Is there a limit to economic growth?

What if the economic growth spurt we have known for the last 300 years was the exception, and has now come to an end?, asks Merryn Somerset Webb. Can we expect Britain's economic growth to slow to pre-Industrial Revolution levels this century?

This week has been all about growth. How much there is or isn't and how we can get more of it. But there might be a problem with the very fundamentals of the idea. What if we can't grow any more? What if the age of economic growth is over? This is something our publisher Bill Bonner has been mulling over. We take it for granted, he says, that a healthy economy grows. But "what if the growth spurt we have known for the last 300 years was the exception, not the rule? And what if it were now coming to an end?" Or even came to an end back in 1979?

After all, you could argue that growth in the world's mature economies has been no more than "incremental" since then, with even much of that being "phoney" driven not by real wealth creation, but by debt and state spending. The key point is that mature economies are effectively energy economies. We got huge boosts from the first increments of using oil-based energy (coal in the 18th century and oil in the 19th and 20th) and further boosts from improvements and refinements later on.

But we've probably leached just about all we can from this source of growth. It is, says Bill, a bit like when the bow and arrow was invented. At first it let hunters get a lot more game, so growth took a leap forward. But soon the limits of technology were reached and growth stalled. Similarly, we could now be done with growth until we come up with another breakthrough to drive us on (something we are hoping for, of course, see page 24). That means we will go back to pre-Industrial Revolution growth rates. Given that global growth ran at around 0.32% between 1500 and 1820, that's probably notwhat George Osborne is after.

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Bill isn't alone in wondering if the age of growth is over. Physicist David Korowicz notes that growth comes from two things. The first is an increase in the number of people working. The developed world isn't likely to see much of that this century. Most big developed countries are set for huge population declines: 37% in Germany, 23% in Italy, 5% in France, 31% in Russia, and even 11% in China. The second is a rise in the productivity of workers: if the developed world is at the limits of energy exploitation we won't see much of that either.

But Korowicz goes further. He isn't just worried about no growth. He is worried about "de-growth". Our global supply chain system is now such a delocalised and "networked complex adaptive system" that it is very dependent on a few "hub infrastructures" (such as the financial system and global energy flows). The collapse of any of these hubs could end in global systemic failure. This sounds like scaremongering, but you need only look back to the start of the financial crisis, when global trade all but stalled due to the absence of letters of credit, to see it has a ring of truth. Something to worry about over the weekend, if you tire of Greece.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.