Pffft… Is the growth running out of air?

Author: Christoph Koch |
Photo: Nishant Choksi
Growth proponents and opponents are in irreconcilable conflict with each other. But why? An overview of the most important theories and arguments

“Economic growth in danger”, “Economy loses momentum”: Such headlines spread fear and terror among politicians, editorialists and companies. The gross domestic product (GDP) does not even have to shrink – it just has to grow less strongly than in the previous year. Then unrest spreads.

It is in the nature of human beings to improve, and some people say that humans often succeed at this. They refer to historical facts: Thanks to growth accelerators, such as industrialisation, we are now doing better than ever before. Compared with our ancestors, we are healthier, more educated and, in the vast majority of cases, wealthier. We are living longer, and we have to work much less, and less intensely, for a higher standard of living.

Others call this whitewashing. Moreover, growth cannot last forever, they say. They point out that the gap between rich and poor is widening. And that this “more” is based not least on the exploitation of finite resources and the destruction of habitats. The “post-growth” or “degrowth” movement is more visible than ever in the media, and even exhibits different, distinct submovements. At the same time, growth critics and growth proponents are usually irreconcilable with each other, shaking their heads about each other’s intransigence. We have compiled the arguments of both sides.

Plastic Cups into Park Benches!

Due to the increasing number of horse-drawn carriages, the streets of New York City will soon be buried under a metre-deep layer of horse manure. This was the prognosis of the city planners around 1850. As is well known, things turned out differently. And this is precisely where a central argument of the growth advocates comes in: Problems that can arise through growth can best be solved by innovations that this very same growth brings. Cars instead of carriages, electric cars instead of petrol, park benches made from old yoghurt cups or energy-efficient houses – there are countless examples of how growth means not just “more”, but “better with less”.

The growth critics counter this argument with the so-called rebound effect: Often consumption rises by the same measure in which the costs or the resource expenditures sink. Thus, thanks to insulation and other advancements, the energy requirement for heating a square metre of living space did in fact decrease. However, humans reacted by living in ever-larger houses and dwellings. And 50 years ago, a small car consumed 4.5 litres of fuel to travel 100 kilometres. Today, it needs the same quantity. Although it has a much more economical engine, it weighs more than twice as much as the old model. Savings through technical progress would thus be regularly cancelled out – also because more efficient production is often reflected in lower prices, which allow more consumption with the same income.

Garden, Repair, Smile

According to growth advocates, mass unemployment can only be prevented by constant growth. That makes sense: Technological advances, whether excavators or 3D printers, mean that fewer people can produce more in less time. Economic stagnation would almost automatically mean redundancies. The growth critics argue exactly the other way round: Why not use productivity gains to reduce working hours across the board? Those who work only 20 instead of 40 hours a week will also have more time to partially provide for themselves by tending their own vegetable gardens or repairing their belongings (instead of buying new things), so each person automatically has to consume less. This means that even stagnating or shrinking incomes could be successfully coped with.

The unconditional basic income is also very well received in degrowth circles: with it, the increasing efficiency through technical progress can be used to reduce working hours without having to be accompanied by impoverishment. Proponents of growth laugh at the idea of a world of gardening, self-sufficient people – who exchange a bicycle repair for computer usage – as unrealistic and regressive.

Happier with less!

Growth is often discussed at the societal level, but there is also a psychological aspect. A prosperous economy provides for rising incomes, a higher standard of living and greater life satisfaction, according to the arguments of the pro-growth faction. The critics reply: On the one hand, various studies have shown that individual satisfaction only “grows”, as prosperity increases, up to a certain plateau. If all important needs are satisfied (in the United States, researchers have identified $75,000 annual salary as an approximate threshold), even a hefty salary increase would lead only to minimal increases in perceived happiness. In addition, there is the “relative income effect”: If all incomes grow equally strongly (which would ideally be the case in a prospering economy), nobody achieves an increase in status. If the neighbour’s income also increases, that is, if the neighbour can still afford more than oneself can, life satisfaction does not increase. Or as the US writer H. L. Mencken once put it: “Wealth is any income that is at least $100 more a year than the income of one’s wife’s sister’s husband.”

