Arguments used to justify more economic growth are based on flawed assumptions
Every single country has the same economic goal, to increase economic growth, but why? Economic growth is intertwined with social development. The idea is that economic growth creates a rising tide that raises all boats. More growth leads to wealth creation; more wealth helps to increase incomes; increasing incomes provides people with more disposable income to consume more. The idea is that the higher your income, the happier you’ll be. But is it true — do ever-increasing incomes equate to ever-happier societies?
It turns out that beyond the point of meeting the basic needs of food, water and shelter, increases in wealth “do little to improve people’s well-being and happiness.” It feels like a paradox; how can those with higher incomes be happier, and yet increases in wealth don’t improve people’s happiness?
The economist Richard Easterlin offers an explanation, arguing, “raising the incomes of all does not increase the happiness of all. This is because the material norms on which judgments of wellbeing are based increase in the same proportion as the actual income of the society.” In other words, if everyone’s income has increased, then you don’t feel any better off than you did before because self-worth is defined by how you compare to others in society.
Between 1958 and 1987, income in Japan multiplied five-fold. During this period, Japan went from being a poor developing nation to the second richest country (based on GDP) in the world. In 1958 white goods like electric washing machines, refrigerators and television sets were a rare luxury; by the 1980s, nearly every household owned one. Car ownership went from 1 to 60 per cent of households. Easterlin argues that “given the remarkable growth of incomes that occurred, the proportion of the population at the end of the period with incomes equalling or exceeding that of the highest group at the beginning must have risen substantially. Yet the average level of satisfaction was unchanged.”
What makes these findings all the more remarkable is when you consider how well-off people are today when compared to previous generations. The majority of people living in advanced industrial nations have homes with comforts “like plumbing, heat, and air conditioning that far exceed those enjoyed by royalty 1,000 years ago.”
But feelings of success aren’t defined by how things were 1000 years ago, but rather by how we compare to others now. An example is that if your home has always had plumbing and central heating, those features of your reality come to form a basic expectation. And, because everyone’s home has plumbing and central heating, you don’t feel better off than others, nor do you feel better off than previous generations who had to make do without plumbing and central heating.
Feelings of success are subjective and hinge on how we compare with those around us at that point in time. But the fact economic growth creates rising incomes that change consumption norms over time means everyone is in a rat race. We all need to continue buying stuff to live up to social expectations because a large element of consumerism is driven by status competition, and making sure that we keep up with the pack.
The aim of the game is to get ahead of the pack, because those with the most, are, of course, the most successful. But being ahead of the pack doesn’t mean you can stop in the pursuit of more. The economist David Levine argues this never-ending competition between people creates pathological behaviour. Material needs can never be satisfied because greed and the desire for more are unlimited. Greed is pathological because the more stuff you own, the more you have to lose; trapping people in a cycle where they are compelled to make more to maintain the status all that stuff provides.
Billionaires are celebrated by media outlets as if they were deities because they serve a vital function in providing people with an aspirational goal. If the majority rejected the rat race and recognised, as Muhammed argues, that “riches are not from abundance of worldly goods, but from a contented mind”, the economy would soon ground to a halt. This is because consumption is the fuel that powers the engine of economic growth.
Economists tend to ignore the evidence that more wealth doesn’t translate into social happiness because welfare economics is embedded within the utilitarian idea of the greatest good for the greatest number. Economic growth has triggered rapid social development. But, in rich countries, economic growth has largely finished its work. Growth no longer translates into increasing social well-being. Even the health benefits of economic growth can be questioned.
Development in poor countries is accompanied by rapid increases in life expectancy, but once a country reaches a certain level of development, these increases begin to flatten out. Within the richest countries, life expectancy is unaffected by further economic growth.
To accept that increasing incomes don’t lead to increasing happiness would be to question a basic foundation of the economy. Not only have measures of well-being and happiness stopped rising with economic growth, but, “as affluent societies have grown richer, there have been long-term rises in rates of anxiety, depression and numerous other social problems”.
What makes the pursuit of more growth even more baffling is that the economy has become so large that we are now in a state of ecological overshoot. Overshoot is where our demands on the natural world exceed its regenerative capacity. And it’s not as if we’ve overshot by a little bit; we’d need 1.7 Earths to make our consumption levels sustainable. Growth and increasing environmental impacts go hand in hand, so more growth translates into more emissions, more waste, more habitat destruction, and ultimately increasing overshoot. In other words, if economic growth can’t be sustained, it is an unsustainable economic goal. Surely, given the evidence, it’s never been more appropriate to rethink our economic priorities.
The fact that developed nations have resource and energy demands far exceeding Earth’s carrying capacity means it’s impossible for developing nations to meet the needs of their people without exacerbating the problem. The richest 20 per cent of people account for 80 per cent of consumption, and the poorest 20 per cent, 1 per cent. The only way developing nations can overcome poverty is if developed nations initiate a degrowth process of planned contraction. This would involve developed nations significantly decreasing resource and energy demands. Developing nations can then use some of those resources and energy to meet the needs of their people.
Intentionally degrowing an economy would involve reimagining social success. Rather than life revolving around having more wealth and possessions than everyone else, it would be necessary to “develop new conceptions of human flourishing based on sufficiency, moderation, frugality, and non-materialistic sources of meaning and satisfaction.” Seeing as materialism doesn’t increase social well-being or make people happier, it seems reasonable to suggest that more consumption is not the answer to our problems, but rather it will make social problems associated with materialism worse.
The thing is, the arguments used to justify more economic growth aren’t really the reasons why we continue to pursue a goal that has so many toxic outcomes. The real reason is that economic growth works to benefit a tiny section of society. It’s not a coincidence that the richest 1 per cent own 46 per cent of human wealth. The system is set up to benefit a tiny minority whose wealth continues to increase inexorably. Seemingly their greed knows no bounds, and they’re content to maintain the status quo even when doing so makes everyone else unhappy, and is leading us towards social collapse.
It’s pretty obvious any kind of radical change that sought to distribute wealth would be deeply unpopular with the rich and powerful. They would do anything in their power, including, you suspect, resorting to violence, to ensure their status as the wealthiest and most powerful is maintained. Even though maintaining the status quo is to the detriment of all, they justify extreme levels of inequality because they are intensely self-serving, greedy and selfish, and enjoy the lavish lifestyles and status that wealth and power provide.
Economic growth has become a suicidal economic goal, and yet it continues to form the foundation of the economy because it continues to do what it’s been designed to do spectacularly well, make the rich, richer. So long as economic growth remains the foundation of society, we’ll all remain in a rate race that makes anxiety, depression, mistrust, envy, and jealousy. In short, economic growth is the root of social unhappiness. Growth has had its day, but considering the real purpose economic growth serves, it seems the only way a new economic model will be embraced is if the current order of things breaks down. Social breakdown may well provide the necessary conditions to redesign society around very different economic principles, and who knows, one of the goals of that economy might be to make people happy; wouldn’t that be something?