Be Agnostic about Growth

Despite the obvious absurdity of taxing our finite planet to infinity, growth remains the exclusive economic goal most officials in power cling to. What can explain their sobering lack of vision?

“The twentieth century bequeathed to us economies that need to grow, whether or not they make us thrive, and we are now living through the social and ecological fallout of that inheritance. Twenty-first-century economists, especially those in today’s high-income countries, now face a challenge that their predecessors did not have to contemplate: to create economies that make us thrive, whether or not they grow.” This calls, adds the author, for “transforming the financial, political and social structures that have made our economies and societies come to expect, demand and depend upon growth.”

Too Dangerous to Draw

GDP growth has been universally adopted as the de facto goal of economic policy, but “the textbooks never actually depict how it is expected to evolve over the long-term.” The tip of the GDP exponential growth curve is simply left suspended in mid-air, implying that it keeps rising indefinitely. As an example of what this means, let’s take a GDP growth rate of 3 percent on average worldwide.¹ This equates to doubling the economic output every 23 years. Taking 2015, for instance, as a year of reference, the size of the economy is then supposed to become 10 times bigger in 2100 and almost 240 times in 2200! As Simon Kuznets, the father of GDP as a measurement tool, pointed out, “Objectives should be explicit: goals for ‘more’ growth should specify more growth of what and for what.”² Though he was primarily speaking from a technical standpoint for the use of the GDP metric, his advice rings true when considering that we live on a finite planet. Instead of becoming knowledgeable about this required qualitative analysis, unfortunately, most policymakers prefer worshiping growth rather than questioning it.

Earlier economists intuitively understood that the end of economic growth was inevitable. Adam Smith (1723-1790) envisioned a “stationary state” with its “full complement of riches” ultimately being determined by “the nature of its soil, climate and situation.”³ David Ricardo (1772-1823), says Kate Raworth, believed that “the stationary state would be brought about by the cost of rising rent and wages squeezing capitalists to the point of near-zero profits, and he feared it would happen soon (in the early nineteenth century) if technical progress and foreign trade could not keep it at bay.”⁴ John Stuart Mill (1806-1873) could hardly wait for what would be called today a post-growth society, saying, “A stationary condition of capital and population implies no stationary state of human improvement. There would be as much scope as ever for all kinds of mental culture, and moral and social progress; as much room for improving the art of living, and much more likelihood of it being improved, when minds ceased to be engrossed by the art of getting on.”⁵ John Maynard Keynes (1883-1946), later concurred, saying,”. . . the day is not far off when the economic problem will take the back seat where it belongs, and the arena of the heart and the head will be occupied or reoccupied by our real problems—the problems of life and of human relations, of creation and behaviour and religion.”⁶

All these authors’ interpretations of the economy’s future seem reasonable in the grand scheme of things. Still, finance, business, and government are structured, says Kate Raworth, “to expect and depend upon a growing monetary income.” Effectively, “Financier only make a return—by extracting interest, rent or dividends—on economic value that has a market value. Business can only capture value as revenue and profit when that value has been monetized in sales. And governments find it far easier to levy taxes for public revenue on economic value that is exchanged through the market.” In other words, the economy is based on financial value. Money is not the mean but the end of trading in that scheme.

A different one could easily be implemented, where the economic value would be decoupled from the financial paradigm of debt creation and indefinite growth. There is indeed a distinction to be made between growth as measured by GDP and prosperity, and we have no choice but to make it since it is the only way to respect the environmental and social boundaries of economic sustainability. So, what are the alternatives to money as the economy’s main driver? This question can be answered by looking at the political, social, and financial levels of the world’s present addiction to growth.

Financially Addicted: What’s to Gain?

“The search for gains—which drives shareholder returns, speculative trading and interest-bearing loans—lodges dependency upon continual GDP growth deep within the financial system. For John Fullerton, the banker who walked away from Wall Street, here lies the source of the problem. ‘We’ve reached the logical conclusion of this expansionist economic paradigm,’ he says. ‘Unless we can achieve magical decoupling, we have an exponential function on a closed system planet… yet the finance system has no in-built plateau, it can’t “mature”—and none of the experts in finance are even thinking about this.'”⁷

That is why Fullerton and his colleague, Tim MacDonald, “started thinking about ways for regenerative enterprises to escape the pressure from shareholders to constantly grow. They came up with the concept of Evergreen Direct Investing (EDI), which delivers acceptable and resilient financial returns from mature low-or no-growth enterprises. Instead of paying profit-based dividends to shareholders, the enterprise pays out a share of its income stream to investors in perpetuity.⁸ This setup enables a profitable but non-growing business to attract stable investment from wealth stewards with a long-term view, such as pension funds.”

Aside from evergreen-type investments, another possible working angle to enact the difference between growth and prosperity is changing how money is used. Contrary to physical assets bound to deteriorate in time, money accumulates forever. What kind of currency could be aligned with the living world and promote regenerative investment rather than the prospect of endless accumulation?

One possibility, says the author, “is a currency bearing demurrage, a small fee incurred for holding money, so that it tends to lose rather than gain in value the longer it is held.” The idea was laid out by Silvio Gesell, a German-Argentinian businessman, in his 1906 book The Natural Economic Order. According to him, money that “goes out of date like a newspaper, rots like potatoes, rusts like iron” would be the only one willingly handed over for objects that similarly decay. In other words, “. . . we must make money worse as a commodity if we wish to make it better as a medium of exchange.”⁹ Historically, adds Kate Raworth, “Paper-based demurrage was successfully used in city-scale complementary currencies in 1930s Germany and Austria to reinvigorate the local economy, and it was almost introduced across the United States in 1933. But in each case, the national government shut the initiative down, evidently threatened by its bottom-up success and the loss of state control over the power to create money.”

Demurrage money could boost regenerative investments, replacing the search for gain with maintaining value. Long-term regenerative goals such as reforestation could easily enter into that scheme.¹⁰ “Banks would consider lending to enterprises promising a near-zero return on investment if it were preferable to the cost of holding money: that would bode well for regenerative and distributive enterprises delivering social and natural wealth along with a modest financial return. And it would, crucially, help to release the economy from the expectation of endless accumulation and, hence, the financial addiction to growth.”

Demurrage is not that alien to today’s financial culture, as different countries’ negative interest rates used for emergency measures show. Even though technically challenging on many fronts—such as its implications for inflation, exchange rates, or capital flows—designing demurrage into currency is worth exploring for a financial world that would serve thriving economies rather than supposedly ever-growing ones.

1. The average was 2.88 percent between 2017 and 2019, before the Covid 19 pandemic hit. See Macrotrends, World GDP Growth Rate 1961-2022.
2. (Kuznets, S. (1962) How to judge quality, in Croly, H. (ed.), The New Republic, 147: 16, p. 29.)
3. Smith, A. (1776) An Inquiry in the Nature and Causes of the Wealth of Nations, Book I, Chapter 9.
4. See Economy and Taxation, Chapter 4 (6.29).
5. Mill, J.S. (1848) Principles of Political Economy, Book IV, Chapter VI, 6.
6. Keynes, J.M. (1945) First Annual Report of the Arts Council (1945-46). London: Arts Council.
7. Can financial reform fight climate change? Interview on The Laura Flanders Show, 8 July 2012.
8. See Capital Institute (2015) Evergreen Direct Investing: co-creating the regenerative economy.
9. Gessel, S. (1906) The Natural Economic Order, p. 121.
10. See Lietaer, B. (2001) The Future of Money.