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An abridged version of this article, written by Olli Tammilehto, has been published in Sustainable futures edited by Marko Ulvila and Jarna Pasanen, Coalition for Environment and Development 2009 (forthcoming) (written in February 2009) . You can republish it in English or in any other language but you should first inform the author.

The Delusions of Economic Growth


Contents

What is economic growth?

Growth and the environment

Growth and Welfare

Growth and poverty

Why growth?

Bibliography

Endnotes


What is economic growth?

To understand economic growth, one has to get grip on what is this economy which is supposed to be growing. According to Wikipedia “an economy is a set of human and social activities and institutions related to the production, distribution, exchange and consumption of goods and services”. Webster's New World Dictionary gives this definition: “a system of producing, distributing, and consuming wealth”. However, the key point is that not all economic activities and processes are included when speaking about growth.

Since the Second World War economic expansion has been almost universally measured as the growth of Gross Domestic Product or GDP (alternatively as the growth of GNP or Gross National Product which is similar concept with a little bit different definition). GDP is technically the total value of final goods and services produced within a country's borders in a year. Yet only those goods and services are counted which are included in the so called system of national accounting. This system was developed during the Second World War in the USA. To make the accounting process easy and exact and to measure mostly those activities that are interesting to the powers that be, a vast array of economic processes was – and continues to be – excluded from the system.

Thus e.g. the production of goods and services within households or at home are not included in growth calculations. This economic section is big even in rich countries – especially in families with small children – but it is vast in poor countries. It covers, for example, food preparation, cleaning, small repairs, care for the young, the sick and the old, teaching small children and psychological and spiritual support given to family members and peers.

Another important chunk of economy excluded from GDP is informal exchange of goods and services as gifts or in barter. This, too, is big even in the Global North. It comprises, e.g., the exchange of child care services and baby clothes and exchange of products of subsistence agriculture, gardening and animal husbandry.

What may come as a surprise, also part of the monetary based exchange of goods and services are excluded from the growth concept. These are economic activities that do not show up in official tax or other statistics and do not leave other paper or computer tracks. Examples of this are flea markets and other petty trading. Usually in rich countries this is not estimated at all or, in the case of poor countries, is underestimated on the basis of economic evaluations of informal exchange. Part of these activities are illegal (“black economy”) but part of them are fully legal.

But by far the biggest omission in the GDP calculations is the production and services provided by nature without human mediation. These include sunshine, winds, breathable air, tolerable temperature and life supporting chemical composition of the environment.

However, even part of the human mediated services of nature are excluded. These are services and production opportunities mediated not by private or state property but provided by common property regimes, or commons. They comprise common forests, pastures, fisheries etc.

Many commons are in the first place non-material cultural construction rather than material relationships between humans and natural objects. They are typically knowledge and information spaces in the public domain like scientific knowledge, folk wisdom, public libraries, the Internet and open source computer programs. The services provided by these commons are excluded from GDP calculations, too.

All these excluded parts together can be called informal economy. The official, GDP-measured economy together with informal economy is often called extended economy. For human welfare and for future living chances on the planet, it is essential what happens to the global extended economy. The growth of official economy is not necessarily correlated with the growth or progress of extended economy. On the contrary, there are massive empirical evidence and conceptual links showing that growth of GDP-economy is connected to enormous shrinking in informal economy so that the net result is negative. Therefore GDP-growth is associated with increase in human illfare and environmental destruction threatening the future of the planetary life.



Growth and the environment

It is commonly suggested that it is growth that provide the resources needed to improve the environment. In this reasoning it is assumed that the environmental problems are marginal and not structurally related to the character of today’s economy. Yet, examining just one of the environmental problems, the climate change, proves the assumption wrong. Problems have been externalized and the ecological debt has been allowed to grow for centuries. The structures of our modern societies and of international trade are based precisely on that. Since externalizing environmental and other costs is precisely the factor that enables the economic growth, environmental problems are solved with this growth decisively less than are produced by it. If a real improvement in ecology were the priority, the growth would stop or turn into negative, and the whole pattern of thought would lose its foundations.1

