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The Cult of GDP

Can Economies Function without Growth?

By Alexander Jung

Faith in unlimited growth has been shaken since the start of the financial
crisis. Some economists are already questioning the wisdom of the
more-is-more philosophy, with its emphasis on constantly rising
economic output. But just how important is growth to an economy, and
does it actually make people any happier?
How is the German economy doing? Has it emerged from the worst of the economic crisis?
There is probably no one in Germany who can answer those questions --
questions which are currently on everyone's mind -- quicker or more
precisely than Norbert Räth. His response consists of a single number.
Räth, a white-haired economist in his late 50s, is sitting in his
corner office on the eighth floor of the Federal Statistical Office in
the German city of Wiesbaden. He is in charge of the agency's Group III
A, which addresses issues relating to the national accounts, used to
measure the country's economic activity. If the national accounts can
be characterized as Germany's balance sheet, then Räth is the country's
senior accountant.
His office compiles all key economic data relating to Germany,
including figures on building permits and hotel stays, poultry
slaughter and automobile repair, even data on the amount of tax paid on
sparkling wine by wineries. "We have data on every payment made," says
The sources of all this information include tax offices,
associations and a monthly survey of 23,500 production companies. In
the past, the data arrived in Wiesbaden on tons of paper, but today
everything is done electronically. Once every three months, Räth
recompiles the data and comes up with a figure representing the value
of all goods and services produced in Germany: the gross domestic
product, or GDP. In the second quarter of this year, German GDP
amounted to €596.67 billion ($875 billion), up from the previous
quarter's figure of €593.3 billion.
While the absolute totals are only of interest to the professional
world, what makes headlines is the rate at which GDP changes. According
to Räth's latest figures, Germany's GDP increased in the second quarter
of 2009 by 0.3 percent compared to the previous quarter. It's a figure
which is of vital importance to the country.
Everything revolves around this number, and everyone is fixated on
it. Hardly any politician, whether they are from the center-right
Christian Democrats or the center-left Social Democrats, much less the
pro-business Free Democratic Party, would ever think to seriously
question it. Growth generates jobs, growth produces social wellbeing,
and growth creates affluence for all. This, at least, is the economic
policy gospel, proclaimed and eulogized on every market square in
Germany during the current election campaign. And at this week's G-20 summit in Pittsburgh, the heads of state and government in attendance will once again be
invoking the dynamics of growth. But the good news has lost some of its
Not Just Cranks
There are now plenty of skeptics who seriously question the value of
constantly rising economic output. And these critics are not simply
cranks who are opposed to change in general. In fact, they are
respected individuals who have the courage to reflect on whether growth
is always synonymous with progress -- and whether stagnation
automatically implies regression.
"Our affluence has quadrupled in the last 40 years. But at what
price?" asks Kurt Biedenkopf, a member of the Christian Democratic
Union (CDU) and the former governor of the eastern state of Saxony. The
growth rate is "no longer a clear indicator of rising affluence,"
Biedenkopf told SPIEGEL in a recent interview.
Even German President Horst Köhler is suspicious of politicians'
assurances that growth is indisputably beneficial to society. "We have
convinced ourselves that permanent economic growth is the answer to
everything," Köhler said in March, in the midst of the financial
crisis. It was an astonishing statement, coming as it did from a
professional economist and former head of the International Monetary
Fund. And yet Köhler did not reveal what the correct answer could be.
Stagnation, perhaps? Or even contraction?
Apparent certainties are now beginning to falter, as a broad front
of critics of the system develops. They question whether it is really
necessary for consumers who already have everything they need, to
consume -- and throw away -- more and more each year. And they are also
searching for new methods of measuring well-being, applying criteria
like healthcare and level of education. French President Nicolas
Sarkozy attracted attention last week when he proposed such an alternative way of measuring wealth.
