Since the 2008 financial crisis, the global economy has endured a long period of slow growth. Although there are many signs of recovery, and there has been significant growth in countries such as the USA and Germany, there are many reasons why this growth is vulnerable. Its vulnerability is related to features such as the poor growth of productivity in the West, an ageing population, uncertain prospects in China and the price of oil, which can easily affect the global economy. Even more importantly, the unsustainable use of natural resources and carbon dioxide emissions now enforce much stricter parameters for growth than in the past. Discussions on economics have often raised the question of why growth is an aspiration. Increasing attention has been paid to the fact that the economy should above all be a means to achieve other ends, such as the experience of well-being.
What do we ultimately aspire to: economic growth or welfare?
The decoupling of economic growth from welfare, the excessive use of natural resources and emissions has not yet been achieved. The good news is that during the last two or three years, global carbon dioxide emissions have decreased slightly, despite the growth experienced in the global economy.
Economic growth is not the primary objective of our social policies. It is simply a tool for achieving well-being.
However, one question of particular interest is how well-being can be decoupled from the requirement of economic growth. Would there also be welfare in a situation with no economic growth? If that were possible, we would have to accept that economic growth is not the primary objective of our social policies, but simply a tool for promoting welfare. In addition, it would be important to consider that GDP, which is based on a quantitative increase in production, is becoming an increasingly ineffective indicator for measuring actual growth and even worse at measuring progress.
The widespread use of digital services, for instance on social media, is not statistically measured or reflected by an increase in GDP, as is the case with physical goods. Once an electronic service has been developed, tailoring it to the needs of each new user does not considerably increase the total cost of production, but it may increase overall well-being. This “technological deflation” largely explains why the standard of living and people’s well-being has increased in countries such as Japan during the last 20 years without any measured increase in GDP.
Various scenarios are possible
Scenarios on the future of the economy and the environment may be very different.
One scenario could see us stuck in a period of slow growth with outdated methods of operation, unable to find our way out. The inability to modernise structures will continue, and attempts will be made to endlessly repeat the same economic methods without any results. Consequently, the economy, and along with it well-being, will slowly fade as people’s defeatism grows.
However, in another scenario, the experience of well-being becomes the most important objective of social policy. In this scenario, well-being will increase without economic growth. This means that the economy will modernise despite small increases in GDP. Well-being can be decoupled from emissions and the excessive use of natural resources. This means that people will experience well-being and feel that their lives are relevant, even though GDP has seen little increase.
A third scenario involves decoupling economic growth from the excessive use of natural resources and emissions while also being able to enjoy economic growth. Technological development and an extensive cultural change will allow us to enjoy non-materialistic well-being and enormous economic growth. It will be possible to produce several services essential for a good basic life at virtually no cost as a result of a powerful breakthrough in energy production and digitisation by 2040. In many ways, we will be living in an affluent society where people will find joy in meaningful activities, spending time with other people, science, art, entertainment, experiences and stimulation.
Do we aspire to growth at any cost, resulting in the pollution of the planet and the erosion of well-being?
A fourth scenario is that we aspire to growth at any cost, resulting in the pollution of the planet and the erosion of well-being. In this scenario, economic structures will not be modernised, but growth is still successfully maintained and expedited. However, this is done with no regard for the ecological parameters of our planet. Ecological concerns are identified, but they are not taken seriously as parameters for economic growth. This does not encourage companies and the economy to reform in order to achieve sustainability and, within a hundred years, ecological disasters will have become commonplace. At the same time, some parts of the planet will become unsuitable for humans, and humanity therefore struggles with the pressure of enormous human tragedies. The competition for resources is intense and brutal. Only a very small elite enjoys the previous levels of well-being.
Now it would be important to do the following.
- It is important to assess the economy, well-being and the planet’s carrying capacity by using intelligent indicators which will help us to achieve the desired objectives. If the primary economic objective is the experience of increased well-being, how should we measure success in terms of the economy? For instance, one interesting idea is to measure economic success using both the prerequisites for a good life, such as the availability of food, clean water, accommodation, healthcare and democracy, and, on the other hand, taking into account the figures related to the planet’s carrying capacity, such as climate change indicators, the amount of ozone depletion, water pollution or indicators on the extinction of animal species.
- A circular economy should be regarded as an enormous opportunity to allow the economy to flourish and ecological sustainability to be achieved while respecting the planet’s carrying capacity and satisfying human needs. Manufacturing endless numbers of new goods will not increase well-being. A circular economy will offer enormous potential if we use services instead of consuming goods, and if the end-products and their materials are also recycled.
- In order to achieve such objectives, we should be able to set ambitious targets for both global and national politics and to create regulation and incentives to reach these targets. States are strong enough to set these types of objectives for themselves, and collectively, and to use their resources to achieve them. This is why states, politicians and officials should also have the courage to set ambitious socio-political visions for the future in terms of the economy, well-being and ecological sustainability.
What will progress be like in a society experiencing slow growth? We will focus on this in the third Next Era memorandum, which will be published early this summer. You will soon be able to read more at nextera.global
Postscript: Will the black swans take over?
In the Nordic countries, the megatrends of work, democracy and the economy are visibly intertwined with people’s everyday lives. However, we should not forget that at the same time many parallel and conflicting developments are going on in the rest of the world. The future may look very different depending from whose point of view they are examined.
For instance, the current situation in global politics is extremely uncertain, and almost all continents are struggling with irregularities and the “black swan” phenomena caused by surprising events. In Europe, the political situation is reflected in matters such as the uncertain future of the EU. The Middle East is struggling with regional conflicts and civil wars. In Africa, the increasing drought and famines add to the political uncertainty, while the growth of young populations is also changing the world’s focus, making us pay attention to this large continent. In Russia, there are simmering conflicts with respect to Putin’s authoritarian rule, and the unpredictable foreign and domestic policies in the United States and the tensions in Asia and between North Korea, South Korea, China and Japan are extremely alarming.
Despite these threats, we must also envision a future from the standpoints that we can affect by our own actions and accept that, in an uncertain world, the direction may also change quickly. The purpose of anticipation is not to provide certain answers. It is intended to open our minds to the different development options and the kind of future we want to aim for in a complicated world.