For centuries, it was assumed that economic growth is a positive phenomenon. The job of economists was to create conditions for the enrichment of societies. Today, this paradigm is being increasingly questioned. The "zero growth" or "degrowth" ideology assumes that development mainly leads to environmental degradation and negative social consequences.
Degrowth is an ecological, anti-consumerist, and anti-capitalist theory of critique of economic growth. It calls for a reduction in global production and consumption, a reduction in birth rates, and the creation of societies based on social and environmental justice. The logical basis of the theory is the limited size of the Earth and the associated limited amount of available resources. Infinite development would require an infinite amount of resources, so it is clearly impossible. For example, the global acreage of wheat, according to WHO data, is currently around 220 million hectares. If, as a result of economic and demographic growth, it was necessary to increase this area by 5% annually, then after less than 90 years, about 15 billion hectares would be needed, which is as much as the area of all lands, including Antarctica. The powerful force of exponential growth is the simplest argument to prove that long-term economic growth is unsustainable.
Like many other progressive ideas, degrowth is, to a large extent, a German invention. The conviction that the society is already rich enough and that further development will only have negative consequences is common in Germany. Germany, ruled with a large share of the "Greens", basically fixed itself on anti-growth positions. This means that the question must be seriously asked - what will happen if the whole world develops economically and Germany does not.
The first effects are already visible very well. The most important German companies are losing their leading positions in international markets. There is no German company among the world's one hundred biggest publicly traded companies. The largest of them - the IT giant SAP, with a capitalization of USD 109 billion, ranks 115th. Mercedes Benz ranks 224 with a market cap of $ 63 billion. That's 15 times less than Tesla, which is worth nearly a trillion dollars. Of course, you can think investors are crazy, and it's probably true. Tesla's trillion-dollar valuation is objectively absurd. However, one thing is certain, investors no longer believe in the German model. SAP lost 34% of its stock value from the beginning of January to the end of July 2022, Siemens shares plunged by 36%, at the same time Volkswagen lost 31% and Mercedes lost 22%. All this is happening when the inflation rate is approaching 10%.
These results are quite easy to explain. A car manufacturer that implements the degrowth ideology on a corporate level must decide to increase costs and limit the utility functions of its products. The first is due to the increase in energy costs and the use of more expensive, environmentally friendly raw materials, the second is due to the need to reduce the environmental impact. The entrepreneur hopes the buyer will choose an electric car for EUR 50,000, not a similar internal combustion car for EUR 15,000. The strategy is to offer an inferior product at a higher price, with tremendous marketing support. The misfortune of producers, however, is that many consumers are constantly behaving rationally and are looking for alternatives. This must have a negative impact on the financial performance and valuation of the German car companies.
For enterprises, limiting growth also means limiting costs, especially employment. Many workers will have to be laid off, and those who stay will have to accept lower wages. Fewer funds will be available for research and development, and this also applies to the development of green technologies. At the micro level, ie individual markets and enterprises, "degrowth" certainly leads to a deterioration of the competitive position. Anyway, it cannot be otherwise at the macro level. If businesses are losing, so is the economy as a whole. As a result, the government has to print money to support disabled businesses, and the bill goes to the consumers, who have to pay an inflation tax.
Even in an economy as dynamic and innovative as German, achieving zero growth is very simple. It is enough to consistently raise taxes and introduce new concessions that make it difficult for enterprises to operate. The German GDP severely declined already in 2012 and 2013 to 0.4%. Since then, it has fluctuated between 1.5% and 2.6%, dropping to 0.9% again just before the pandemic in 2019.
The "degrowth" theory uses a particularly specific logic with regard to fossil fuels. Its proponents warn against fossil fuels, as their inevitable depletion will mean the end of the capitalist economy and even the end of civilization. However, they also believe that if we stop using fossil resources now, development and civilization will not end at all. In this case, growth is possible to achieve with the use of other methods. We will consume less, but we will breathe cleaner air, we will be a little hungry and we will be a little cold, but the rivers will have cleaner water. The balance of all these factors, somehow, always turns out to be positive. And if by any chance it turns out to be negative, it means that there is an error somewhere and one has to count again.
The "degrowthers" make it very clear that zero or negative economic growth does not necessarily mean that there is no economic stability and full employment. But how is it all supposed to work? Negative growth of the economy as a whole is a sum of negative growths of individual enterprises. Businesses' budgets are not made of rubber. Lower sales revenues will make it necessary to reduce costs. As a result, we will have a further economic slowdown. It is clear that the negative growth model is unsustainable in the long run.
The opponents of growth seem to have forgotten some important factors when formulating their theory. First, referring to the example of growing wheat, cited earlier, infinite growth does not imply an exponential increase in resource consumption. The nature of growth is changing. In the nineteenth century, grain consumption could indeed be a measure of progress. Later, people started to buy completely different goods - cars, computers, and travel to other continents. Consumers in highly developed countries already spend a very small percentage of their income on food. Growth is also becoming more and more 'digital' and has a less and less environmental impact. Certainly, for a long time, development has not been about an infinite exponential or linear increase in consumption.
The fear of running out of resources is also not rational. The economy has always operated with resource constraints. The rarity (or scarcity) of goods is the source of their value and fuel for progress. The problem is that the world economy is currently not prepared for a sudden reduction in the availability of energy resources. Renewable technologies are still underdeveloped. Introducing them administratively, by means of central planning, will cause a shock to the economy. Those countries that choose to do so must be prepared for a decline in their competitive position. This may translate into economic depression and a decline in living standards, but also into a military threat from countries that will not destroy their economies.
Simply put, "sustainable" or "responsible" growth will only be possible when renewable technologies create real added value for the economy and do not burden it. The ecological revolution will come anyway, because wind, solar and geothermal energy are free, while fossil fuels are increasingly difficult to access. The question that needs to be answered is whether we should risk society's welfare just for this revolution to come 10 or 20 years earlier.
The answer is in Germany. This is where the pioneering experiment on the living organism is being conducted.