Growth imperative is a term in economic theory regarding a possible necessity of
economic growth. On the micro level, it describes mechanisms that force
firms or consumers (households) to increase
revenues or consumption to not endanger their income. On the macro level, a political growth imperative exists if economic growth is necessary to avoid economic and social instability or to retain democratic legitimacy, so that other political goals such as
climate change mitigation or a reduction of inequality are subordinated to growth policies.[1][2]
Current
neoclassical,
Keynesian and
endogenous growth theories do not consider a growth imperative[3] or explicitly deny it, such as
Robert Solow.[4] In neoclassical economics, adherence to economic growth would be a question of maximizing utility, an intertemporal decision between current and future consumption (see
Keynes–Ramsey rule).[5] Other sociological and political theories consider several possible causes for pursuing economic growth, for example maximizing
profit, social comparison,
culture (
conformity), or political
ideologies, but they do not regard them to be compulsive. Possible growth imperatives are discussed in
Marxist theory,
Schumpeterian theory of
creative destruction and
ecological economics, as well as in political debates on
post-growth and
degrowth.[6] It is disputed whether growth imperative is a meaningful concept altogether, who would be affected by it, and which mechanism would be responsible.[1]
Meaning and definitions
At the
macroeconomic or political level, the concept of growth imperatives is used by some authors when there seems to be no acceptable political alternative to
economic growth,[7] because insufficient growth would lead to economic and social instability[8] up to "severe economic crises".[9] The alternative to growth would not be a stable
stationary economy, but uncontrolled shrinkage.[10][11] The consequences of a renunciation of growth would be inacceptable so that growth appears politically without alternative.[1] While some search for purely "structural theoretical explanations for the commitment to growth",[12] others argue that this macroeconomic phenomenon must be examined at the micro level in line with
methodological individualism to explain how and why individual actors (firms, consumers) act and how this interacts with collective structures, and correspondingly study the growth of enterprises with
microeconomics and
business administration and the increase of
consumption using
consumption sociology or
consumer choice theory.[1][13]
The discussion on growth imperatives is part of a standing debate over the primacy of
structure or agency in shaping human behavior. In the social sciences the term social coercion is used when situation-related circumstances[14] or strong social pressure[15] determine the behaviour.[1] According to Marxist theory, a coercion for firms to "grow or die" is due to economic competition.[16][17] According to these Marxists, capitalism "cannot stand still, but must always be either expanding or contracting".[18] Similarly, the
environmental economistHans Christoph Binswanger [
de] speaks of a growth imperative for firms only when they are existentially threatened by steadily declining profits and ultimately bankruptcy; in other cases he uses the weaker term growth driver.[10][19][20][21][22] These definitions can be summarized that a growth imperative exists if exterior conditions make it necessary for agents to increase their economic efforts as to avoid existential consequences.[1]
Microeconomic theories
Firms
The first theory of a growth imperative is attributed[5] to
Karl Marx. In
capitalism, zero growth is not possible, because of the mechanisms of competition and
accumulation.[23][24][25]
[T]he development of capitalist production makes it constantly necessary to keep increasing the amount of the capital laid out in a given industrial undertaking, and competition makes the immanent laws of capitalist production to be felt by each individual capitalist, as external coercive laws. It compels him to keep constantly extending his capital, in order to preserve it, but extend it he cannot, except by means of progressive accumulation.
Therefore, a company's growth is considered necessary to ensure the survival of the company ("grow or die"[16][17]): "investment is not an option, or a discretionary decision, it is an imperative that constrains every capitalists' actions and governs the overall economy"[26] Correspondingly, some authors argue that the compulsion to grow can only be defused by overcoming structures of
market economies, or by pushing back profit-oriented companies that impropriate the
surplus value.[16][17][27][28][29][30] Other authors [who?] criticize this Marxist perspective: a company could be profitable without growth if a positive
accounting profit is distributed as
dividend to the owners. Only if
net income had to be retained, companies would be compelled to grow.[1][2][31] If a company shows an
accounting profit, it has not yet achieved an
economic profit in the economic sense, because a return on equity and an entrepreneurial salary would have to be paid from it - the profit would not necessarily be available for growth. Therefore, a market economy with profit-oriented companies is compatible with zero growth, as it is in the models of
neoclassical theory (→
zero-profit condition).[1][3][32]
On the basis of concepts of
evolutionary economics, other authors point out that firms can become dependent on growth as a result of certain economic conditions.
