Economic Growth versus Economic Wellbeing

By Frosty Wooldridge

After reaching maturity, no entity can continue growing beyond its natural balance.  If it does, it becomes obese or manifests cancer, i.e., aberrant cell growth that ultimately kills its host.  The United States, whether it likes it or not, must move toward a stable population and a new paradigm that includes ‘steady state economics’. 

Rob Deitz of www.steadystate.org speaks about “Economic Growth versus Economic Wellbeing.”

Deitz said, “Here in the United States and pretty much around the world, we suffer from a sort of dementia.  We have become confused about the difference between economic growth and economic well-being.  The confusion is so deep seated that most of us, especially our leaders in business and government, believe that growth is the same thing as wellbeing.

“Despite some of the obvious problems with unfettered growth (e.g., species extinctions, global warming, increasing gaps between the rich and the poor, and loss of ecosystem services), the confusion is somewhat understandable.  Prior to the industrial revolution, most people faced tough conditions.  Their lives were typically occupied with back-breaking labor, and their own health and the health of their families were constantly under attack.  Over the centuries innovations such as division of labor, availability of cheap and abundant energy, novel technologies, and social systems that rewarded entrepreneurship led to an upward spiral of economic growth. 

“Once societies experiencing such growth addressed some of the brutish conditions inherent in the system, many people’s lives got longer and less difficult.  When the world had relatively few people and bountiful natural resources, economic growth served to increase wellbeing.  During that phase of history, economic growth coincided with economic wellbeing.  They coincided to such an extent that societies failed to differentiate between the two.

“Like any other economic activity, growth has diminishing marginal benefits and increasing marginal costs. This economic jargon means that as society produces another unit of economic growth, the costs increase faster than the benefits.  At some point, the costs of each additional unit are higher than the benefits.  Although costs and benefits are notoriously difficult to measure, a large body of evidence suggests that we are at a point in history where growth does more harm than good, especially in the United States. Herman Daly, the wise and eloquent patron saint of ecological economics, calls this situation uneconomic growth, where “illth” increases faster than wealth.  Note the irony – we believe we are pursuing economic wellbeing by continuing to grow the economy, when in fact, we are decreasing our health and prosperity with more growth.

“Economic growth is simply an increase in the production and consumption of goods and services.  At the national scale, it is indicated by increasing gross domestic product (GDP).  Growth means getting bigger, not necessarily getting better.  Economic wellbeing is not as straightforward to define as economic growth.  Ulrich Schimmack has defined it as the degree of realization of preferences, weighted by the importance of each preference.  The reason for weighting preferences is that some are clearly more important than others.  People are generally better off if they can meet their most pressing needs. 

“Researchers like Abraham Maslow and Manfred Max-Neef have highlighted the importance of human needs in forming preferences and motivating behavior.  People who can fulfill basic needs, such as the need for health, security, social connectivity, and strong family relationships, experience more wellbeing than those who cannot.  Wellbeing also tends to increase when people have meaning in their lives and feel they can reach their potential.  Wellbeing for a nation, therefore, is largely dependent upon the degree to which the natural, cultural, and economic environment provides sustained opportunities for preference realization.  Current means of measuring wellbeing range from composite indices like the Genuine Progress Indicator and the Human Development Index to self-reported satisfaction with life as documented in standardized surveys repeated at regular intervals.

“Although references to wellbeing are written into the founding documents of many societies, Bhutan is the only nation in the world that officially pursues economic wellbeing as a goal rather than economic growth.  Bhutan is advancing the concept of gross national happiness as an indicator of wellbeing.  GNH is meant to serve as an indicator of prosperity rather than GDP.

“If economic growth is not the same as wellbeing, and continued growth is decreasing wellbeing, what should we do?  The first and most critical step is to change the goal.  Citizens need to recognize that economic growth is no longer an appropriate goal in nations where consumption is sufficient to meet most needs.  Herman Daly has written that once we decide to put a stop to the growth paradigm, realizing a steady state economy will be trivial.  That statement may be a bit of an exaggeration, but Daly and other ecological economists have developed a blueprint of the institutions and policies needed to run a prosperous, yet non-growing economy.  We can still use the market to help allocate resources efficiently, but we must also focus on the overall scale of the economy and just distribution of its proceeds.  Such an economy will be about individual and social development.  It will be about quality rather than quantity, sustainability rather than expansion, and balance rather than cycles of boom and bust.  In short, the economy will serve up a healthy dish of wellbeing instead of growth.”

As I talked to Rob Deitz, he spoke about steady state dynamics in a forest. Although it remains the same size for centuries, a forest enjoys tremendous dynamics within its boundaries. All its inhabitants live within the carrying capacity of that eco system while enjoying their lives.  At some point, all citizens of the USA and the world must move toward a long term balance with planet earth.  Steady state economics paves the way.

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