What is the myth?
Growth is an interesting topic for myth making because ‘it is obvious, even to a child or uneducated person, that infinite growth is not possible on a finite planet. Yet growth is a top priority for every country in the world, and most citizens.’ (website Undenial 2016). Just as the air, food and water fulfil our needs so it seems does a desire for growth. ‘We all want Growth’ declares politicians and commentators. An assumption that precludes discussion or profound analysis to any meaningful extent. Its as though the Omerta of Growth has transcended normal contemplation. And yet the growth we aspire to achieve massively exceeds the earths resources.
Since the industrial revolution our economic growth system has been based on certain fundamentals – fossil fuels (for transport, energy, agriculture, goods, development), consumerism (spending for jobs and taxes and profits), and not to neglect aspects of human nature; and been justified by two desired outcomes, increasing our standard of living and supporting our exponential population rise. The collateral damage of this In/Out equation are pollution, waste, resource depletion and biodiversity loss.
So what is the Economic Growth Myth? It is the belief that it is good for us. It is that we all want it. We have been led by neo classical economists and free market libertarians, influenced presidents and prime ministers, to believe in economic growth, that profit and riches are good for us at the expense of our planet.
In 1966, Kenneth Boulding, in his presentation ‘Earth as a Spaceship’, likened our economic system to a ‘cowboy’ world. There are no undiscovered plains left to recklessly exploit and degrade in his spaceship analogy where success is measured not by maximising consumption and production but increasing the ‘nature, extent, quality and complexity of the total stock of capital including in this the state of human bodies and minds included in the system.’ (p 103, Scott 2014). In a spaceship everything inside is precious and limited.
And that’s a good place to interrogate our earthly journey.
Growth cannot go on forever due to physical limits and we are destroying Earth on our current footprint. We have hit limits to growth.
Most people want growth because most people want the future to be better for themselves and their children. In a growing economy there’s a good chance that income and wealth will grow. On average, GDP growth per person since 1750 has been 1.5% per year. This means that each generation has been around a third better off than the one before it. (Bank of England).
Nauru is a tiny island in the South Pacific Ocean, which was the fastest-growing economy on Earth until a decade ago due to the island’s fossilized bird guano supply, which is a really good fertilizer. Once Naura’s fertilized guano supply almost entirely dried up, its economic growth virtually ceased. About two years ago, following one of the largest offshore crude discoveries in decades, Guyana became an oil producer. With a production that is estimated to reach up to 800,000 barrels per day by 2025, the windfall could transform the nation from one of the poorest in Latin America per capita into one of the richest. Guyana is set to maintain its status as the world’s fastest-growing economy for the third year in a row, with a GDP growth rate of over 47% (2022 figures , Global Finance Magazine).
Economic growth, sometimes simply “growth”, refers to GDP. A country’s Gross Domestic Product is a measure of the size and health of its economy. It is the total value of goods and services produced over a specific time period. The formula given is GDP = C + I + G + (X-M), where C is consumer spending, I is business investment, G is government spending (in the UK 39% of GDP comes from taxes and the shortfall in government spending comes from borrowing), and (X-M) is net exports. An annual GDP growth rate of 3%, simply means that the economy has grown by 3% over the past year.
The definition of economic growth is almost universally one sided. This is what it is, while avoiding to say this it what it does – leads to unsustainable resource use, waste and destruction of habitats and wildlife. Too long a definition perhaps.
When GDP goes up, the economy is generally thought to be doing well. Meanwhile, weak growth signals that the economy is doing poorly. If GDP falls from one quarter to the next then growth is negative. This often brings with it falling incomes, lower consumption and job cuts. The economy is in recession when it has two consecutive quarters (i.e. six months) of negative growth. (Bank of England 2010). The goods and services that we all need are not just there, they need to be produced and growth means that their quality and quantity increases.
Human nature is not benign and behaviours that create a desire for growth also include competition for status, and our response to novelty. A lot of people want to be rich consuming more than they need and want very much to stay that way. But fundamentally, most people want the future to be better rather than worse.