Bigger, Faster, More
We have become used to a constant thirst for growth. We constantly
want more of everything, and we want it faster. But where does that all
lead? From a purely mathematical perspective, a growth rate of 3
percent -- a target for many industrialized nations -- means that
economic output doubles in just 24 years. To take a concrete example,
if a German consumer currently buys six pairs of shoes a year, he or
she would buy 12 pairs in 2033. Assuming the same rate of growth, does
this mean that they would buy two dozen pairs in 2057?
Nowadays people in the West "have more food, more clothes, more
cars, bigger houses, more central heating, more foreign holidays, a
shorter working week, nicer work, and, above all, better health,"
writes British economist Richard Layard in his book "Happiness: Lessons
from a New Science." "And yet they are not happier," he continues. This
raises a simple question: What is the purpose of growth in the first
place? And why is there such a cult based around GDP?
To answer these questions, we simply have to imagine the
consequences if there were to be a long period with no growth. If that
happened, all of the vital functions of society would soon collapse. In
other words, Germany is more or less doomed to continue growing.
The German economy has to grow to offset constantly rising
productivity and the resulting decline in demand for labor, otherwise
there is the risk of higher unemployment. It has to grow so that
incomes can rise each year, or else societal conflicts over income
distribution will intensify. It has to grow to pay for the social
welfare state, or else society's safety net against illness,
unemployment and poverty in old age will become unaffordable. Finally,
it has to grow so that the state can continue to service its debt, or
it will lose its ability to manage its own affairs.
Banks, in particular, are dependent on growth. They are only willing
to lend money to companies who want to invest if they can expect to be
repaid with interest, so that they can then lend the money to others.
This system of permanent money creation only functions in an expanding
economy. For generations, everything in Germany has been geared toward
constant growth and expansion.
Symbol of a Better Life
Rising GDP has served as a benchmark of performance for every German
government since that of West Germany's first chancellor, Konrad
Adenauer. Economic success not only provided postwar German society
with material affluence -- it also helped to shape its identity. Growth
signified a better life, and the more the nation progressed
economically, the more it could distance itself from its Nazi past.
The wealth creation machine continued along this path year after
year until 1967, when the country experienced its first recession. That
downturn came as such a shock that, without further ado, the parliament
in Bonn wrote "constant and appropriate growth" into law as a goal of
national economic policy. Legislators had imposed on the German
economy, by decree as it were, a constant rise in the output of goods
and services.
It was not until the famous report to the Club of Rome in 1972,
titled "The Limits to Growth," that many began to seriously reflect
upon how far growth could go. The timing of the study, in the midst of
the oil crisis and a recession, was perfect.
Sense of Unease
Today, once again, concerns over declining natural resources and the
future of the global economy have revived that vague sense of unease
over the concept of growth. For many, the world economic crisis comes
as a wakeup call. In industrialized countries, faith in material wealth
has been shaken since the financial markets almost collapsed and
plunged the world into recession.
Many believe that unfettered capitalism, driven by a more-is-more
philosophy, that values higher returns, more risk and more debt, is
ultimately responsible for the debacle. The world has experienced the
"elimination of upper limits on every scale," writes Karlsruhe
philosopher Peter Sloterdijk, describing the disastrous consequences of
the convergence of greed and megalomania.
The critics of growth now advocate modesty, saying that affluence
breeds contempt. Consumption, they argue, clouds our perspective on the
important things in life. And it's not just young, left-leaning members
of society who feel this way. "Growth is a completely useless concept
to describe well-being," says Klaus Wiegandt, 70. For anyone familiar
with Wiegandt's past career, this statement is nothing short of
Until 1998, Wiegandt was CEO of Metro, a diversified German retail
group that included the Kaufhof department store chain and the Saturn
and Media Markt consumer electronics retail chains. Before that, he was
responsible for the rise of the Rewe supermarket chain, increasing its
sales tenfold. Wiegandt set the pace in the industry, based on the
principle that growth was essential to survival.
At the time, regional dairies and breweries were disappearing en
masse in Germany as retail purchasing became increasingly globalized.
