. The fitness band I’m wearing right now weighs less than 100g but has orders of magnitude more computing power and uses orders of magnitude less electrical power than my first desktop PC from the mid-1990s – never mind the room-sized behemoths of the early days of computing in the 1950s and ’60s.

We also must think about the environmental impact of our technology – another major difference between 1973 and now is the exponential expansion of renewable energy technology at the expense of fossil fuels.

A 2015 Megawatt emits about 20% less carbon dioxide than a 1973 Megawatt and that figure is about to fall dramatically over the next decade as we electrify our heat and transport industry.

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So obviously, rendering a civilisation’s level of technological development down into a single number and then measuring the growth of that number might be interesting and may be useful as a very broad comparator but it probably doesn’t tell anything useful about the shape of that society or what’s going on inside it.

So why do we expect the same from other renderings such as Gross Domestic Product?

This measure – essentially the sum value of all economic activity within a country in a year – was developed in its modern form in the 1930s and has since become the gold standard of national statistics. Huge swathes of statistics are measured either in relation to it (think of “national debt as a % of GDP”) or as a derivative of it (GDP growth” or “GDP per capita”, for instance).

But even at its inception, the creator of it noted the limitations. A measure of the growth of GDP says very little about how that growth has occurred or who has benefited from it.

I was able to discuss some of these issues when I visited the Scottish Parliament’s Economy, Jobs and Fair Work Committee earlier this week as well as in an article in CommonSpace yesterday.

The Scottish Government has, to its credit, tried to improve some of the measurements it uses via program like the National Planning Framework. One of these is the idea of “inclusive growth” which explicitly states that measures should be taken to ensure that when economic growth occurs, it should not simply accumulate with the top few percent.

It’s a laudable goal but I still have my reservations in that the metric is still pinned onto the concept of “growth”. Just as a growing economy may accumulate wealth in the top, it’s possible that a recession could increase inequality too. Imagine a drop in the economy that causes mass unemployment, reduction in working hours, an increase in casual, part time and “gig” labour whilst at the same time the wealthiest are bailed out by the state. You know…a bit like what happened in 2008.

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Just as it’s possible to try to ensure inclusive growth, it should also be possible to ensure inclusive de-growth when recessions come and inclusive stasis when economies are themselves static. The government would be well advised to focus as much on inclusivity as it does on growth, maybe more so.

To be fair, there was at least some logic to using GDP as our measure of economic development. For many years, wage growth was pretty firmly linked to economic growth. If the company you worked for did well, you did well. But two great shifts have happened in the past 40 years. The first came in 1979 with the rise of neoliberalism. The economic programs enacted by Thatcher and others were coupled with a decoupling of wages and growth such that the latter started to pull away from the former. The gutting of the unions and the reduction of collective bargaining was perhaps chief among those reforms.

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The second decoupling came in the wake of the 2008 Financial Crisis. This time it came in “productivity” – the amount of GDP generated by a given hour’s labour. It’s a complex topic but part of this has come from the rise of the “gig economy” where folk have – often through somewhat convoluted means – become “self-employed” and have lost access to even individual bargaining. With no commitment at all to the company that they “service” (rather than work for), it’s no surprise that innovation and investment have declined. Not that it’s the fault of those workers. With no commitment to them, the company needn’t care beyond short term profit extraction and share price either.

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Another possible reason for the decoupling of productivity and wages (as well as the stagnation of productivity overall) is the rise of certain sectors of the economy that don’t quite fit with older measures such as “added value” and suchlike. I’m talking here about jobs like personal care. It could be possible to “increase productivity” in personal care but if that means “service more clients per shift” then what you’re asking carers to do is cut visiting times from 30 minutes down to 15 minutes down to 10 minutes…

So maybe we don’t want “productive” care. I’d prefer effective care. And maybe jobs like care don’t produce huge feedback multipliers in the economy but there are other ways that such care could be considered “valuable”. Especially to the person receiving that care.

So, just as the Kardashev Scale is for technology, GDP should only be dubiously taken as the be-all-and-end-all of economic development. Politicians really should start taking note of what’s going on underneath that headline number. It’s a harder story to tell, true, but economies are far too complex for the “simple” story to be sufficient.

And if it turns out we’re simply not measuring enough to answer our questions, well…that’s a story for another day.

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Trading Places

“GDP is increasingly a poor measure of prosperity. It is not even a reliable gauge of production” – The Economist

There’s a bit of a story happening around Scotland’s oil trade since Wings Over Scotland highlighted an otherwise completely unreported change in the way the UK measures how much oil it trades with the world and where in the UK it comes from.

