Without a shadow of a doubt, economic growth is equated by most people with something desirable. On the other hand, its absence is associated with recession and deterioration of living conditions. While that’s not always true. People don’t realize how much they’ve become addicted to it. If a politician did not promise economic growth in the economy, he probably would not have a chance to win in the next elections.
In this article, I would like to point out that economic growth is good if it is to get people out of poverty, not when it is “growth for growth”. It is also worth noting that eternal economic growth is not possible due to our finite planet Earth and we should start thinking about the future.
Certainly, economic growth is needed for countries that live in “underdevelopment”, i.e. people can’t afford to meet basic life needs such as food or a place to live. For example, economic growth would undoubtedly be desirable in the Democratic Republic of Congo, where the GDP per capita is 577.2 USD (2021, source: The World Bank).
Source: GDP per capita, 2020 (ourworldindata.org)
However, let us pay attention to highly developed countries, living in the so-called “overdevelopment”. There, for society, consumption becomes the main source of satisfaction with life, paying no attention to autotelic values. Excessive consumption leads to the abuse of our planet’s potential and the waste of a huge amount of products that these people are unable to consume.
It is no coincidence that the USA, with a GDP per capita of 70, 248 USD is the second country in the world where the most food is wasted per capita. There is 361 kg of wasted food per capita per year. This is unacceptable at a time when more than 800 million people are suffering from hunger.
A graph of the 15 countries that waste the most food per capita (Source: Statista.com, graph created by Earth.Org).
Over a third of all food produced (~2.5 billion tons) is lost or wasted each year. One third of this occurs in the food production stage. Boston Consulting Group (BCG) estimates this wasted food is worth $230 billion. This is unacceptable at a time when more than 800 million people are suffering from hunger.
Of course, in the USA there are some people suffering from poverty, but this is a problem also related to faulty redistribution of income and social inequalities. In this case, economic growth is not necessarily something that could help.
It is a paradox that higher economic growth can increase relative poverty. This is because those who benefit from growth are often those who are well educated and wealthy. In the UK and US in the 1980s and 1990s, higher growth also increased inequality. However, it depends on how it is managed.
In highly developed countries, we should think about the sense of growth. The rush for consumerism leads to people spending more and more time at work instead of with their families to earn enough money to buy new goods.
According to Easterlin’s Paradox, happiness varies directly with income at some point, but over time, the long-term growth rates of happiness and income are not significantly related. People with a higher income are not necessarily happier because they compare themselves to others. And over time, incomes increase throughout society and this offsets the positive impact of increasing one’s own income, because there will always be someone who has more. People then fight for so-called positioned goods. They are goods that project exclusivity and distinguish their owners from others by placing them into a select or favored group.
The “hedonistic treadmill” theory is also worth mentioning. It says that as consumption increases, people will get used to more and more of it, as a consequence, the increase in consumption does not give greater satisfaction.
Let’s look at Maslow’s pyramid. Maslow’s hierarchy of needs is a motivational theory in psychology comprising a five-tier model of human needs.
Surely, higher-level needs such as the love, esteem and self-actualization needs can’t be met with money. This is why a higher income – as long as basic human needs are met – doesn’t always result in an equivalent, higher level of happiness.This is why very wealthy people often engage in political or philanthropic activities. They are looking for something in life that will bring them a higher level of satisfaction, because, after reaching a certain income, money no longer guarantees it. Let’s take Bill Gates, the founder of Microsoft, for example. He runs the Bill & Melinda Gates Foundation with his ex-wife. This foundation allocates money for scholarships for students, AIDS prevention, the fight against diseases plaguing the Third World and other causes. Gates is also involved in providing food and upgrading one of the poorest villages, which was once destitute. From its inception to July 2015, the foundation has donated USD 42.9 billion to charity.
Another example is Pierre Omidyar – the founder of the online trading platform – eBay, created with the help of Pam, through his foundation Omidyar Network, supports cooperation fighting against people.
Also Laurene Powell Jobs, who inherited billions of dollars after the death of her husband, Steve Jobs. She founded an organization called College Track, which helps prepare underprivileged youth into college. It also decided to donate $50 million to fund a program to create a new high school education system.
The founder of Facebook – Mark Elliot Zuckerberg, and his wife have donated over a billion dollars to education and medical research. The couple also created the show “Chan Zuckerberg” in 2015. In doing so, they fund “personalized learning, treating disease, and connecting people.” Fortunately, you can still find many similar philanthropic activities.
It can be noticed that people, having achieved a certain status, begin to have other priorities in life, to be guided by other values. These people often begin to practice mindfulness, the art of clearing the mind and developing compassion, patience, and other desirable qualities.
It is very important for people to realize that higher economic growth, i.e. GDP growth doesn’t necessarily mean better well-being for citizens.