Capitalism only works in a growth economy and Consumerism is writ large in the GDP and growth model. ‘Put differently, the relentless increase in global resource throughput and environmental despoliation is not principally the result of states aspiring to a metric – higher GDP – but of industrial and financial firms, driven by market competition to expand turnover, develop new products, and increase profits and interest.’ (Ecologist Short History of economic growth 18/6/19). According to Keynes’s (General Theory of Employment, Interest, and Money. 1936), effective demand is the engine of the capitalist economy and that spending by consumers, firms, and the government is what keeps the economy going.
In economic theory, the Multiplier Effect is when increase in one economic activity can cause economic activities somewhere else. Spending my money (along with others) causes other people to spend money – creating more products and needing more staff. When we all spend more it means the economy grows because of increased activity. New products become old and inventiveness and advertisement fuels the economy creating new products, stimulating further demand. A thriving economy has benefits in that it restores investor confidence, bond markets die down, interest rates reduce, loan costs and mortgages costs are lower. If an economy is seen to be doing well it brings in inward investment. However in times of austerity spending is cut and we can get a negative multiplier and all the reverse are true. If we have growth everyone is seemingly better off. Business is booming. More employment and more taxes paid.
We should though not be naïve in our analysis of our motivations and desire for growth, which has as much has to do with our money system which underpins consumerism and resource use, as our alturism. We have a debt based fractional reserve monetary system. Money is not created at the same time that we create real stuff to buy. Money is created in advance of this. Money is loaned into existence on the promise of it being repaid with future earnings. The mathematics of this system requires growth to pay the interest on the debt. The reason growth is so important is not because growth will give us a little more next year , it is because growth gives us a lot more today. Growth is about debt. The value of a company is primarily determined by the growth rate of its profits. The concept of retiring and living on a pension depends on growth. If money invested by pension funds in company shares did not grow there would not be sufficient funds for most people to live on at retirement. It may not be possible to retire in a no growth economy. Growth is required to maintain the majority of our wealth, which is the form of debt. Without growth it is not possible to make interest payments on debt. This in turn will reduce the value of assets purchased with debt. In a no growth economy the only money available to borrow is surplus money saved by someone else. Therefore very little credit is available, (with high interest). In a growth economy, money to buy a house is created from thin air on the promise of you repaying it with interest. Good reasons for growth.
Most technology requires large upfront capital. None is possible without a lot of debt to build and maintain infrastructure. Every country runs on a deficit which means they spend more than they collect in taxes. In the UK, £987 billion is collected in taxes but this isn’t enough to cover all Government outgoings – health, education, defence, social security, social care, international aid, agriculture subsidies, arts funding. We need £1trillion, 87 billion for government outgoings in 2022-23. The government has a deficit, is short of, £100 billion per year which it makes up by borrowing money. This means citizens enjoy better education, healthcare, sanitation, transport security, unemployment payments, old age pension than they pay for. This borrowing is only possible when governments have access to large amounts of credit and this is only possible in a growing economy. More growth, more borrowing, more services keeps governments in power.
There appears to be no clear consensus on how to achieve growth – tax cuts, trickle down, build big and boost, deregulate, state support. Fundamentally businesses want a stable economy to plan and implement strategies for growth.
The Free market think tank, The Institute of Economic Affairs, says keep the state out of it! High tax is a discouragement to entrepreneurial activity and growth. There is little correlation between tax and growth. The Institute of Government suggests a weakly positive correlation between tax and growth where higher tax burdens have led to higher growth. What matters is not total level of tax but the structure of the tax system and what that money is spent on, for instance tax revenue could be used for infrastructure, or creating jobs that helps the private sector. Government spending from taxes generates growth less directly and unlikely to be nearly as much, as compared with spending and investment that operates in the private sector. The private sector has profit as a clear-cut measure rather significantly different from government spending for public good. Tax has a role. But what matters is level of skills, infrastructure, the degree of innovation and level of competition (trade barriers). The Institute for Fiscal studies says Growth comes with difficult choices, trade offs, more concreting over countryside, more immigration, tax changes which will make some people worse off. Supply side reform, or Regulation, is often seen as choking off production. Why aren’t more goods coming to market? Regulation is too tight. Lets have more free market economics!
Since the Industrial Revolution into the 1950’s the rapid resource use and transformative refiguration of the Earth has been accelerated by fossil fuels. They have fuelled the ‘Green Revolution transforming agriculture in use of pesticides and tractors, our conurbations into mega cities and skyscrapers and bridges and transformed our ability to travel, fuelling our cars, train, planes and transformed our medicines, fuelled mining and metal extraction.
