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The Growth Problem

Published by USC Bedrosian Center on

by Peter Robertson

What we refer to as the modern era was stimulated by the advances in thinking enabled by the great intellectuals of the Renaissance and Enlightenment periods in Europe.  One of their primary achievements was the development of the scientific method through which empirical evidence is collected upon which to draw conclusions about the nature of the subject of study.  This method has demonstrated considerable success in generating a better understanding of the physical universe, resulting in a much greater ability to predict and control natural materials and forces.  This knowledge led to the development of new technologies that ushered in the Industrial Revolution and significantly increased the productive capacity of industrializing countries by the end of the 19th century.  The diffusion of mass production techniques in the 20th century further increased the availability of consumer goods, and skilled marketers worked successfully to create a “consumer culture” in America, generating artificial demand to match this growth-driven supply.  The expanding middle class – essentially an historical anomaly – provided clear evidence that science and technology and the modern industrial system were key factors in the advancement of society.

A logical conclusion was that this system should be expanded, and efforts by the rest of the world to modernize in the latter half of the 1900s typically consisted of attempts to industrialize so as to create jobs and thereby raise the standard of living for at least some of the people.  Thus, as modern industrial culture diffused around the world, economic growth became the primary objective for society and thus the main focus of much public policy.  Key policy issues are now framed and discussed in terms of their impact on the economy, and potential policy approaches are analyzed and debated in terms of whether they will stimulate or impede economic growth. With economic growth assessed primarily in terms of Gross Domestic Product, international development efforts have been oriented towards increasing the GDP of the world’s “developing” countries, based on the premise that this readily translates into a higher per capita income and thus a better standard of living.  The corporations of the world contribute to this agenda by pursuing their own growth strategies, reflecting the fact that this readily translates into more corporate profits and bigger executive salaries.

Key policy issues are now framed and discussed in terms of their impact on the economy, and potential policy approaches are analyzed and debated in terms of whether they will stimulate or impede economic growth.

The net effect of all this is that a “more is better” mentality has infused modern culture, reflecting the core belief that increased economic activity is needed in order to improve the quality of life for humanity.   More generally, in the dominant narrative of contemporary society, economic growth is assumed to be the most fundamental solution to a whole host of social concerns.  Economic growth is good for the private sector, generating wealth that can be re-invested so as to create more jobs that enable more consumer spending that is needed to improve well-being, and to maintain economic growth.  It is also good for the public sector, generating a larger tax base that supports more government spending that funds needed infrastructure, provides valued services, and creates additional jobs that also enable more spending and growth.  Despite its self-amplifying circularity (i.e., the “rat race”), it seems to be a system in which everyone wins.  In short, economic growth enables more spending that improves the quality of life individually and collectively.

Unfortunately, the dominant narrative doesn’t pay much attention to the downside of the growth imperative – and indeed, a number of problems with the pursuit of economic growth can be identified.  To the extent that any of these problems are acknowledged in public discourse, they are usually treated as secondary concerns that can be mitigated through appropriate action even in the context of continued growth.  In fact, the argument is sometimes offered that more growth is necessary to address some of the problems being caused by growth.  While this line of thinking reflects continued faith that economic growth is the primary solution, a closer look suggests that the pursuit of growth – as it is currently conceived, measured, and implemented – is in fact our most fundamental problem.

A first problem reflects what in other contexts is called goal displacement – economic growth has come to be seen as the end rather than simply as a means.  This became starkly clear in recent years when people in countries facing significant financial difficulties have been expected to undergo “austerity measures” in order to protect their economy (and especially the large banks and corporations whose financial dealings caused the difficulties to begin with).  With growth as the desired end, anything that can be construed as a constraint on that growth becomes suspect, and other conflicting considerations tend to be discounted.  This focus on economic growth as the primary objective further reflects the mistaken notion that human well-being can and should be defined primarily in economic terms.  Most people will readily acknowledge that many non-economic factors are very important to their overall health, happiness, and well-being, yet many of those same folks would admit that the time and energy they allocate to economic pursuits makes it hard for them to give much attention to other key factors like their relationships, leisure and recreation, or personal development.  Whereas an economist may conclude that this just reveals their true individual preferences, a postmodern perspective recognizes that this widespread pattern of behavior is generated by societal institutions that manifest underlying cultural assumptions and values.  In other words, a cultural preoccupation with economic growth produces institutional arrangements and patterns of behavior that focus primarily on generating that growth.

