Yes, countries can fund social-ecological programmes without economic growth, research shows

Findings represent a significant step toward reconciling economic progress with ecological imperatives.

Countries with sufficient monetary sovereignty face no obstacle to funding policies for a fair and sustainable transition to levels of economic activity that stay within ecological limits, finds new research. 

According to the study – which was led by Colleen Schneider from the Institute for Ecological Economics at the Vienna University of Economics and Business – increasing public spending on such policies neither requires nor implies GDP growth. 

The research combines two economic concepts: degrowth – which centres on bringing overall economic activity in line with environmental limits – and modern monetary theory (MMT), which challenges accepted theories about how governments can use money most effectively. 

Both concepts share an understanding of money as a public good and an opposition to artificial scarcity. 

Schneider says that combining these two theories effectively addresses the question of how states can finance ambitious social-ecological policies while maintaining macroeconomic stability during a reduction of economic activity.

Unleashing political imagination

“Together, modern monetary theory and degrowth can unite to unleash our political imagination, challenging the myths of perpetual growth and financial constraints,” Schneider said. “It’s not an issue of the state’s capacity; it’s about its objectives and the power dynamics at play. 

“A transition to degrowth demands democratising monetary and fiscal policies. The evidence from the last decade is clear: it shows that no financial constraints would prevent the state from providing a job guarantee, shutting down fossil industries, preserving ecosystems, and building out universal public services. In the words of a popular climate justice slogan: “If the planet was a bank, you would have saved it already””. 

While drawing on MMT to show economic growth is not necessary for social-ecological transitions, the study also draws on degrowth research to bring MMT in line with ecological reality.

“MMT posits that fiscal spending is limited only by inflation, and thus the productive capacity of the economy. We argue that efforts to deal with this constraint must also pay attention to social and ecological limits,” write the researchers in their abstract.

Their paper, ‘How to pay for saving the world: Modern Monetary Theory for a degrowth transition,’ outlines steps countries can take to successfully implement these two strategies simultaneously. The measures include stronger regulation of private finance, tax reforms, price controls, improved public provisioning systems and an emancipatory job guarantee.

The approach can support broad democratic mobilisation for a degrowth transition, say the study’s authors – which also include Christopher Olk of the Otto-Suhr Institute for Political Science at the Free University of Berlin, and Jason Hickel of the Institute for Environmental Science and Technology at the Autonomous University of Barcelona (and also the London School of Economics and Politics).