Growth seems to be the ultimate goal for economies, even independent of political systems. But is growth equal to improvement in living standards and individual wealth? Is there a limit to it, if so will we reach it in our lifetimes?
Contents:
Why do economies strive for growth?
How is growth measured?
How does growth impact distribution of wealth?
Historical Economic Growth
Is there a limit to growth?
How likely is it that growth is going to continue for the next 10 years?
Conclusion
Prosperity without further growth?
Why do economies strive for growth?
If a company grows, it produces and sells more products or services than it did in the previous period. A growing business needs more workers which in turn receive salaries and - in their free time - are enabled to consume, which facilitates further business growth and sees more people in work. The larger businesses grow, the more people - in theory - they will employ, and the more they are capable to compensate their workers with growing profits, which should lead to an overall increase in individual prosperity.
Economies thrive for growth because it is often seen as a way to increase prosperity and improve the standard of living for citizens. Economic growth can lead to increased employment opportunities, higher wages, and greater access to goods and services. Additionally, growth can generate tax revenue for governments, which can be used to fund public services and infrastructure projects.
Another reason economies strive for growth is because it is often seen as a measure of a country's economic success and competitiveness on a global scale. Countries with high levels of economic growth are often perceived as more attractive to investors and businesses, which can lead to increased foreign investment and trade.
Finally, economic growth can help to reduce poverty and inequality by providing more opportunities for people to improve their economic situation.
It's worth noting that growth is not always beneficial for everyone, for instance, it might increase income inequality, gentrification or environmental degradation. Therefore, economists and policymakers may strive for a balance between growth and sustainability.
How is growth measured?
The western economies are built on one key variable. Growth.
Economic growth is typically measured by the change in a country's gross domestic product (GDP) over time. GDP is the total value of all goods and services produced within a country in a given period of time, typically a year. The change in GDP over time is used as a measure of economic growth because it reflects the increase or decrease in the amount of goods and services being produced, which is considered to be a good indicator of the overall health of the economy.
There are two ways to measure GDP:
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Nominal GDP: It measures the total value of all goods and services produced in a given period of time at current market prices.
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Real GDP: It adjusts for inflation and measures the total value of all goods and services produced in a given period of time at constant prices.
Real GDP is considered to be a more accurate measure of economic growth because it takes into account changes in prices and allows for a more accurate comparison of economic growth over time.
Economic growth is important to measure because it helps policymakers and economists understand the current state of the economy and make decisions about how to improve it. Additionally, measuring economic growth helps to identify trends and patterns in the economy, which can be used to predict future economic performance and make plans accordingly.
Despite GDP not being a one-for-all metric for a country's wealth since it does not account for wealth distribution within a nation or societal value of the produced goods, it still is referred to the most often when the level of growth is to be evaluated.
How does growth impact distribution of wealth?
Economic growth can impact the distribution of wealth in a number of ways. In general, economic growth is associated with an increase in the overall wealth of a society, as more goods and services are produced and more jobs are created. This can lead to an increase in the standard of living for all citizens, including those at the lower end of the income spectrum.
However, the distribution of wealth can be affected by how the benefits of economic growth are distributed. In some cases, economic growth can lead to a concentration of wealth in the hands of a small group of people, while the majority of citizens do not see significant improvements in their standard of living. This is often referred to as income inequality.
For example, economic growth may lead to increased profits for large companies and wealthy individuals, while the wages of ordinary workers may not keep pace with economic growth. This can lead to a widening gap between the rich and the poor.
Additionally, economic growth can also lead to changes in the distribution of wealth within a society, such as the rise of a new middle class. Economic growth can also lead to increased investment in education and training, which can help to reduce income inequality over time.
Overall, economic growth can have a positive impact on the distribution of wealth in a society, but it depends on the way the benefits of growth are distributed and on the policies implemented by the government. Policies such as progressive taxation, minimum wage, social welfare programs, and investment in education and training can help to ensure that the benefits of economic growth are distributed more fairly across society.
Historical Economic Growth
Economic growth over the past 300 years in Europe has been quite varied. In the 18th century, economic growth was relatively slow due to a lack of technological advancements and limited trade. From 1700-1820, average growth rates sat at 0.1% annually. With the discovery and population of the Americas by European settlers, America saw 0.4% annual growth in that same period. (All growth rate data from piketty.pse.ens.fr/capital21c )
However, during the 19th century, economic growth in Europe accelerated as a result of the industrial revolution to 1% annually, which brought about significant advancements in technology and increased productivity. This period is known as the first industrial revolution. In the US growth rates sat at 1.5%.
