Is Growth Limitless?

One of the many things I don't understand about economics and our national economy, is the notion of "growth." It seems as though everything in our economy is based on this concept, whether it's how many retail outlets a business has, how much market share a bank has, the value of a specific stock, consumerism in general, or or just plain old sales figures. If you don't have growth, you're in trouble.

One symptom of this growth focus is our institutionalized expectation that a corporation's prime responsibility to shareholders is to grow the share value (i.e., the stock price must go up). The company is not expected to focus on making a profit to share with shareholders (dividend distribution) or even to produce something useful (products or services someone wants to buy). IMO, this has made the stock markets more akin to riverboat gambling than financial analysis.

The problem for me is that economic growth doesn't seem to have unlimited potential in the broadest sense. There are a lot of other societal factors that are also tied into growth, such as population growth. Continuous growth in our economy seems to require continuous growth in other areas, such as population. If you base your economic model on growth, it seems like you are also dependent on unlimited population growth, unlimited ability to grow food, unlimited ability to provide health care, etc. Back in the 18th, 19th, or even the first half of the 20th centuries, a continuous growth model might actually have made sense, but I question that it makes sense in the 21st century.

Back in the 1960s, there was a lot of talk about ZPG, or Zero Population Growth, and how our planet had finite resources and was not able to support an unlimited number of humans. There was even a movie made in 1972 called ZPG. Somewhere in the passage of time, the ZPG message was left along the wayside (remember them?) and seems to be no longer a major concern for most folks. But I think the way our economy has been structured for many, many years, it depends on unlimited population growth to provide new consumers and new people to use "stuff." I don't think this model is sustainable, and I'm wondering if there are mainstream economists out there who have discussed economic models that don't depend on permanent growth.

A recent interview (9/9/09) on Marketplace.org with Michael Mandel of Business Week, touches on some of this. In a recent blog and the interview, Mandel points out that the American notion of the "consumer economy" is badly distorted. A common "given" is that 70% of our economy is composed of consumer spending, and with the financial health of our nation dependent on so much consuming, how can we change anything? If consumers are convinced we shouldn't use up stuff so much, our economy will continue to deteriorate rather than recover, etc. If we continue to use up stuff as in the past, the world's resources will be depleted, with horrendous results.

Mandel studied the numbers and concluded that the US Commerce Department, Bureau of Economic Analysis, came up with the 70% Gross Domestic Product (GDP) figure based on some curious assumptions. A lot of expenditures most of us don't consider consumer spending are included, and a lot of expenditures you might think are consumer spending aren't. Medical spending is an interesting example: while you might think Medicare spending is government spending, the BEA counts it as consumer spending. Mandel's calculations conclude that maybe about 40% of our economy is consumer spending. And since that's a hugely smaller number than the 70% that's bandied about, it's very significant. It means, in Mandel's view, that we don't have to be a consumer driven economy.

And that means that we as citizens could actually have more control over our environment and lives in general, if we were not just one of millions of consumers. We could redirect our national resources away from unlimited consumption and toward a more sustainable economic model. Whatever that might be.

Mandel's interview skirts around the edges of the growth question when he stated that "we don't have to be a consumer-driven economy." What would be an alternative to a consumer-driven economy? Think about that for a bit.