Deep dive

Post-growth welfare systems

There are several reasons why economic growth is not an inherently necessary condition for financing essential state functions and the transformation towards a wellbeing economy:

  • Many governments generate a substantial part of their revenues via taxes on labour or consumption. For example, in the United States as well as in the European Union, more than half of all tax revenues come from employment [1] [2]. Employment-related taxes also make up a substantial portion of the total tax revenue in many Latin-American and Asian nations [3] [4]. African countries tend to rely more on consumption taxes, including Value-Added Tax (VAT) [5]. In the Middle East and North Africa (MENA region) Value-Added Tax are also an important source of government revenue, as is revenue from natural sources like oil and gas [6].  

    Since employment, consumption, and oil and gas production are so closely linked to – and indeed often driven by – economic growth [7] [8] [9], an expansion of economic activities is often seen as essential to maintain stable government revenues. The composition of government revenues is, however, not set in stone. Decreasing the reliance on labour taxes, consumption, and oil and gas production and diversifying government revenues can enable societies to effectively fund the transition towards a wellbeing economy, even in the absence of economic growth [10] [11] [12].

  • Currently, governments are spending a lot of money and resources on fixing the harm done by our profit-driven economic systems. As was described in Module 2.3, the associated costs - often called ‘failure demand’ - are very large [13].

    For example, governments still heavily subsidise fossil fuel industries, despite their exceedingly harmful impacts on the natural environment and human health. In 2022, worldwide fossil fuel subsidies reached $7 trillion, approximately 7.1 percent of global GDP [14].

    At the same time, governments are spending hundreds of billions a year dealing with the impacts of extreme weather events that are caused by greenhouse gas emissions, with the drain on public expenditure likely to increase as those weather events get more extreme and frequent [15].

    There exists great potential in redirecting government expenditures towards environmentally and socially meaningful purposes, such as climate investments and social policies.

  • In the current economic system, the welfare state largely focuses on relieving socio-economic harms such as poverty and unemployment [16] [17] [18].

    In a wellbeing economy, the need for the welfare state to repair socio-economic harms can be significantly reduced, as the focus shifts to preventing these harms from occurring in the first place [19].

References:

[1] Directorate-General for Taxation and Customs Union & European Commission, (2023). Annual report on taxation 2023: review of taxation policies in EU Member States, Luxembourg: Publications Office of the European Union. 

[2] US Treasury Fiscal Data, https://fiscaldata.treasury.gov/americas-finance-guide/government-revenue/.

[3] OECD et al. (2023), "Tax levels and tax structures, 1990-2021", in Revenue Statistics in Latin America and the Caribbean 2023, OECD Publishing, Paris, https://doi.org/10.1787/19c84fef-en.

[4] OECD (2023), Revenue Statistics in Asia and the Pacific 2023: Strengthening Property Taxation in Asia, OECD Publishing, Paris, https://doi.org/10.1787/e7ea496f-en.

[5] OECD/AUC/ATAF (2023), "Tax levels and tax structures, 1990‑2021", in Revenue Statistics in Africa 2023, OECD Publishing, Paris, https://doi.org/10.1787/69c5768a-en-fr.

[6] Mansour, M & Zolt, E.M. (2023). Personal income taxes in the Middle East and North Africa: Prospects and possibilities. IMF Working paper, https://www.imf.org/en/Publications/WP/Issues/2023/02/17/Personal-Income-Taxes-in-the-Middle-East-and-North-Africa-Prospects-and-Possibilities-529963.

[7] Antal, M. (2014). Green goals and full employment: Are they compatible? Ecological Economics, 107: 276-286. 

[8] Ball, L., Leigh, D., & Loungani, P. (2013). Okun's Law: Fit at Fifty. Journal of Money, Credit and Banking, 45(2-3), 171-185.

[9] Jackson, T., & Victor, P. (2011). Productivity and work in the ‘green economy’: Some theoretical reflections and empirical tests. Environmental Innovation and Societal Transitions, 1(1), 101-108.

[10] Bailey, I. (2015). The Environmental Paradox of the Welfare State: The Dynamics of Sustainability. Cheltenham, UK: Edward Elgar Publishing.

[11] Büchs, M. (2021). Sustainable welfare: Independence between growth and welfare has to go both ways. Sustainability: Science, Practice and Policy, 17(1), 28-39.

[12] Kaufmann, R. (2022). The post-growth funding dilemma of the welfare state: An explorative analysis of the growth dependence of the Austrian welfare state, https://zenodo.org/records/10062088.

[13] Anielski, M., Chrysopoulou, A. & Weatherhead, M. (2021). Failure Demand: Counting the costs of an unjust and unsustainable economic system”. Wellbeing Economy Alliance, https://weall.org/resource/failure-demand.

[14] Black, S., Liu, A.A., Parry, I.W.H., Vernon, N. (2023). IMF Fossil Fuel Subsidies Data: 2023 Update. IMF Working Papers, https://www.elibrary.imf.org/view/journals/001/2023/169/article-A001-en.xml

[15] Newman, R., Noy, I. (2023) The global costs of extreme weather that are attributable to climate change. Nature Communications 14, 6103,  https://doi.org/10.1038/s41467-023-41888-1.

[16] Berghman, J. Debels, A. & Van Hoyweghen, I (2018). Prevention: The cases of social security and healthcare. In B. Greve, Routledge Handbook of the Welfare State. London: Routledge, pp. 46-57.   

[17] Bohnenberger, K. & Fritz, M. (2020). Making welfare resilient – Creating stable & sustainable welfare systems in times of declining economic growth. ZOE Institute for Future Fit Economies, https://zoe-institut.de/en/publication/making-welfare-resilient-2/ 

[18] Gough, I. (2015). Climate change and sustainable welfare: An argument for the centrality of human needs. Cambridge Journal of Economics, 39(5), 1191–1214.

[19] Bailey, D. (2015). The Environmental Paradox of the Welfare State: The Dynamics of Sustainability. New Political Economy, 20 (6), 793-811.