Growth Fetish: Five Reasons Why Prioritizing Growth Is Bad Policy

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Policy Shop Blog / Demos

Growth Fetish: Five Reasons Why Prioritizing Growth Is Bad Policy

Not much in our society is more faithfully followed than economic growth. Its movements are constantly monitored, measured to the decimal place, deplored or praised, diagnosed as weak or judged healthy and vigorous. Newspapers, magazines, and cable channels report regularly on it. It is examined at all levels -- global, national, and corporate. Indeed, one of the few things on which left, right, and center agree is that growth is good and more of it is needed.

There are only five problems with America's growth imperative:

  1. Growth doesn't work. It doesn't deliver the claimed social and economic benefits.
  2. Our measure of growth -- gross domestic product or GDP -- is fundamentally flawed.
  3. The focus on growing GDP deflects us away from growing the many things that do need to grow.
  4. The over-riding imperative to grow gives over-riding power to those, mainly the corporations, which have the capital and technology to deliver that growth, and, much the same thing, it undermines the case for a long list of public policies that would improve national well-being but are said to "slow growth" and to "hurt the economy."
  5. Economic activity and its growth are the principal drivers of massive environmental decline.

To elaborate:

1. Growth doesn't work. It doesn't deliver the claimed social and economic benefits. Since 1980, real GDP in the United States has grown about 130 percent, and you know what happened: wages stagnated, jobs fled our borders, life satisfaction flatlined, social capital eroded, poverty and inequality mounted, and the environment declined.

Today, GDP has more than fully "recovered" from the Great Recession and now exceeds pre-recession levels, but unemployment is still about 7.5 percent with an almost equal number of Americans either underemployed or no longer in the work force for lack of opportunity.

Desperately seeking more GDP growth is unlikely to yield better results, for reasons described subsequently. Also described are some better approaches.

2. Our measure of growth, GDP, is terribly flawed. GDP should stand for Grossly Distorted Picture. Still, it sits in regal enthronement. Never mind that GDP is simply a gross measure of all activity in the formal economy -- good things and bad things, costs and benefits, mere market activity, money changing hands, busyness in the economy -- for the bigger it gets, the greater the potential for both private profit and public revenue.

Never mind also that even the creator of its formalisms, Simon Kuznets, warned in his first report to Congress in 1934 that "the welfare of the nation [can] scarcely be inferred from a measurement of national income as defined above" and by 1962 was expressing deeper skepticism: "Distinctions must be kept in mind between quantity and quality of growth, between its costs and return, and between the short and the long run," he wrote. "Goals for 'more' growth should specify more growth of what and for what.'"

Though it is still very much on the throne, GDP's continued dominance is threatened today. Of all the transitions discussed in America the Possible, the transition from GDP to a fuller, more accurate depiction of where the nation is and is heading may be the closest to a tipping point that can hasten its completion. We can now envision a dashboard of indicators to supplement those that measure economic activity, unemployment, and inflation. That dashboard should include (1) measures of true economic progress that correct and adjust GDP so that we can gauge sustainable economic welfare in society, (2) indicators of objective social welfare such as the status of health, education, and economic security, (3) indexes of environmental conditions and trends, (4) indicators of political conditions and democracy, and (5) measures of subjective well-being such as life satisfaction, happiness, and trust.

The first of these measures responds to society's need for a monetized measure of sustainable economic welfare--an indicator that corrects the shortcomings of GDP as a measure of social well-being and that can be compared with the movements of GDP and GDP per capita on a regular, quarterly basis. The most important efforts to date have been those developing the Index of Sustainable Economic Welfare (ISEW) and its American offshoot, the Genuine Progress Indicator (GPI), now being developed in several states. The ISEW begins with national private consumption expenditures and then adjusts that for distributional inequalities. It then adds in nonmarket contributions to welfare, such as unpaid housework, and subtracts out defensive expenditures such as police protection and pollution control, and it also subtracts the depreciation of natural resources and environmental assets.

3. The focus on GDP growth deflects efforts from growing the many things that do need to grow. Of course, many things do indeed need to grow. We need to grow the number of good jobs and the incomes of poor and working Americans. We need growth in investment in public infrastructure and in environmental protection; growth in the deployment of climate-friendly and other green technologies; growth in the restoration of both ecosystems and local communities; growth in research and development; growth in security against the risks attendant to illness, old age, and disability; and growth in international assistance for sustainable, people-centered development for the world's poor. These are among the many areas where public policy needs to ensure that growth occurs.