Joseph Schumpeter[33] had described the
creative destruction in which the existence of firms is endangered if they cannot keep up with the
innovationcompetition. This is interpreted as a need to invest in new technologies and to expand production[8][31][34] - but which investments would be necessary can only be understood in the light of
growth theory. Within
neoclassicalgrowth accounting it is largely undisputed that only
technological change and new combinations of
factors of production make
sustainable growth of firms and per capita income possible.[3][35][36] However, the contribution of single production factors to economic growth has been disputed for decades:[1][37] While
endogenous growth theory concentrates on the role of
human capital (ideas, education, innovations),[38][39] proponents of
ecological or
environmental economics emphasize the importance of energy consumption as well as
raw materials, which are often
non-renewable resources (e.g.
fossil fuels).[40][41][42][43] While from the human capital perspective no ecologically damaging growth imperative arises, the resource perspective emphasizes that raw material consumption is lucrative for firms because it allows them to substitute expensive labour with cheaper machines. Accordingly, they would constantly invest in new resource-intensive technologies plus the human capital needed for development, which increases resource consumption and compensates advances in
energy efficiency (
rebound effects).[1][44]
There is also disagreement as to whether these dependencies can be overcome at the company level - provided that this is desired by the owners or the management. Proposals include new management practices, changes in product range, supply chains and distribution channels,[8][45] as well as the creation of solidarity enterprises, collective enterprises[3][29] and
cooperatives.[46][47] Other authors call for
institutional solutions: reforms of
corporate law to overcome the legal constraint of public limited companies to maximise profits,[48] reforms of
competition law to prevent
externalisation at the expense of
common goods,[49] or an institutional limitation of resource consumption and/or increasing their costs through
ecotaxes or
emissions trading (
Cap and Trade), so that technical innovations would put a stronger focus on resource productivity instead of labour productivity.[1][34]
Private households
An imperative for private households to increase their
income and
consumption expenditure is rarely discussed.[50] In
neoclassicalhousehold theory, households try to
maximize their utility, whereby, in contrast to the
profit maximization of firms, they are not subject to market imperatives.[1] Therefore, a growth imperative is usually not assumed here, but rather a free decision between current and future consumption.[5] This "intertemporal optimization" is represented, for example, by the
Keynes-Ramsey rule.[51] In consumption sociology various theories of
consumer society examine the influence of
social norms on consumption decisions. Examples are
conspicuous consumption, which was addressed as early as 1899 by
Thorstein Veblen in his book The Theory of the Leisure Class,[52] or competition with
positional goods, which was described by
Fred Hirsch in 1976 in the book Social Limits to Growth.[53] Some authors claim that comparison with others and the unfair distribution of income and power would lead to a growth imperative for consumers: Consumers would have to work and consume more and more in order to achieve a minimum level of social participation,[54] because the economically weak are stigmatised.[55] The reasons given for this behaviour are fear and powerlessness, guilt and shame. However, whether these theories can actually justify a compulsion to increase consumption is disputed, as long as it is not a matter of securing one's livelihood (for example because of unemployment).[1][56]
Another line of argument views certain consumption decisions rather as
investments for future growth,[57] but sometimes to increase one's own productivity.[50] Technical products such as vehicles, kitchen appliances or smartphones were used to save time and retain opportunities to earn an income. Over time, these goods would become a necessity, therefore a compulsion to increase one's consumption expenditure could be derived in order to not be left behind technically and economically.[1]
The theory of a political growth imperative, on the other hand, argues that economic growth would be necessary to avoid economic or social instability and to retain democratic legitimacy, or to guarantee
national security and international competition.[1][2] Some authors stress that public finances[64] or
social insurance systems such as
unemployment insurance or
pensions are dependent on growth.[56][65]Raghuram Rajan sees the cause primarily in political promises that are inherent to social systems.[66] Unemployment, which would occur in the event of
technical progress and simultaneous lack of
