Every effort is made to achieve economic growth. A topical book on this theme is "Growth” by Daniel Susskind. What makes it topical is that currently there is no growth, which is a major cause for concern. Germany is seeing negative growth for the second year running. Europe's growth figures are weak. Growth is faltering in China, which is declaring support in order to stimulate the economy. The United States is still going strong, at least for now. Is there something to be done?
What is growth?
Growth is a new phenomenon. The start of industrialisation 200 years ago brought about a revolution that had never been seen before. Economies grew and the fruits of growth were shared by those involved, with some benefits also trickling down to citizens close to the process. The sources of growth were industrialisation, energy, production and innovation, as well as improved sanitary conditions. The social system, economic thinking and education supported people's entrepreneurial spirit and success.
As a concept, GDP was born in the 20th century, which makes it a relatively recent economic indicator. Indeed, one of the messages of the book is that GDP – or whatever the right indicator may be – responds to the times and is definable.
Gross domestic product has traditionally been used as a measure of the performance of the productive economy. Over time, however, economies have shifted from pure manufacturing to services and from producing new things to recycling old things. At the same time, services that were previously provided ‘for free’ have become part of GDP. Consequently, GDP – and economic growth – responds to the times, measuring performance according to the definition of economy prevailing at any given time. If we were to measure economic growth now by the 1920s standards, it might look very different.
However, 100 years ago, a large part of the market capitalisation of stock exchanges was determined by the price of railway company stocks. Now the US stock markets are dominated by technology companies that are growing at a dizzying pace and have high growth expectations. Changes in market values are only natural and happen all the time. In the stock markets, the ‘market’ is redefined on a daily basis.
What about ‘degrowth’?
In a degrowth economy, the economy does not grow. If nothing else, degrowth can then perceived as a solution to environmental problems. Degrowth means recognition of the limits of growth on the planet. The problem is, however, that there are a lot of people in the world who are hungry for growth.
The book argues that the problem with the ‘degrowth’ movement is that it does not approve of green growth. But green growth could provide at least a partial answer to many environmental problems. Today’s technology permits new productive concepts that allow growth to contribute to a better balance with nature. Not even green growth is the right medicine to all ailments, and its implementation is riddled with problems.
The book's solution to the ‘degrowth’ debate is to provide tools for defining growth. Hence, growth should be redefined. For example, growth has long been driven by the manufacturing industry. However, a transition has already taken place because much of growth is generated by services. Moreover, economic activity did not use to include areas that are now part of the concept, as pointed out above.
Growth choices
Usually, efforts to achieve growth make it necessary to make choices. A classic choice is the question of how to deal with the natural environment and emissions. Often, these choices are not mutually exclusive, because both can be promoted simultaneously. Emissions can be reduced by developing technology while at the same time enabling and supporting growth. New technologies call for innovation, including public support for science and research.
Emissions from industrial processes are still a reality today, despite the drive towards zero-emission production and economy. Especially on a global scale, the problem with emissions appears indisputable. Setting an emissions levy or tax (carbon tax) high enough is an easy example of a choice. Such a levy or tax will raise costs for consumers and industry in the short term, but in the long term, as consumption patterns change, the benefits will be clear in terms of a cleaner environment and less drastic climate change. In this sense, the ball is in the decision-makers’ court. Another question is whether we will actually be able to make the right decisions and choices.
One of the key messages of Susskind's book ‘Growth’ is that GDP, or the definition of growth, is a concept of our own making. It responds to the times and can also be modified. If not, it modifies itself.
Another key message is that it is necessary to make choices in the economy. Efforts can be made to avoid choices or reduce the pressures to make any, or a choice can be accepted as such.
The first option is to try and avoid choices. A case in point is growth that benefits everybody and therefore no tradeoffs are needed to be evaluated and weighted. Choices can be made easier by things like the reduced cost of consumption of solar and wind power that lessens the need to choose between growth and the environment. Third, if nothing else works, the choice, or ‘trade-off’, can be accepted as such. Then, it is a question of what is valued and how much. These, in turn, often amount to political choices with social implications.
Companies too need to make choices. They can be strategic choices and choices between short-term or long-term gain and cash flow. The above three approaches to choices can also apply to businesses, as well as to us as citizens. A well-known business leader once wisely said that if you have two options you can choose both.
In conclusion
Societies are geared for growth. More specifically, we are stuck with the current definition of gross national product. Luckily, the content and definition of GDP is changing. Now it consists mostly of services, and increasingly of the circular economy. This change alone suggests that future growth may consist of something other than what we are used to. Here and now, we are prisoners to the circumstances even though major structural changes are taking place as we speak. For want of a better project, let us promote GDP growth as we understand it today.
Writer is VER's CEO Timo Löyttyniemi
