The disease of zero economic growth: why a stagnant economy is not healthy

The world population has increased to 8 billion people. And it will continue to do so. Would it be possible to stop growing economically and continue enjoying the current standard of living?

Is zero economic growth compatible with population growth? Is technological innovation possible without economic growth? Is it compatible with policies that mitigate climate change?

The answer to all these questions is no. We would have to continue distributing the same cake but each time the more diners

Growth, population and inequality

It is often heard that the economy is a prisoner of capitalism. The reason is that while capitalism pursues continuous growth to generate corporate profits, the goal of the economy should be to meet the needs of society as a whole.

Needs that are growing over time for at least three reasons: population growth, rising quality of life standards, and decreasing social inequality.

We speak of economic growth when the difference registered by the gross domestic product (GDP) between two consecutive years, once inflation is discounted, is positive. Thus, we measure what is produced in real terms, without the effect of prices.

In Spain, the population has grown by 10 million people since 1980, reaching just over 47 million by the end of 2022. In the same period, GDP per capita has gone from less than 10,000 dollars to almost 30,000 dollars, with a decrease in social inequality, although the concentration of wealth is increasing.

And this is a fact worldwide. Although in some areas of the planet inequality has remained, globally inequality has decreased and GDP per capita has increased. It is not a coincidence.

The wellness quarry

The countries that have registered the greatest increase in well-being in these 40 years are those that have grown almost continuously, even under different patterns.

In economies that develop in very different areas such as Germany, with moderate GDP growth, or Chile, which has experienced higher GDP growth peaks (although also periods of recession) and is a country that experienced a severe dictatorship, it is observes a positive growth trend over time.

The common result is that both countries (but especially Chile) have made progress in reducing inequality, notably increasing the purchasing power of a growing middle class. This is especially the case in Germany, which has fewer inequality problems in relative terms. The Magic One of these changes does not lie only in a good administration of the State and in a sort of inertia of improvement over time.

Wellness and technology

If we look at the history of humanity, the great leaps in the well-being of the population have occurred when there have been great technological advances. For example, in the two industrial revolutions, technical advances and greater dynamism in the industrial sector increased competition between companies, favored greater hiring of workers, improved working conditions, and increased household consumption.

During the 20th century, and despite its two large-scale wars, technological advances and the irruption of the digital age have led to peaks of sustained growth never seen before.

With a world population that has just reached 8 billion people, and will continue to grow, zero economic growth is not possible. If we stopped investing in research, development and innovation (R+D+I) we would remain anchored at the current level of technology. Climate change would continue its course without being able to carry out actions to mitigate it, since these are linked, in most cases, to scientific and technical advances, in addition to greater citizen awareness.

If economies stagnated and were landing little by little in zero growth, the social conditions of the population would deteriorate and, what is worse, the effect would be self-sustaining, its consequences being greater each time and sliding towards negative growth.

Education, research and productivity

Investment, consumption and public spending, in addition to international trade, are the pillars of GDP growth. We could admit that consumption would stagnate, but this would be to admit that not only would our ability to acquire new and improved products be nil, but that part of the population that joins the ranks of the unemployed or that has low-paid jobs would remain prey to their situation.

Indeed, a necessary condition for there to be a drop in unemployment and an improvement in wages is that there is an increase in productivity, which requires investment, contributing to an increase in GDP. And even more so, if we cannot buy improved products and there is no improvement in productive efficiency, it is because R+D+I (which, once again, requires investment) is non-existent.

Growth and Status

Finally, if the state spending, which allocates resources to education, infrastructure, health and social protection, does not have financing, it will not be able to offer an improvement in benefits.

To offer them, it needs financing that comes either from tax collection, which under the premise of zero economic growth would be the same because unemployment would not fall or wages would increase, or from an increase in public debt.

Even assuming low and stable interest rates, public debt will inevitably impoverish the country in the future because it has to be paid at some point and will eventually explode if GDP does not grow. The public deficit would grow and would end up strangling the State.

Business competition and innovation

Market dynamism also contributes to positive economic growth. When we talk about dynamism, we refer to the level of competition between companies. When this is high, the incentives for innovation to differentiate products and services increase, which require investment in R+D+I and, once again, will lead to the virtuous spiral of increasing qualified, better-paid work, and the Increase in products on the market with high added value, which must be purchased at a higher price.

None of this would be possible with zero growth, where the static middle class would not increase its purchasing power. This would make it impossible to enter the virtuous circle of education-research-innovation, which generates new products and improved services. In addition, inequality would not decrease as companies could not offer more and better jobs.

And we have already reasoned that the State could not improve the levels of social coverage either, perpetuating the situation of the less favored population.

The way to follow

There are many reasons and consequences why defending zero economic growth does not seem viable. Growing moderately and continuously is the healthiest thing for an economy, without losing sight of the equitable distribution of growth, promoting the reduction of inequality and increasing the middle classes with sufficient purchasing power to maintain consumption.

A program of active policies that mitigate climate change must create incentives for an increase in R+D+I, as well as a greater investment in citizen awareness through education. Without sustained economic growth, this is impossible to maintain over time.

Competition between companies, a favorable environment for productive investment, a State with clear regulations and a stable public protection system generate moderate but continuous growth. Do we grow or do we prefer to stagnate?

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