ECON-DIT

Words by Theo Goldsworthy-Hess

Is economic growth a means to an end or an end of itself? Governments around the world are obsessed with achieving growth targets, making it one of the key criterions for electability. But what is the purpose of economic growth, and what are the cost and benefits of pursing growth?

Economic growth can be understood essentially as the increase in the size of a country’s economy over a period of time which is typically measured by the total production of goods and services in the economy, otherwise known as Gross Domestic Product (GDP). It is a generally accepted view that long-term economic growth over a period of time is correlated with an improvement in living standards. Although it is not the main input for improving living standards, it is critically important in increasing the overall opulence of a country. For example, while China was under the rule of Mao Zedong, many policies were implemented which improved health and education outcomes for large parts of the population. However, these policies could only have a limited impact as China still remained a very poor country. This led the Chinese government to adopt market reforms in 1978 in an attempt to accelerate economic growth in order to increase the wealth of the country. What followed was a remarkable period of economic growth which has completely transformed China from a very poor country to one which now has a large middle class. Such growth has allowed large investments in civilian infrastructure, education, and health which have acted to improve the quality of life for Chinese citizens. This also led to a huge market for goods and services, giving greater access to a more diverse range of food and consumer appliances. However, there is a limit to how much economic growth can contribute to improvement in living standards.

Economists have argued that there is a threshold for which economic growth can bring about improvements in living standards, and after this threshold is reached, further economic growth can actually have an adverse effect. Although this is only a hypothesis, in the United States, even in spite of economic growth, there has been a stagnation of real wages in the over the past 40 years, with a US worker today having the same purchasing power as a worker from the 1980s. House prices have also increased at a rate much faster rate than wages have, making it much harder now to own a home. Most advanced economies around the world are committed to achieving strong economic growth targets and is an important criterion for electability. Economic growth has become not only a mainstay but a cultural norm that we cannot seem to escape. However, if living standards continue to stagnate, what purpose does economic growth serve? To answer this question, we must look at the economic policies governments across the world implemented primarily during the 1980s.

Following a period of economic stagnation as well as record high inflation during the 1970s, governments across the world sought to address these problems through structural changes to the economy. This included deregulation of the financial system, removal of centralised wagefixing, and introduction of laws that make it harder for unions to organise and strike. These structural changes sought to

What is the point of economic growth?

improve the competitivity and efficiency of corporations by allowing them to keep a larger share of their profits. Although these structural adjustments have allowed corporations to become more dynamic and productive which has contributed to economic growth, it has come at a huge sacrifice to wage earners. The general population has sacrificed improving living standards for the benefit of profitability and growth. This totally goes against what the purpose of not only economic growth but the economy itself is for. The economy should never be recognised as a single independent entity; an economy serves the purpose of furthering the wellbeing for the members of its society, not the other way around. The consequences of pursuing a policy of endless growth for the purpose of the “health” of the economy is not only detrimental to society but will also bring about major ecological catastrophes.

There is no denying that economic growth has the capability to turn a poor country into a rich one and thus bring about improvements in quality of life. However, we must also understand that there are limits to what economic growth can achieve and also the impact it has on the environment. Unfortunately, economic growth has become an end of itself in much of the world, with governments implementing policies for the sake of economic growth rather than for the wellbeing of their citizens. Ultimately, the world is made up of scarce resources, which makes endless growth an impossible feat. Therefore, we must look to change our economies from growth-driven to degrowth and eventually to sustainable stationary economies. The process by which this is done will require extensive research and investigation, but it is an issue that is undeniably important if we are to avoid environmental catastrophe.