The UK left recession in the final quarter of last year.  Should we all go out and celebrate? Of course, some economists argue that it will be a hard climb back, and it will be years before the economy is back to where it was. Others say that in order for the UK to repay its fiscal debt, the growth rate needs to return to the heady levels seen during the boom.

But there is another point of view. Some say the real problem is growth itself. The New Economic Foundation (NEF) isn’t one of your more typical economic think tanks.  It talks about things like happiness, and says that our big problem isn’t so much how we get back to growth, rather that it’s our need for growth in the first place. Yesterday it released a new report with the main title “Growth isn’t Possible”, and with the sub heading “why we need a new direction”. 

Are these New Age ideas put forward by NEF right?

Imagine, if you will, a hamster. Now, imagine that hamster doubles in size every week. But this hamster is different from the other little animals of its kind that kids seem to love. For this hamster doesn’t reach maturity, and then stop growing. Rather, it continues to grow. According to the new report from NEF, by the hamster’s first birthday it would weigh 9 billion tonnes.

NEF’s key argument is that growth is only supposed to take place while we are reaching maturity. It is not meant to occur indefinitely.

They make some good arguments. In fact, they make some very powerful arguments; strong enough, perhaps, to make your hair stand on end. Even so, there is another side to the debate.

Here is the bit to make you sit up. At least, your hair should be standing if the NEF is right. It has listed a number of all important boundaries to our exploitation of the earth. For example, it lists the proportion of CO2 in the atmosphere, the rate of biodiversity, and global use of fresh water.  And then suggests that each of these variables has an upper limit, beyond which it is simply dangerous to tread. And lo and behold, according to NEF we have already passed the safe limits for carbon dioxide concentration, the rate of extinctions, and the amount of nitrogen we have removed from the atmosphere. And for the quantity of phosphorus flowing into oceans, concentration of ozone, and ocean acidification we are perilously close to the limit.

And here is something else that should make even more of your hair stand up.

The NEF said: “Between 1990 and 2001, for every $100 worth of growth in the world’s income per person, just $0.60, down from $2.20 the previous decade, found its target and contributed to reducing poverty below the $1-a-day line. A single dollar of poverty reduction took $166 of additional global production and consumption, with all its associated environmental impacts. It created the paradox that ever smaller amounts of poverty reduction amongst the poorest people of the world required ever larger amounts of conspicuous consumption by the rich.”

To explain why NEF reckons growth isn’t possible, it then delves into physics. The First Law of Thermodynamics, as you may remember from your school days, says that within a closed system energy is not created or destroyed, it merely changes form.

The Second Law of Thermodynamics says that heat escapes. This law has also been called the Law of Chaos, because it says that eventually heat spreads out everywhere, right across the universe. If you pour milk into a cup of tea, chances are the milk will spread out evenly across the drink. It is possible, of course, that by a remarkable fluke, all the milk atoms remain in close proximity to each other and that the milk stays at the surface of the drink. It reality, the chances of this occurring are so tiny, that it is effectively impossible. The Second Law of Thermodynamics says that unless there is an external force in operation, energy will spread out evenly across the universe, eventually. It explains why buildings crumble, and cars rust.  So we can stop Venice from sinking, but only by constantly working on the city’s foundations. We can stop a drink from cooling, but only by applying more heat.

The NEF quotes a certain CP Snow who said: “The first law says you can’t win, the second law says you can’t even break even.”

So that’s it then. We have got to stop the emphasis on growth.

Now NEF has some good points.

But there is another point of view.

NEF says we can’t keep growing. Take, as an alternative, this view expressed by the economist Paul Romer, who has a quite different view on our ability to see continued growth.

He has said: “I’ll say until about 5 billion years from now, when the sun explodes – we’re not going to run out of discoveries. Just ask how many things we could make by taking the elements from the periodic table and mixing them together. There’s a simple mathematical calculation: it’s 10 followed by 30 zeros. In contrast, 10 followed by 19 zeros is about how many seconds have elapsed since the universe was created.”

Then there’s the population explosion. Part of the problem we are facing is that the world’s population is growing so fast that we are being forced to innovate just to keep pace with the needs of this growing populace.

As for the argument that global warming means we have got to stop growing, the argument suggested here on numerous occasions is that actually the real problem is that we learnt to specialise in the wrong form of energy. We put too much emphasis on carbon fuels. If we were to start throwing resource at renewable energy, our ability to exploit this form of energy would improve, until it eventually became cheaper than traditional carbon based fuels.

Maybe the real problem with growth is the way it is measured. Maybe the global economy’s GDP should be measured the way a company measures its strength, via profit and loss and balance sheets.  We don’t draw up balance sheets for the economy, and that may be the problem. If we measured the economy using this method, then if we were to run down natural resources, this would show up as a fall in assets, and be reflected in the P&L.

Then there is another point. In its report NEF says: “The American economist Herman Daly argues that growth’s first, literal dictionary definition is ‘…to spring up and develop to maturity’. Thus the very notion of growth includes some concept of maturity or sufficiency, beyond which point physical accumulation gives way to physical maintenance.”

But is it not the rather sad case that once we stop growing, we know the process of ageing has begun. As all readers of this article who are of a similar age to its author will be all too aware, the end of growth is followed eventually by death.

So the NEF says that continued growth is not natural.  But death is natural. And the alternative to an end to growth, could be something quite nasty.

See Growth isn’t possible from NEF for more

© Investment & Business News 2013