by My latest in The Guardian henever I mention concepts such as gross domestic product (GDP), there’s a high probability that arguments about the merits of “growth” and “degrowth” will erupt. Almost invariably, these arguments are stuck in a conceptual framework that’s 50 years out of date, or even more. The national accounting system, of which GDP is a central part, was developed in the 1930s. It was designed to measure the working of the industrial economy that had emerged in the 19th century and remained the dominant form of economic activity until the late 20th century. The industrial economy could be conceptually understood in terms of three sectors. Primary industries, such as agriculture and mining, produced raw materials. Secondary industry (manufacturing, broadly
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henever I mention concepts such as gross domestic product (GDP), there’s a high probability that arguments about the merits of “growth” and “degrowth” will erupt. Almost invariably, these arguments are stuck in a conceptual framework that’s 50 years out of date, or even more.
The national accounting system, of which GDP is a central part, was developed in the 1930s. It was designed to measure the working of the industrial economy that had emerged in the 19th century and remained the dominant form of economic activity until the late 20th century.
The industrial economy could be conceptually understood in terms of three sectors. Primary industries, such as agriculture and mining, produced raw materials. Secondary industry (manufacturing, broadly defined) turned raw materials into useful products. Tertiary industry (services such as wholesale and retail trade) took the products from the factory to the consumer. Other services, such as accounting, finance and law, greased the wheels of the entire process. Activities such as education and health, which didn’t really fit the model, were thought of as reproducing and taking care of the labour force needed to keep the economy going. Finally, the waste products of the system were burned or dumped.
In the industrial economy, growth involved an increasing number of workers, each of whom produced more of everything: more primary products, turned into more manufactured goods, sold in bigger and better shops, generating more and more waste. Growth was achieved primarily by equipping workers with more capital, owned by employers (hence, the term “capitalism” to describe this economy). More sophisticated analyses took account of technological progress and of “human capital”, that is, the skills acquired by workers through education and training.
By the middle of the 20th century it became evident that this process couldn’t continue indefinitely. As was regularly observed, infinite growth in the output of physical goods is impossible on a finite planet.
As it turned out, however, the mid-20th century marked the beginning of the end of the industrial economy. The services or “tertiary” sector accounted for half of US employment by 1950 and that share has increased steadily to about 80% today. Within the service sector, ever fewer workers are engaged in the “tertiary” activities of distributing the output of farms and factories, through retail, wholesale and transport. Many more work either in directly provided human services, such as health care and hospitality. But the truly spectacular growth has been in “office jobs” relating in one way or another to information.
The industrial model, in which all stages of the production process expand in a proportional fashion, is no longer relevant – at least in rich countries. Output of physical goods, and particularly the characteristic products of the 20th-century industrial economy (cars, household appliances and so on), has largely stabilised. For example, the number of motor vehicles sold in the US has fluctuated around the 15m a year mark since 1980, even though the US population has grown.
Meanwhile, the growth in the production and dissemination of information has been so rapid as to defy traditional methods of measurement and any kind of intuition about growth. The volume of information we generate (whether useful or trivial) has grown at about 60% per year since the advent of the electronic computer. To give some intuition that means that every millisecond we collectively generate as much information as we did in an entire year in the 1970s. A concept of “growth” that averages such unimaginable rates of expansion with the nearly stationary output of cars, fridges and so on is meaningless.
And if “growth” is meaningless, so is “degrowth”. There’s no technological or ecological reason why we can’t have more and more services, from health and education to TikTok videos. And, if we can continue to improve the technology, there’s no real limit to our supply of solar and wind energy. What we need to reduce is the “throughput” of the residual industrial economy, beginning with the extraction of resources and ending with the dumping of waste. It’s here that ideas like that of the “circular economy” remain relevant.
In summary, neither “growth” nor “degrowth” makes sense as a long-term objective for economic policy. That doesn’t mean that GDP is useless as a statistical measure. If GDP drops sharply from one year to the next, it’s usually not because a society has become less concerned with material goods and marketed services. Rather, sharp reductions in GDP, such as those during the global financial crisis and the early 1990s “recession we had to have”, usually arise from external shocks or economic mismanagement. GDP statistics provide economic policymakers with valuable information about the short-run state of the economy.
In the long run, however, GDP is not a useful measure. And in an economy subject to the wildly divergent trends we now observe, there is little value in looking for a single number (such as a statistical measure of happiness) that will replace it. We can and should seek better and richer lives, while reducing and repairing the harm that the industrial economy has done to our natural environment and, most notably, to the global climate.