The idea of continuous economic growth…

No prominent politicians or economists are challenge this axiom. This is because; the idea of economic growth satisfies the two fundamental sections of the human society, the rich and the poor. For the rich it is all about getting richer and more powerful and for the poor it is the existence of the ‘hope’ of someday getting out of poverty.

This is the idea that will "lift all boats" in the current jargon, meaning that even the poor will get to be better off in the future, if we only have faith in "growth". Given a particular size of economic pie , if the rich continually chip away from it ,so that which will be left for the poor will be miniscule, thus in order to accommodate the poor, the pie itself will have to grow.

However, if we think globally, the economic pie is constant; we have only one earth with all its resources. So can we accommodate an ever increasing pie, the need for constant growth?  The answer is to divide humanity into multiple societies enabling some societies to increase their pie and reducing that for the others.  Thus in the age of industrialization, prosperity, however, has not come to all societies. Material consumption in some countries, mainly in sub-Saharan Africa, is now well below the preindustrial norm. Countries such as Malawi or Tanzania would be better off in material terms had they never had contact with the industrialized world and instead continued in their preindustrial state. Modern medicine, airplanes, gasoline, computers—the whole technological profusion of the past two hundred years—have succeeded in producing among the lowest material living standards ever experienced there.

So the ideas of constant growth associated with industrialization have reduced income inequalities within some societies but have definitely increased between societies.

Factor One: Innovation in work by definition may lead to improved productivity which allows more to be created using the same amount of input as before. Efficiencies in the use of raw materials can also allow for growth with a fixed rate of consumption. For example, our cellphones have more computing power than a computer in 1970’s which could easily have been the size of a building.

If we look at the modern industrial society we see a similar pattern, the wealthy devising means to protect their wealth but with a twist, that is with the mantra ‘do not keep the majority of the population, the poor, and permanently discontented’. In a democracy, which is the presently the chosen organization structure to implement modern political will, this can be disastrous for the rich, leading to total annihilation. In a democracy the majority rule and the majority are the poor. Thus in order to keep the non-wealthy from complete despair, it is necessary to postulate growth,  and sell hope as ‘economic  growth’, the ‘hope’ of achieving high economic status in life. This ensured that the majority (i.e. the poor) in order to achieve this will become more efficient and innovative in their respective profession, thus ensuring the implementation of the great economic mantra ‘productivity through innovation’.

Factor Two: We can increase the size of our economy by taking from others

The hunter-gatherer societies are egalitarian, material consumption varied little across the members, whereas agrarian societies had pervasive inequality. This because agrarian society is more capital intensive giving enormous opportunity for consumption by the rich and promising ‘hope to become rich’ for the poor. It changed the nature of the political institution of the people and if we follow history of mankind we can see how it evolved over time.

Fast forward to modern western societies and the societies which are implementing western economic thought, the idea of controlling capital for oneself and one’s progeny is employed through the modern financial structure. There is strong pressure by the wealthy class to limit taxation of wealth, so income is taxed instead. This is because inherited wealth is generally quite unequally distributed: it is nearly as unequally distributed as wealth (generally considered) and a great deal more unequally distributed than income. Inheritance is the main factor of wealth concentration among the richest part of the population, and of its intergenerational reproduction. In the United States, inheritance is primarily responsible for the fortunes of no less than sixty-seven percent of individuals who qualifies as “super-rich”. In countries like France, inherited wealth accounts for a large part of all wealth possessed (generally estimated at around 40%). Thus to serve the dual purpose of keeping and growing this wealth, we have a variety of income taxes.

Although pro-wealthy policies increase capital gains, dividends, and profits in the short-term, they ultimately destroy broad-based purchasing power, which will in the long-term, lower growth for everyone else within a society. To resolve this paradox, the society needs to grab from other societies, this was done explicitly and blatantly in the days of colonialism, even before that, through direct conquests of nations looting the riches and enslaving the population, but today it is more subtle, being obscured in "free trade" programs and the like.

Factor Three:  The rise in population. Each new person requires the basics of existence and production must expand to satisfy this demand.

In the stagnant economies of Middle Age in Europe, the external pressures on the population due to disease and food limitations have also meant that the population tends to remain stable as well. With the introduction of mechanized agriculture it became possible to produce an excess of food and this allowed the population to increase as well. The result was internal pressures on the community which led to emigration, predatory warfare and the removal of people from the land. In Europe the population excess was absorbed for some time by the simultaneous rise of towns with the opportunities for local manufacturing. When this avenue became less available, migration, especially to the new world, became an important factor. As the societies changed in response to these factors the underlying philosophy of life changed as well.

In terms of population growth, similar to what happened in Europe is happening today at underdeveloped countries, the population is expanding tremendously demanding more resources. There are barriers for these demands to be met, largely for cultural reasons. As these societies, even if they manage to generate wealth they are unable to keep them because they do not have institutions with appropriate political will. Moreover, the new technologies of the Industrial Revolution could easily be transferred to most of the world, and the inputs for production obtained cheaply across the globe. But the one thing that could not be replicated so easily or so widely was the social environment that underpinned the cooperation of people in production in those countries where the technologies were first developed.

This is the major problem of the underdeveloped societies, they will need to learn and evolve and scale up the social transformations within themselves, if they want to absorb new technology and create and retain wealth.

So what will happen…then…..the pressure to grow will continue…

Factor Two: taking from others

The division of humanity into a global economic pie and grabbing bigger chunks at the expense of others will have to end. When everybody, every society will demand and grab an equal share of the pie, there will be war, has to be a war leading to destruction and creation of new space for economic growth. The great cycle of Brahma-Vishnu and Shiva (creation-preservation and destruction).

Factor Three: increasing Population

The world cannot continue to support an ever increasing population; the access to specialty natural resources will become limited and there may be constraints on the sources of energy as well. To look at it another way compound growth, the common measure of expanding resources, is an exponential function and is mathematically unsustainable. Even a modest 2% growth rate implies a doubling of size in just 35 years.

Factor One: Innovation- Productivity

At first it was innovate to produce products, then services. Our consumption and finer senses demand even more ‘stuff’.

The difficult issue that arises is what is every one going to do if we stop acquiring so much "stuff" (over productivity)? The usual answer of: "we will become a service economy" does not work. Even services require raw materials, a trip to a nail salon, for example, means transportation for the customers and the staff, running the business (heat and light) and the supplies of the trade. There are no services that don't use resources. The question is do we need so much ‘stuff’, or services. The eternal question of what we ‘want’ to live a fulfilling life vs what we ‘need’ ? Without the need to produce that which could not be consumed the amount of work was modest.  I understand the case of underdeveloped economies where people need to work more to survive but in a developed economies also we have  people working 80 hours a week so they can afford a second home, but not having any time to visit it.

To Conclude…

The growth model must fail at some point. There will always be some limiting factor that will inhibit growth, it may be energy or water or arable land, but there will eventually be a choke point. We can start taking steps now to plan for such a day otherwise if we continue to pursue pointless growth until we hit the brick wall of shortage. Think differently? A new economic model is needed, where the idea of growth as we know it, will not be the central principle of this economy.