We can’t sustain infinite economic growth on a finite planet, and it’s increasingly clear that governments’ attempts to do so are having devastating social and environmental consequences. It’s been obvious for decades that our addiction to growth is unsustainable, so why aren’t governments getting the message?
GDP is a crude measure of economic activity. It represents the sum total of all the goods and services being produced in an economy. But it takes no account of those things’ true value, or of the cost of creating them. As Robert Kennedy famously pointed out, it measures cigarette advertising and jails but not “the beauty of our poetry or the strength of our marriages”.
Our determination to maximise growth has led to severe environmental degradation. It’s held us to extract the planet’s resources at an unsustainable rate, and induced a catastrophic increase in carbon emissions.
Nevertheless, it remains the most popular indicator of economic progress. A small uptick in growth is celebrated with fervent enthusiasm, even as more real-world indicators, such as real incomes - continue to stagnate, or household debt - continues to increase.
The growth narrative relies on the belief that “a rising tide lifts all boats” – that growth in the size of an economy increases the opportunities for all citizens. Some writers have joked that a rising tide lifts only luxury yachts, while all the other vessels sink. As inequality and increasing levels of poverty become too big to hide, ‘inclusive growth’ is a term to ensure growth benefits all - but why do we have to stick to pursuing growth at all costs?
There are several reasons why governments think growth is beneficial and essential, and that if we didn’t focus on it so much there would be significant social and economic problems as a result. Some of the common ones are that growth is necessary to reduce poverty and raise living standards. They’ve been widely debunked, and experts have shown that prioritising growth is an unnecessary - and even an unhelpful way to pursue these objectives.
But while there have been compelling reasons to reject many of these sources of “growth dependency”, one reason clearly is a cause for concern. Since households, businesses and governments are in debt to each other to such a significant extent, the only way to manage these debts is for the economy to grow.
A new report from Positive Money, published on Thursday, proposes two remedies for this last source of growth dependency, both of which involve reforms of the money and banking system upon which the rest of the economy rests.
The main source of money used by citizens is created by banks – over 97%. Though even most MPs aren’t aware of this, banks create new money when they make loans, and through this process, money is created as an IOU, or debt.
The vast majority - about 80% of these loans - go into property and financial markets. Wage decline has resulted in households having to take out more debt just to get by, meaning that in the UK, private debt stands at 219% of GDP. Not only do such high levels of private debt pose serious financial stability risks, but they also fuel the government’s single-track focus on pursuing growth to make these debts manageable.
We could therefore make the power to create money a public good which works to serve society rather than burderning it with more and more debt. This could be done through Sovereign Money Creation, or “quantitative easing (essentially creating new money) for people”.
The Bank of England can create money without increasing public or private sector debt. So rather than using it to continue to create hundreds of billions of pounds to pour into financial markets, as it has done since 2009 through conventional QE, a smaller amount could be created and put straight into the real economy, via investment in green infrastructure or a citizens dividend to wipe out unsustainable debts.
But with some scientists forecasting that catastrophic climate change could be unleashed in a matter of years rather than decades, perhaps we need to be bold enough to also think about more systemic measures. This is why another reform proposed is a Sovereign Money System, where private banks would lose their privileges to create money simply by lending. This would pave the way for a new economy, no longer based primarily on endless debt and endless growth.
Such ideas may seem utopian, but as a debt-fuelled dystopia approaches, a world beyond growth dependency is not only necessary, but could be closer than we might think. It is worth remembering that economic growth itself was only introduced as a priority in the second half of the twentieth century. Just as ideas and the systems they produce have been changed before, we too have the power to change them again.
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