Jobs and meaningful work top that list because unemployment is so devastating. America should be striving to add jobs twice as fast as we are, or more. But likely future rates of overall economic growth won't get us near this goal. The availability of jobs, the well-being of people, and the health of communities should not be forced to await the day when GDP growth might somehow deliver them. It is time to shed the view that government provides mainly safety nets and occasional Keynesian stimuli. We must insist that government have an affirmative responsibility to ensure that those seeking decent-paying jobs find them. The surest, and also the most cost-effective, way to that end is direct government spending, investments, and incentives targeted at creating jobs in areas where there is high social benefit, such as modern infrastructure, child and elder care, renewable energy and energy efficiency, environmental and community restoration, local banking, and public works and childhood education.

Creating new jobs in areas of democratically determined priority is certainly better than trying to create jobs by pump priming aggregate economic growth, especially in an era where the macho thing to do in much of business is to shed jobs, not create them. Another path to job creation is reversing the U.S. gung-ho stand on free trade globalization. To keep investment and jobs at home, William Greider has urged that Washington "rewrite trade law, tax law, and policies on workforce development and subsidy."

4. The over-riding imperative to grow gives over-riding power to those, mainly the corporations, which have the capital and technology to deliver that growth, and, much the same thing, it undermines the case for a long list of public policies that would improve national well-being but are said to "slow growth" and to "hurt the economy." Thomas Friedman says that economic globalization puts countries in a golden straightjacket -- creating new wealth but constraining national policies. Far more encompassing is the straightjacket of the growth imperative. It is possible to identify a long list of public policies that would slow GDP growth, thus sparing the environment, while simultaneously improving social and individual well-being. Such policies include shorter workweeks and longer vacations; greater labor protections, including a "living" minimum wage, protection of labor's right to organize, and generous parental leaves; guarantees to part-time workers; a new design for the twenty-first-century corporation, one that embraces rechartering, new ownership patterns, and stakeholder primacy rather than shareholder primacy; restrictions on advertising; incentives for local and locally owned production and consumption; strong social and environmental provisions in trade agreements; rigorous environmental, health, and consumer protection; greater economic equality with genuinely progressive taxation of the rich (including a progressive consumption tax) and greater income support for the poor; increased spending on neglected public services; and initiatives to address population growth at home and abroad. Taken together, these policies would undoubtedly slow GDP growth, but quality of life would improve, and that's what matters.

In this mix of policies, Juliet Schor and others have stressed the importance of work time reduction. For example, if productivity gains result in higher hourly wages (a big if in recent decades) and work time is reduced correspondingly, personal incomes and overall economic growth can stabilize while quality of life increases. She points out that workers in Europe put in about three hundred fewer hours each year than Americans.

5. Economic activity and its growth are the principal drivers of massive environmental decline. In a remarkable passage of his environmental history of the twentieth century, Something New Under the Sun, historian J. R. McNeill writes that the "growth fetish" solidified its hold on imaginations and institutions in the twentieth century: "Communism aspired to become the universal creed of the twentieth century, but a more flexible and seductive religion succeeded where communism failed: the quest for economic growth. Capitalists, nationalists -- indeed almost everyone, communists included -- worshiped at this same altar because economic growth disguised a multitude of sins. ... Social, moral, and ecological ills were sustained in the interest of economic growth; indeed, adherents to the faith proposed that only more growth could resolve such ills. Economic growth became the indispensable ideology of the state nearly everywhere.

"The growth fetish, while on balance quite useful in a world with empty land, shoals of undisturbed fish, vast forests, and a robust ozone shield, helped create a more crowded and stressed one. Despite the disappearance of ecological buffers and mounting real costs, ideological lock-in reigned in both capitalist and communist circles. ... The overarching priority of economic growth was easily the most important idea of the twentieth century."

The relationship between economic gains and environmental losses is a close one, as McNeill notes. The economy consumes natural resources (both renewable and nonrenewable resources), occupies the land, and releases pollutants. As the economy has grown, so have resource use and pollutants of great variety. As Paul Ekins says in Economic Growth and Environmental Sustainability, "the sacrifice of the environment to economic growth. . . has unquestionably been a feature of economic development at least since the birth of industrialism." And so it remains.

