ByAlister Wynn
20/03/2012
6 min read

Is Economic Growth Sustainable?

The economy is in a bit of a pickle… No news there. As ‘consumers’ we’re encouraged to spend in order to stimulate economic growth, but why? We question how sustainable economic growth really is and explore how moving away from this consumerist culture could be a step in the right direction.

Economic growth and what it all means.

Economic growth is a measure of growth in the productive capacity of an economy – the increase in the total output of goods and services produced. This is measured as the increase in Gross Domestic Product (GDP), per capita.

The current global economic system requires an annual growth rate of between 3-6% to survive. Growth of less than 3% for too long will cause the economy to collapse due to lack of currency, whereas growth of over 6% could cause interest rates to spiral out of control.

Where are we now?

We are now in the midst of a very fragile economy which is finding it very difficult to grow at all. The present economic system is only stable as long as it is growing and politicians get twitchy when anything threatens this growth. Just look at how the government has thrown tax payers’ money into failing financial systems in an attempt to save the economy.

Our role as consumers is key in sustaining economic growth – by increasing public spending on goods and services, firms sell more and hence are encouraged to produce more. So, higher demand leads to higher output which gives us our precious economic growth.

But can the economy really go on growing forever?

That’s one question that most economists seem to have closed their ears to.

Is economic growth sustainable?

Economic ‘wealth’, although more conventionally represented by money, is actually dependent on natural resources. The goods and services exchanged for money are inextricably linked to the natural resources from which they are derived, which in the large part stem from good old fossil fuels.

So, at the crux of it all, the present economic system, stable only with growth, is dependent on an infinite supply of natural resources! Have we completely lost touch with reality?! We must bear in mind this ecological constraint on the economy.

Bearing in mind that “Eco” comes from the Greek word oikos, meaning home, the New Scientist article, Economics blind spot is a disaster for the planet, neatly describes how the economy and environment are inextricably interlinked:

“Ecology is the study of home, economics is the management of home, and of course, our home is the biosphere.”

 

Surely, an economy that damages the very home it is designed to manage is a failing economy.

Another New Scientist article on this topic, How our economy is killing the earth, has a detailed looked at how our over consumption is impacting the planet. We are consuming resources at an alarming rate whilst biodiversity on the planet is plummeting. The figures indicate that if we are serious about saving the planet then we may need to do more than minimise our personal carbon footprint – we need to restructure the entire economy.

yoke graph to illustrate growth

The world is already experiencing the effects of climate change, which can be undeniably linked to our over-consumption of fossil fuels and hence economic growth. To illustrate this, the lull in industrial activity brought on by the recession caused a drop in UK carbon emissions of 8.7%, however, as the economy started to recover in 2010, emissions rose by 3.1%.

“Climate change, important as it is, is nevertheless a symptom of a deeper malady, namely our fixation on unlimited growth of the economy as the solution to nearly all problems.”

Professor Herman E. Daly, Ecological Economist at the School of Public Policy, University of Maryland

Having nearly exhausted accessible oil reserves around the world, the race is now on for drilling rights to reach the precious oil that lies beneath the melting ice caps in the North Pole. Russia have even planted a flag on the sea bed beneath the ice caps to stake their claim!

"Rising temperatures mean the ice caps are becoming more accessible for oil firms; there is a bitter irony that the ice melting is being seen as a business opportunity rather than a grave warning."

Greenpeace spokesman Ben Stewart

So what are the arguments for economic growth?

Argument 1 – Global economic growth is necessary to eradicate poverty.

The argument is that in order to alleviate poverty without making the rich poorer, we need economic growth. Without growth, the only way of eradicating poverty would be through redistribution of wealth between the rich and the poor… As you might imagine, this doesn’t go down well with the rich.

In reality, economic growth is a hugely inefficient way of eradicating poverty.

“For the poor to get slightly less poor, the rich have to get very much richer. It would take around $166 worth of global growth to generate $1 extra for people living on below $1 a day.”

Andrew Simms

Such an increase in wealth can only be achieved at the detriment of the planet. In an article for the New Scientist, Does Growth Really Help the Poor?, Simms estimates that raising the income of the world’s poorest to $3 a day, would require 15 planets worth of resources!

The irony is that in growing our economy to apparently ‘help’ the poor, the environmental damage we cause in the process often hurts the poorest the most. These people often live closely with the land and so the detrimental impacts of climate change far outweigh any benefits they receive from growth.

“The faith in ‘development’ can no longer escape criticism, not only because it justifies huge increases in social inequality, but because it has become dangerous, by compromising everybody’s future.”

Gilbert Rist, author of The History of Development

The only realistic way in which we can hope to see a fairer deal for the poor is by consuming less ourselves:

“With global growth constrained by the need to limit carbon emissions, redistribution becomes the only viable route to poverty reduction.”

Andrew Simms

Argument 2 – People want and expect MORE

This is a very valid argument.

People are no longer so content with what they have but are continually striving towards something better, aspiring higher and higher.

If we are to sustain this kind of lifestyle then yes, economic growth is necessary.

Where do we go from here?

We need to make our economy sustainable. A sustainable economy can be described as one that “meets the needs of the present without compromising the ability of future generations to meet their own needs.” (The World Commission on Environment and Development (the Brundtland Commission), 1987).

We’ve pulled together suggestions from some of the world’s greatest thinkers who share their suggestions for Human Progress in an age of Climate Change.

 

“We should… dethrone the idea that maximising the growth in measured prosperity, GDP per capita, should be an explicit objective of economic and social policy.”

Turner A (2008) ‘Dethroning growth’ in Simms A and Smith J (eds) Do good lives have to cost the Earth? (London: Constable and Robinson).

The key to moving towards a more sustainable economy is to change our lifestyle to one  which consumes fewer resources.

 “The presumptions and aspirations of what constitutes a civilised life will have to be modified. The model popularised by ‘the American Dream’ is perhaps the most dangerous in this context, with its emphasis on suburban residential communities far from places of work, markets and entertainment and linked only through private motorised transport."

Professor Jayati Ghosh, Professor of Economics at Jawaharlal Nehru University, New Delhi, and the executive secretary of International Development Economics Associates (IDEAS)

It’s important to remember that economic development doesn’t actually correlate with increased life satisfaction. It generally brings with it, urbanisation, air pollution and long working hours which can often lead to a stressful lifestyle. We seem to be working our lives away and neglecting our well-being. By working less hours a week, yes we might not have as much money to spend but we would be more likely to spend our money carefully, and get into a habit of re-use, moving away from our consumerist, throw away culture. This lifestyle would not only be less of a burden on the planet but less of a burden on our mental health.

Ferenc Mate, author of A Real Life, confirms this theory of self-sufficiency being beneficial to mental health. Mate describes how development in the western world has led to stressful lifestyles, so much so that the highest selling drugs worldwide are tranquilisers and anti-depressants. He suggests that the reason behind this is that we’ve become so disconnected with our fundamental ideals – food and community. His antidote is to move away from this ‘secondary’, consumer lifestyle and become ‘primary’ people once again, doing things with our own hands, and being more self-sufficient. “With self-reliance comes self-esteem.”

“Solutions imply new models that, above all else, begin to accept the limits of the carrying capacity of the Earth: moving from efficiency to sufficiency and well-being...We need to replace the dominant values of greed, competition and accumulation, for those of solidarity, cooperation and compassion. The paradigm shift requires turning away from economic growth at any cost. Transition must be towards societies that can adjust to reduced levels of (overall global) production and consumption, favouring localised systems of economic organisation.”

Professor Manfred Max-Neef

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