The end of growth?

“Growth for the sake of growth is the ideology of the cancer cell.”
Edward Abbey

During most of the history of mankind, average incomes across the globe amounted to somewhere between $1 and $2 per day and income growth was only marginally above zero, averaging about 0.033 percent per year from year 0 to year 1868 (and probably even less during the preceding millennia). In the hundred year period from 1868 to 1968, however, real per capita income growth suddenly increased forty-fold to about 1.43 percent per year, and when I was born average per capita income in the world had reached about $10 a day. During my life-time, income growth has averaged 1.96 percent, implying that average per capita GDP in the world is now above $20/day. Growth rates have kept increasing steadily, reaching an average of about 2.94 percent per year in the first decade of this century. Such growth rates are unprecedented in the history of our species (1).

The big question is: Will growth continue at these high, and perhaps even accelerating, rates? Or is the growth spurt experienced over the last 150 years just an anomaly, which is about to come to an end?

This is an incredibly important question. A world where growth continues at almost 3 percent per year for the next couple of centuries will look entirely different from a world where growth rates stagnate. In the continued-growth scenario average per capita GDP in the World would be above $5000/day by the year 2200 (unimaginably rich), whereas if growth stagnates by the end of this century, they would be earning only about $40/day (like Portugal now). The pressure on our environment would also be rather different in the two scenarios.

In a recent NBER paper, Robert Gordon of Northwestern University, argues that productivity growth, at least in the United States, might decelerate over the next century, reaching negligible levels. He notices that growth is driven by the discovery and subsequent exploitation of new technologies (such as electricity, the internal combustion engine, piped water, sewerage and communications technology), but that the growth effects of these inventions are one-off and that we have already reaped most of the benefits. For example, he notes that the speed of travel went from horse to jet speed, but has not improved significantly the last 50 years. And while the latest information revolution has brought us a large variety of enthralling entertainment and communication devices, the effects on productivity have been limited.

I will concede that perhaps the U.S. is looking a bit decadent at the moment, but I think the World in general still has plenty of growth potential, and that there are many revolutionary innovations and much growth to come (for better and for worse).

Innovations over the next couple of centuries are of course impossible to predict. But here, in my 100^th Development Roast, I would like to present at least a few arguments in favor of continued, if not increased, innovation.

First, with the information revolution that Prof. Gordon didn’t think much of, we have basically managed to unleash and integrate the intellectual power of several billion people, who had previously been excluded from contributing to local and global development. One of the manifestations of this new democratization of knowledge is the TED talks: a brilliant idea presented freely to the World every day. Other initiatives with similar objectives and reach are:  Wikipedia, Khan Akademy and Coursera, where you can learn almost anything for free. This massive cross-fertilization of ideas across disciplines and geographic regions is bound to stimulate innovation.

Second, our recently acquired knowledge about how to read, understand and modify genes puts us on the verge of a genomics revolution.  While there are certainly some ethical and practical issues to be resolved, we will soon have the technical ability to make personalized cures for almost any disease, thus tripling life expectancy once again. We will soon be able to create tasty, nutritious foods that do not require the use of pesticides and which tolerate a wide variety of climatic conditions. And we will soon be able to use bacteria to make gasoline out of just CO₂ and sunlight, thus providing a simple solution to a couple of major, looming problems (see Barry Schuler’s brillian TED talk: Genomics 101).

I am convinced that we still have enormous potential for growth, but I also think we will have to redefine growth, so that it is not just traditional GDP growth, but a better measure of “real progress” that includes environmental impacts, human capital accumulation, happiness and other important aspects that are currently left out.

Perhaps the biggest revolution will be in how we make use of the upcoming productivity growth. If we are smart, we won’t just use it to produce and consume ever more stuff and create ever growing mountains of waste. Once we become so productive that we can easily earn $5000 per day, there is no need to work 40-50 hours per week. Maybe we will work just a few hours each morning, and then take the rest of the day off to study, play with friends, explore virtual worlds, practice a sport, be creative, volunteer for a good cause, do gardening, or whatever we really enjoy doing.

Given sufficient time, there is nothing quite as powerful as human ingenuity and the power of compound interest.

Lykke E. Andersen is the Director of the Center for Economic and Environmental Modeling and Analysis (CEEMA) at the Institute of Advanced Development Studies (INESAD), La Paz, Bolivia.

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