The goal displacement problem is exacerbated by a number of measurement problems embedded in our economic system, beginning with the GDP indicator itself.  As a measure of the size of an economy, GDP is calculated as the total market value of all goods and services produced in a country in a given time period.  The problem with this indicator, however, is that all economic activity increases GDP regardless of whether or not that activity reflects a positive contribution to society.  For example, resource depletion through logging and mining, defensive activities such as police and military, and costs of addressing problems such as lung cancer and industrial accidents all contribute to economic growth, yet these expenditures do not necessarily reflect an improvement in the quality of life of the people and communities impacted by those activities.  Because there isn’t any inherent correspondence between the dollar value of some economic output and its actual benefits and costs for society, an increase in GDP is not a good indicator of whether the well-being of people has improved.  As Hawken put it in the article “Natural Capitalism” published in Mother Jones, “Where economic growth is concerned, the government uses a calculator with no minus sign.”

A related measurement problem exists at the organizational level, where standard accounting principles and rules preclude a full accounting of the costs associated with economic activity.  Of particular concern here is that many natural resources and most of nature’s services are significantly discounted in the global economy, if not utilized for free.  When the process of industrialization began, especially in the U.S., the natural environment was bountiful relative to the population such that many natural resources were essentially free to anyone willing to pay the costs of acquisition (e.g., cutting down the trees or mining the coal) and transportation.  This mindset, that natural resources are a free good, has been maintained over the years despite the fact that environmental deterioration and population growth have significantly undermined the logic of doing so.  Even today, resource depletion is subsidized by the federal government, including through cheap access to natural resources available on public land.  This may lower the costs of manufactured goods and thus consumer prices, but given the incentives associated with the growth imperative, it encourages industry to use up these resources at a faster pace than if the resources were priced to more accurately reflect their true value.

The worst aspect of this undervaluation of the natural environment may not be the overuse of natural resources as inputs into the economic system, but instead the ongoing use of the environment as a “sink” for all the waste produced by economic activity.  At each stage of the process, from initial resource extraction through the manufacture and distribution of goods and on to their use and disposal by consumers, a vast amount of waste is produced that is discharged into the air, water, and land of the planet.  Around the world, these natural sinks are often used basically for free, with no requirement and little effort to account for actual costs associated with resulting environmental damage.  In the absence of any accounting standards for calculating these costs or requirements for including them on income statements as a cost of production, producers of waste are able essentially to externalize the costs of these “negative externalities” of their activities.  In our capitalist system, this means that economic actors are able to privatize their profits while socializing some of their costs.

These measurement and accounting limitations prevent the costs of economic activity from being fully calculated and factored into leading economic indicators or prices in the marketplace.  Environmental damage in particular is not accounted for, and with market prices artificially low as a result, there is little incentive for anyone to reduce production and consumption.  Instead, the growth imperative provides considerable incentive to increase economic activity, and Wall Street exacerbates this tendency with its exclusive focus on short-term profit.  This short-term thinking means that success is defined in terms of results on quarterly reports, and financial calculations and decisions literally discount the future with their emphasis on net present value.  Basically, the pressure is on to grow and grow now, continually increasing the volume of resources being utilized and the amount of energy needed to convert them into consumer goods and services.  In a very real sense, this growth-oriented economy as currently implemented constitutes a system in which as many natural resources as possible are being converted as quickly as possible into a combination of wealth and waste.

Due to this myopic focus and lack of any long-term vision, little attention is given in the dominant narrative to the notion that there are limits to growth, in terms of how much resource depletion and environmental destruction humans can impose on the planet before inducing catastrophic consequences.  In their classic 1972 book Limits to Growth, as well as the 1992 and 2004 sequels Beyond the Limits and Limits to Growth: The 30-Year Update, Donella Meadows and her co-authors used computer simulations to explore the likely long-term consequences of different patterns of growth in population and resource use.  Their models suggest that our current patterns of consumption and the resulting level of environmental destruction could lead in the not-too-distant future to a sudden collapse of critical ecosystems that provide a life-support system for human civilization. Rather than a long slow decline that would give inventive and adaptable humans time to adjust to emerging circumstances, a systemic collapse could result in a rather sudden, widespread disruption of life as we know it.  The problem with continuing to act as though there are no limits means that we keep moving closer and closer to the tipping point that triggers the collapse.

