The Dilemma of Economic Growth

Home > The Dilemma of Economic Growth > De-growth Is Unstable.

De-growth Is Unstable.

Even though we are exceeding the limits of the Earth, people who still call for economic growth say that if economic growth is halted, unemployment will increase. Quality of life will decline. Society will fall into chaos and decline. To avoid this situation, the only option is to have continued economic growth, they say.

Yes, it is true that our current economy is structured so that it will collapse if it does not continue to grow. This loop graph shows why.

loop graph1

Today's economies are structured with self-reinforcing feedback loops in which profits and labor productivity continue to increase. For example, technology boosts labor productivity, cost reduction from the saved effort to leads to greater profit, profit leads to investment, and investment lead to further technological development, which increases labor productivity. Similarly, if costs decline, prices can also be reduced, which increases demand, which increases sales and profits. This is another self-reinforcing feedback loop. Next, if demand increases, the scale of production will increase, which reduces costs, which reduces prices, which increases demand, creating another self reinforcing feedback loop. With a number of interlinked feedback loops like these, the economy continues to grow.


Now, what kind of impact does this type of self-reinforcing feedback loop have on employment?

loop graph2

An increase in demand leads to an increase in the scale of production. Employment increases.


On the other hand, an increase of labor productivity leads to a decrease of efficiency, which reduces employment. Under this situation, if the economy expands and scale of production expands on a magnitude that exceeds the decline in employment caused by the increase in labor productivity, employment will not decline. Everything will be okay if the rate of economic growth is greater than the rate of increase in labor productivity.


If the increase in labor productivity, however, is greater than the rate of economic growth, the decline of employment caused by the increase of labor productivity is greater than the increase of employment caused by the expansion of scale of production. The result? Employment will decline, leading to unemployment. Unemployment will increase if the rate of economic growth is less than the increase in labor productivity.


As one can see clearly from this description alone, the structure of today's economy is designed so that if economic growth is halted, employment will decline, and this could result in social instability.


We can conclude that without changing this structure, a halt in economic growth leads to other types of risk. The result is a situation in which we cannot stop what we are now doing, even if the Earth cannot cope.

Page Top