Everything we do requires energy. By using external energy we increase our productivity and ability to create wealth. Energy extraction and consumption must increase for the economy to grow. Renewable energy is dependent on non renewable energy and therefore it still appears unlikely we could run today’s civilisation on renewable energy. It is cheap fossil fuels that have done the work – the dirty work in more ways than one. In all likelihood, the end of non renewable fossil fuels, unless propped up by borrowing and inflationary pressures, may mean the end of growth.
Increasing net energy has been an important driver of population growth. If net energy grows faster than a growing population then you have the best of all worlds with rising per capita incomes, such as after WWII. If you have falling net energy and slow or no population growth then you can force some total growth with debt despite falling per capita incomes, like we are today, but eventually bad debt defaults and the economy comes to reflect available energy which will be lower without generous credit to extract it. The population of Africa grew 55% between 1990-2008, while in the same period it increased its per energy capita consumption by only 10%. This is where indebtness played its part since taxes and private enterprise incomes are generally lower in the developed than the developing world. However, worldwide decline in energy will trigger a massive contraction on all levels – food production, health services, material consumption, debt and in the end, population. Innovation and technology are almost always just new ways to use fossil energy. This applies to solar panels, wind turbines, nuclear, hydroelectric that all need diesel for installation and maintenance, diesel and coal for metals and natural gas for cement. The green revolution which drove population growth was simply diesel tractors, diesel combines, electric diesel irrigation, nitrogen fertiliser from natural gas, pesticides from oil and diesel powered refrigerated trucks, trains and ships.
So whether high growth comes from transport of commodities (Nauru) , manufacture (Bangladesh) or fossil fuel exports (Libya) or service industries, (In the UK economic structural change saw the services sector contribute to around 80% of total GDP in 2017, in comparison with 51% in 1948 – ONS 2013), fossil fuels have stimulated the growth activities. Wars and reconstruction after wars , floods , hurricanes and stimulate growth and appear to show a country developing well.
Economic Growth did not start with the Industrial Revolution and fossil fuel economy but inspired it to another level. Colonialism and overseas empires accelerated many nations growth using resources beyond their national borders. In the England of 1600, the growth paradigm could scarcely have existed. No one knew the nation’s income, or even its territory or population. By 1700 these had been calculated at least in some rough measure, and as new data arrived England’s ‘material progress’ could be charted. (Slack 2014).
The human brain does not easily understand exponential doubling. Growth at 3% means the economy will double in size every 25 years (5% doubles in 16 years, 2% doubles in 36 years). So if you live for 75 years in an economy that is growing at 3% then the human footprint will be 8x larger when you die. It is not sufficient to say that we will reduce our growth expectations to say 4% . Any growth rate more than zero is a problem (not a solution). For Boulding ‘the objective of economic policy should not be to maximise consumption or production, but rather to minimise it ‘ (Boulding 1971 p 106 Scott 2014)
In the 70’s a chance of sustainable living was possible. Population was small enough. Progress had been made, we were mostly better off in the West than our parents. But we didn’t stop and make a plan. Many people are alive who were born before the world reached a population of 3 billion in 1960. The goal could have been a mostly agricultural economy land based of less than 1 billion people aided by a small clever industry that focused on essentials. In the 70s we could have reduced population, deindustrialised and conserved resources.
The Stockholm Declaration of 1972, or the Declaration of the United Nations Conference on the Human Environment, was the first United Nations Declaration on the global environment. The Conference sought to recognize the finite nature of Earth’s resources and human impacts on the environment. It represented the beginning of a global dialogue on the link between economic growth, the pollution of the environment, and the well-being of humanity.
The 80s were close to being a turning point. Sustainability was the zeitgeist. Our Common Future, also known as the Brundtland Report, was published on October 1987 by the United Nations. The report defined ‘sustainable development’ as “Development that meets the needs of the present without compromising the ability of future generations to meet their own needs” It was a call to nations to find their path to a sustainable future. Was deregulation of the banks significant in reining in the movement? If not – and I’m no conspiracy theorist – its interesting to question what happened to the momentum in seeking that goal during the last 36 years.
Is it possible to live sustainably and have a technologically advanced civilisation? Unsustainable Growth means these goals have a terrible price. ‘It has been suggested that if everyone on the planet consumed as much as the average US citizen, four Earths would be needed to sustain them.
