Simon Kuznets, who invented GDP in the 1930s, did not mean to include government spending — social welfare systems for example — into the calculations of a country’s income. However, that’s what we do when we calculate GDP today. The modern conception of GDP was developed by John Maynard Keynes during the second world war. At that time, leaving the government’s wartime obtainment out and not considering it as a demand would have led to a falling GDP, despite the actual economic growth taking place. Eventually the war ended, but Keynes’ method of calculating GDP spread and stuck. (Kapoor & Deproy, 2019.)
So far, an ever growing economy has meant ever growing emissions. Now that we need to halve global emissions by 2030 in order to reach the 1.5 °C target set in the Paris Agreement, it is clear that we need to stop and ask ourselves: what does that mean for our future economic system? Could degrowth be a viable solution, and what implications would that have on our well-being and quality of life?
Today’s societies are built on the assumption that an increase in well-being requires economic growth. Every country in the world aims to grow their economy, and political decisions are tailored to support that growth. Unfortunately, the growth of a nation’s economy does not completely reflect its welfare, yet is tightly coupled with growing emissions and the overconsumption of natural resources.
GDP: an insufficient metric
Economies are measured using the Gross Domestic Product (GDP) index, which is defined as “the monetary value of all finished goods and services produced within a country’s borders in a specific period.” If the production of goods or the sales of services increase, so does the GDP. In order to produce more goods, we need raw materials and energy. In order to produce more services, we almost always need energy, and in most cases also products or raw materials.
Technically, we can produce energy without emitting greenhouse gases, but we don’t produce near enough to cover the current demand — let alone the demand of tomorrow, if the economy keeps growing. Thus, as GDP grows as a consequence of an increase in production, energy consumption increases, and emissions grow.
A steadily growing GDP certainly has its benefits: it has increased people’s income in developing countries and led to governments using more money on e.g. schools and hospitals (Banerjee & Duflo, 2020). Yet, the whole idea of GDP as the standard metric for economic growth has been criticised as it completely ignores the negative effects of economic growth on society, such as climate change and income inequality, and thus fails to reflect a nation’s welfare.
Limits to green growth
As nations realised the need to add sustainable development targets to the traditional economic ones, green growth became the dominating strategy for reaching the 1.5 °C target set in the Paris Agreement and achieving a society this planet can sustain. Advocates of green growth believe that efficiency will eventually enable the decoupling of economic growth from environmental pressure, meaning that the production of more goods and services would be possible with less natural resources and fossil fuels. (Parrique et al., 2019.)
However, there is no evidence that this will actually happen to a great enough extent (Parrique et al., 2019): more production will always require more energy and other natural resources. In a time when we need to reduce our energy consumption to be able to produce it all with renewables, it seems that decoupling on its own is not sufficient to solve the environmental problems.
Can we achieve well-being without growth?
The global economic crisis in 2008 triggered a new wave of critique of economic growth and the limits of GDP accounting (Borowy & Schmelzer, 2017). The most radical strand of this critique is called degrowth.
Degrowth emerged in France and other Southern Europe countries in the 2000s and spread around the world in the following decade. It’s both a new academic and societal perspective as well as a social movement, calling on advanced countries to take on zero or even negative GDP growth. (Borowy & Schmelzer, 2017; Cassidy 2020.) In practice, this could be achieved by 1) producing more long-lived products, and 2) steering businesses away from material production and consumption, and instead focus on labour-intensive services such as education, care or repair.
Besides criticising growth as a material flow increasing the pressure on ecosystems, degrowth questions the whole idea of economic growth as the source of all well-being in our society (Borowy & Schmelzer, 2017; Järvensivu). The winners of the 2019 Nobel Prize in Economics, Abhijit Banerjee and Esther Duflo (2020), have pointed out that a larger GDP doesn’t automatically lead to a rising human well-being. According to them, the pursuit of economic growth has actually contributed to a rise in inequality, political polarization and mortality rates in rich countries, as the benefits of growth fall mainly to the hands of the élite. They take the UK under Margaret Thatcher and the US under Ronald Reagan as examples – both countries implemented policies that favoured the rich, hoping that the wealth would eventually spread to the poor. The result? Inequality skyrocketed. Banerjee and Duflo point out that the same trend can be seen on a global scale, as well: between 1980 and 2016, 27% percent of the total growth was captured by the richest 1% of the population.
With that and the need to halve global emissions by 2030 in mind, degrowth’s goal of finding a way to increase well-being through something other than consumption seems worthy of a closer look.
We cannot not change
The critics of degrowth point out that if growth was to be abandoned, there’s a risk that poor will stay poor — also in developed countries. As a solution, degrowth offers work-sharing and income transfers, such as basic income, to make sure that the existing wealth will be shared equitably (Cassidy, 2020). Researchers have also questioned the efficiency of degrowth strategies; a study by Hardt et al. (2020) on how the transition from production of goods towards labour-intensive services would affect the energy footprint of society found that even large structural changes would lead to comparatively small energy savings. The authors concluded that a transition to services is not enough, but other measures such as improvements in energy efficiency is also needed.
The Oxford economist Wilfred Beckerman (1974) criticised degrowth by stating that the cost of zero growth in terms of political and social transformation would be “astronomical”. And that is true: abandoning the idea of economic growth as the foundation of the “good life” would require major changes on all levels of society. Degrowth proponents recognize that achieving global environmental justice will require a fundamental socio-economic transformation, and want to create one aiming at achieving a good life for all. (Borowy & Schmelzer, 2017.)
Even though economic growth in developed countries is fairly low, our over-consumption is high, and it is clear we cannot continue on this path. As the founder of research and activist organisation Dark Optimism Shaun Chamberlin said, “Everything is going to change, one way or another: either we radically change direction or we end up where we’re headed and both of those look nothing like today.” In other words, the economic system cannot not change.
While green growth advocates mean technological advancement and increased efficiency is the solution, degrowth proponents put their trust to sufficiency, arguing that less goods and services is the surest road to ecological sustainability. But what if it would not only increase sustainability, but also sustain happiness and overall well-being? Results from the UN’s World Happiness Report show that growth can only take us so far: once we’ve reached a certain level of economic freedom, other factors play a more important role in improving our happiness. Whether the future includes degrowth, green growth or neither, perhaps GDP has outplayed its role in the Western world — perhaps it is time for us to begin using new metrics for measuring prosperity?