Time to Click Refresh: Why Economic Growth is No Longer Fit for Purpose

By Poppy Freeman

Yuval Noah Harari, author of international bestsellers Sapiens, Homo Deus and 21 Lessons for the 21st Century, describes the pursuit of economic growth as a “religion”, and moreover, it is a religion that we have forgotten we ourselves created. Economies the world over are now structurally dependent on growth, and international power is determined by Gross Domestic Product (GDP). But to what end? It has become increasingly clear that the goal of growth is flawed and no longer fit for our purposes.

How GDP Growth Became the God of Economics

GDP is, in simple terms, the amount of stuff produced in an economy during a given time period. Consequently, as an economy modernises and the labour force is directed away from agriculture and towards service-based industries, GDP per person increases. Per capita growth has improved life expectancies and literacy rates all over the world by raising disposable incomes, providing governments the funds needed for spending on health and education. I would not be able to sit in front of my laptop and write this as a university student if humanity had not put trust in this arbitrary measure.

Because of the association with improved standards of living, economic growth has also become a very important political tool. Even those who differ in their background, moral values and religion are able to unite over economic issues, because of the belief that economic growth will improve their standard of living. This assumption has won elections the world over, but the logic simply no longer holds for the developed economy we have today.

What’s Wrong with Pursuing Growth?

In an influential TED Talk, Katherine Trebeck of the Wellbeing Economy Alliance highlights the key issue in the blind pursuit of economic growth: it has diminishing marginal returns. Put another way, once an economy has advanced and become service based, the benefits of growth start to trail off. Although living standards might still be increasing in general, this increase slows as the economy advances, and the gains become distributed less evenly. In fact, income inequality has widened in most OECD countries within the past few decades, and the average income of the richest 10% is now around nine times that of the poorest 10%, compared to seven times 25 years ago.

Even if you are one of the lucky ones who benefit, the future does not look all that bright. Compare Costa Rica and Singapore for example. Each Singaporean produces an average of $56,000 worth of goods and services a year compared to each Costa Rican, who produces just $14,000 per year. Yet in one wellbeing survey after another, Costa Ricans consistently come out on top, reporting far higher levels of life satisfaction than Singaporeans (Harari 2018, 37). This comes down to the fact that whilst we fixate on economic growth measured by GDP, we undervalue unpaid household transactions, the health of the population, access to housing and to green spaces, all of which do not count towards the total and yet are integral to the wellbeing of a population. Economic growth certainly has helped many, but now its job is done and a new goal is needed.

And this is not the only problem. The pursuit of economic growth is not only unsuited to an advanced economy, it’s harmful. When one economy focuses solely on output, it has a detrimental impact on the global environmental commons, and this impact only increases as the economy advances. This is especially true for free market economies, where no price is paid for environmental externalities. There is a school of thought that believes in the logic of the Environmental Kuznets Curve: environmental degradation must increase before it can be reduced, and only after a certain level of per capita income is reached can a population become concerned with their environmental impact.

However, not only does this propose an extremely pessimistic view of human behaviour, but a number of studies have found it does not hold true. For some time now, the largest emitters of carbon dioxide have been China, America and European countries, and this is not just because of large populations. Carbon emissions per capita in these countries are also high, totalling 16.2 tonnes per person in the US for instance, compared to the global average of just 4.8 tonnes. In the same TED Talk, Trebeck describes economic growth, GDP and consumption as “pseudo-satisfiers” that, just like reaching for more and more salt, may fulfil in the present but have detrimental effects in the long run. The impacts of this fixation are becoming more alarming year on year, and time available for impactful change is only decreasing.

Can We Get Ourselves Out of This Mess?

Yes, but we need drastic change, and quickly. If the COVID-19 crisis has taught us anything, it must surely be that it is better to act now, to prevent, than to allow problems to escalate down the line. Kate Raworth’s seminal book Doughnut Economics: Seven Ways to Think Like a 21st Century Economist (2017) gives us some hope. Sheputs forward a new model of sustainable development, where an economy sits within a ‘doughnut’ of optimal resource use, constrained by the bound of natural resources whilst still providing for growth in living standards, allowing escape from the ‘hole’ of poverty in the middle. She does not advocate for an economy without growth, but rather a changing of aims, from growth to sustainability.

In the last few years, we have seen evidence of this theory in action and, in contrast to the doom and gloom of climate change statistics, the prospects here are encouraging. One example close to home in St Andrews is the Wellbeing Economy Alliance (WEAll). Founded by Scotland, New Zealand and Iceland in 2018, and later joined by Costa Rica and Wales, it aims to shift economic goals by putting the wellbeing of people and the planet first, using GDP growth as a means to this end rather than an end in and of itself.

Recently, WEAll have released ten principles for ‘Building Back Better’ after the COVID-19 crisis, complete with examples of steps that are already being taken worldwide in this direction. These included the city of Amsterdam’s pledge to adopt the doughnut model for its economy, South Korea’s promise of a Green New Deal and New Zealand’s proposal of a $1 billion green recovery plan. These are all exciting prospects, and there is hope that they will lead the way in shifting ideas about how economies can be run.

It has become increasingly clear that to pursue GDP growth as the ultimate economic goal is both unproductive in terms of wellbeing, and harmful to the planet. There is no denying the benefits it has brought to living standards, but the positive impacts of growth in developed nations is decreasing, only to be replaced by much larger negative environmental concerns. The COVID-19 crisis has provided the possibility of a unique turning point in global economics, and it is now up to individual governments to reset their goals.

Bibliography

Harari, Yuval N. 2018. Homo Deus : A Brief History of Tomorrow. New York: Harper Perennial.

Raworth, Kate. 2017. Doughnut Economics : Seven Ways to Think Like a 21st-Century Economist. London: Random House Business Books.

“The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.”

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