(If not, would its opposite – degrowth – be the right alternative?)
Since the economic and financial crisis has hit the world at the end of 2007 the main concerns of most governments and institutions have all been on recover growth and increase the GDP. Yet, in a world with growing demographic trends yet with finite resources (biocapacity) for the production cycle and limited sinks that can absorb waste and pollution, is growth really the right path?
There’s an intuitive idea that something in the system needs to be changed. With two blog posts I would like to do a reflection on these two matters: 1) is continued growth sustainable? 2) If not, would its opposite – degrowth – be the right alternative?
To try to answer to this first question, I would like to focus on two topics: on the way growth is measured – to check whether it takes into account development issues – and then on the possible downsides of growth.
The main indicator usually used to measure growth is the GDP. Yet, it is widely recognized not to be an exhaustive index because it leaves out many “qualitative” data. It counts only monetary transactions and provides a “poor measure of social welfare; it does not distinguish between costs and benefits, but counts all economic activity as ‘progress’.”
In answer to these shortcomings, a number of alternative indicators have been developed by international organisations and global partnerships to “measure progress, true wealth and well-being” and compare development degrees among countries: such as the HPI, Happy Planet Index, the GNH, Gross National Happiness, or the GapMinder initiative. In this EU Commission site there is a comprehensive list of the main ones. And many famous economists and politicians denounced the inadequateness of GDP in capturing the greater picture. Here is a list of quotes to witness this. Even the creator of the GDP measure, Simon Kuznets, in 1934 stated “The welfare of a nation can scarcely be inferred from a measure of national income”.
The environmental activist Vandana Shiva provides another very interesting reflection over this, pointing out the paradox that “growth/GDP measures the conversion of nature into cash, and commons into commodities… A living forest does not contribute to growth, but when trees are cut down and sold as timber, we have growth. Healthy societies and communities do not contribute to growth, but disease creates growth through, for example, the sale of patented medicine”.
Another reference in this direction is the indication coming from the Easterlin paradox. Easterlin says that “at a point in time both among and within countries, happiness and income are positively correlated, but, over time, happiness [quality index] does not increase when a country’s income increases” given that certain basic needs are satisfied.
Even if some theorists have contested / rejected this model, NEF, the UK’s leading think tank promoting social, economic and environmental justice, asks: “if growth is really the cure to all of our ills, then why are we in such a malaise after sixty years of it in the UK?”.
If you think as well that “there is more to life than the cold numbers of GDP and economic statistics”, you can create your interactive Better Life Index rating the 11 topics “in the areas of material living conditions and quality of life” chosen by the OECD to compare well-being across countries.
Let’s now analyze whether growth can have negative effects. The answer is yes. As highlighted by Geoff Riley (Head of Economics at Eton College in the UK) a fast expanding economy also has downsides and costs, economic (it can cause inflation) but also ecological and social.
On one hand, the effects on the environment are clear: according to the Global Footprint Network humanity isalready using the “equivalent of 1.5 planets to provide the resources we use, and absorb our waste”. We are in a state of overshoot, “accumulating ecological debt by depleting natural capital to keep the economy growing”.
To reinforce this, Tim Jackson in its book Economics for a Finite Planet states that “The idea of a non-growing economy may be an anathema to an economist. But the idea of a continually growing economy is an anathema to an ecologist.”
On the other hand, the social downside of growth is caused by its uneven distribution. This widens income and wealth inequalities that can bring to social unrest and undermine security. A study by Credit Suisse in October 2010 show that “the richest 0.5 percent of global adults hold well over a third of the world’s wealth”. Until a certain extent inequality is probably helpful as “it directs people to the sectors of the economy where they are needed, and rewards people for their contribution to society”. But large gaps of inequality are directly reflected into health and social problems, as highlighted in the scatterplot that compares income inequality to the Index of Health and Social Problems (index created by Equality Trust in order to try to provide a wider description of the overall “health” of a society taking into account 10 indicators).
To recap this first part of my reflection, growth measured by the GDP does not capture what really matters to people and to the earth; moreover it has lead to ecological overshoot and social inequalities. If a continued growth economy seems not to be sustainable, could degrowth be the right alternative? Read the next blog post to investigate this matter.