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The story stems from the way that the UK calculates its balance of trade with the rest of the world and specifically how it then decides which region of the UK is responsible for that trade. To do this, the UK is split into 12 regions based on the Government Office Regions of England plus Scotland, Wales and Northern Ireland. (These boundaries are also used by Eurostat for their NUTS 1 statistics)

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There’s another “region” of the UK not displayed on the map. Not all trade can be firmly allocated to a single region and not all trade can be allocated to a region at all. This is the “Unknown Regions” of the UK. Most prominent amongst this kind of trade, at least within Scottish political circles, is trade generated by offshore activities.

There are many different ways one could approach this allocation – the methodology – and the way you do it can result in very different results. Now, if you’re the UK and are looking at UK stats these figures don’t really matter so much but they do become very relevant if you’re looking at one part of the UK and what its economy might look like if it decided to, say, discuss holding a vote for independence. Suddenly, even UK government departments start getting very interested in Scottish trade.

The particular story here concerns a change in the trade methodology around offshore oil in Scotland waters. Particularly, oil which is exported out of the UK directly from the rigs without it ever touching the UK land boundaries. Previously, much of this oil has been allocated to the Unknown Region but the change now meant that it would be allocated to Scotland. This has led to an increase in the recorded value of Scottish minerals exports for 2015 from £588 million to £6,825 million. Quite a substantial jump and one which has spread around social media. Time for a wee breakdown of what it means and take the chance to clear up a few misunderstandings I’ve seen along the way.
(This is a complex topic, after all)

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Grim Drama Parked

“Tomorrow’s GDP figures will confirm whether or not Scotland entered a second quarter of economic downturn in the first three months of 2017.” – Scottish Conservatives. 4th July 2017.

The quarterly Scottish GDP figures were released today after a long build up in a press anxious to see if Scotland was on, as the Express put it, the “BRINK OF RECESSION” (their emphasis).

The figures themselves rather put a misstep into their charge.

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The headline figures are that in Q1 2017, Scotland’s economy grew by 0.8% which is up substantially on the -0.2% contraction seen in Q4 2016. This positive growth also means that the two successive quarters of negative growth which define a technical recession were not met.

The UK’s GDP growth over Q1 2017 was 0.2% though in my last blog post I put substantial attention onto the point that we should treat such comparisons with a great deal of care given the large regional inequalities within the UK. I’d very much like to see the GDP of the UK broken down across its regions (especially London) before commenting too much on it.

And before we all start patting ourselves on the back at avoiding our “predicted” recession, it’s worth actually diving into the numbers and seeing what they do and do not tell us about the Scottish economy.

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The Economics of Fracking

“It can be concluded that both shale oil and shale gas are unlikely to be economically viable in this current low hydrocarbon price environment and even if there is a return to recent higher prices; it is likely that the industry would require significant subsidy or significant efficiency progression before it could be used at any kind of scale.”

“Even if the extraction can be proven to be environmentally ‘safe’ the experience of the United States shows that it risks bringing boom-and-bust to our communities as waves of temporary jobs move rapidly through without rooting themselves in local economies.”

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My first paper written for the Common Weal has been published today. The Economics of Shale Gas Extraction is the first major paper to be published in Scotland focusing on the economic, rather than environmental, impacts of the industry particularly on the local communities which will be hosting the wells.

Key Findings:-

  • The SGE market in the US and, so far, in the UK is dominated by larger companies occupying the most profitable licences. There is little scope for community owned or small company development to occupy a significant market share.
  • Individual wells become largely non-productive within a few years of development which, due to market demand for constant production, forces companies to continue drilling new wells in new locations at a rapid pace.
  • The low recoverable volumes and high capital and running costs of wells may render profit margins comparatively small and extremely sensitive to oil and gas pricing. There appears to be little scope for economic development of SGE in the UK until and unless wholesale prices return to historic highs and even then significant subsidy may be required.
  • Communities are likely to be significantly adversely impacted by nearby SGE fields. The concentrated pattern of land ownership and comparatively weak situation of local government renders communities vulnerable to being unable to capture wealth generated by nearby wells whereas the burden of environmental degradation or even simply the threat of such degradation can lead to community stress and negative economic effects.
  • The jobs created by SGE appear to be short-lived and highly mobile. The job demographic of the planning, drilling and production phases are each relatively exclusive meaning that they will move to the next site more rapidly than the wells themselves do. This creates the risk of a “Boom-Bust” effect in communities.
  • Shale oil and gas is considered a relatively poor source of fuel due to high extraction costs. The UK’s reserves are also likely to have an insignificant impact on global markets and hence a negligible impact on end-user prices.
  • Significant externalities have been identified in the form of environmental degradation due to methane leaks. The costs to mitigate these may exceed the lifetime revenues generated by the well which produced them. Further, the UK has a poor record in terms of ensuring adequate decommissioning and restoration bonds which may lead to further public funding being required after the SGE companies have left an area.

