Economic growth is almost universally considered to be a good thing, so much so that the British government recently declared it to be their “overriding priority”. Growth delivers rising incomes and a better quality of life, and raises people out of poverty – what’s not to like?
That’s the theory. In reality growth is a little more complicated. Here are three reasons why developing countries should think twice about pursuing economic growth above all else. Of necessity, this page is a little simplified. For more on each of the three topics, click on the titles.
1) Growth doesn’t make us happy
Every government (except one) uses GDP as its yardstick of success. On a good year the GDP grows. On a bad year it shrinks, and that’s a recession. Growth in GDP is unquestioned because it is assumed that increased material wealth makes a society more prosperous, and bigger is therefore better.
In reality, prosperity is much broader than that. To live a fulfilled life we need community, rewarding work, and a pleasant environment. Plenty of studies show that economic wealth is just one of many factors in human happiness. We all need to have our basic needs met, but once we have enough, any further wealth is irrelevant. The average British adult is no happier than we were in the 1970s, despite being considerably better off.
In fact, our consumer economy may even be working against human happiness, by undermining community, work and the environment. “Beyond a certain point at least, continued pursuit of economic growth doesn’t appear to advance and may even impede human happiness” writes economist Tim Jackson.
Why do we spend so much time, energy and resources chasing after something that makes an ever-smaller difference to our quality of life? If it doesn’t make us better off, why do we bother with growth at all? (… more)
2) Growth is unevenly distributed
The usual answer to why we need more growth is that we need it to end poverty: “We as a global society need more and more growth,” writes Thomas L Friedman, “because without growth there is no human development and those in poverty will never escape it.”
According to popular wisdom, the best way to end poverty is to grow the economy and create more to go around. There are two things to consider here. One is that poverty is relative – in the UK you are poor if you earn less than 60% of the average income. If there was an absolute line that you could cross, we’d have solved poverty long ago in the UK. Instead, the average income keeps rising, but the number of people below the poverty line stays almost the same. In 1991, there were 13.9 million people in relative poverty in the UK. By 2001 there were 13.8 million, and in 2008 there were 13.5. Britain’s GDP has more than doubled since 1991.
How can $1.5 trillion of growth in GDP over 20 years do so little? The answer is that economic growth is not equally shared. Because growth doesn’t get fairly distributed, it takes a huge amount of growth to make the lives of the poorest even a tiny bit better.
It’s even worse at the global level. Just 60 cents out of every $100 dollars of global growth trickles down to the world’s poorest people. If we’re relying on growth to deliver them a better standard of living, the global economy will need to be several times larger. And that leads us to a third problem. (…more)
3) There is nowhere left to grow
In 1972, the famous Limits to Growth study sent a stark warning to the world: “If the present growth trends in world population, industrialization, pollution, food production, and resource depletion continue unchanged the limits to growth on this planet will be reached sometime within the next 100 years.”
The report made a scientific case for what is actually a pretty common sense idea – that sooner or later, economic growth will begin to run out of space. There are only so many people who can live on earth at the same time, only so much CO2 the atmosphere can absorb, only so much oil or metal ore in the ground to dig up. The earth, however large it may seem, is still a finite space.
We know what some of those limits are. At atmospheric concentrations of 350 parts of CO2 per million for example, the climate begins to destabilise. We’re at 387, and the world is experiencing droughts, floods, and unpredictable weather as a result, with potentially worse to come. Unfortunately, no country has yet managed to significantly de-couple economic growth with growth in CO2 levels. Simply put, we cannot have unlimited economic growth and a stable climate at the same time.
Natural resources are finite too. Every major economy is heavily dependent on fossil fuels for cheap energy. We use 85 million barrels of oil a day worldwide, and at that rate of consumption even the optimists suggest we have no more than 30 years worth of oil. In fifty years time we’ll have exhausted all known deposits of tin, gold, and zinc, and we’re also drawing too much and too fast from renewable resources such as forests and fish stocks. In short, we’re bumping up against the limits already. Further growth looks increasingly reckless. (…more)
Where does that leave us? We can’t carry on growing, but we can’t stop either – not without recession and the job losses and re-possessions that go with it. Is there another way? Move on to the solutions pages to find out where we go from here.