by Kate Raworth
Is the answer so obvious that the textbooks need not bother? Quite the opposite. It is so challenging that they do not dare: the long-term future of GDP growth – that Medusa of economic theory – is simply too dangerous to draw because it forces economists to face up to their deepest assumptions about growth. But if you are lucky enough to find an economist willing to play this little game, you may actually come to glimpse the Gorgon’s terrible form.
Handed your pencil and paper, any mainstream economist of the last half-century will most likely draw the very same image that we encountered in Chapter 1: an ever-rising line, known as the exponential growth curve, in which GDP increases by a fixed percentage (be it 2% or 9%) of its current size every period. They would, however, instinctively leave its leading tip hanging mid-air, as if in suspended animation.
The trouble for economists who produce this picture is the obvious question that is left hanging in the air with it: what happens next? There are essentially two options. Either the line keeps rising indefinitely, rapidly shooting up off the top of the page, or it must start to flatten out and eventually come to a level. For the mainstream economist, the first option is awkward, the second unconscionable, and here’s why.
The exponential growth curve, revisited.
Unchecked exponential growth – that first option – will, by its own logic, always shoot up towards infinity, and far more quickly than we imagine. Indeed it has a well-earned reputation for creeping up on us because our brains evolved to be good at adding but infamously bad at compounding. This is not just a problem for budding mathematicians to worry about: as the nuclear physicist Al Bartlett warned, ‘The greatest shortcoming of the human race is our inability to understand the exponential function.’2 That is because if something grows exponentially – be it algae on a pond, debt in the bank, or a nation’s energy use – it will get much bigger much faster than we expect. A 10% growth rate means that something will double in size every seven years. A 3% growth rate sounds far more modest but it still leads to doubling in size every 23 years. What would that imply for GDP growth? In 2015, World GDP – also known as Gross World Product – was around $80 billion and the global economy was growing at around 3% per year. If it continued indefinitely at that rate, the global economy would be nearly three times bigger by 2050, over ten times bigger by 2100, and – astonishingly – almost 240 times bigger by 2200. Take note: not a penny of that growth in value would be due to inflation; it is due only to the logic of compound growth.
Most economists, like the rest of us, would be hard pressed to envisage a thriving global economy of such extraordinary proportions, especially given the stress that human activity already puts on the planet, and so they may prefer to wave the implications off to the horizon. No one epitomised this approach so literally and influentially as the American economist Walt W. Rostow who, in 1960, published his seminal book, The Stages of Economic Growth, renowned for its dynamic theory of economic development. Every country, he claimed, must pass through five stages of growth so that it can come to ‘enjoy the blessings and choices opened up by the march of compound interest’.3 The five stages go like this:
W.W. Rostow’s Five Stages of Growth
(The twentieth-century journey)
The traditional society
The preconditions for take-off
The take-off
The drive to maturity
The age of high mass-consumption
The journey starts with the traditional society, whose agricultural and artisanal techniques place a ceiling on its economic productivity. From here begins the critical process that establishes the preconditions for take-off. ‘The idea spreads,’ wrote Rostow, ‘not merely that economic progress is possible, but that economic progress is a necessary condition for some other purpose, judged to be good: be it national dignity, private profit, general welfare, or a better life for the children.’ Banks open, entrepreneurs start investing, transport and communications infrastructure builds up, education is tailored to suit the modern economy’s needs and, crucially, said Rostow, an effective state emerges, ‘touched with a new nationalism’.
All these changes pave the way for ‘the watershed in the life of modern societies’: the take-off stage, in which ‘growth becomes the normal condition’ as mechanised industry and commercialised agriculture dominate the economy. ‘Compound interest becomes built, as it were, into its habits and institutional structure,’ explained Rostow, and ‘both the basic structure of the economy and the social and political structure of the society are transformed in such a way that a steady rate of growth can be, thereafter, regularly sustained.’ That pivotal stage leads on to the drive to maturity, a phase in which a wide range of modern industries can be established, regardless of the nation’s resource base. And that phase, in turn, ushers in what Rostow named as the fifth and last stage: the age of high mass-consumption in which growth delivers enough surplus income for households to start buying durable consumer goods like sewing machines and bicycles, kitchen gadgets and cars.
Rostow’s economic plane flight is the unmissable metaphor in this story, complete with its pre-flight procedural checks and its altitude signifying the economy’s growth rate. But it differs from every other plane flight in one crucial respect: the plane never actually lands, but cruises instead at a constant growth rate into the sunset of consumerism. Rostow hinted at his uncertainty of what might lie over that horizon, briefly acknowledging ‘the question beyond, where history offers us only fragments: what to do when the increase in real income itself loses its charm?’4 But he did not follow his own questioning through, and for understandable reasons: it was 1960 – the year of John F. Kennedy’s election bid on a promise of 5% growth – and for Rostow, a soon-to-be presidential adviser, it was wise to focus on keeping that plane in the sky, not on pondering when and how it would ever land.
