Continuing my series in response to the EEAs Global Mega Trends report, part 5 considers the recent history of continued economic growth and what this could mean in the future.
Economic growth at its most basic is the result of population size and output per person. Since 1700, each has accounted for about half of the total global economic growth. Whilst population growth is fairly well understood as the result of levels of fertility, mortality and migration (GMT 1), productivity is much more complex.
The World Bank (2006) views productivity as dependent on the development on four key forms of capital:
- Human (knowledge, skills and health)
- Social (trust, norms and institutions)
- Manufactured (machinery and infrastructure)
- Natural (resources and ecosystems)
Of course, these four capitals are all interrelated, for example if natural wealth is not accompanied by effective state institutions, it can fuel corruption and weaken competitiveness thereby undermining economic growth. On a more positive note, the technological innovation of the last two centuries has resulted in the development of tools and machinery and concepts such as assembly lines that have increased productivity substantially.
As a result of the expansion of these capitals (or at least the use of them in the case of natural) there has been a 25-fold increase in world economic output since 1900. However, since the 2008 financial crisis, the short-term outlook has been much less stable with many developed economic experiencing stagnation and developing nations experiencing reduced growth.
In the longer-term the OECD believes that the broad direction of growth is still positive with GDP projected to triple between 2010 and 2050. Of course, as a sustainability-focused blog we have to consider the implications of this.
On the positive side, evidence does to a limited extent support the link between GDP growth and human well-being. Globally, the poverty gap (proportion of the population living on less than USD 1.25 a day) fell from 47% in 1990 to 22% in 2010. This occurred fastest in east Asia and the Pacific where the proportion fell from 35% in 1981 to just 2.8% in 2010.
However, economic growth also results in increased inequality within countries. The shift away from planned economies in countries such as Russia and China has brought greater inequality, as has the explosion of executive salaries in the US and other advanced economies. It is also highly likely that continuing technological advances (GMT 4) will add to this inequality.
Whilst resource efficiency is increasing, the scale of economic activity is pushing resource use and emissions to higher absolute levels, with potential huge impacts on natural cycles. This will be explored more in future parts of this series.
Ultimately, what appears to be necessary is a re-think on what matters the most when we are thinking about quality of life. Money/the economy is there ultimately as one system of providing for the needs of people. Whilst economic growth can improve living conditions this does not necessarily lead to well-being. If you’ve ever been paid less than someone doing the same job as you, even if you’re well paid, it will still lead to a feeling of injustice that could result in unhappiness and depression. What we are seeing around the world is a growing inequality that could lead to more and more demand for growth or indeed protests and so on.
So, this post will finish with a list of factors that are quite possibly more important than GDP: health, family, friends, fair access to resources, pleasant living environment, education, equality, ability to participate in politics, personal and economic security. Perhaps trying to use one number to represent all of this would also be flawed.