27 Oct 2008

Growth is madness!

'We thus have any interesting problem, economic growth is unsustainable for a variety of reasons, however it is inherent in a modern capitalist economy. Providing alternatives to capitalism is no easy task but it is necessary. I suspect that ultimately it is easier to change the economic system than basic ecological realities, however most commentators reverse my approach', concludes Derek Wall.

The New Scientist have recently run a special issue attacking economic growth, its based on the Sustainable Development Commission's project on 'Rethinking Prosperity', here is the section from my report to the SDC, which argues that economic growth is vital to the present economic system...this in my view means we need a different economic system. Rebooting the economy with some Keynesian cash injection, does not overcome the fact that a system that requires ever increasing economic growth is disfunctional. You can read my think piece here

John Bellamy Foster compares globalised contemporary capitalism to a treadmill:

First, built into this global system, and constituting its central rationale, is the increasing accumulation of wealth by a relatively small section of the population at the top of the social pyramid.

Second, there is a long-term movement of workers away from self-employment and into wage jobs that are contingent on the continual expansion of production.

Third, the competitive struggle between businesses necessitates on pain of extinction of the allocation of accumulated wealth to new, revolutionary technologies that serve to expand production.

Fourth, wants are manufactured in a manner that creates
an insatiable hunger for more.

Fifth, government becomes increasingly responsible for promoting
national economic development, while ensuring some degree of 'social security' for a least a portion of
its citizens.

Sixth, the dominant means of communication and education are part of the treadmill,
serving to reinforce its priorities and values.
[…] Everyone, or nearly everyone, is part of this treadmill and is unable or unwilling to get off.

Investors and managers are driven by the need to accumulate wealth and to expand the scale of their operations in order to prosper within a globally competitive milieu. For the vast majority the commitment to the treadmill is more limited and indirect: they simply need to obtain jobs at livable wages. But to retain those jobs and to maintain a given standard of living in these circumstances it is
necessary, like the Red Queen in Through the Looking Glass, to run faster and faster in order to stay in the same place. (Foster 2002: 44-45)

While rising welfare can be decoupled from economic growth, there are a number of reasons why a modern capitalist economy requires constant economic expansion. Corporations are owned by share holders. While shares have increasingly been bought and sold for speculative motives, shareholders generally demand dividends. Dividends are a share of profit and floated corporations have a legal
requirement to maximize them. A race for profit is built into the economic system. More growth is required to make profit.

Marx famously argued that firms tend to replace workers with capital. To over simplify a complex argument, such capital investment leads to an over all decline in profit which fuels the search for
expansion so as to restore profitability. Whatever one thinks of Marx’s approach to value, the core assumptions are clear and difficult to refute. Companies must invest in the most up-to-date and efficient technology. If they fail to do so, they will be out competed by more efficient rivals and forced to close. However increased production tends to lead to over supply (Marx would argue a decline in the
proportion of living labour which he sees as the source of exchange value), depressing price and profit.

To maintain profit, sales need to be expanded and/or efficiencies increased. A firm that fails to maintain profit will be unable to invest in new innovation and thus will be wiped out. Marx’s assumption that capitalism is dynamic, unstable and highly productive remains true today.

On the right the neo-Austrian economist Schumpeter has argued that with the rise of monopoly or oligopolistic markets, despite reduced competition, growth is still functional. He developed the concept of ‘creative destruction’, firms gain monopoly power and thus profit through patents. When patents are legally exhausted, profits collapse and new products must be patented. The biro pen is a classic
textbook example, when a patented monopoly product the biro sold for many dollars, when the patent period ceased the price tumbled to a few cents. Again, production must be expanded in the long run, despite monopoly profits in the short run which might be based on constrained supply. Supply siders like Marxists see capitalism as dynamic and growth orientated (1).

If we ignore the legal requirement for profit, and my thumb nail sketch reading of Marx and Schumpeter‘s assumptions, other reasons suggest that economic growth as a means of maintaining profit is vital. We live in a credit based economy where ever more esoteric financial instruments dominate economic activity. To pay back interest, growth must be used to maintain payments. Debt provides the means and the motive for economic expansion.