Among the myriad threats growth imposes on biodiversity and resources, the existential issue posed by climate disruption is particularly worrying. Many analysts have concluded that reducing greenhouse gas emissions at required rates is likely impossible in the context of even moderate economic growth. To reduce U.S. carbon emissions by 80% between now and 2050, the carbon intensity of production must decline by 7% every year, if the U.S. economy grows at 3% a year. That entails wringing carbon out of the economy at a phenomenal rate. If the United States were to do the right thing--reduce emissions by 90 percent in 35 years--the rate of carbon intensity reduction would have to be 9.5 percent. Clearly, a tradeoff between prioritizing growth and prioritizing climate protection is emerging.

To conclude, we tend to see growth as an unalloyed good, but an expanding body of evidence is now telling us to think again. Daniel Bell wrote that economic growth is the world's secular religion, but for much of the world it is a god that is failing -- underperforming for most of the world's people and, for those in affluent societies, now creating more problems than it is solving. The never-ending drive to grow the overall U.S. economy has led to a ruthless international search for energy and other resources, failed at generating needed jobs, led us to the brink of environmental calamity, and rests on a manufactured consumerism that does not meet the deepest human needs. Americans are substituting growth and ever-more consumption for doing the things that would truly make us and our country better off.

There are limits of growth, and there are limits to growth. The limits of growth are hit long before the limits to growth. If economists are true to their trade, they will recognize that there are diminishing returns to growth. Most obviously, the value of income growth declines as one gets richer. An extra $1,000 of income means a lot more to someone making $15,000 a year than to someone making $150,000. Meanwhile, growth at some point also has increasing marginal costs. For example, workers have to put in too many hours, or the climate goes haywire. It follows that for the economy as a whole, we can reach a point where the extra costs of more growth exceed the extra benefits. One should stop growing at that point. Otherwise the country enters the realm of "uneconomic growth," to use Herman Daly's delightful phrase, where the costs of growth exceed the benefits it produces. Here in the United States, we've had uneconomic growth for quite a while.

In Managing Without Growth, Canadian economist Peter Victor presents a model of the Canadian economy that illustrates the real possibility of scenarios "in which full employment prevails, poverty is essentially eliminated, people enjoy more leisure, greenhouse gas emissions are drastically reduced, and the level of government indebtedness declines, all in the context of low and ultimately no economic growth." Here are some of the policies and resultant social changes that Victor says could get us there in 30 years:

  • a stiff carbon tax is used to control emissions of the principal greenhouse gas, carbon dioxide;
  • labor productivity gains are taken as better wage rates and increased leisure time;
  • population growth levels off;
  • and unemployment declines due to work-sharing arrangements.

The model succeeds in generating these results, however, only if no-growth is phased in over several decades, not imposed immediately. In his discussion of policies needed for the transition, Victor mentions caps on emissions, and resource-harvesting limits that take into account the environment's assimilative capacity and resource regeneration rates, government social policies to eliminate poverty, reduced work time for employees, and other measures.

One hears a lot about reviving the economy and getting it growing again. But shouldn't we be striving to transform the economy and not merely revive it? The old economy simply hasn't been delivering economically, socially or environmentally for decades. The roots of our environmental and social problems are systemic and require transformational change. Sustaining people, communities, and nature should be the core goals of economic activity, not hoped for byproducts of an economy based on market success, GDP growth, consumerism, and modest regulation. The new economy we should be striving to build is a post-growth economy that actually gives top priority to people, place and planet. That is the paradigm shift we need.

This essay is based on James Gustave Speth, America the Possible: Manifesto for a New Economy (Yale Press paperback, 2013).

James Gustave Speth

James Gustave Speth is a professor at Vermont Law School and a Distinguished Senior Fellow at Demos, a nonpartisan public policy research and advocacy organization. His most recent book is, America the Possible: Manifesto for a New Economy. A former dean of the Yale School of Forestry & Environmental Studies, he also co-founded the Natural Resources Defense Council, was founder and president of the World Resources Institute, and served as administrator of the United Nations Development Programme. His previous books include: The Bridge at the Edge of the World: Capitalism, the Environment, and Crossing from Crisis to Sustainability and Red Sky at Morning: America and the Crisis of the Global Environment.

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