Whilst much of the attention on the shale oil/gas and fracking industry has been focused on the environmental impact, less attention has been paid to the economic effects. Even if the extraction can be proven to be environmentally “safe” the experience of the United States shows that it risks bringing boom-and-bust to our communities as waves of temporary jobs move rapidly through without rooting themselves in local economies. Scotland’s history of concentrated land ownership and comparatively poor local government also risks creating a vast transfer of wealth benefiting the already wealthy whilst potentially leaving communities to foot the bill for cleaning up. All for a fuel which the government has been told will not even benefit us in the form of lower energy bills.

There should be no place for fracking in Scotland or the UK.

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This Could Be Home

“It seems obvious: the reason only a tiny percentage of new…buildings and retrofits aren’t green isn’t cost. It’s lack of ingenuity or knowledge of new construction techniques — architects and builders wed to the ‘same-old,’ lenders leery of anything unconventional.” – Sustainable Energy Africa

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Sign the petition or get involved here.

The Scottish Greens have launched our new #ThisCouldBeHome campaign aimed at greatly strengthening the current movements towards better land reform.

There are currently around 11,000 hectares of land in Scotland current derelict or un- or underused which, through the application of a Land Value Tax, could be freed up to build a new generation of affordable housing. Here is Andy Wightman introducing the campaign.

As the campaign points out, the current UK housing bubble is pushing rents up beyond the affordability of far too many people and those increasingly fortunate few who can scrape together a deposit and have secure enough employment to sustain a mortgage are looking with trepidation towards the day that the Bank of England starts pushing interest rates back up towards pre-2008 levels. For hard pressed people who can barely afford to pay the bills as it is, moves like this could result in yet another crash in the housing market and more families facing default, foreclosure and eviction.

We also live in a country with the second highest level of excess winter mortality of any European country north of the Alps, driven in large part by our lax building standards and fuel poverty.

For this reason, we should take this opportunity to ensure that those new houses which are built adhere to strict building regulations which push the limits of our technological abilities to ensure that energy bills and the other ongoing costs of running a building are kept at an absolute minimum. Of course, buildings are themselves often constructed to meet only the very minimum standards set by law as to do otherwise would eat into the private construction industry’s precious profit margin.

Of course, as the headline quote states, cost isn’t nearly the greatest obstacle to greener housing development and, as I have written previously, the Scottish government will soon be handed the power to borrow money far cheaper than can any bank or private company (As an alternative, the Common Weal has also pointed out that the Government has the power, today, to set up Scottish Housing Company to perform the same function) and could use that money, paid back through rents, to undercut the private industry and ensure that the highest green standards are adhered to. The precedent for this already exists in Scotland where, according to official government figures, the social rented housing stock are generally more energy efficient than private builds and contain a higher percentage of B and C grade housing (where the overall Scottish average is merely grade D). If we are willing to push things as far as we need to to reach a zero-carbon economy then a greater pool of cheap, efficient housing will force the private sector to either step up its game or step aside.

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A Thermal image of an energy efficient “Passive House” compared to a more traditional, less well insulated dwelling behind it. Source: Passivhaus Institut

But how do we get everyone to A grade? One pathway can be found in the Passivhaus Standard which employs a strict understanding and approach to engineering and techniques such as solar thermal panels on roofs, underfloor ground source heat pumps, insulation throughout the house and architectural elements designed in from the start to minimise heat loss and maximise the amount of energy which can be harvested from the environment. Properly employed, these standards reduce a house’s heating requirements to below 15 kWh per square metre per year. By comparison the average Scottish house requires approximately 140 kWh per square metre per year to keep it warm. It’s no wonder so many of us struggle in winter. (Fun fact about Passivhaus, they have built a compliant dwelling now on every continent on Earth. Including Antarctica!)

With heating making up 55% of Scotland’s overall annual energy demand and only 10% of that heating coming from renewable sources (including renewable electricity) then it is clear that this is the area which, if targeted, will have the most potential to reduce our requirement to run a carbon based economy. This needs to be stressed. Whilst the Scottish Government has made great strides in pushing renewables (and despite the UK government’s increasingly hostile attitude towards them) if we only focus on meeting of our current electrical demands then we’ll still be reliant on fossil fuels for over three quarters of our energy and this doesn’t factor in the doubling of electrical demand which will come if we translate our transport system over to electric vehicles (assuming we don’t also reduce demand there too).