According to the Global Footprint Network (GFN), humans use as much ecological resources as if we lived on 1.75 Earths. The global hectare is defined as a biologically productive hectare with world-average bioproductivity. The average American, says GFN, uses seven global hectares, compared to a global average of 2.7, according to the most recent GFN figures (based on data from 2011). It’s this figure of seven global hectares that leads to the calculation that it would take four Earths – or to be precise, 3.9 Earths – to sustain a population of seven billion at American levels of consumption. The US does not consume the most on this measure. It is in fact ranked fifth among countries with a population of one million or more. Kuwait comes top with 8.9 global hectares (5.1 Earths), followed by Australia (4.8 Earths), the United Arab Emirates (4.7 Earths) and Qatar (4.0 Earths). The others in the top 10 are Canada, Sweden, Bahrain, Trinidad and Tobago, and Singapore. The UK is 32nd on the list (2.4 Earths).
All modern nations maintain elaborate machinery for measuring economic performance. We know virtually day by day directions of change with respect to productivity, prices, investment and similar factors. Through a set of ‘economic indicators’ we gauge the overall health of the economy, the speed at which it is changing and the overall direction of change. Without these measures, our control of the economy would be far less effective. By contrast we have few applied measures, of ‘social indicators’ to tell us if the society as distinct from the economy is healthy. We have few measures of the ‘quality of life. We have no systematic indices to tell us whether men are more or less alienated from one another; whether education is more effective, whether art, music and literature are flourishing; whether civility, generosity or kindness are increasing. ‘Gross National Product is our Holy Grail but we have no environmental index, no census statistics to measure whether the country is liveable year to year. With the serious political significance for lacking such measures it becomes difficult to connect up national or local policies with appropriate long term social goals. (Future Shock – Alvin Toffler 1981).
‘Thus we see the econosphere as a material process involving the discovery and mining of fossil fuels, ores, etc., and at the other end a process by which effluents of the system are passed out into non-economic reservoirs – for instance , the atmosphere and the oceans – which are not appropriated and do not enter into the exchange system.’ (Boulding 1966, Scott 2014).
Both environmental economics and natural resource economics adhere to mainstream principles that 1) technology will develop quickly to solve environmental problems, 2) free markets will solve all environmental problems (a green invisible hand), and therefore 3) we should have small government with limited regulation and 4) economic growth equates to economic development and is thus desirable.
Mainstream economists view the environment as a mere extension of the economy. Their models ignore the long term environmental impact or as an afterthought to growth constraints . Mainstream economists also conflate economic growth and economic development. Their growth models classify the environment as an open system of endless bounty and thus disregard its value when making economic decisions. These models are constrained by population growth and technological improvements in the long run, but they ignore the environmental resources needed to sustain this growth, and waste producing outputs due to growth. (Boulding p102, Scott 2014) Government policy is attempting to confront one of these factors, with the need to replace our carbon fuel dependency, as well as putting in some measures to address environmental degradation but there are the other inputs at play in our economic growth model, population growth and other aspects of consumerism and production and a failure to address these will mean meeting IPPC calls for cutting carbon pollution will be hard to achieve. The Government response here and internationally, is essentially a business as usual approach with strategies such as electric cars that suit the wealthier members of society. Who profits or faces losses from financing climate change mitigation is important and poorer members of society should not bear the price of mitigation economically or socially. This is one aspect of a wider consideration. Much of the work of the UN and Conference of Parties on Climate Change and Biodiversity is about trying to halt the tsunami of pollution and habitat destruction, but its amid a business as usual global wealth inequality, exponential population rise and quest for growth.
Without Economic Growth do we risk a Malthusian nightmare when population increases are associated with declining nutrition, declining health, and declining incomes? What Malthus, in 1789, had not foreseen was that the increasing output of the economy no longer linked with the change of the population. Economic growth had brought higher standards of living for all despite the increase in population. Economic prosperity as such was only achieved over the last couple of hundred years, significantly mostly achieved over the second half of the last hundred years. The average person in the world is 4.4 times richer than in 1950. Had the economy not grown, then a three fold increase in population would have meant everyone being 3 times poorer and more destitute. Growth – Our World in Data
It is not hard to see that the fear engendered in that last paragraph. Its hard to not see the fear engendered in a climate and biodiversity crisis. The idea that the only way to a decent standard of living is the current growth model remains too little debated and needs our attention.
