Does economic growth have a place in the future of high-income countries? This hotly debated question covers many different debates, each with arguments to be taken seriously on both sides. There’s a long history to the beyond-growth perspective (Mill and Keynes wrote about it, for starters) but here’s a quick overview of current angles on the issue, with voices from both sides.
Three perspectives have been debated widely in recent years:
1. “Growth isn’t nearly green enough” – because in high-income countries the absolute decoupling of resource use from GDP is just not feasible on the scale required to tackle climate change. Tim Jackson, Paul Gilding and the new economics foundation are well-known proponents of this view. Counter arguments are made by Matthew Lockwood (would no growth be greener?), Cameron Hepburn and Alex Bowen (couldn’t the knowledge economy grow indefinitely without resource use?) and Chris Goodall (has the UK, for one, peaked in its material consumption?). I’m a sceptic, but let’s see if the OECD’s green growth strategy can indeed pull off the scale of absolute decoupling required…
2. “Growth isn’t benefiting those who need it” – because high levels of inequality and the structure of economies tend to direct gains to the already well-off. In the US, real wages have been mostly falling over the past 40 years and 2002-2012 has been described as ‘a lost decade’ for American workers. In contrast, in 2010 an estimated 93% of GDP’s recovery in the US went to the top 1% income earners, according to Emmanuel Saez at Berkeley.
3. “Growth isn’t making us happy” – because people’s reported ‘happiness’ doesn’t seem to rise beyond a certain level of GDP per capita. This is known as the Easterlin Paradox, and its argument was made widely known in Richard Layard’s Happiness. But critics such as Diane Coyle, and Helen Johns and Paul Omerod caution that the data used are not up to the job, and the income-happiness relationship shouldn’t be dismissed so fast.
While these three debates have been running for years, four newer perspectives have come on the scene:
4. “Growth isn’t coming back” – because in the US, the growth era is over. Robert Gordon of Northwestern University argues that in the US, a unique historical phase of long-term growth is coming to an end in the face of six headwinds – including income inequality, global outsourcing and debt overhangs. He predicts that US growth is shifting from its long-term trend of 2% GDP pc to a future of less than 0.5% per year.
5. “Growth isn’t likely if resource costs are rising”. Research led by Aled Jones and Victor Anderson at the Global Sustainability Institute (GSI) of Anglia Ruskin University in the UK is revisiting the issues raised by the classic 1972 Limits to Growth book (and its update) – but this time with more information, better computing power, and more up-to-date understanding of the science. In particular they are looking more closely at the role of resource constraints and rising prices in limiting future economic growth.
6. “Growth isn’t necessary for ‘capitalism’” – because efficiency and gains from trade – not economic growth itself – are at the heart of the market system, argues Noah Smith in The Atlantic. What about interest-based finance? Still feasible post-growth, he argues: the life events that cause us to borrow and lend won’t go away, and there was plenty of borrowing and lending in zero-growth periods of the Ming Dynasty and the Ottoman Empire.
7. “Growth isn’t likely when populations shrink”. In high-income countries with static or falling populations – such as Japan and Australia – concern is rising about the prospects for economic growth. Would a growing GDP per capita be sufficient, and could that be considered a national prosperity, even as total GDP falls? Given that a number of high-income countries face this possibility, it seems pretty important for them to have a positive vision of how to adjust to that new economic pathway.
I find some of these challenges to the future of economic growth far more compelling than others. Indeed, to anyone who buys into them all, I’d say beware, you doth protest too much.
But what’s strikes me is that one of the most frequent rebuttals to these arguments is ‘So you think growth is hard? Try no growth.’ It’s a serious point, but it’s rarely given serious consideration in economic research and debate. There are surprisingly few studies focused on whether a post-growth high-income economy could be managed to generate a shared prosperity (in the broadest sense).
Surely this area of economic research deserves far more attention. We can’t fully debate the merits or not of continually pursuing GDP growth if we have little sense of what the alternatives could look like. It may also be of immediate policy relevance for countries that already foresee a future of very low growth.
So who is on the case? Here are a couple of initiatives worth following.
How to go slower by design, not by disaster. A few years ago, Peter Victor at York University in Canada constructed a no-growth model of the Canadian economy – he describes it, and its implications, in his 2008 book Managing Without growth: slower by design, not by disaster”, and in this quick-tour 10 minute video.
GEMMA. More recently, Peter Victor teamed up with Tim Jackson at Surrey University to develop The Green Economy Macro-Model and Accounts. GEMMA is a macroeconomic model intended for societies that don’t want to pursue unending economic growth or can’t achieve it. The model can be used to analyze economic and financial stability, employment, and social outcomes in the context of resource and environmental limits. (If you like the techie stuff, they describe it as “a system-dynamic, stock-flow consistent macro-economic model – simulating the development of the real and financial economy under conditions of ecological constraint”). This is definitely one to watch…
I’m on the look-out for other research initiatives like these investigating the feasibility of achieving a shared prosperity in slow / low / no growth economies.
Got any to share?