The miscast star of the stage
The founding fathers of classical economic theory may never have seen airplanes or heard of GDP but they had an intuitive understanding that things that grow must eventually slow to a stop. They believed, with mixed feelings, that the end of economic growth was inevitable and they had different views on what would bring it about – or, as systems thinkers would say, on which limiting factors would ultimately counter GDP’s reinforcing feedback. Adam Smith believed that every economy would eventually reach what he called a ‘stationary state’ with its ‘full complement of riches’ ultimately being determined by ‘the nature of its soil, climate and situation’.5 David Ricardo, in contrast, believed that the stationary state would be brought about by the cost of rising rents 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.6
Others were more optimistic: John Stuart Mill, for one, could hardly wait for the stationary state to usher in what many would now call a post-growth society. ‘The increase of wealth is not boundless,’ he wrote in 1848. ‘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.’ And, as if to prove himself no fan of GDP almost a century before it was invented, he added, ‘those who do not accept the present very early stage of human improvement as its ultimate type, may be excused for being comparatively indifferent to the kind of economical progress which excites the congratulations of ordinary politicians: the mere increase of production and accumulation.’7 A full century on, John Maynard Keynes echoed Mill’s sentiments, asserting (rather wishfully) that ‘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 a
nd behaviour and religion’.8
So, pencil in hand, what shape would these most famous of economists have drawn in response to the ice-breaker invitation to depict the long-term path of GDP growth? If presented with the exponential curve left hanging mid-air by today’s mainstream economists, they would most probably have picked up the line of its leading edge and brought it gradually to a plateau as the economy comes up against a limiting factor of one kind or another. With one sweep of the pencil, exponential growth has been subsumed as a passing phase in the economic journey as annual GDP has matured to become much bigger in size but no longer growing. In other words, they would have drawn what is known as ‘logistic growth’, or simply the S curve.
The S curve of growth. Early economists acknowledged what most of their successors have since ignored: that economic growth must eventually reach a limit.
It may not feature in the textbooks but this S curve is no newcomer to the theatre of economics: it is, in fact, one of the oldest but most miscast of all actors in the play. Its shape first stepped on to the economic stage in 1838 when the Belgian mathematician Pierre Verhulst drew it to depict the trajectory of population growth, showing that populations would not increase exponentially, as the Reverend Thomas Malthus had believed, but would tend to a limit set by the availability, or carrying capacity, of resources such as food. It was a brilliant insight – worthy of an economic Oscar – but hardly anyone noticed the S curve’s star-like qualities, so it got dropped from the cast list for over a century.
Left to languish backstage, the S curve’s talents were spotted by ecologists, biologists, demographers and statisticians who realised that it was a strong fit for describing many processes of growth in the natural world – from a child’s feet and the world’s forests to bacteria in a Petri dish and tumours in a body – and so they have used it ever since. Economists, however, kept the S curve well out of the plot until 1962, when it was recast, this time as a tool for charting the diffusion of technologies, from early adopters to late laggards – a role for which it has since gained worldwide fame, especially in the marketing industry.9 Never once did mainstream economists consider letting that same S curve audition for the leading role of long-term GDP. But its lucky break came in 1971 when the ecological economist Nicholas Georgescu-Roegen dared to write an alternative third act for the economic play. Without ever actually drawing it on the page, he boldly cast the S curve as GDP itself in a plot that brings the global economy face to face with the carrying capacity of the Earth. Mainstream economic theatre has long rejected it, but that deviant script is now influencing the new economic story that is being written.10
The S curve may have been a breakthrough but, like the exponential curve that lies within it, it is incomplete because it too begs the question of what happens next: when GDP growth ultimately ceases, can GDP be sustained permanently on that high plateau, or is decline inevitable? Nature’s experience is at least partly reassuring. Living organisms can clearly sustain themselves – with the help of an external energy source – as mature, stable, complex systems for very long periods. A child’s feet stop growing after 18 years, but can remain in perfect podiatric health for another 80, and large swathes of the Amazon rainforest have been thriving for over 50 million years. But from teenager’s feet to tropical forests, nothing survives for ever. Still, that need not give us immediate cause for alarm. Life on Earth has the chance of another five billion years in its favour, at which point our star, the sun, will start to die. Earth’s Holocene-like conditions could continue for another 50,000 years – as Chapter 1 described – if we humans learn to navigate the Anthropocene without pushing our planet into a far hotter, drier, and more hostile state. The economies that we create could keep on thriving – not growing, but thriving – for millennia too, if we manage them wisely.