To achieve this may seem to require brave choices. But we can’t sustain the “same old” attitude for much longer. Pretty soon, doing nothing will be even “braver” (in the Yes Minister sense). I believe that a strong Green voice in the Scottish Parliament from May will help the government make those brave choices and your vote for the Greens in May will help that happen. As noted earlier, it’s not a problem of money or power holding us back here. Merely the will to roll up our sleeves and do it. We’ll be glad for it once we have. We’ll wonder why we didn’t do it sooner.

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We Need To Talk About: The Green Investment Bank

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Another day. Another broken promise from Westminster. I had been expecting news like this since the referendum last September but I’ve been frankly shocked by the rate at which they’ve been coming and where the hammer-blows have been falling.

Today it was announced that the Government will sell off the Green Investment Bank. The bank, capitalised with some £3 billion of taxpayers money, was set up in 2012 with the mandate for providing investment and incentive for renewable schemes across the UK. Its headquarters were located in Edinburgh in a bid, as it was reported at the time, to attempt to head off the push for Scottish Independence. Indeed, even just the week before the referendum dire warnings were uttered about the potential of Scotland “losing” the bank if we voted Yes (The news that the bank hadn’t actually been investing more than a token amount within Scotland in its first year or so was, of course, conveniently placed to the side).

Instead, now that we’ve “safely” voted No, the bank is to have up to 70% of its shares sold off to private interests for somewhere around £1.4 billion, under half of its initial capitalisation, at a time when it has just announced that it has become profitable.

Of course it’s not all just about the outright betrayal of Scottish voters. In this move, as well as last week’s scrapping of onshore wind incentives, David Cameron and his new Tory majority government are flexing their ideological muscles. Gone utterly is their “Greenest Government Ever“. To quote Scottish Greens co-convener Patrick Harvie on the topic today:

“The sell-off of the Green Investment Bank proves that David Cameron’s comment about wanting to ‘cut the green crap’ has now become a full-blown mantra for a right-wing Government determined to wreck our renewable energy opportunities. The bank was a half-hearted effort by the Tory-Libdem Coalition, with limited powers and funding. Rather than taking another backward step we need governments to go further and faster on developing new energy sources and cleaner industries as the need to leave fossil fuels in the ground becomes ever more urgent.”

Added to this is the call from Green Party of England and Wales MP Caroline Lucas:

“The Government’s rash and irresponsible plan to sell off a large chunk of the Green Investment Bank calls into question their commitment to investing in a low carbon economy.

“At precisely the time when we should be leading the world in the fight against climate change our Government appears to be in retreat. The Government should keep at least a majority stake in the Green Investment Bank to ensure investor confidence is upheld and the commitment to low-carbon lending remains.”

This is just another string of sell-offs by the Government of profitable parts of public service at a substantial loss to the taxpayer (joining such company as the East Coast Mail Line, The Channel Tunnel, The Royal Mail and many of the banks bailed out in 2008). It is purely an ideological move by the Tories to get the Government out of the business of owning any kind of body capable of serving the public.

I have to wonder what they think the endgame is. Just what do they want Tory Britain to look like?

And is there a place in it for us on the ground?

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Energy Potential

Scotland has enormous reserves of various types of energy. Which sources should we exploit and why?

Scotland’s resources are so vast that they far outstrip our own reasonable demands. Industrial estimates put Scotland’s total renewable electricity potential alone to be some five times greater than our domestic needs. Instead, we need to think about the kind of country we would be building around those resources.

We could leave our energy potential in the hands of others. We could see the last of the North Sea sucked dry with no plan of how to replace the jobs and industries currently relying on that resource. When the oil companies move on, what happens to the workers they leave behind?
We could buy our renewable hardware from the lowest bidder. German and Chinese companies could deliver the wind turbines owned by multinational corporations which take their profits from your utility bill.
We could allow ourselves to be utterly exploited by companies building the new generation of nuclear plants. I cannot justify the government allowing these companies to charge not less than double the current electricity rate as a pre-condition of merely building these plants when there are better ways already coming online. The extortionate profits from those plants will be channelled into public services…in France and China. Nationalised electricity companies are, apparently, only for “foreign” countries.

We could be content to allow very, very rich people with intimate links to the Westminster Government to frack shale gas out from under your house without your permission and with very limited recourse if things go wrong. If you have not seen the story of fracking in America laid out by Josh Fox’s documentary Gasland then please seek it out. Frankly, it scared me.

Or perhaps there is another way.
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