In Search of Answers about Economic Growth

by Rob Dietz

The latest issue of the journal Nature contains an article by Peter Victor with this quote (see “Questioning Economic Growth,” vol. 468, pp. 370-371): “The idea that governments of developed countries should no longer pursue economic growth as a primary policy objective is widely regarded as heresy.” It’s certainly not a heresy at the Center for the Advancement of the Steady State Economy (CASSE), but we’re not exactly a mainstream organization. Still, you have to wonder why the pursuit of growth goes largely unquestioned in a world facing climate destabilization, mounting environmental damages from ill-conceived business decisions (e.g., BP’s oil spill in the Gulf of Mexico), and sometimes violent competition over limited energy and material resources. Why are nations so committed to increasing production and consumption? Why are they so taken with the idea of growing bigger economies?

The answer has to do with the dilemma of economic growth, which Tim Jackson has described superbly in his book, Prosperity without Growth. On one side of the dilemma, economic growth is undermining ecological systems – the very systems that support life on the planet (and in so doing, form the foundation of the economy). On the other side, failure to grow the economy leads to job losses and causes instability in social systems.

Side A

Economic growth
is unsustainable

Side B

Failure to grow
is destabilizing.

The Dilemma of Economic Growth

By definition, there is no simple route to escape from a dilemma. The main strategy for coping with a dilemma is to accept one side of it as fixed, and then work on changing the other side. Politicians, conventional economists, journalists, and just about everyone else tend to choose Side B in the economic growth dilemma, and then they go about trying to modify Side A. That’s why seemingly oxymoronic expressions like “green growth” and “sustainable growth” are relatively commonplace. Most people have accepted the idea that failure to grow destabilizes society, so they struggle to find ways to maintain environmental health despite increasing population and consumption. But maybe we’ve chosen the wrong side in this dilemma. To find out, we have to consider two basic questions:

  1. Which side of the dilemma is more likely to hold true moving forward?
  2. Do we have better prospects for achieving sustainable growth or building a non-growing economy that is socially stable?

In assessing this first question, there is widespread agreement that when growth ceases in today’s economy, serious problems arise. The most pressing problem is evaporation of jobs – a slowdown in production typically means that we need fewer producers. When large numbers of people become unemployed, social ills are usually not far behind. Furthermore, personal income and wealth are often tied to economic growth. Investors fear a cessation of growth, as strong returns on their assets depend on faith in future growth (e.g., a company’s stock price rises when people believe the company’s revenue will grow). With the way the economy is structured, failure to grow certainly puts people on edge. But suppose the economy were structured differently. Suppose we could change certain economic institutions and relationships and build a healthy and resilient steady state economy.

That is largely the premise of CASSE’s new report, Enough is Enough. The report summarizes research on the desirability of transitioning to a steady state economy and explores a collection of policy ideas for doing so in a healthy way. This cohesive report casts doubt on the notion that a non-growing economy must be socially unstable.

Turning to the plausibility of Side A, the CASSE Position on Economic Growth succinctly describes the fundamental conflict between growing the economy and protecting the environment. This conflict is rooted in the laws of physics and ecology. Thermodynamic and ecological principles, such as entropy, competitive exclusion and trophic levels, confirm that the economy grows at the expense of natural ecosystems. The decision about whether to back Side A or Side B boils down to deciding which are more likely to hold: the laws of physics and ecology, or “economic laws.”

Turning to the second question, the main argument in favor of pursuing “sustainable growth” revolves around technological progress. The idea is to use technological means to decouple economic growth from the use of energy and materials – to increase production and consumption while decreasing physical inputs. Although this is an appealing idea, historical evidence is not encouraging. We have been able to increase the efficiency with which we can produce a dollar’s worth of economic output (i.e., we use less energy and material per dollar of output), but growth has swamped any savings that we might have been able to realize. Overall material and energy use have increased even as we’ve gotten more efficient (the so-called “rebound effect” or “Jevon’s paradox”).

Regarding the prospects for building a socially stable steady state economy, Peter Victor’s model of the Canadian economy shows that with the right policies, we can achieve a non-growing economy that maintains full employment, virtually eliminates poverty, reduces greenhouse gas emissions, and maintains fiscal balance. The feasibility, then, rests on whether societies can generate the political will to adopt such policies (e.g., reducing the working week and year, changing the business structures, and shifting taxation to limit resource use).

Returning to the article in Nature, Peter remarks on the changes that need to occur:

As long as economic growth remains so important to global policymakers, humanity is hopelessly constrained: the environmental policies we need face the unreasonable political hurdle that they must also be shown to promote economic growth. This must change. At grass-roots level, many people in the developed world are already directing their energies towards enhanced wellbeing, in part by turning to local producers for their food, clothing and other needs. Institutions of all kinds — financial, political, legal, educational, religious and social — that have evolved to thrive in a fast-growing economy will have to adapt.

The scope of change required is daunting, but the first step is to reconsider the dilemma of economic growth. In doing so, real answers about the desirability of economic growth will emerge. By refusing to consider the steady state economy as an alternative to continuously increasing production and consumption, nations of the world risk missing out on the best means of achieving sustainable and equitable well-being for all people.