Steady-state economy 101: Do we really need economic growth?

Hillary Clinton, Bernie Sanders, Gary Johnson, and Donald Trump all agree: We need economic growth and we need it bad!

This has been a common refrain from both the left and right for decades.

But is it really true? Can we achieve sustainable prosperity for all without actually “growing” the economy? Is an economy without growth even possible?

More and more people think so.

What is economic growth?

When people say we need to grow the economy, they are almost always talking about growing Gross Domestic Product, or GDP – that is, the total value of goods produced and services provided in a country.

As a country consumes more, GDP goes up. When it consumes less, GDP goes down.

Conventional wisdom says that as GDP goes up, we are better off. This makes sense on some level – when poor families, communities, and nations produce and consume more, they are most likely eating more, using helpful technologies and services, and are generally able to better meet their immediate needs for survival and security.

But based on this fairly sensible notion, we’ve made growing GDP the most important goal of our economy. We’ve made it into a dogma. All the candidates – even Bernie Sanders – call for economic growth and few people push back.

But is this the right goal to have in mind?

 

Is economic growth a good thing?

The problem is, there’s a lot of evidence that GDP doesn’t correlate particularly well with well-being. And if well-being isn’t our ultimate goal, what is?

Few doubt that increasing GDP per capita is helpful and necessary for the poor. For those without food and shelter, more resources and consumption is absolutely essential.

The question is: Do individuals – and economies – reach a point where more GDP per capita is no longer helpful? Once our basic needs are met, does higher GDP per capita really matter?

A 2013 study published in Ecological Economics suggests not. The study examined the connection between GDP and the Genuine Progress Indicator (GPI) across 17 countries between 1950 and 2003. It found that there is indeed a genuine connection between GDP and well-being until a certain threshold. After this, the correlation fades.

Graph showing disparity between GDP and well-being
Data from Dr. Ida Kubiszewski
Graph produced by Kindling

 

This means that nations should indeed focus on building GDP as they come out of poverty. But once they are reasonably well off, other measures become more important.

For example, between 1972 and 2014 – a period of known economic growth – reported happiness in the United States was stable (General Social Survey). Our incomes grew, but they did not make us happier.

That makes sense, right? If you have $1000 to your name, having another $1000 will do wonders. But if you already have $100,000, an additional $10,000 is likely to have little impact on your true well-being. Moreover, if you have $200,000 but you get it from a soul-sucking job, you still probably won’t be happy per se.

So the notion that GDP growth and wealth accumulation should always be our core economic goal is tenuous – at best.

 

Unsustainable growth

But there’s a bigger problem.

Not only is there not much of a lasting correlation between GDP and well-being, growing our GDP actually hurts us and our planet.

The need for constant GDP growth fuels us to keep consuming, chewing up our finite natural resources and asking us to believe we will be happier if we buy more stuff. We already consume about 1.6 times more than what Earth can sustain (The Guardian).

planetary boundariesThe quest for constant economic growth pushes us to consume more, more, more. It insists that that new car or computer program or piece of high-fashion will finally make us happy. It asks us to consume more when we know we should consume less.

This is the definition of unsustainable. If Earth itself is not growing and it has finite resources, how can we expect to keep growing our consumption forever?

 

What would the world look like without economic growth?

So what’s the alternative? Can we really sustain an economy without growth? What would this even look like?

Some, such as Herman Daly and the Center for the Advancement of the Steady State Economy, are pointing to the steady-state economy as the solution.

Under the steady-state economy, we seek to stabilize GDP so that our economy functions within the limits of planetary boundaries. We hold the same level of consumption in perpetuity.

This would allow us to use our natural resources sustainably. It would better balance existing wealth between the rich and the poor, so that everyone can have their basic needs met without increasing our total levels of consumption.

Note, the steady-state economy does not imply no growth in well-being or prosperity. It doesn’t mean our happiness can't grow. In theory, in the steady-state economy we would decouple our well-being from our consumption. Instead of growing GDP and material possessions, perhaps we’d be trying to grow time with our families, our health, sense of purpose, or our ability to pursue passions and interests.

The steady-state economy asks us to think of prosperity as a journey largely inside ourselves, not one found in our material possessions and external status.

The steady-state economy isn’t so much about getting rid of growth, but rather redefining what growth and progress mean. A no-growth economy really simply means a no-GDP-growth economy.

 

So how would this work exactly?

The steady-state economy is still theoretical. No one can say for sure how it’ll work or how to bring it about. That said, we do know a few things about it.

Under the steady-state economy, the goal is not to create as much money as possible. Rather, the goal is to ensure sustainable well-being for all. To achieve this, we would:

  1. Stabilize our population
  2. Minimize extraction of natural resources to within planetary boundaries
  3. Focus on labor-intensive, “inefficient” jobs (e.g., small-scale farming, artisans, artists, social workers)
  4. Ensure greater economic equality and restrain excessive consumption among the wealthy
  5. Curb banks’ ability to create money and loan it at interest, halting the debt cycle
  6. Reframe prosperity not as a function of material wealthy, but rather as an ability to have security, maintain healthy relationships, and pursue passion and purpose

 

But would this REALLY work?

There are, as you might expect, some compelling arguments against the steady-state economy. Some say we can decouple GDP growth from natural resource consumption, for example, through an information economy. Others say we can overcome our limits to growth by technological advancement and efficiencies.

I am not an economist or an engineer. These are indeed both possibilities. We may not need the steady-state economy after all.

However, whether or not we end up truly implementing the steady-state economy, the very idea of it is critical for us right now. It asks some fundamental questions that have gone unconsidered for too long:

Is the purpose of our economy to maximize the amount of money and stuff we all have? Or is the purpose of our economy to bring security and a sense of well-being to all?

Will we move forward on the assumption that material wealth equates to prosperity? Or will we tell a new story: that prosperity is a much more profound, mysterious, and internal phenomenon than we’ve ever let ourselves believe?

 

Watch short film on the steady-state economy

 

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Peter Schulte

Peter Schulte is the founder and editor of Kindling. Before Kindling, Peter was Senior Research Associate for the Pacific Institute's Corporate Sustainability Program and the UN Global Compact's CEO Water Mandate, conducting research that supports companies' sustainable water practices. Peter holds a B.S. in Conservation and Resource Studies and a B.A. in Comparative Literature from University of California, Berkeley, and an M.B.A. in Sustainable Systems from Pinchot University. He lives in Bellingham with his partner Sara and cat Winnie.



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