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What Does ‘Good Growth’ Look Like?

What Does ‘Good Growth’ Look Like?

Ask politicians, investors or CEOs if growth is ‘good’ and their yes will likely be as emphatic as the no one might hear from concerned environmentalists. Such polarisation is due to different perspectives on what growth actually means. To reconcile these views, we must apply a system lens. In so doing, we find that there are actually four types of economic growth:[1]

From a systems perspective there are four types of economic growth.

  • Type 1 – Growth in biophysical throughput: The amount of raw materials we take out of (and waste we put back into) the environment. On a finite world, infinite growth of this type is not possible.[2]
  • Type 2 – Growth in production and consumption: This is the amount of goods and services flowing through society, which is roughly what Gross Domestic Product (GDP) measures. This kind of growth isn’t intrinsically bad. For example, as the population grows, more food will have to be produced and consumed.
  • Type 3 – Growth in human welfare: This represents people’s capacity and opportunity to lead a fulfilling life – and in particular the degree to which their basic needs are met (Figure 3.6). There is a strong relationship between this type of growth and type 2 – but it is not a simple one.
  • Type 4 – Growth in natural capital: This is concerned with the amount of biomass (fish, wood, etc.) which regenerates through natural processes such as photosynthesis, and the health of the ecosystem functions (fresh water, fertile soil, etc.) which enable that regeneration. This type of growth increases the raw materials available for our consumption, and enriches the natural systems we depend upon.

Growth of types 3 and 4 is unequivocally ‘good’, since it contributes directly to our collective resilience, for example by increasing equality or food security. Given that we’re placing far too great a demand on Earth’s natural systems, type 1 growth is a problem (see Figure 3.7).

As for type 2, growth in production may make things worse (e.g. by causing ecosystem destruction), and excess consumption can be just as problematic (e.g. when single-use products result in large volumes of unrecyclable waste).

Today the global economy focuses almost exclusively on type 2 growth, production and consumption, regardless of how (and how much) it is linked to the other three types. Why? Because money changes hands when goods and services are bought and sold – and our economic system has evolved to treat financial returns and value creation as one and the same thing.

This evolution has been a consequence of the fact that every major nation on Earth has sought to maximize GDP since soon after the second world war. To quote the systems theorist Donella Meadows: “If you define the goal of a society as GDP, that society will do its best to produce GDP. It will not produce welfare, equity, justice, or efficiency unless you define a goal and regularly measure and report the state of welfare, equity, justice, or efficiency.”[3]

This is why central banks and governments expend so much effort tweaking interest rates and other factors at their disposal, constantly trying to adjust borrowing and spending patterns in pursuit of never-ending growth. It is also why companies seek out the cheapest, legally acceptable route to getting something done. If that route results in generating waste, over-harvesting raw materials, using creative approaches to pay less tax, or outsourcing work to regions with less progressive labour standards, so be it. Such negative impacts occur not because decisions makers are blind to social and environmental concerns, but because the economic context within which they are operating is not adequately driving the right kinds of outcome.

As long as our economic system pursues GDP (and thus type 2 growth) alone, restorative outcomes will remain the exception rather than the norm. Type 2 growth is desirable only if we can find ways to decouple it from type 1, and insofar as it contributes to growth of types 3 or 4 – by raising welfare or regenerating natural systems.

This is what ‘good growth’ means, and we must reorient our economic system to recognize and reward it. There is no magic button we can press to enable this. But a new growth paradigm can and will emerge over time if enough business and political leaders and governments start to factor this more nuanced understanding of growth into their decisions. If that happens, ‘doing the right thing’ will become the path of least resistance – and greatest reward – for all socioeconomic actors.

[1] P. Ekins, Environmental Sustainability and Economic Growth, London: Routledge, 2000.

[2] D. Meadows, D. Meadows, J. Randers and B. I. W. William, The Limits to Growth: a report for the Club of Rome’s project on the predicament of mankind, Universe Books, 1972.

[3] D. Meadows, Thinking in Systems: A Primer, London: Earthscan, 2009, p. 235.