During the 20th century, economic growth in Europe was affected by several factors, including two World Wars, which led to significant economic disruption and loss of life. During the two wars, growth fell to 0.9% in Europe but remained relatively constant in America at 1.4%. However, the post-World War II period saw a period of strong economic growth known as the "Golden Age of Capitalism" or the "Trente Glorieuses" in France, characterized by low inflation, low unemployment, and high economic growth rates of 3.4% in Europe and 2% in the US between 1950-1980.
In the 21st century, economic growth in Europe has been more moderate, with the average annual growth rate ranging from around 1% to 2%* This has been affected by the global financial crisis of 2008, the Eurozone debt crisis, and more recently by the pandemic in 2020.
It's worth noting that the economic growth rate varies widely among European countries, and it's also affected by the specific time period being considered. For example, the economic growth rate during the Cold War era was affected by the division of Europe into two spheres of influence, and the growth rate in Eastern Europe was lower than in Western Europe.
Is there a limit to growth?
There is a debate among economists about the limits of economic growth. Some argue that there are natural limits to growth, such as finite resources and environmental degradation, while others argue that growth can continue indefinitely through technological innovation and increased efficiency.
If economies were to stop growing, it could have a number of negative consequences. For example, unemployment could rise as businesses struggle to maintain profits, and the standard of living could decrease as wages and purchasing power decline. Additionally, without economic growth, governments may have difficulty funding social programs and paying off debt. However, some argue that a focus on steady-state economy instead of endless growth is crucial for the planet's survival and quality of life.
How likely is it that growth is going to continue for the next 10 years?
It is difficult to predict with certainty whether economic growth will continue in the next 10 years. Factors such as economic policies, natural disasters, technological advancements, and global events can all affect economic growth and make it hard to predict with certainty.
Economic growth is likely to continue in the next 10 years, but it may not be at the same rate as in the past. There are several factors that may influence economic growth in the next decade, including:
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Demographics: an aging population can lead to a decrease in the labor force, which can slow economic growth.
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Productivity: improvements in technology and increased efficiency in businesses can lead to higher productivity and economic growth.
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Globalisation: increased trade and investment between countries can lead to economic growth, but it also can lead to increased competition and job displacement.
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Climate change: Climate change can cause natural disasters that can disrupt economic activity and lead to decreased economic growth.
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Political and social instability: Political and social instability can create uncertainty, discourage investment and lead to decreased economic growth.
Conclusion
In summary, the likelihood of economic growth continuing in the next 10 years depends on a variety of factors, and it's challenging to make a precise prediction. However, with the right policies and investments, it is possible to sustain economic growth over the long term. Nevertheless, looking at historical data, it is likely that growth rates we have grown used to of more than 2% are unlikely to continue unless significant technological productivity improvements revolutionise the way we work and produce. Artificial intelligence, for example ChatGPT seem to open the window of possibilities in the upcoming decades - even so, the question of distribution of wealth and environmental impact still remains unanswered. If technological advancement can contribute to a sustainable use of resources whilst providing growth and prosperity, then we look into a bright future. Should we be unable to solve the issues coming with climate change and make vast areas of the planet uninhabitable, then growth alone is ineffective to make everyones livelihood better. As importantly, policies and control mechanisms to control the distribution of generated wealth in a fair manner, are the baseline to ensure growth benefits everyone.
Prosperity without further growth?
A prosperous society could potentially exist in a system with economic stagnation, but it would likely depend on the specific circumstances and the definition of prosperity.
If economic stagnation is defined as a lack of economic growth, it does not necessarily mean that the overall wealth of a society is decreasing, and that the standard of living for all citizens is decreasing as well. In some cases, a steady-state economy where the overall wealth of the society remains constant, but is distributed fairly among the population, could lead to a high standard of living and a sense of prosperity for all citizens.
Additionally, a society with economic stagnation could still be prosperous if it prioritises non-economic indicators of well-being such as health, education, and social capital. For example, a society that values work-life balance, community engagement, and environmental sustainability could be considered prosperous even if it is not experiencing economic growth.
It's worth noting that economic stagnation could also be the result of a lack of opportunities and a lack of resources, leading to high poverty rates, unemployment, and low standard of living. In this case, a prosperous society would be hard to achieve without addressing those issues.
A prosperous society could potentially exist in a system with economic stagnation, but it would depend on the specific circumstances and how prosperity is defined. A fair distribution of wealth, non-economic indicators of well-being and addressing poverty and unemployment are crucial for a prosperous society.
The question resulting from all of the above is: Which should we prioritise - generic growth as the determining factor to improve overall wealth or the composition of growth and wealth? Where is our focus as humanity better suited?
And where do you what to focus your energy on?