economic growth, is identified as a central problem (
Okun's law).[1][67][68][69] Thus, growth above the employment threshold is repeatedly called for in political debates, in order to reduce unemployment.[62] Growth enhancing state investment, but also numerous incentives for private investment would not be simply politician's free will but indispensable to prevent social instability through mass unemployment.[1] This situation would be aggravated by international
competition and
free trade.[59]
Monetary system and the role of positive interest rates
For a long time,[76] several authors especially from German-speaking countries[77] have been locating a macroeconomic growth imperative in the monetary system, especially due to the combination of
credit money and
compound interest. This is considered to lead inevitably and system-immanently to an
exponential growth of
debt and interest-bearing deposits.[78][79][80] Some proponents of post-growth would derive a general criticism of positive interest rates from that and support ideas such as
demurrage on currency, a concept from
Freiwirtschaft,[76][81][82][83][84] or
full-reserve banking.[85]
A second line of argument goes back to
Hans Christoph Binswanger [
de], his doctoral student Guido Beltrani,[86] and his son
Mathias Binswanger [
de].[87][88] They argue[89] that "a portion of money is constantly removed from circulation" by banks[90] which is mainly responsible for the growth imperative.[91][92] In his book The Growth Spiral (2013), Hans Christoph Binswanger estimated a necessary minimum growth rate to be 1.8 %, while Mathias Binswanger (2009)[92] derived a minimum growth rate of 0.45 %, such that enterprises can still generate profits in the aggregate. In his book Der Wachstumszwang (2019), this minimum rate is lowered to zero as to enable firms to accumulate profits.[93][94]
Other authors criticise the results of Beltrani as well as H. C. and M. Binswanger on the basis that they are based on inconsistent economic models and therefore not valid (→
Stock-Flow consistent model).[96][97]
Those models show how repaid interest is not simply 'removed' from circulation, but flows back into the economy where it can be earned and repeated used to service debts. Models such as those created by Jackson & Victor show that, if no money is accumulated, then all debt can be serviced, and hence that no growth imperative arises from the creation of money as debt, 'per se'. [98] This leads some theorists to conclude that the monetary growth imperative only applies for certain
parameters in the
consumption function.[29][89][99] They argue that ultimately it is not the interest rate but the savings rate that is decisive for the stability of a
stationary economy. If any interest income is consumed in full by the lender, i.e., bank or creditor of the bank, it is available again for repayment. Whether a stationary state can be reached, therefore, depends on the saving decisions of those who earn income or own assets. For zero growth it would only be necessary that savings of some are balanced by consumption out of wealth by others[22][89][95] (→
life-cycle hypothesis). The assumption that banks must retain profits even in a non-growing economy would be unfounded.[89] Accordingly, there would be no grow imperative "inherent" to the monetary system, but zero growth would be impossible as long as actors decide to continuously accumulate financial assets.[100]
Binswanger, Mathias (2019). Der Wachstumszwang: Warum die Volkswirtschaft immer weiterwachsen muss, selbst wenn wir genug haben. Wiley-CVH.
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abcdLange, Steffen (2018). Macroeconomics Without Growth: Sustainable Economies in Neoclassical, Keynesian and Marxian Theories. Marburg: Metropolis. pp. 109–216.
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^Robert Solow said in an interview: "There is nothing intrinsic in the system that says it cannot exist happily in a stationary state". Cited after: Steven Stoll: Fear of Fallowing: The specter of a no-growth world. In:
Harper’s Magazine, March 2008, pp. 88–94,
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^Scherhorn, Gerhard (1996). "Der innere Zwang zum Wirtschaftswachstum". In Biervert, Bernd; Held, Martin (eds.). Die Dynamik des Geldes: über den Zusammenhang von Geld, Wachstum und Natur. Frankfurt/Main: Campus. pp. 162ff.
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^"Konkrete Schritte für eine Gesellschaft und Impulse für eine gemeinsame gesellschaftliche Vision jenseits von Wachstumszwängen standen im Mittelpunkt der Degrowth-Konferenz 2014."
Dokumentation: Degrowth 2014,
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^Daniel Constein, Nina Treu: "The focus of this Fourth International Conference on Degrowth for Ecological Sustainability and Social Equity will be on concrete steps towards a society beyond the imperative of growth."
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