Growth

modern economic growth really began just two hundred years ago – in the final seconds of human history. this sustained growth is completely new to us and has dramatically changed living standards. but it’s also come at a significant cost, from environmental destruction to rising inequality and the unsettling impact of disruptive technologies. 

while the consequences of unchecked growth are becoming increasingly clear, what’s not as clear is how we can change our approach to become less destructive without succumbing to an economic collapse. the answer to this dilemma is what we’ll look at in this chapter. 

let’s begin.

you might think the average stone age hunter-gatherer and someone who lived in the eighteenth century didn’t have a lot in common. and in many ways, you’d be right – big changes occurred in the tens of thousands of years that passed between the two, as tools and social structures evolved. but when it came to overall quality of life, humanity remained trapped in economic stagnation. in both eras, people lived precariously, scraping together the basics of survival. 

this standstill, termed the long stagnation, spanned millennia. there really weren’t any lasting improvements in living standards until the dramatic turning point of the industrial revolution.

the history of wages in england has been measured as far back as the thirteenth century. if you were to draw the trajectory of these wages over time on a graph, it looks like a hockey stick – flat for centuries, followed by a sharp rise around the year 1800. even earlier civilizations like babylonia and assyria showed no substantial improvements over preindustrial england. in fact, researchers have found that some hunter-gatherer societies consumed more calories and enjoyed more leisure than laborers in the 1700s, underscoring how deeply entrenched economic stagnation was.

at the heart of this stagnation is the malthusian trap: a grim cycle described by the british economist thomas malthus. as populations grow, he said, they invariably outstrip the food supply, which drags societies back into subsistence. for most of history, humanity couldn’t escape this trap, no matter how hard it worked – until the industrial revolution broke the cycle and transformed the trajectory of economic growth.

but what’s the real driving force of this sustainable growth? early theories like the harrod-domar model emphasized investing in physical capital and material resources. but these models revealed that such growth would eventually result in diminishing returns, making accumulation unsustainable.

in the mid-twentieth century came the solow-swan model, which shifted the focus to technological progress. it introduced the concept of a “steady state” where innovation, rather than material resources, fueled sustainable growth. the results appeared more promising. later thinkers like robert lucas and paul romer refined this understanding, spotlighting the role of human capital and the unique, cumulative nature of ideas. unlike physical resources, ideas grow in value the more they’re shared, tying economic growth to the generation and dissemination of knowledge.

ultimately, economic growth isn’t the product of any single factor. it emerges from a complex interplay of innovation, culture, and a relentless drive to advance our understanding of the world. this tapestry of ideas and efforts has shaped the modern world, offering both unparalleled progress and, as we’ll see, profound challenges.

our current obsession with economic growth is something that began in the twentieth century. a lot of it has to do with world war ii. as the war was getting underway for the us, economists like john maynard keynes and simon kuznets were asking a critical question: how much of the economic pie could be devoted to war without leaving civilians starving?

at this point, military spending wasn’t even accounted for in the overall national economic figures. this puzzle led to one of the most transformative innovations in economic history – the gross domestic product, or gdp, which includes a broader amount of government expenditures and is now used worldwide to track economic growth.

in the post-wwii era, gdp took center stage, becoming a tool of political and economic rivalry during the cold war. the us and soviet union battled not just with weapons but with economic metrics, each vying to showcase superior growth. but it was also a critical tool for how the marshall plan was implemented to help rebuild european nations after wwii. gdp was more than a statistic – it was a ticket to receiving support and a measure of recovery. by the 1950s, global institutions like the united nations implemented gdp as a worldwide standard, cementing its global influence.

beyond war, gdp’s allure lay in its connection to things that matter: jobs, health, and education. economic growth became a universal goal as it seemed to promise both prosperity and social progress.

in the us, the 1945 employment act declared the federal government responsible for ensuring every citizen had meaningful work. in the uk, william beveridge advocated for full employment as a pillar of the welfare state, believing it crucial to achieving growth.

by the mid-twentieth century, the focus on growth seemed to be paying off. global poverty rates plummeted, and societies reaped the benefits of scientific and medical breakthroughs fueled by expanding economies. growth transformed health, education, and standards of living across the globe.

