The case for growth vs. sustainability

Growth and sustainability certainly are conflicting priorities, but are they mutually exclusive? Or is there such a thing as sustainable growth?

With two opposing goals, it’s often tempting to simply sacrifice one for the sake of the other. When it comes to growth vs. sustainability, why not opt for the latter, to the detriment of the former? It looks relatively easy to abstain from further growth if you happen to live in a comfortable, wealthy 21st-century society. Life is good already, so why should we improve it further?

Before we dive deeper into the discussion, let’s first define our terms:

Growth is defined as economic growth, or increase in gross domestic product (GDP), which measures all products and services’ market value in a given time period, typically a quarter or a year. Your personal income can only rise when there’s either growth or your share of GDP increases, implying that the share of others must diminish. In that case, we’re talking about resource allocation conflicts.

Sustainability is harder to define, since we use the term in many different contexts and meanings. It has a long-term perspective built in, contrary to the short-termism prevailing in many parts of our global economy. The basic question is: How can we sustain our way of living and the economy that supports it? Or if we can’t, what does a sustainable way of living and supporting economy look like?

Are growth and sustainability mutually exclusive?

Now if we define growth and sustainability that way, is there such a thing as sustainable growth? The answer is: it depends. We measure growth in percentage terms, which means it is an exponential phenomenon. Growth comes to a halt when saturation sets in, turning the exponential curve into a logistic curve. Theoretically, we could think of our wealthy Western economies as saturated, with growth stopping or even GDP declining, as the degrowth movement demands.

But what about the developing world? China has grown into a global powerhouse over just a few decades, and other parts of the world are eager to follow this path. Currently, the top 15 economies make up around three quarters of global GDP. China and India are both among the top ten, with relatively high growth rates, but comparatively low GDP per capita. Even if the Western economies turned from growth to degrowth today, global GDP would probably rise anyway, at least in the long term, driven by the developing countries.

Degrowth is simply a shrinking (or static) economy, formerly known as a recession or even, in worst cases, a depression. If we look at the consequences of recession or depression, the picture looks rather bleak. This prescription is tough to sell, despite the appeal of a fancy neologism like degrowth. But, as economist Dietrich Vollrath argues in his book Fully Grown: Why a Stagnant Economy Is a Sign of Success, there may indeed be a point when the saturation of whole national economies – or even the world economy – will be reached. In his view, diminishing growth is the result of our own choices.

The economics of demographic change

Long-term demographic trends may also point in the same direction. In another book, Empty Planet: The Shock of Global Population Decline, Darrell Bricker and John Ibbitson predict a world population decline, starting around 2050, and outline the consequences. In short: economic growth is hard to sustain if the population declines. Charles Goodhart and Manoj Pradhan spell out the economic consequences of demographic change in The Great Demographic Reversal: Ageing Societies, Waning Inequality, and an Inflation Revival.

I don’t want to bore you with the classics, but let’s at least mention two important schools of thought. The first was charted out by Thomas Robert Malthus, an English economist born in 1766, who worried about population growth and the Earth’s limited capacity to produce subsistence. The Malthusian school follows his train of thought. In the same tradition, the seminal 1972 report to the Club of Rome, The Limits to Growth, concluded that we would reach all these limits during the first half of the current century.

But this report also introduced the notion of a sustainable path, both ecological and economic, if then-current trends could be altered.

Limited resources

It all comes down to the concept of resources. Even a world without growth still needs resources to feed its population and cater to its needs. Resources are by definition limited. If they would be abundant, there wouldn’t be a need to worry about them. The economy itself is the art of making the most out of limited resources. There even is a word for this: economical.

If and when the population grows or shrinks, human resources grow or shrink as well: there are more or fewer members of the workforce the economy can rely on. Natural or ecological resources are limited, but follow the same logistic curve pattern as economic growth. As they become scarcer, their price rises. Higher prices enable new technologies, like fracking for oil or gas, which obviously has its downsides. Higher prices also enable recycling or new technologies to reduce the usage of scarce resources.

At the end of the cycle, better substitutes appear, replacing them completely. For example, electric cars take over from the internal combustion engine, electricity replaces oil and gas, solar substitutes for coal. In fact, we are heading towards a world of cheap solar energy. Just these days, German multinational chemical company BASF announced plans to completely electrify their production and become climate-neutral by 2050. These are examples of the substitution of scarce resources by less scarce ones and the economic cycle of innovation, growth, and saturation.

The ultimate resource

The ultimate limit to growth is human ingenuity, argued Julian Lincoln Simon in his 1981 book The Ultimate Resource. And this means, in economic terms, that human ingenuity will always be scarce and thus valuable. It is the ultimate and, within the limits of humanity itself, sustainable growth driver. Or will artificial intelligence eventually replace human ingenuity, as pundits like Ray Kurzweil or Sam Altman claim?

I, for myself, would rather believe that human beings will always find something to do that other human beings deem valuable and thus worth paying for. Even groundbreaking innovations like artificial intelligence will ultimately follow the same cycle of automation and commoditisation. They will free human beings to do other things.

This only happens if, and that is a big “if”, we get wealth distribution right. And this means neither too unequal nor too equal. People need to be rewarded for their efforts, but wealth also needs to be distributed widely and fairly enough for a society to be stable. The same is true on a global level.

Balancing growth and sustainability

It is clear today, and frankly has been clear for decades, that the old industrial growth model that heavily relies on natural and ecological resources needs an update. How could this update look like? Let’s have a brief peek at Kate Raworth’s vision of what she calls Doughnut Economics. Her model introduces the notion of a safe space between the social foundation and the ecological ceiling where humanity and the economy can thrive.

But what’s perhaps more important is her approach to apply systems thinking and systems design to the usually very mechanistic and over-rationalised world of economics. She embraces complexity and networks, both of which have drastically changed the business environment over the last few decades.

While growth and sustainability certainly are conflicting priorities, they aren’t mutually exclusive. Within the natural ecological limits, growth is possible and desirable, especially for the developing world and for the foreseeable future.

Photo by Fotis Fotopoulos on Unsplash