In keeping with prevailing principles, the UK economy is driven by the pursuit of growth. Recently, however, a growth-centred approach has increasingly been challenged on the grounds that it only values certain kinds of economic activity while ignoring others and leads to environmental destruction. Paul Ekins argues rather than dismissing the idea of growth entirely, we must rethink and adapt it.   

Economies since the industrial revolution have experienced economic growth – an increase in the monetary value of produced goods and services, now measured by Gross Domestic Product (GDP). The reasons for this increase in economic output are well understood: it derives from investment and innovation – essentially the development of new goods and services and better ways of producing existing goods and services – combined with robust institutions to ensure good economic governance, e.g. through financial market regulations or fiscal rules.

GDP growth is experienced by people as increased income, by businesses as increased profits and by governments as increased tax revenues. People by and large want increased incomes (demands for which are at the heart of the current round of strikes in the UK). They also want improved public services (eg, health, education), which governments can only sustainably deliver through greater tax revenues. And businesses want greater profits. So there is a powerful constituency for economic growth, reinforced by perceptions that when economies do not grow, or even shrink (a recession), social and economic tensions rise.

The blind spots of a growth-driven approach

Desirable for these reasons though GDP growth is, it is of course not the only thing that matters. By itself, it says nothing about the distribution of income. It excludes important economic activities, notably all unpaid work, including people caring unpaid for children and other dependents. And it takes no account of environmental issues, which are explicitly regarded by economists as “externalities”, ie, outside “the economy”. These are three of the principal issues at the heart of the “Beyond GDP” agenda, which seeks to enhance the policy profile of issues not captured by GDP.

Would a non-growing or shrinking GDP make social and environmental problems easier or more difficult to resolve?

The question at issue is: do these shortcomings demand an “alternative” to a policy focus on GDP growth? Or do they demand that this focus is supplemented by a stronger focus on other issues? And would a non-growing or shrinking GDP make these and other social and environmental problems easier or more difficult to resolve?

My answers to these questions are that they do not require an alternative to growing the economy, but that far more attention should be paid to distributional, environmental and other social issues, so that GDP growth is actually used to address these issues rather than permit them, or even cause them, to get worse. And all these problems will actually tend to get worse in a non-growing or shrinking economy.

Political choices

The reasons behind my view are quite straightforward. They reflect the fact that approaches to these issues have nothing to do with an exclusive focus on economic growth. Rather they reflect political choices.

On distribution, it is clearly easier politically to reduce inequality in the context of a growing economy by ensuring that most of the wealth generated by the growth goes to the less well off. In this way, “levelling up” for lower-income households can be achieved without “levelling down” richer households, which is always politically very difficult.

The fact that the UK government since 2010 has chosen not to do this does not mean that it cannot be done – this has been the political choice of those who have elected Conservative governments. A clear political alternative is available. Imagine if the current nurses’ and ambulance drivers’ pay disputes had been resolved by increasing the top marginal tax rate to 50p in the pound plus an increase in capital gains tax to raise the required revenue. The decision not to do that has nothing to do with a focus on GDP growth but everything to do with the political priorities of the current UK government.

Similarly, whether and how to reward unpaid carers is a political choice. As I write this piece, there are reports that the Conservatives are planning to include in the next budget a significant increase in childcare allowances, to match what seems likely to be a key plank in the Labour platform in the coming general election. Again, GDP growth would actually make it easier to raise the taxes that will be required to deliver this.

Can growth be green?

Finally we come to the environment which, since the publication of Limits to Growth in 1972, has been a core rationale of those calling for an end to GDP growth. I have come to perceive arguments for “degrowth” as not just economically wrong but actually likely to lead to the opposite of the result intended, namely a cleaner environment.

The arguments are economically wrong because resolving environmental problems will require not just much stronger regulations and their effective enforcement, which need funding through taxation, but also both investment and innovation. But it is precisely investment and innovation which, if directed to the right things will lead to economic growth. In respect of carbon emissions reduction, this was exactly the point made by both Nick Stern (in 2007) and Chris Skidmore (in 2023): that decarbonisation was the greatest growth opportunity of the century.

Without economic growth it will be much more difficult to mobilise the necessary investment in decarbonisation and other environmental improvements.

Moreover, the argument works the other way round. Without economic growth it will be much more difficult to mobilise the necessary investment in decarbonisation and other environmental improvements. The mayor of London has been robustly criticised for introducing the extension of ULEZ (the Ultra-low emission zone) at the time of a cost-of-living crisis – criticism that would never have been levelled at him had the economy been growing robustly.

The take up of electric vehicles and heat pumps will similarly be much slower in a stagnant economy. As a third example, stopping sewage from polluting rivers will be much more quickly achieved with GDP growth because the required investment will be much easier to mandate in a growing economy, where its effect on household bills will be less keenly felt.

As for the “alternatives” to GDP growth, I have been frustrated by the lack of robust economic and political arguments from those who call for them as to how “no growth” will make it easier to reduce inequality, reward unpaid carers or generate the taxes for regulation and the huge investments that are needed for environmental sustainability. Until explanations as to how these alternatives will work are comprehensively presented, it remains impossible to have a considered debate about them.

This post and the post “When it comes to the economy, size matters, but quality matters more” by Molly Scott Cato are published in connection to the public LSE event “Is There an Alternative to ‘Growth. Growth, Growth’?” Watch the recording of the event here.

All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science.

Image credit: Photo by Anna Dziubinska via Unsplash.