A last problem associated with how economic growth is pursued is that the normative foundations of our economic institutions include the pervasive assumption of the self-interested rational actor, the mythical homo economicus that is the basis of nearly all economic analysis.  In economic thinking, human beings are assumed to always act out of self-interest, probably reflecting the pre-modern Christian belief that humans are inherently sinful as well as modern Darwinian notions of the survival of the fittest.  When key resources are finite, it is hardly surprising that people will compete with others to get their fair share.  Yet as Garrett Hardin explained in The Tragedy of the Commons, unconstrained pursuit of self-interest can have tragic consequences for key resources held in common, e.g., public land.

The challenge now facing society is that the self-interested pursuit of economic growth has become institutionalized and legitimated not just as the way people will act but the way they should act.  Indeed, neoclassical economic theory includes the premise that the most efficient distribution of resources will result if everyone simply pursues their self-interest in an unregulated market of competing buyers and sellers.  In contemporary society, economic actors (including multinational corporations and governments) are expected to look out for their own interests with no real responsibility for taking into account the effects of their actions on others, and self-interested behavior that disregards the quality of the commons is often encouraged and rewarded.  As the population grows and environmental deterioration reduces resource availability, the potential for conflict over these resources will only increase, along with the struggle to achieve growth objectives.  To the extent that the wars throughout the Middle East have as much to do with control over oil-related resources as anything else, it demonstrates that the cost of this competition is significant.  Unfortunately, military expenditures dedicated to insuring the security of America’s oil supplies are treated as a positive gain to our GDP, rather than as a cost incurred in support of our efforts to achieve economic growth.

The autonomous pursuit of self-interest is an untenable strategy in an interdependent world, especially one in which so many actors (people, organizations, nation-states, shadowy networks) have the capability of inflicting considerable damage to innocent victims when they are unhappy about their outcomes in the increasingly-competitive global economy.  Continued adherence to economic ideologies and institutions that support this cultural orientation towards self-interest is thus problematic, as they only serve to generate patterns of behavior that, like Hardin’s tragedy, are now threatening the planetary commons.  Fortunately, new ideas and perspectives are being proposed, and new practices and approaches are being developed, that reflect a different mindset about people and nature than has dominated the modern era.  A brief discussion of a few of these will clarify the kinds of changes that are possible and necessary if we are to avoid even worse problems in the future than we face right now.

A good place to start is with the broad notion of sustainable development.  Given impetus as an objective at the Rio Earth Summit in 1992 (formally, the United Nations Conference on Environment and Development), the essence of the idea is, quite simply, that the future development of human civilization should be sustainable, i.e., a process that can be sustained in the long run.  Given the inherent limits to growth, growth by definition is not sustainable – economic growth through resource depletion and environmental destruction cannot go on indefinitely.  A key idea in discussions of sustainable development is the concept of intergenerational justice, which is incorporated into the best-known definition of sustainable development (from the Brundtland Commission) as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”  At a minimum, pursuing the goal of sustainable development requires transcending the culturally ingrained tendency to make decisions based on short-term self-interest and taking into account instead the broader, longer-term implications of economic activities.

The primary, pervasive strategy needed to achieve a sustainable economy is a significant reduction in the amount of natural resources consumed or destroyed as a result of economic activity.  An ironic feature of our free-market capitalist system, which is supposed to promote efficient use of resources, is just how much waste is generated in the course of producing useful goods and services.  Twenty years ago, in his book The Ecology of Commerce, Hawken estimated that every American, on average, consumed about 136 pounds of resources a week, with 2000 pounds of waste discarded to support that consumption.  A few years later, in his “Natural Capitalism” article, he pointed out that about 94 percent of the materials extracted for use in manufacturing durable products became waste before the product was even manufactured.  More waste is then generated in the production process, after which 80 percent of what is produced and consumed gets thrown away after one use.  Overall, Hawken suggested that America’s material and energy efficiency is no more than one or two percent, meaning that American industry uses as much as 100 times more material and energy than theoretically required to provide these consumer goods and services.

In the book Natural Capitalism, which Hawken wrote with Amory and Hunter Lovins of the Rocky Mountain Institute, they describe a number of approaches that, if widely adopted, could generate major improvements in the efficiency of resource usage in coming years.  One of these is what they call radical resource productivity, referring to the many techniques already being developed that will increase the productivity of resources by a factor of four, ten, or even one hundred over the coming decades.  Because improved resource productivity also leads readily to costs savings, it reflects a win-win solution for businesses that enables them to make more money while reducing their negative impact on the environment.  A second approach to increasing resource efficiency is called biomimicry, which refers to the development of new materials, processes, and systems that imitate the capacities or approaches used in biological or ecological systems.  By replicating natural methods of engineering and production, it will be possible to manufacture chemicals, compounds, and materials that lead to improved products and services while simultaneously having a more benign impact on the environment due to reduced levels of unusable waste output.