Nowadays lamb is imported to Germany from New Zealand, flowers are
flown in from Africa and German lumber is shipped to China, where it is
made into furniture which is then shipped back to Europe. What is
Wiegandt's assessment of these developments today? "It's completely
idiotic!" he says indignantly. "Later generations will ask themselves:
Who were these people?"
'Quality of Life Doesn't Mean Consuming More and More'
The former top executive readily admits that he has discovered his
conscience in old age. He is sitting in the garden of his house near
Seeheim-Jugenheim, a town in the German state of Hesse, sipping a glass
of locally produced sparkling water. He refuses to drink Italian
Pellegrino water, he says, and anyone who tries to serve him imported
water in a restaurant is promptly told to take the bottle away.
Wiegandt is now an environmental activist and gives talks at
universities on the scarcity of resources. He has published a
well-regarded series of books on sustainability and subsidized the
retail price so that each book costs less than €10 ($15). He turns down
consulting contracts worth millions, a stance that lends him
credibility when he says things like: "Quality of life doesn't mean
consuming more and more every day." In the past, such a statement would
have cost him his job.
Only in his final years as CEO of Metro, says Wiegandt, did he begin
to have "this uncomfortable feeling" about the consequences of his
growth strategy. He saw how his big-box stores threatened an old bazaar
in Ankara, and how Western models of consumption swept away traditional
cultures. In all the previous years, he says, he never thought about
the consequences of his actions, and he did not even pay much attention
to the Club of Rome report when it came out.
Scarce Resources
A full generation has passed since the publication of the Club of
Rome study. The world has not collapsed, but it has changed. Since the
Chinese, Indians and Russians have entered the market economy, the
number of employed people worldwide has doubled, to about 3 billion.
Vast new markets and low-wage production countries have developed, with
serious consequences for the consumption of energy and water.
Oil consumption has increased by more than 25 percent since 1990,
while the consumption of natural gas has grown by more than 50 percent.
Fossil fuel production is becoming more and more difficult and costly.
The scarcity of water is even more serious. Global water use has
doubled since 1950, and even as large segments of the world population
lack adequate access to clean water, more and more water is being used
in food production. For example, more than 1,000 liters of water are
consumed to produce one kilogram (2.2 lbs.) of bread, while producing a
kilo of beef uses up almost 16,000 liters of water.
The limits to growth are exemplified by the giant desalination
plants between Abu Dhabi and Dubai, built to supply the new desert
metropolises with water, by Vietnam's hundreds of textile factories,
where sewing machines hum day and night, and by the world's largest
coalfields in northern China, where fires blaze in the seams.
We have reached the point at which the Earth's regeneration capacity
is being stretched too thin. Theoretically, humanity today already
needs 1.3 planets to maintain its lifestyle. If everyone were as
wasteful as the Americas, five planets would be needed. To make matters
worse, by 2050 the world's population will have increased by 2 billion
-- people who will also need food, clothing and shelter. How is this
even feasible?
The Contradictions of Growth
Given the Earth's limited system, the economy clearly cannot grow
indefinitely. From an ecological perspective, this is the fundamental
contradiction within the logic of growth. But there is also another
problem, a mathematical problem, as it were.
As economies mature, it automatically becomes more difficult for
them to sustain their rates of growth. Essentially this is merely a
question of mathematics, as a simple calculation serves to show.
The young Chinese market economy is expected to grow by about 8
percent this year. Because the standard of living in China is so low,
however, this translates into $260 in per capita growth. On the other
hand Germany, an established industrialized nation, would be more than
pleased with 1 percent growth in crisis-ridden 2009.