it also bridged political divides. both communists and capitalists celebrated its promise. politicians loved how it simplified things. no matter if you were democrat or republican – everyone supported growth. it became the centerpiece of economic policy worldwide.

yet the relentless pursuit of growth came with hidden costs. complacency blinded policymakers to its environmental, cultural, and social downsides – a misstep that continues to shape our world today.

so, what has been the true cost of economic progress? today, it’s not limited to any one area. we face the threats of environmental collapse, social inequality, technological upheaval, and cultural erosion. none of these are isolated problems, either – they’re symptoms of the same relentless pursuit of growth.

take climate change. co2 levels have skyrocketed since 1950, reaching unprecedented highs of over 400 parts per million – and causing temperatures to rise at twice the rate seen in previous decades. these shifts echo past climate disruptions that devastated societies – but now they’re amplified by “dirty” technologies fueling our prosperity. since 2000, carbon emissions have risen nearly tenfold faster than any sustained increase in the past 800,000 years. in short, the environmental price of growth has become glaringly evident.

as for inequality, growth has created vast divides. in the us from 1981 to 2017, the wealthiest 0.01 percent saw their income soar fivefold, while wages for less-educated workers stagnated or declined. growth-promoting technologies, from skill-biased innovations to automation and capital-favoring advancements, have widened these gaps. automation has hollowed out mid-level jobs, and superstar-driven tools have concentrated wealth at the very top.

globalization, powered by technological leaps in communication and transport, is another culprit. data shows how globalization has lifted millions in developing nations out of poverty, but has left the middle class in wealthier countries struggling with stagnant wages and job losses. miscalculations about the impact of free trade – particularly with nations like china – have exacerbated these divides, fueling political discontent and populism.

we need to recognize the dual-edged nature of technology and growth. the same forces driving prosperity have also sown division, destabilization, and environmental damage. by understanding these roots, we can start crafting solutions that address the intertwined nature of the problem.

when it comes to dealing with the “growth paradox,” there have been two common responses. one is to start redefining gdp. the other is known as the degrowth movement. both approaches have their pluses and minuses. while they helpfully illuminate critical flaws in how we think about growth, neither fully resolves the underlying tensions.

first, let’s focus on gdp. it’s true that the current concept of gdp is deeply flawed. for instance, it captures market activity but doesn’t take unpaid labor, environmental degradation, or societal well-being into consideration. by turning gdp into a moral compass, society has prioritized what the market values over what people cherish – often to harmful effect. 

one way to move forward is to apply gdp minimalism. this involves scaling back gdp’s dominance and adopting a more nuanced “dashboard approach” to what the gdp actually measures. this would include metrics that reflect environmental health, inequality, and community well-being – essentially a richer, more balanced picture of progress.

gdp minimalism could also shift us toward a more moralistic approach. while modern economists have become fixated on technical efficiency, they’ve lost sight of larger societal questions about what we value and why. rethinking growth requires moving beyond the single-minded pursuit of more and embracing a wider understanding of human well-being.

over the past 50 years or so, there’s also been a growing interest in a different approach – the degrowth movement. advocates call for scaling back economic activity to reduce environmental harm and realign priorities. but there are contradictions within the movement itself. for instance, some proponents believe that shrinking the gdp and entering a recession is an inevitable part of the process, while others insist it’s about reducing waste and rethinking societal goals without causing a recession. these divergent views ultimately undermine the movement’s credibility and make it difficult to translate into actionable policy.

a big problem with degrowth is its lack of imagination in solving our problems. we can’t simply replace one extreme – growth at all costs – with another that outright rejects growth. instead, we need to find a middle ground: balancing economic progress with ecological responsibility, innovation, and a focus on societal well-being.

an important aspect of growth is one that the degrowthers often overlook: ideas. much of their philosophy draws on the outdated notion that growth is based solely on material resources. but as we’ll see in the next section, how we leverage ideas and technology will be key to addressing our problems while also preventing an economic collapse.

so, how can we revive and reshape economic growth moving forward? well, to start, we need to envision a future where ideas – not physical resources – take center stage.

unlike physical resources, ideas are infinite and don’t wear out. they also build upon each other, creating endless opportunities for innovation and growth. if we were to embark on a “second industrial enlightenment,” as the author proposes, it would hinge on four strategies that support ideas: reforming intellectual property laws, investing in research and development, expanding economic participation, and utilizing technology.