While these technological advances are poised to yield great improvements in the ratio of productive outputs to natural capital inputs, a deeper change in the basic design of our industrial systems will be just as important in bringing about a transformation to a sustainable society.   Industrial design in the modern era incorporates a linear process of input, throughput, and output, with the natural environment serving as the primary source of inputs as well as the primary sink for waste disposal.  This linear system reflects modernity’s mechanistic mindset, in which systems are thought of in terms of machines (as reflected in Newton’s notion of a clockwork universe).  In contrast, ecological systems reflect a circular design, in which “all waste is food,” i.e., all output of any part of the system is useful input to some other part.  To achieve the goal of sustainable development, it will be necessary for industrial systems to move towards a “zero waste” policy by reducing as much as possible the unproductive outputs of their processes.

Two strategies to help accomplish this goal have already been put into practice, and thus reflect demonstrably viable strategies for greatly reducing the amount of unusable waste produced by industrial systems.  One of these is the adoption of what Hawken and colleagues call a “service and flow” approach, in which manufacturers no longer sell durable goods to consumers but instead maintain ownership over the goods and sell the services provided by those goods.  As one example, the carpet manufacturer Interface, Inc. changed its business model to start selling floor-covering services rather than carpets.  By installing carpet in a modular format that allows just the worn areas to be replaced, and by recycling material from old carpet into the manufacture of new carpet, the company was able to greatly reduce the raw material used in its production process and the amount of old carpet going directly to landfill, while significantly increasing its profit.  More generally, a service and flow strategy encourages businesses to minimize materials use, maximize product durability, and enhance ease of maintenance, which improve the customer’s experience as well as the company’s bottom line.

Industrial ecology is a second key strategy for reducing waste produced and thus resources consumed.  Reflecting the cyclical, waste-equals-food feature of ecological systems, the goal of industrial ecology is to create a network of businesses in which the waste output of one component in the network constitutes a useful input to another component.  Each business is incentivized to reduce its own unusable waste output, as being able to sell the waste rather than having to pay for its disposal increases profit.  Probably the best-known example is the Kalundborg Eco-Industrial Park in Denmark, which evolved over the course of more than 20 years, entirely as a result of market forces and private agreements rather than any central or intentional planning.  The relationships among the firms in this network are symbiotic in that they exchange material wastes, water, energy, and information in ways that benefit each other as well as the system as a whole.  Continued efforts to optimize the system, in terms of moving towards the least-cost combination of inputs required to make desired goods and services, have resulted in great improvements in resource savings over the years.

Industrial ecology constitutes a powerful example of how the application of an ecological perspective can generate benefits that will facilitate the transition to sustainability.  A key distinction between ecological thinking and the modern mindset is that, in the latter, humans are viewed as separate from nature, superior to it, with the right to use (and abuse) it for our own purposes, whereas the former recognizes that humans are part of nature, interdependent with it, and that we must protect and maintain it in the course of taking what we need to live.  A step taken recently by two South American countries serves as an intriguing example of the kinds of approaches that can be utilized to generate a new mindset regarding the relationship between human society and the natural environment (or to re-establish an old one, as indigenous cultures tended to be much more ecological in this sense).  In Ecuador, the national constitution was revised in 2008 to include explicit recognition of inherent rights for nature, and Bolivia also adopted a national legal framework in 2011 to give nature the rights to life, regeneration, biodiversity, water, clean air, balance, and restoration.

This distinction between humans as separate from or as interdependent with nature is the basis for the development of the field of ecological economics, which differs from neoclassical economics in terms of some of the starting assumptions that underlie its frameworks and analyses.  In particular, as Herman Daly and Joshua Farley explain in their Ecological Economics textbook, a significant flaw in neoclassical economics is the assumption that the natural environment is just one component of the economy.  Conceptualized as such, it is easy to understand why this dominant economic perspective fails to recognize that the environment constitutes a real limit to economic growth.  In contrast, ecological economics starts with the assumption that the economy, and human society more generally, is embedded in the natural environment, and bounded by it in the sense that the economy cannot grow bigger than the carrying capacity of the environment.