Fight Poverty – with Cola

“The institution that has done most to eradicate poverty in Africa is not a non-governmental organisation,” says the Spanish economist and declared growth fan Xavier Sala-i-Martin. “It’s Coca-Cola, with tens of thousands of jobs created.” The United Nations Organisation and the World Bank also see economic growth as an excellent tool against poverty: while in 1990 around two billion people lived below the official World Bank poverty line of $1.90 per day, by 2015 the figure had dropped to 700 million – with the world’s total population rising steadily. Growth defeats poverty, so the thesis.

But that is precisely what the growth critics have their doubts about. The income of the richest tenth of the world’s population would have increased tenfold between 1820 and 1992, while that of the poorest 20 per cent would only have tripled. Even from a larger cake, only the smaller pieces would reach the poor. Growth does not eliminate relative poverty, says the counterthesis – quite the opposite.

Does the strongest always win in the end?

Go easy, old man!

Demographic change is an important arrow in the argument quiver of growth advocates. Rising life expectancy means fewer and fewer contributors are supporting more and more pensioners, at least in many Western societies, and this burden can only be overcome by solid economic growth.

The growth sceptics regard this as wishful thinking: On the one hand, the pension formula, at least in Germany, stipulates that pensions must be directly linked to wage and salary levels. If more growth leads to rising incomes, pensions will also rise – it will therefore not be easier to find funding for this. It is similar with private old-age provision: If the standard of living rises as a result of continuous growth, then more must be set aside for old age in order to maintain this standard.

Instead of relying on eternal increases, one should rather think about anchoring care for the elderly again more strongly in the private environment of the family. The time necessary for this could be gained by the already mentioned reductions in working hours.

Grow of fall behind

The fear of a lack of economic growth also stems from the threat of a loss of international competitiveness. Germany’s role as an exporting nation depends on solid growth. In addition to the economic dimensions, political dimensions are important: a high GDP normally guarantees a certain amount of power and good negotiating positions in bilateral and multilateral talks on the international scene. Both export revenues and diplomatic authority are at risk as soon as the economy stops growing.

The opposite side sees Germany’s role as an export nation as being linked not to growth but to innovation. If, for example, efficiency gains were used to reduce working hours, this would not have a negative impact on the quality of goods produced in Germany or on interest abroad. The global political factor should not be overestimated either. Similar to the situation with individual incomes, it too is, in the end, a zero-sum game: If all countries grow, their relative position in the power structure will not change in the end. If the economy stagnates in all countries, same result. So can degrowth only work in the end if everyone participates?

Green is not always green

Some say that those who picture only increasingly smoky factory chimneys when they think of economic growth have missed the point. Instead of being about purely “more”, it is much more often about “better”: qualitative instead of quantitative growth. And this is what companies are motivated to do by the prospect of increasing sales and profits. This is how innovations are created. In addition, consumption is shifting more and more from products to services. As a rule, services are more resource-efficient than the manufacture of products. For example, the CO2 intensity of the gross domestic product (GDP) – that is, the amount of greenhouse gases emitted per euro of GDP – could be gradually reduced. According to the argumentation, growth can very well take place in a resource-conserving manner.

The degrowth movement is divided on this issue: While some representatives are quite open-minded about “green growth” – for example in the field of renewable energies, in support of an overall more favourable climate balance – others take a critical view. Moreover, a large part of economic growth is based on the exploitation of irretrievable natural resources and energy sources. In the long run, it is not a really lasting income, but rather a sale of assets. And just as selling off the family silverware is not a permanent revenue strategy, so too growth based on the exploitation of oil reserves and the clearing of forests will automatically meet its end at some point.