as it stands now, intellectual property laws are outdated and overly restrictive. they’ve expanded into unnecessary areas like gene patenting, and big companies often use them to stifle competition, blocking smaller firms from innovating and trapping ideas in legal gridlock.

many patent owners don’t even develop anything. they sit on their idea and wait for someone to try and do something in order to start a lucrative lawsuit. the author proposes reforms like a “use it or lose it” policy for patents and simpler, more balanced laws that encourage collaboration rather than competition.

investing in r&d is another cornerstone of the new approach to growth. for this, we need people and cooperation. silicon valley’s success has been driven by immigrant workers and government-backed breakthroughs. despite what many think, the public and private sectors have always worked together to fuel innovation. 

in many areas, however, research productivity has stagnated in recent years. the discovery of new drugs is just one example where we’ve seen diminishing returns for an industry that was once flourishing. over this same period of time, there’s also been a growing administrative bloat in universities. elite institutions like harvard are employing more administrators than faculty, which invariably leads to an imbalance that stifles innovation. cutting red tape and refocusing funds on r&d could reinvigorate the pace of progress.

technology, particularly ai, could also offer hope in reversing this trend. ibm’s medical research programs and deepmind’s alphafold are promising examples of how technology can be used not just to spur ideas, but to make discoveries that change industries – they’ve already revolutionized areas like protein folding and diagnostics. these kinds of innovations show how we can depart from traditional growth models that focus only on human labor and physical infrastructure.

this shift, from material prosperity to intellectual progress, is key. but we also need to stop chasing growth for its own sake. we need a balanced approach to growth that’s centered on solving our problems. with the right tools and knowledge, it is possible to steer economic growth toward outcomes that align with societal values, like reducing inequality and protecting the environment. 

in the last section, we’ll look at a roadmap for navigating the future with this kind of vision and purpose.

one thing the degrowth movement is absolutely correct about is tradeoffs. we need to rethink the costs and benefits of growth that we often take for granted. growth isn’t just about deciding whether to tolerate more inequality for greater prosperity – it involves weighing environmental impact, community well-being, political stability, and job quality against the drive for more output. at the same time, through incentives and applying the right kind of pressure, we can also promote the kind of growth we want.

the good news is, we’ve already seen how innovation can weaken tradeoffs. renewable energy was once seen as an obstacle to economic growth. but clean energy technologies like solar power are now proving that environmental progress can coexist with economic expansion. by shifting incentives and investing in sustainable solutions, society has begun to navigate the once-impossible tradeoff between economic growth and reducing carbon emissions.

the labor market presents another opportunity to reshape tradeoffs. through strategic use of taxes and subsidies, we can incentivize technologies that enhance, rather than replace, human workers. for instance, ai tools that augment productivity without displacing jobs could create a more equitable and resilient workforce. it’s about aligning technological progress with societal goals to support the job market.

laws and regulations are vital tools in steering innovation toward the public good. far from stifling innovation, regulations can channel it in ways that benefit society as a whole. the response to both the covid-19 pandemic and the russian invasion of ukraine have shown that societies, when they must, can respond quickly to implementing new ideas – like remote workplaces and alternative energy sources.

in the end, tradeoffs are unavoidable but manageable. strategic decisions can weaken their impact, allowing for growth that’s more sustainable and equitable. by shifting our priorities and embracing a broader set of values – like environmental health and social fairness – we can redefine what it means to grow. in doing so, we’re reminded that growth isn’t an end in itself; it’s a means to building a better, more balanced future.

the main takeaway of this chapter to growth by daniel susskind is that our obsession with economic growth began during the cold war era, when the gdp became a tool for measuring prosperity. it also crossed the political divide, as economic growth appeared to broadly benefit society and nations worldwide. 

but now the costs have become clearer. unchecked growth has put the environment in peril, while globalization has led to growing inequality and political turmoil. we need to rethink how we use the gdp, and incentivize our industries to focus more on the things that matter most to society. 

at the same time, we can keep growth alive by investing in ideas and technologies that will continue to innovate while limiting the tradeoffs that are currently costing us so much.

ok, that’s it for this chapter. we hope you enjoyed it. if you can, please take the time to leave us a rating – we always appreciate your feedback. see you soon!