To achieve this much growth in Germany, however, each and every
citizen -- in a population only one-16th the size of China's -- would
have to produce an additional $447 worth of goods and services. In
other words, the Germans need to make a tremendous effort to keep their
economy growing. Does this mean that the growth rate is destined to
decline to zero in the future, or perhaps even descend into negative
New Innovations
Paul Welfens, an economist in the western German city of Wuppertal,
considers this idea erroneous. He is convinced that "economic growth in
Europe and worldwide can continue for centuries," that is, for as long
as the world continues to move, change and develop. And as long as
competition continues to produce surprising innovations, like the
shipping container, the computer, the satellite and the Internet.
Whenever people believed that humanity's creativity had been
exhausted once and for all, some groundbreaking new innovation emerged.
These goods and services generate needs and desires, so that a
saturation limit is never reached. This is the reason why companies, in
order to survive, are constantly investing in new ideas. Progress is
what allows the economy to grow to a practically unlimited extent.
And because the new and improved displaces the old and outdated in
this productive process, manufacturers can usually charge higher prices
for their innovations, thereby increasing GDP. The car manufacturer
Daimler, for example, has charged more for each new model in its E
Class series, because the new model always includes a qualitative
improvement over the old model -- features like airbags, ABS or, more
recently, a warning system to combat driver fatigue.
Thus, growth does not stem solely from the fact that workers are
producing more products, thereby increasing the volume of goods
produced. Instead, the critical factor is the value of goods. This
leads to an important realization: A growing economy does not
necessarily need to consume more resources. In other words, our goal
should not be to achieve less growth but better growth, and not to
forego consumption but to improve the quality of that consumption.
Shifting Focus
A company like IBM is an example of how this can work. IBM has
radically changed its business, moving away from material products and
the production of more and more powerful computers. Today, the company
focuses on a non-material resource: knowledge. IBM has shifted its
emphasis to consulting and IT services and, as a result, has seen its
profits grow despite the economic crisis.
A less-is-more strategy also works on the national scale. German GDP
has grown by close to a third since 1990. At the same time, however,
the country's energy consumption has declined by 7 percent. Cars are
now more fuel-efficient, ships consume less heavy fuel oil and
businesses use less electricity. However, one of the reasons Germany is
in a relatively good position is that it has outsourced much of the
dirtier aspects of its production to Eastern Europe or South-East Asia.
Of course, businesses and consumers have not changed their
production and consumption behavior entirely on their own -- government
has given them a helping hand. To a certain degree, lawmakers can
promote the desired kind of growth through the use of well-designed
For instance, they can require vehicle manufacturers to reduce
average emissions to less than 120 grams of CO2 per kilometer driven,
thereby stimulating the development of low-emission vehicles. Or they
can attach suitable prices to a valuable resource like clean air which
was previously available free of charge, by way of emissions trading --
thereby forcing companies to invest in climate protection.
Better Recipes
The principle is clear: Resource consumption must be decoupled from
growth. The respected US economist Paul Romer employs a kitchen
metaphor to illustrate the concept. "Economic growth springs from
better recipes," he says, "not just from more cooking."
This is effectively what representatives of the world's governments
will be discussing when they meet in Copenhagen for the United Nations
Climate Change Conference in December. But the world is still a long
way from this goal.
Emissions trading is still limited to Europe, and the system can
only become fully effective once every country on Earth is included.
The entire global economy still depends almost entirely on fossil
fuels, as evidenced by the fact that seven of the world's 10 biggest
corporations are involved in the oil business. More importantly, most
people probably couldn't care less how their economies achieve growth,
as long as the growth figures they see are in positive territory.
Wiesbaden economist Norbert Räth, at any rate, is amazed at the
seemingly miraculous powers of the number he calculates each quarter.
When he announced the most recent figure of 0.3 percent growth in GDP,
which took many by surprise, politicians, business executives and
academics promptly interpreted the number as clear evidence that
Germany is now squarely on the road to recovery.
"We weren't at all happy about that," he says, sighing. He would
feel more comfortable if his calculations were not used to support all
kinds of different interpretations. "Growth is undoubtedly a central
variable," says Räth. "But it doesn't explain everything."
Translated from the German by Christopher Sultan

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