If we now recognise that the S curve depicts a desirable long-term path for GDP growth, a far more interesting question comes into view: not ‘is endless economic growth possible?’ but rather, ‘where are we now on the growth curve: still near the bottom or close to the top?’ In fact we can play the classic children’s party game, Pin the Tail on the Donkey, and invite economists to pinpoint the spot on the S curve that they think their own nation’s economy has reached. The nineteenth-century British economist Alfred Marshall – he with the scissors of supply and demand – would have been a willing contestant in his day, firmly sticking his pin low on the S curve’s exponential slope. ‘We are moving on at a rapid pace that grows quicker every year; and we cannot guess where it will stop,’ he wrote in 1890. ‘There seems to be no good reason for believing that we are anywhere near a stationary state.’11 If Marshall were here to play today, would he still hold to that view? He might well find some compelling reasons to change his mind.
World GDP has increased more than fivefold since the Great Acceleration began in 1950 and, according to mainstream economic forecasts, it is likely to continue growing at around 3–4% per year at least in the near future.12 But global economic growth is made up of around two hundred national economies with widely differing growth rates. Their differences range from a fast-paced 7–10% per year in low-income countries like Cambodia and Ethiopia to a lethargic 0.2% per year in high-income countries like France and Japan.13 As a result, the donkey’s tail would most likely get pinned at very different places on their national S curves.
In many low-income but high-growth countries, the domestic economy is clearly in what Rostow called the take-off stage – low down on the S curve – and, when that growth leads to investments in public services and infrastructure, its benefits to society are extremely clear. Across low- and middle-income countries (where national income is less than $12,500 per person per year) a higher GDP tends to go hand-in-hand with greatly increased life expectancy at birth, far fewer children dying before the age of five, and many more children going to school.14 Given that 80% of the world’s population live in such countries, and the vast majority of their inhabitants are under 25 years old, significant GDP growth is very much needed and it is very likely coming. With sufficient international support these countries can seize the opportunity to leapfrog the wasteful and polluting technologies of the past. And if they channel GDP growth into creating economies that are distributive and regenerative by design, they will start bringing all of their inhabitants above the Doughnut’s social foundation without overshooting its ecological ceiling.
It is, however, in today’s high-income but low-growth countries that the growth debate is most pressing, with some beginning to wonder whether the top of the S curve is coming within view. In many of these countries, population growth is already very low and in some – such as Japan, Italy and Germany – population size is expected to fall by 2050.15 Meanwhile the sluggish GDP growth of recent decades in many high-income countries has infamously been accompanied by widening income inequalities. At the same time all of these countries’ global ecological footprints already far exceed Earth’s capacity: it would take four planets for everyone in the world to live as they do in Sweden, Canada and the US, and five planets for all to live like an Australian or Kuwaiti.16 Does this suggest that, while aiming to get into the Doughnut, high-income countries should give up on the pursuit of GDP growth and accept that it might no longer be possible?
That is not a comfortable question to consider. As Upton Sinclair famously noted, ‘It is difficult to get a man to understand something, when his salary depends on his not understanding it.’17 Some staff at the OECD must be struggling with this now because, whether or not growth can be green and equitable, it doesn’t look like growth is coming in some of the world’s richest nations. The average GDP growth rate of 13 long-standing OECD member countries had fallen from over 5% in the early 1960s to under 2% by 2011.18 Diverse reasons for this have been suggested, from shrinking and ageing populations, falling labour productivity, and an overhang of debt to widening wealth inequality, rising commodity prices, and the costs of responding to climate change.19 Whatever the mi
x of reasons in each country, the declining long-term GDP growth trend raises the very real possibility that these economies could be close to the top of their S curves, with growth tailing off.
But such a possibility jars with the OECD’s mission. One of the organisation’s founding objectives is the pursuit of economic growth; one of its leading annual reports is entitled Going for Growth; and it has a flagship green growth strategy to boot. It is very hard for passengers on planes like this one – along with the World Bank, the IMF, the UN, the EU, and almost every political party worldwide – to even voice the idea that it might be time for some countries to start thinking about landing the economic plane.
That might just explain why the OECD quietly tweaked a recent long-term growth forecast to make its message more palatable to its members. In 2014, the organisation published a long-run projection of global economic growth through to 2060, showing ‘mediocre’ prospects for the global economy, and with annual growth rates in member countries such as Germany, France, Japan and Spain falling to just 1%, punctuated by years of 0%. What the forecast hid in the small print of its model, however, is that this mediocre outlook was achieved in good part by assuming that global greenhouse gas emissions would double by 2060, including a 20% increase coming from the OECD’s own members.20 The promise of even slight GDP growth was secured only at the cost of accepting catastrophic climate change: talk about crushing the nest in order to feed the cuckoo.