Those believing in the blessing of growth are misled by the illusion of the progress in solving the ecological problems in old-established industrialized countries. Economists have constructed theories stating that after economic “development” has reached a certain point the ecological problems are going to decrease almost automatically. They speak about the overturned U-shaped “Ecological Kuznets Curve”: with economic growth environmental problems first increase and then start to decrease.2 Actually the problems have often just been swept under the carpet by exporting them to the South. Producing large amount of material and having other activity aiming at exporting have consumed much more natural resources and have inflicted much more environmental problems in the South than similar activity in the North. The ecological costs of the economy and a whole lifestyle based on such a massive material consumption have systematically shifted to be paid by the poor people and nature of the South. The ecological debt is growing.3

The delusion gets back up also by the fact that in the public eye there is only a few symptoms of the whole dreadfulness of the global ecological crisis at a time. On the other hand, the problems around the new production methods and products – like cellular phones, genetic engineering, nanotechnology and new chemical substances – have been successfully managed to keep away from the mainstream media by the well-oiled public relations activity.4



Growth and Welfare

The conventional wisdom “growth leads to welfare” is also very controversial. Since the majority of us gets illnesses, a ruined environment and ravaged future as free gifts alongside the bargain of growth, how is it possible to talk about general welfare?

Again, one may ask what kind of welfare is brought by the goods that are thrown away after a short and uninterested usage. According to a research, half or even three quarters of the material that industrialized economies absorb from nature is being returned to nature as waste in no later than in a year.5

Furthermore, behind the welfare explanation stands a naive view of a connection between the purchased goods and the human needs: as a person voluntarily buys a new product, it must improve his welfare.

However, in a consumer society only a few purchases are related to getting food, shelter, warmth, etc. Products are bought for two reasons: firstly, because the structures of society have been altered in a way that it is hard to survive without certain belongings. For example, usually the only way to make a living is to have a paid job, and to get and to hang onto it requires often that one must own a car.

Secondly, commodities are acquired because commercial culture and advertising have attached to them – often merely in subconscious level – a variety of cultural and social connotations: strength, beauty, creativity, know-how, reliability, intelligence, social competence, masculinity, femininity, sexuality, naturalness, experience of nature, membership of some societal group, position of power, etc. Consequently, the goods in a shop window resemble ancient relics – the mere materialistic features do not explain their attraction. Generally, the things these connotations hint cannot be acquired by purchasing the goods and that leads to frustration. The frustration is increased by the fact that advertisements will quite quickly shift those connotations to new products, which are too expensive to acquire, at least at once.

Ergo, the consumerist society impregnated with advertising is based not on creating satisfaction but actually dissatisfaction. It nourishes illfare.6 One testimony for this is the almost pandemic tendency towards depression, anxiety and other psychic symptoms.7



Growth and poverty

It is commonly argued that economic growth increases the incomes of the poor reducing poverty. This argument, too, is very controversial.

There are many studies that show that especially in poor countries and particularly after 1980 both economy and inequality grow side by side 8. Thus rich get richer but poor stay poor. Further, according to one study, the structural adjustment loans given to poor countries during last decades decrease substantially the connection between growth and the income of the poor 9. For example, in spite of fast growth in India in the 1990s, poverty was not alleviated – on the contrary, according to many studies it was aggravated10.


It is also disputable whether the increase in monetary income of the poor is a measure of decrease in poverty: When the economy is growing, besides incomes, many other things that have an effect on the misery in people’s lives, change. In new circumstances there may be many more necessary expenses. Also, the utility of one inflation-corrected dollar may decrease11.

For example the official consumer expenditure surveys in India show that the structure of consumption of the poor has changed much in recent decades. Money is needed more than before for other things than food. Furthermore, part of the expenditure, diverted from cereals, went to other food items. These changes were, first of all, related to structural changes in the society: many necessary food stuffs have become much more expensive because rural people have lost access to common property resources. Many villages have lost their markets and job opportunities and much more money is needed for transportation. The quality of public health care has deteriorated and village home remedies have been undermined so that people take recourse to private practitioners with substantial charges. Thus even though many poor get more money their income is more insufficient than earlier.12



Why growth?

Why then is economic growth so important even though it creates so much harm? One reason is that we live in societies in which the key units are profit seeking corporations. But this alone does not explain the growth imperative because besides seeking their own success and growth, companies are also after the death of their competitors. In this situation the net growth could also be negative. But negative or zero growth in capitalism means increasing unemployment and social instability. Therefore already in the beginning of the 19th century European economists and politicians realised that state policies must encourage and stimulate general growth in production in order to avoid social chaos: people who loose they livelihoods because they themselves or their employers fail in competition would be absorbed to other growing branches of economy13.

