By Johannes Berchtold
Economic growth is the most powerful single determinant that has ever entered political and economic language. Lack of growth hamstrings governments and the private sector alike; questioning growth challenges the fundamentals of today's political and economic system; abolishing it in turn demands alternatives even the concept's most ardent critics have not come up with so far. One thing is for sure: as with any other dominant idea, the concept of economic growth is out there to be appreciated, to be questioned and to be reassessed in the light of today's global economic development. This is why the 46th St. Gallen Symposium will shine a spotlight on growth and look at it from all sides - the good, the bad, and the ugly.
When India reported double-digit growth in 2010, the excitement was monumental. So was the collapse a year later. After disappointing forecasts for US growth in April this year, the Fed put a much-anticipated interest rate increase on hold again. Sensing popular discomfort with globalisation, French President Nicolas Sarkozy's first act in office was to commission a high-level report looking into what he thought would be the limitations of economic growth.
These examples show three things: first, economic growth measured in terms of gross domestic product (GDP) matters a great deal, sometimes more than we are aware of; second, economic growth rates are relative; and third, growth is by no means an unquestioned imperative any more.
Historically, sustained economic growth has been a relatively recent phenomenon. Before the mid-18th century, economies did not expand over a long period of time, living standards generally were stable and innovations had no measurable impact in economic terms. That changed when fundamental transitions in technology, human capital and physical capital evolved and coincided beginning around 1750. Over the course of three industrial revolutions, growth became the mantra of modern economic thinking and political rhetoric.
No other parameter has occupied our mind to the same extent, or worked its way into political debates and decision-making processes in a comparable fashion. Governments, corporations and individuals alike judge their fate based on growth. Budgets, profits and individual welfare are deeply dependent on it. And because blatant income differences between countries make comparisons based on living standards difficult, growth rates have become the universal reference point for measuring economic success.
So far, so good. Yet the trouble is the future of growth is rather uncertain, for many reasons. First, economic growth has plateaued since the beginning of the financial crisis. The developed world - which represents more than 60% of global GDP - has not found a way to return to pre-crisis growth rates. As the Bank of England's chief economist pointed out recently, no one knows whether sluggish growth is a temporary post-crisis dip or a longer-lasting valley. The stakes are greatest where living standards are highest - and so is the debate over why we need growth and where it should come from.
Second, there are conflicting signals regarding which factors will stimulate growth in the future and which will work against it. You will come up with different answers depending on your point of view. An optimist would cite the progress of technology and the power of innovation as key drivers for future growth. He would also take into account an aspiring developing world that will step up to compensate for the developed world's faltering economic dynamism. A pessimist may see demographic growth (and its effect on per capita growth), automation and limited natural resources as key stumbling blocks for a return to sustained growth. A realist would probably ask for reliable political and economic institutions as a prerequisite for nations to prosper.
And third, growth has become a bad word in some sectors. Starting with the oil crisis back in the '70s, strong voices began calling for a halt to growth altogether. Of course, the concept of economic growth mostly draws criticism in saturated economies where income and wealth are evenly distributed, not in places where people aspire to a better living standard. So-called sufficiency theory claims that we do not need to accumulate more goods than we already have and that we can cater for ourselves within the boundaries of nation states or other manageable entities. These arguments have increasingly found their way into political and public debates and cannot be ignored. Let us get this straight: Growth is not a purpose in and of itself. It can have an ugly face in the form of pollution, over-consumption of natural resources and unhealthy levels of stress. But rather than condemning growth, we should ask for the kind of growth we want, not toss the concept overboard altogether.