So while it is possible, in theory, to increase prosperity without economic growth, the present structures of global capitalism require infinite economic growth. Capitalism is like a bicycle if one stops peddling, it falls over.

We can go deeper still. In a market economy we do not directly produce goods because they are useful to us. We produce goods that we exchange for money that we can then use to exchange for other goods. This seems a sensible and convenient arrangement. However, we constantly have to sell if we are to buy. This means that we have to persuade others to buy our goods if are to survive. A mismatch often develops between the usefulness of goods and their value from exchange. We thus
have to sell goods that previously had no use to maintain our ability to buy goods and services. This tendency has a tendency to get out of hand.

Producing for use is not a priority at all. If you buy a book, for example, instead of borrowing it from the library this increases exchange value, but it would be better ecologically and socially to provide books, children’s toys, tools, etc via libraries because this would circulate use values more widely.
Anything that increases exchange values is encouraged in our society because it allows the market economy to function, this however means that use values are largely ignored or achieved through duplication and waste.

The drive for economic growth has become the goal of society with a variety of distorting consequences which tend to reduce welfare:

In 1992 alone U.S. business spent perhaps $1 trillion on marketing, simply convincing people to consume more and more goods. This exceeded by about $600 billion the amount spent on education-- public and private--at all levels. Under these circumstances we can expect people to grow up with their heads full of information about saleable commodities, and empty of knowledge about human history,
morality, culture, science, and the environment. What is most valued in such a society is the latest style,the most expensive clothing, the finest car. Hence, it is not surprising that more than 93 percent of teenage girls questioned in a survey conducted in the late 1980s indicated that their favorite leisure activity was to go shopping. (Foster 2002: 46-47)

Capitalism of course selects those who are most aggressive and inspired at increasing profit:
The Chairman of the board will always tell you that he spends his every waking hour laboring so that people will get the best possible products at the cheapest possible price and work in the best possible conditions. But it is an institutional fact, independent of who the chairman of the board is, that he'd better be trying to maximize profit and market share, and if he doesn't do that, he's not going to be
chairman of the board any more. If he were ever to succumb to the delusions that he expresses, he'd be out. (Foster 2002: 48)

Every member of a capitalist firm could be replaced by another and the system would still maintain its trajectory. Capitalists may be good or bad, the distinction is pointless, the workings of capitalism require constant growth.
Individuals in firms who decide that there is a kinder, gentler way of doing things or who have priorities other than profit trying to produce what is most ecological or useful, for example, either fail to rise to the top or are replaced: ’People who are genuinely forthcoming and disinterestedly helpful do not become managers of large capitalist firms. The tender-hearted are pushed off far down the ladder
on which one ascends to such positions of power. For capital shapes as well as selects the kinds of people who create these events’. (Kovel 2002: 38)

We thus have any interesting problem, economic growth is unsustainable for a variety of reasons, however it is inherent in a modern capitalist economy. Providing alternatives to capitalism is no easy task but it is necessary. I suspect that ultimately it is easier to change the economic system than basic ecological realities, however most commentators reverse my approach.


Rob Elliott said...


Thanks for the comment over on Globalisation and the Environment.

You are posting on some interesting stuff on this blog. I will link to it as soon as possible.

It is good to get a green activist/ leftish perspective on the growth issue.

weggis said...

Wrong again, Derek.

There is nothing wrong with growth, provided we recognise and understand that all things that grow, die! And are replaced with something else that also grows and then dies.

Stability is NOT a natural [green] phenomina!

Atticus said...

Interesting comment Weggis,
surely the problem with growth (at least in a capatilist system with finite resourses), is that it is often destructive, wasteful and ultimately unsustainable.

weggis said...

Life is a series of cycles of growth and decay.
That the Capitalist system mirrors this in boom and bust is hardly surprising.

The problems start when we try to control the cycles, putting off the inevitable, and end up making it worse.

I am yet to be convinced of any economic system that can be both stable and sustainable.

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