The end of growth?

Economic growth seems part of the natural order. But actually, it's a recent innovation. Has growth now reached its limits? Simon Wilson reports.

Is economic growth normal?

Only for the past two centuries or so but that's easily long enough for growth to seem part of the natural order. The physicist and sustainability theorist David Korowicz puts it well in a paper published earlier this year. The presumption of permanent growth is "part of the glue that holds together the social contract between the rich and poor, and between citizen and state. It stands behind our expectations of technology, the rise of China, population growth, and pensions. Growth shaped the specialisation of our occupational roles and the forms of social relations. It acclimatised us to increasing wealth, both personal and in the goods and services we expect from society and the state. We are now claiming as rights services that only 50 years ago would have been considered miracles." Growth is so much a part of our everyday world, we barely notice it.

What if it's coming to an end?

This is a question that more and more economists are taking seriously the prospect that the long-run growth period triggered by the industrial revolution and powered by carbon-based technologies (coal, oil) is nearing its end; floundering in a toxic mix of catastrophic debt and environmental disaster. The Limits To Growth, a best-selling environmentalist tract, was commissioned by the Club of Rome think-tank in 1972. It models the consequences of a growing population combined with finite resources and argues that growth can't continue indefinitely. But even within classical and modern orthodox economics, there's always been a recognition that it may be finite.

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Who recognised as much?

In The Wealth of Nations, Adam Smith argues that self-interested utility-maximisers benefit all in the long-run; that markets drive a virtuous cycle of specialisation and growth. But he recognises too that growth is limited. He estimates 200 years as the maximum period of continuous growth and considers the nature of the transition from a growing economy to a stable one. Smith argues that population growth will push wages down, place unbearable pressure on natural resources and reduce the effectiveness of the division of labour. And the mid-19th-century thinker John Stuart Mill has a strong claim to being the forefather of today's "steady state economy" school.

What did Mill have to say?

In his Principles of Political Economy (in the section Of the Stationary State), Mill writes that "the increase of wealth is not boundless. The end of growth leads to a stationary state... of capital and wealth." But rather than being a problem, it would represent a "very considerable improvement on our present condition". Just because capital and population are "stationary" doesn't mean life won't get better. "There would be as much scope as ever for all kinds of mental culture, and moral and social progress; as much room for improving the art of living, and much more likelihood of it being improved, when minds ceased to be engrossed by the art of getting on." This, in essence, is the nub of the argument being put forward by the limits-to-growth economists.

Economists such as...?

The best known of is Herman Daly, who coined the phrase "steady-state economy" 30 years ago. Daly, a father of ecological economics, argues that so-called "economic" growth has become uneconomic and self-defeating; that quantitative growth in production and output incurs (at least in rich countries) social and environmental costs far greater than the "economic" benefits. In short, there comes a point when growth makes us poorer, not richer. This idea is behind various recent efforts to re-evaluate what growth means and how it should be measured. For example, the French president, Nicolas Sarkozy, convened a commission of social scientists (led by Nobel laureate economist Joseph Stiglitz) to assess the limitations of GDP data as a guide for policymakers.

What about in Britain?

In Britain, the government's Sustainable Development Commission (since discontinued) published a report in 2009 arguing that sustainable development is incompatible with continued economic growth, and that one of them will have to give. One of its authors, Tim Jackson, has expanded the idea into a book, Prosperity Without Growth, which is a serious attempt to provide guidelines for a post-growth world. Jackson envisages a society based on a simpler life, stronger communities and healthier relationships, though critics have pointed out that some of his prescriptions such as tighter controls on TV advertising and cutting working hours are either small steps or unrealistic. Yet the reception for Jackson's book which would once have been dismissed as naive or utopian was respectful and measured. With markets crashing and food prices spiralling, perhaps that is little wonder.

Won't technology save growth?

One of Tim Jackson's strongest lines of argument is his attack on "the myth of decoupling". A standard economic argument is that growth will prevail because GDP growth can "decouple" from more intensive use of resources, via the greater efficiencies that are supposedly intrinsic to capitalism. Higher productivity and technological advances will see us through, in other words. Jackson makes a compelling counter argument. Typically, the environmental impact of an economy relative to its income levels falls as the country gets richer ("relative decoupling"). But of "absolute decoupling" which would, for example, result in a fall in greenhouse gas emissions there has been no sign.