Economic Growth is Unsustainable

One thing has become clear with this financial crisis, trees don’t grow into heaven in other words any growth has its limitation. The question arises whether economic growth the so-called GDP increases year on year can be sustained or does have its limitation in growth too, or even is in for a decrease, effectively a negative GDP growth?

The primary concept of GDP growth in the industrialized world is the model of continuous expansion in individual companies. Without exception all stock market listed companies are expected to perform consistently better on a year on year basis, producing more and increasing profits. As a result, listed companies are under pressure to maintain an increase in their rate of profit making on an ongoing basis.

Since the WWII a tremendous increase in wealth has been produced, but now markets are saturated. Consumers already have everything they need while the population is aging and diminishing in numbers in the industrialized world.

People born between 1946 and 1964 and aspire to a comfortable leisurely retirement, are members of a doomed generation. They almost certainly will be victim of sharply reduced social security and pension benefits, I wrote in 1995 in my book ‘The Final Wake Up Call’. All across the industrialized world governments are defrauding the young and even not so young workers by forcing them to pay into public-sector pension schemes, I stated.

The demographic picture for the industrialized world today is already similar as in Japan in the 90s and getting dimmer. Consequently there will be less affluent consumers to buy the products factories want to churn out in ever-greater numbers. Besides for the creation of all this wealth a steep price has been paid, resulting in an obvious assault on the environment, as for example is noticed by overcrowded cities, lost natural tranquillity and lack of sufficient living space. Subsequently more material wealth is not needed on the contrary people’s well being now has become the new priority.

The industrialized world became used to a constant thirst for growth by creating more wealth. Constantly more of everything, and to have it faster became the order of the day. But where does that all lead? To bring this better in perspective: A growth rate of 3 percent—a target for many industrialized nations—means that economic output doubles in just 24 years. To take a concrete example, if a consumer currently buys six pairs of shoes a year that will be 12 pairs by 2033. Assuming the same rate of growth, this mean that they would buy two-dozen pairs by 2057. Not very likely that such will happen.

One of the biggest problems with the environment and the single most important cause of human induced climate change is not what we do but how many of us are doing it. The usual response given to the question of unsustainable population growth is poverty but the real culprit is the constant need for economic growth. The easiest way to achieve that is through growing demand, such as more consumers. Clearly, that cannot go on forever.
Nowadays people in the industrialized world "have more food, more clothes, more cars, bigger houses, more central heating, more foreign holidays, a shorter working week, nicer work, and, above all, better health," writes British economist Richard Layard in his book "Happiness: Lessons from a New Science." "And yet they are not happier," he continues. This raises a simple question: What is the purpose of growth in the first place? And why is there such a cult based around GDP?

To answer these questions, simply imagine the consequences if there were to be a long period with no growth. If that happened, all of the vital functions of society would soon collapse. In other words, nations are more or less doomed to continue growing.

For example: “The German economy has to grow to offset constantly rising productivity and the resulting decline in demand for labour; otherwise there is the risk of higher unemployment. It has to grow so that incomes can rise each year, or else societal conflicts over income distribution will intensify. It has to grow to pay for the social welfare state, or else society's safety net against illness, unemployment and poverty in old age will become unaffordable. Finally, it has to grow so that the state can continue to service its debt, or it will lose its ability to manage its own affairs.” wrote last weeks’ Germany’s Der Spiegel.

Banks, in particular, are dependent on growth. They are only willing to lend money to companies who want to invest if they can expect to be repaid with interest, so that they can then lend the money to others. This system of permanent money creation only functions in an expanding economy. For generations, everything has been geared toward constant growth and expansion.

These days, once again, concerns over declining natural resources and the future of the global economy have revived that vague sense of unease over the concept of growth. For many, the world economic crisis comes as a ‘wakeup call’. In industrialized countries, faith in material wealth has been shaken since the financial markets almost collapsed and plunged the world into recession.

"Growth is a completely useless concept to describe well-being," says Klaus Wiegandt, 70. Until 1998, Wiegandt was CEO of Metro a diversified German retail group that included Kaufhof department store chain and the Saturn and Media Markt consumer electronics retail chains. He says: "Quality of life doesn't mean consuming more and more every day."

“We have reached the point at which the Earth's regeneration capacity is being stretched too thin. Theoretically, humanity today already needs 1.3 planets to maintain its lifestyle.”

Given the Earth's limited system, the economy clearly cannot grow indefinitely. From an ecological perspective, this is the fundamental contradiction within the logic of growth. But there is also another problem. As economies mature, it automatically becomes more difficult for them to sustain their rates of growth. Essentially this is merely a question of mathematics, as a simple calculation does explain.

“The young Chinese market economy is expected to grow by about 8 percent this year. Because the standard of living in China is so low, however, this translates into $260 in per capita growth. On the other hand Germany, an established industrialized nation, would be more than pleased with 1 percent growth in crisis-ridden 2009.

To achieve this much growth in Germany, however, each and every citizen—in a population only one-16th the size of China's—would have to produce an additional $447 worth of goods and services. In other words, the Germans need to make a tremendous effort to keep their economy growing. Does this mean that the growth rate is destined to decline to zero in the future, or perhaps even descend into negative figures?”

A growing economy does not necessarily need to consume more resources. In other words, the goal should not be to achieve less growth but better growth, and not to forego consumption but to improve the quality of that consumption.

Even German President Horst Köhler is suspicious of politicians' assurances that growth is indisputably beneficial to society. "We have convinced ourselves that permanent economic growth is the answer to everything," Köhler said in March, in the midst of the financial crisis. It was an astonishing statement, coming as it did from a professional economist and former head of the International Monetary Fund. But Köhler did not elaborate what the correct answer could be. May be economic stagnation, or even contraction, or worse hyperinflation?

The way development is going, reducing debt by spending more borrowed money to avoid the Great Depression as big Ben Bernanke is doing, will certainly bring the economy in stagnation and even contraction after the US dollar has fallen of its pedestal and probably is passed over into hyperinflation. The Great Depression how depressive it may be looks like is to come to help to save the world and the surviving population. Be prepared for tough times ahead.

In the end the origin of economic growth is greed. People seem to be satisfied with anything other than an increase in our wealth, possessions, status, or whatever. The continuing need for more has created this unsustainable and illogical economic model, and at its turn is responsible for much of the environmental degradation. In order to prevent the worst effects of climate change this economic model has got to be changed into abolishing the obsession for economic growth, which is the source of greed as still is witnessed today.