The myth of growth

“No country has ever ended human deprivation without a growing economy. And no country has ever ended ecological degradation with one”.

– Kate Raworth, Doughnut Economics

Economists and politcians are obsessed with maintaining growth. GDP is carefully measured and seen as a leading indicator of a nation’s health. It is politically toxic to preside over a shrinking economy and it offers a nice, simple measure that most people have heard of even if they can’t explain what it means.

A healthy rate of GDP growth is generally considered to be 2%-4% per annum but the world breaks down into two camps. The more mature western economies are generally achieving at the low end or below that range and developing economies are growing in some cases much faster than this.

The problem with constant growth, though, is that it is self-evidently unsustainable. The last hundred years of economic development have been hugely positive for mankind as a whole range of societal issues have been addressed from poverty to poor health but we have been borrowing resources from future generations. The current lifestyle of the average Western person cannot be sustained if everyone on the planet wants to live it.

One of the issues is that, as humans, we are really bad at understanding the effect of compound growth. A 2% per annum compound growth rate sounds benign but roll forward long enough and you have grown the economy to a size that is ludicrous and no one could contenance. In fact nature is currently giving us a lesson in the effect of growth on growth as the environment is starting to degrade at a rate that is surprising even climate scientists as carbon emissions continue to grow.

In the West economic growth, productivity growth, agricultural productivity growth and Moore’s law all seem to have stalled. This could be seen as disasterous on the current economic model but could also be necessary if we are going to keep the planet alive for the remaining 50,000 years that scientists believe it might remain inhabitable.

We are going to need to decide soon whether we think we can continue to grow but decouple this growth from resource consumption or whether we just need to start slowing the train down and perhaps stopping in a siding for a pause. The problem with the former is that technological change does not always help the resource problem that we face, the energy consumption of bitcoin being a good example. The problem with the latter is that we have no experience of trying to slow and even reverse an economy. In fact if the last decade should have taught us anything, trying traditional economic growth stimulus can lead to growing unequality, followed by a rather nasty strain of populism.

This decision can only be taken at country level and politicians of all sides seem to be more obsessed with the immediate and less important currently but hopefully that will change and change soon. Some company CEOs are providing more leadership at the moment than politicians and trying to change things inspite of them. Meanwhile investors might be well advised to check that their portfolios are at least aware of the possible future upheaval and positioned to take advantage of the companies that are set up to solve the problems of the future rather than contributing to them.

Leave a Reply