Reflecting the premise that matter is embodied energy (i.e., E=MC2), an important thrust in the field of ecological economics is to develop ways of assessing the total energyutilized in any economic activity, which serves as an indicator of the overall environmental impact of that activity.  The notion of an “ecological footprint” has emerged in this context, which essentially is a measure of human demands on the planet’s ecosystems, i.e., the amount of productive land and sea area needed to supply the resources a given population consumes and to absorb the associated waste.  When compared to the biosphere’s capacity to regenerate natural capital, it provides a useful indicator of the sustainability of a particular product, activity, organization, or industry, or of the lifestyle and consumption patterns of a city, region, or nation.  If widely applied, basing decisions on the results of ecological footprint analyses would naturally shift the economy in a more sustainable direction by bringing the volume of consumption more into alignment with the planet’s carrying capacity.

To further support this transition, Hawken recommends a very sensible strategy, namely, a revision of our tax system to shift away from taxing things we do want, in particular the social “goods” of work and income, toward taxing things we don’t want, such social “bads” as resource depletion, pollution, and waste.  He further suggests that this tax shift be revenue neutral, meaning that for every dollar of taxation added to resources or waste, one dollar would be removed from taxes on labor.  By taxing resource use, and discontinuing subsidies for industries that contribute most to resource depletion and destruction, the consequent changes in the market prices of goods and services would naturally result in a shift in consumer behavior towards those products and activities that are less expensive because they are less resource intensive.  While many such policy reforms and institutional changes will be required to stimulate and facilitate more sustainable patterns of behavior, Sweden has demonstrated that it is possible to make major improvements on a national scale, as the country now recycles 99 percent of all household waste.

Ultimately, what is needed is a reorientation of modern culture away from its current preoccupation with More, as Bill McKibben puts it in his book Deep Economy, and towards a primary emphasis on Better.  This is the same distinction as ecological economists make between growth, defined as a quantitative increase in economic output, and development, defined as a qualitative improvement in the quality of life.  The time has come to discontinue our emphasis on growth, on the goal of producing and consuming more, and to focus instead on our development, on the goal of making life and ourselves better.  In his book Voluntary Simplicity, Duane Elgin described people who deliberately stepped away from situations in which they had all the trappings of a good life and made lifestyle changes that reflected the basic principles of frugal consumption, ecological awareness, and personal growth.  By voluntarily simplifying their lives, they were able to devote more time and energy to activities they truly enjoyed.  For many people making these choices, living with greater balance resulted in lives with more purpose and fulfillment.

It is ironic, then, that people who choose to disconnect from a lifestyle promulgated by the economic growth agenda often become happier and more satisfied as a result.  Whereas economic growth is supposed to lead to greater well-being for people, the fact is that growth and the higher income levels it generates do not have any long-term correlation with how happy people are.  This is the Easterlin paradox, based on research by USC professor Richard Easterlin, who examined data from countries around the world over a multi-year time period and demonstrated that there is no relationship between income and happiness over the long run.  A clear counter-example is China, where life satisfaction has not improved over the two decades in which there has been a four-fold increase in real GDP per person.  Given this paradox, a reasonable conclusion is that, once the basic needs of a populace are met, government policy should focus not on GDP and economic growth but instead on increasing happiness and life satisfaction more directly.  This is the decision made a number of years ago in the small Himalayan country of Bhutan, where it was decided to discontinue pursuit of increased GDP and to orient public policy instead towards increasing “gross national happiness” by focusing on the spiritual, physical, social and environmental health of its citizens and natural environment.

Heading into the future, it makes much more sense for the design and implementation of public policy to be guided more directly by the goal of improving the happiness and life satisfaction of people and communities, rather than on increasing economic growth as a presumed means to those ends.  Economic growth, as it is currently defined, measured, and practiced, does not necessarily result in people’s lives being better off, and in fact often disguises the fact that their quality of life is being undermined in the name of increased wealth for distant investors.  As indicated above, the kinds of changes required to become a sustainable society are clear, and the means for doing so are already available – all that is needed now is the political will to energize this transition.  In order for that to happen, the first step is to acknowledge that, rather than being the solution to the challenges facing society, the unabated pursuit of economic growth is actually the heart of the problem.




The opinions expressed are those of the author, and do not reflect in any way those of the USC Bedrosian Center. 

Bedrosian Center