The growth debate

The modern debate about economic growth first kicked off in 1972, with the publication of the influential Limits to Growth report by the Club of Rome.

The argument of the report was that exponential growth of production and consumption could not be sustained over the long term due to the finite resources and absorptive capacities of the Earth’s environment.

In the half century since then global environmental degradation has greatly worsened, with climate change, soil depletion, deforestation, ocean pollution and the loss of biodiversity all at critical levels.

This has led environmentalists and environmental economists to revisit the question of whether economic growth can be environmentally sustainable.

One response to concerns about environmental degradation has been to argue, not that economic growth per se is impossible, but only its current patterns and forms.

If the world switches to renewable energy, becomes much more resource-efficient and institutes a ‘circular economy’ in which resources are reused and recycled, GDP growth can continue at the same time as environmental damage is reduced.

Growth in global income remains morally necessary, it is argued, to end poverty and give everyone on the planet a decent living standard.

Advocates of ‘green growth’ include major economic institutions such as the World Bank, and many governments and companies.

They acknowledge that the world is very far from achieving green growth now.

But they maintain both that it is possible to ‘decouple’ GDP growth from environmental damage, and that it is politically and socially infeasible to call for growth to cease.

With the focus of green growth on environmental sustainability, the concept of ‘inclusive growth’ has been developed to emphasise how growth strategies can be redesigned to achieve reductions in poverty and inequality. The OECD defines inclusive growth as ‘economic growth that is distributed fairly across society and creates opportunities for all’.

Advocates of inclusive growth argue that redistribution through the tax and welfare systems is not sufficient to achieve genuine inclusion. They typically emphasise instead the importance of education and skills, labour market reform, asset ownership, the empowerment of local places and democratic participation.

For some environmentalists and economists ‘green growth’ and ‘inclusive growth’ are mirages. The root problem in our economy and society, they argue, is the obsession with economic growth. Exponential growth cannot be achieved within the earth’s planetary boundaries, and cannot satisfy human needs.

‘Degrowth’ is the term increasingly used for strategies which seek a deliberate and planned contraction in the economies of high-income countries. Proponents argue that reducing the throughput of materials and energy can be achieved at the same time as maintaining and even improving people’s standards of living. As unplanned recessions exacerbate inequality, a central tenet of degrowth proposals is to ensure social justice by equitably sharing out resources, and reducing consumption and income by reducing working time.

Proponents of the idea of a ‘steady-state economy’ or ‘prosperity without growth’ argue for an economy in which environmental resources and absorptive capacities are sustained at an ecologically healthy level. This will require a contraction in the current size of high-income economies.

Rather than either ‘green growth’ or ‘degrowth’, some economists have begun to use the term ‘post-growth’ to characterise an economic policy stance focused directly on achieving environmental sustainability and individual and social wellbeing.

A ‘post-growth’ society and economy would be one where economic growth – and its attendant consumption patterns – is not regarded as a good in itself. While some of those using the term believe degrowth is necessary, others are (in Kate Raworth’s phrase) ‘growth agnostic’.

Some analysts have pointed out that western economies have for some time been experiencing much lower growth rates than in the past, with the idea of ‘secular stagnation’ suggesting that this may be a long-term condition. So adjusting to a post-growth economy may be necessary, whether designed or not.

The dependence of current economies on growth to sustain employment and raise tax revenues has led some researchers to model a ‘post-growth’ economy which lives within planetary boundaries and focuses on redistributing wealth and improving wellbeing rather than growing output.

The idea of ‘wellbeing’ is now widely used to characterise the goal of a flourishing economy.

Wellbeing includes income but is not limited to it: it also includes other factors, including the quality of work, physical and mental health and public goods (such as the natural environment and social cohesion) that make up people’s overall quality of life. The general concept of wellbeing includes both individual life satisfaction and the flourishing of society as a whole.

A common focus of those arguing for a ‘wellbeing economy’ is that we need new indicators to measure economic and social progress, in place of growth of GDP (see below). Economic and social policy needs to be designed to achieve wellbeing directly, rather than relying on economic growth.

A number of countries, including Iceland and New Zealand, are using ‘wellbeing budgets’ and new indicators to try and ensure that this is achieved.

One of the most common arguments in the growth debate is about the value of Gross Domestic Product (GDP) as a measure of economic progress. This was not what GDP, which measures national income and output, was originally designed for. But economic policy and analysis has generally used it as such: GDP growth is the primary (though not only) economic goal of most governments.

The argument against GDP is that it does not measure environmental degradation or the depletion of ‘natural capital’; it ignores productive activity (such as childcare and housework) that occurs outside market transactions; it cannot take into account intangible but important public goods such as social cohesion and trust; it does not reflect subjective happiness or life satisfaction; and does not measure the distribution of income or wealth.

Many attempts have therefore been made to construct alternative metrics of economic and social progress, with the aim of ‘dethroning’ GDP from its paramount position. Some seek to adjust GDP in various ways. Others have compiled an index of various measures.

The most common approach is to use a ‘dashboard’ of multiple economic, environmental and social indicators. These more complex datasets have the ability to track a breadth of concerns, but make it harder to track overall progress and tell a clear narrative story.