On the other hand, economic growth functions as an ideology that promises better living and prosperity for all. It works as a surrogate democracy under which enormous gaps in power and wealth generated by capitalism can be maintained.

Especially this has been the case in Europe and North-America since the beginning of the 20th century. To curb the rising tide of social change movements the powers that be had to devise a new way to rule. The new order, later to be called fordism, was invented. It was based on mass production of relatively cheap consumer items the types and models of which were changed regularly and the necessity of which was inculcated to people by the new propaganda system working on subconscious level14. Consumerism has ever since been the key ideology to maintain the power relations and it needs economic growth to function15.



Bibliography

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Cato, Molly Scott (2006): Market, Schmarket: Building the Post-Capitalist Economy. New Clarion Press, Cheltenham, UK

Chomsky, Noam (1989): Necessary Illusions, Thought control in democratic societies. CBC Enterprises, Montréal

Cornia, Giovanni Andrea (2001): Globalization and health: results and options. Bulletin of the World Health Organization, no. 9/79, 834-841

Döppe, Tobias, Stefan Giljum, Mark Hammer, Friedrich Hinterberger, Fred Luks, Doris Schnepf et al. (2002): Freier Handel, nachhaltiger Handel – Ein Widerspruch? Hintergrundpapier für die Debatte um Handel und nachhaltige Entwicklung nach Johannesburg. World Summit Papers der Heinrich-Böll-Stiftung 21, Sustainable Europe Research Institute, Heinrich-Böll-Stiftung, Berlin

Easterley, William (2001): The effect of IMF and World Bank programmes on poverty. WIDER Discussion Paper, no. 102/2001,

ETC (2003): The Big Down: Atomtech - Technologies Converging at the Nano-scale. ETC Group, Ottawa http://www.etcgroup.org/upload/publication/pdf_file/171

Firstenberg, Arthur (2004): Killing Fields. The Ecologist, no. June/2004, 22-27 http://www.theecologist.org/archive_detail.asp?content_id=285

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Galbraith, James K, Pedro Conceicão & Hyunsub Kum (2001): Inequality and growth reconsidered once again: some new evidence from old data. The University of Texas at Austin, UTIP Working paper, no. 17/2001,

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Mehta, Jaya & Shanta Venkatraman (2000): Poverty Statistics, Bermicide's Feast. Economic and Political Weekly, July 1 http://www.epw.org.in/showArticles.php?root=2000&leaf=07&filename=1487&filetype=htm

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Simms, Andrew (2005): Ecological Debt: The Health of the Planet and the Wealth of Nations. Pluto, London

Sklair, Leslie (2002): Globalization, Capitalism & Its Alternative. Oxford University Press, Oxford

Smith, Jeffrey M (2003): Seeds of Deception, Exposing Industry and Government Lies About Safety of the Genetically Engineered Foods You're Eating. Yes! Books, Fairfield, Iowa





Endnotes

1See, e.g. Røpke 1994

2Empirical criticism against this so called “Ecological Kuznets Curve”, see Seppälä et al. 2001, Fischer-Kowalski & Amann 2001.

3See, e.g. Simms 2005, Döppe et al. 2002,18–19.

4For discussions of health and environmental problems caused by mobile telephones; see, e.g. Firstenberg 2004 and Nordstrom 2004; of genetic technology similarly, see Smith 2003; and of nanotechnology, see ETC 2003.

5Matthews et al. 2000, xi.

6See, e.g. Leiss 1978, McCracken 1988, Carey 1997 and Chomsky 1989

7See, e.g. Cato 2006, 41, Levine 2007. It is not suggested here that the only reason for the symptoms would be evocative advertising.

8See e.g. Galbraith et al. 2001, Cornia 2001

9Easterley 2001

10See e.g. Reddy 2000, Mehta 2001

11See e.g. Sen 2001, 109-110

12Mehta & Venkatraman 2000, Mehta 2001

13So called Say's law in classical political economy is a reflection of this insight, see e.g. Kurz 1999

14See Carey 1997, Chomsky 1989

15See e.g. Sklair 2002

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