Main disadvantages of GDP as a measure of prosperity:
- GDP does not include volunteer work – GDP doesn’t take into account work that people do for free, whereas without a shadow of a doubt it can lead to an improvement in the situation of others
- Disasters can raise GDP – rebuilding infrastructure after a natural disaster, such as a flood, involves new expenses, and thus an increase in GDP; surely, it results in the stress and drama of the population, not greater prosperity
- GDP doesn’t account for quality of goods – the economy can produce more goods but they can be of lower quality, not only not affecting the well-being of citizens but also destroying the environment
- GDP does not include environmental pollution –
- economic growth is often accompanied by greater environmental pollution, which can lead to poorer health and well-being of citizens
- GDP does not take into account social inequalities – numerous empirical studies show that countries with lower social inequalities have higher levels of happiness, but, for example, in the United Arab Emirates, where the GDP per capita is the seventh largest in the world at 77,272 USD (2022 – source: IMF), social inequality is a major problem and many residents suffer from this reason
- GDP does not include free time – with the growth of GDP, people spend more time at work instead of with family and friends or pursuing their passion, this undoubtedly does not have a positive effect on their well-being
These are only the most important reasons why we should not equate GDP growth, and thus economic growth, with the well-being of citizens.
I want to point out that it is possible to achieve a higher level of happiness for residents (especially in highly developed countries, because developing countries still need this increase) without growth of GDP.
But why is eternal economic growth not possible?
It is crucial that people finally start thinking about the future. The main problem of society is myopia. People only care about the here and now, instead of thinking about future generations. However, if we do not take appropriate action, we will experience their negative consequences in our lifetime.
So why is eternal economic growth not possible? The answer is simple – because we have a finite planet. For economic growth, we need more and more natural resources, the exploited amount of which is growing at an alarming rate.
Source: The ATOM: 2. The Exponential Trendline of Economic Growth (singularity2050.com)
The chart above shows the growth of world economic growth over the last six hundred years. As we can see, economic growth is like an exponential curve. Everyone needs to realize that a seemingly small economic growth – 3% per year – causes the economy to double in just 23 years!
But we’ll see how the economy behaves in an even longer period at a specific rate of growth.
The data in the chart represent a period of up to 30 years only. It’s hard to imagine how the economy would grow after 50 or 100 years. It’s definitely not possible with a finite planet.
To calculate approximately how much time it takes for the economy to double, we should use “Rule of 70”. To do this, we divide 70 by the growth rate (r).
dt = 70/r
For example, a population with a 2% annual growth would have a doubling time of 35 years.
35 = 70/2
For continuous economic growth, more and more raw materials are needed. Their extraction is growing in the same way as economic growth – like an exponential curve. For example, in the 1970s, 58.5% of all coal in human history was burned, 81.5% of oil and 90.9% of gas. During that time, 74.3% of all fossil fuels in human history were used, resulting in 71.7% of CO2 emissions.
Historical carbon dioxide emissions from global fossil fuel combustion and industrial processes 1750-2020 – in billion metric tons Source: Global historical CO2 emissions 1750-2020 | Statista
The population today – and this number is still growing, consumes a lot of raw materials, above all oil – it is not by chance that it is called “black gold”. We use about 90 million barrels a day, each barrel contains 159 liters. If we wanted to fit all this amount into one container, such a barrel would have a diameter of a quarter of a kilometer and would be taller than the Eiffel Tower.
Some people believe that continuous economic growth will be possible because of the invention of new technology and increased productivity. First of all, there is still no idea for innovations that would meet such huge needs of the population without destroying our planet. Secondly, it is worth mentioning “the productivity trap”. It says that as productivity increases, we are not using the same amount of resources producing the same amount of goods as before, but using even more resources producing even more goods. Thus, an increase in productivity will not mean that we will use less natural resources, but quite the opposite.
Takeaways:
- economic growth is desirable when it serves to lift people out of poverty, not when it is “growth for growth” like in highly developed countries where people blindly chase consumerism
- economic growth is mistakenly equated with the well-being of society, while sometimes it can work the other way around
- continuous economic growth is not possible due to the finite resources of our planet
- current society is characterized by myopia – it’s time for people to start thinking about the future
Author:
Martyna Rutkowska (she / her)
Research Associate
Unsung Heroes Foundation
Unsung.tech
More Unsung Heroes articles:
- Radek Wierzbicki, Founder & MD: Why we need a food accessibility strategy globally.
Sources:
15 Countries That Waste the Most Food | Earth.Org
Global historical CO2 emissions 1750-2020 | Statista
The Easterlin Paradox | IZA – Institute of Labor Economics
What Is The Hedonic Treadmill? The Hedonic Treadmill In A Nutshell – FourWeekMBA
Bill & Melinda Gates Foundation | Bill & Melinda Gates Foundation
The problem of food waste | Change for Climate
Global Food waste in 2022 (greenly.earth)
For the Poor, Falling Poverty Numbers Aren’t Always Good News – Foreign Policy
“Rewolucja energetyczna: Ale po co?”, Marcin Popkiewicz
“Less is More: How Degrowth Will Save the World”, Jason Hickel
