Despite global economic tensions, India set to witness continuous economic growth | Dhiraj Singh/Bloomberg
Despite global economic tensions, India set to witness continuous economic growth | Dhiraj Singh/Bloomberg
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One of the more pernicious ideas now coming into vogue is that societies should voluntarily halt their economic growth. In a recent New Yorker article, John Cassidy chronicles the rise of this so-called degrowth movement. The idea holds appeal for environmentalists concerned about planetary destruction, egalitarians who worry that growth leaves the poor behind, futurists who envision a leisure society and so on. Degrowth might even be a way for citizens of wealthy, declining nations to maintain their pride as hungrier up-and-coming societies catch up, since it recasts economic slowdown as virtue.

Although the degrowth movement does contain a few nuggets of insight, it’s based on a number of misconceptions about what economic growth is and why it’s desirable.

First, it’s important to understand why politicians care about growth. For developing countries, yes, it’s about raising living standards. But for rich countries such as the U.S., the biggest reason elected leaders like growth is that it’s correlated with low unemployment. Faster growth — more consumption and investment — means more demand for labor, which means more jobs and rising wages. So when U.S. presidents or legislators talk about growth, it’s usually not about visions of eternally rising living standards; it’s about jobs.

A second misconception is that growth requires feeding ever more of the earth’s resources into the hungry maw of manufacturing industries. Actually, growth often means doing more with less. In recent decades, even as the U.S. economy has continued to grow, extraction of many natural resources has remained constant or gone down. For example, use of metals in the U.S. peaked two decades ago:

Use of industrial metal consumption | Bloomberg
Use of industrial metal consumption | Bloomberg

For fresh water the peak was four decades ago:

Fresh Water Withdrawal | Bloomberg
Fresh Water Withdrawal | Bloomberg

In a number of rich countries, growth has become decoupled from carbon emissions, even taking offshoring of manufacturing into account:

 

Carbon Emissions | Bloomberg
Carbon Emissions | Bloomberg

This is happening for several reasons. Consumer demands are shifting from physical goods to services, including online ones. Innovation allows more efficient resource use. And sustainable technologies such as solar power can replace polluting, non-renewable ones like coal and gas. Sometimes growth is even what causes declining resource use, such as when farmers implement better irrigation technologies or when coal plants are replaced with solar farms.

This is why the idea that economic growth can’t continue forever is wrongheaded. Eventually the sun will explode, but in the meantime growth might continue for a very, very long time.

But just because growth can be sustainable doesn’t mean that trying to maximize it is always wise. Gross domestic product is only one of many measures of human well-being; often it makes sense for a society to focus on improving health, fighting inequality or promoting leisure. And as economist Dietrich Vollrath explains, slowing growth can be a sign of economic maturity rather than weakness; in a healthy global economy, developed countries tend to grow more slowly than developing ones. And services such as health care and education, which people in rich countries tend to want more of, have low productivity growth.

Nevertheless, there is one important reason to pursue economic growth: Poor countries need it. Although much of the world has escaped extreme poverty, some remains, and it’s concentrated in countries such as Nigeria, which struggles with slow growth. And many of those who live in those countries still have living standards that would be seen as unconscionably low in developed countries; they may have enough to eat, but they often lack running water, electricity, quality housing, basic health care, efficient transportation and many other things that people in the developed world take for granted.

So for the sake of their people, developing countries need to keep growing. And also for the sake of the environment; wealthier countries can more easily afford to cut pollution, stop burning down forests, ban chemicals that poison marine life and so on. Ironically, the less wealthy a country is, the more economic needs tend to take priority over environmental protection.

But poor countries don’t grow in a vacuum. Developed economies provide a crucial source of demand for goods produced in nations such as Bangladesh, Vietnam and Ethiopia, helping these nations to boost productivity and make the transition to rich-world status. Growth in advanced countries also creates the technologies — solar power, batteries and environmentally friendly chemicals — that let developing nations do more with less.

Although slower growth in rich countries isn’t cause for alarm, calls for intentionally shutting off growth are misguided. Someday, when the developed nations of the world have caught up and sustainable technology has permeated every facet of society, we can settle into a comfortable leisure society. But that day is still far in the future. – Bloomberg


Also read: Sitharaman should first let people know what state of economy is: Montek Singh Ahluwalia


 

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