It would be possible to manage our standard of living through better wealth distribution to ensure citizen well being; to reduce the requirement to produce and spend on more things, to reduce our population growth rate. Governments can support and drive change through far reaching fiscal policies and employment strategies that provide social security in its full meaning and that investments, pensions, public goods are maintained and innovations nurtured. Promoting electric cars over diesel and petrol, funding technological solutions with or without private investment, are a small step but appear as a smoke screen to mask the elephant in the room that our economic growth model is in trouble from wealth inequality, to environmental degradation, to an Earth pushing back.
With a world population of 8 billion production, increases to meet the need of more people. If population growth were to reverse to contraction the economic model falls apart. This is seen as a glut of homes, a glut of educational capacity, a glut of airports capacity, employment falls, production falls, taxes fall, demand for debt falls, fractional banking fails. And yet a falling population is manna for the planet. There is incompatability. The population should not be needed to rise to sustain a flawed economic system. But rather the economic system should change to embrace a steady state or declining population growth rate.
I listed human nature as a factor in our economic growth problem. Economic growth is a market led process with state interventions to pick up damaged pieces. There are economist, leaders and influencers, sometimes who are libertarian and not liberal, self serving and not socially or ecologically motivated. Economists who failed to understand the importance of the externalities in their models. Human nature has the power of kindness and transformation and perhaps faith lies there too. That a former prime minister was able to name (albeit mockingly) so large a number of groups and members supposedly committed to an anti growth agenda, “Labour, the Lib Dems, the SNP, the militant unions, the vested interests, the talking heads, the Brexit deniers, Extinction Rebellion and some of the people we had in the hall earlier” as those who she thought were working against the interests of growth’ (Liz Truss Conference speech 5/10/22), and given that much of growth is dependent on unsustainable consumerism, resource depletion, waste creation, wildlife extinction and social inequalities a national consensus is surely to be found for a different sort of Growth or indeed no growth.
Put simply we need to halt our population growth rate, reduce fossil fuel use, stop consuming the earths resources, more conservation, more waste recovery and a good lifestyle. We’ve tried one model for two hundred years it worked probably up to the 1970s. Was exploited in the 80s and rumbles on increasing natures extinctions and pollutions. We know that indefinite global economic growth is unsustainable. ‘Just as the laws of thermodynamics constrain the maximum efficiency of a heat engine, economic growth is constrained by the finite nature of our planet’s natural resources (biocapacity)’. (New Economics Foundation 2010).
Economic growth has destroyed forests and polluted our seas and rivers, caused wealth inequality, bred farm animals in prison conditions, led to extinction of wildlife, provided disincentives for a sustainable population of people on earth. The myth is that disentangling from fossil fuels is the panacea, the myth is that a different economic system is not possible to contemplate.
Alvin Toffler (1981) Future Shock – Pan Books
Countries with Highest GDP Growth 2022 | Global Finance Magazine (gfmag.com
Economic Growth – United Nations Sustainable Development
Economic growth: a short history (theecologist.org)
Global Footprint Network Home – Global Footprint Network
https://global.oup.com/academic/product/the-invention-of-improvement-9780199645916?cc=gb&lang=en&
Growth isn’t Possible | New Economics Foundation (2010)
How has growth changed over time? | Bank of England
How many Earths do we need? – BBC New show many Earths do we need?
How to Raise a Trillion – Economic Growth – BBC Sounds https://www.bbc.co.uk/sounds/play/m001ddxq
Keynes: General Theory of Employment, Interest, and Money. 1936
Malthus (1789) – An Essay on the Principle of Population
Scott, R. (2014). Kenneth Boulding: A voice crying in the wilderness. Springer.
Slack, P. (2014). The invention of improvement: information and material progress in seventeenth-century England. OUP Oxford.
What is economic growth? And why is it so important? – Our World in Data
Why does growth matter? | Bank of England
Why We Want Growth, Why We Can’t Have It, and What This Means – un-Denial
https://en.wikipedia.org/wiki/Declaration_of_the_United_Nations_Conference_on_the_Human_Environment#cite_note-:0-3
https://en.wikipedia.org/wiki/Future_generations
