Betting on the Wrong Horse

By René Will

Unlimited growth: a delusion

Unemployment and public debt are immense in most EU countries and in the USA. Meanwhile, politics and business are gambling on a risky race, in which the last horse they bet on can only mean defeat: the last "sure thing" is economic growth. But it seems that in this regard, the industrialized countries will no longer be able to keep up with the new star gamblers at the track, India and China.

The general rule of growth is: high economic growth is synonymous with great economic power. This is an assumption that is deceptive, because the economic power of a country is measured primarily by its gross domestic product (GDP). In contrast, economic growth is only a measure of increase or decrease in GDP. This means the productivity of an economy can be high, but show no growth. However, because growth usually brings with it positive effects, such as a lowering of the unemployment rate, increased tax revenue and a reduced burden on the welfare system, decisionmakers in politics and business count on constant economic growth.

They base their decisions on the assumption of relative growth in terms of percentage. In order to achieve this, however, stronger economies need higher absolute gains. Of course such exponential "growing growth" is not possible indefinitely. In 1972, the Club of Rome pointed out the negative consequences of exponential growth in its study "The Limits to Growth." In its latest update in 2004, the collapse of the entire system starting in 2030 was predicted.

In reality, developed economies no longer grow exponentially, as OECD numbers show. Accordingly, relative growth rates are achieved only by economies at the start of their industrialization. This was the pattern followed by the German Empire, for example, or even by China and India, which are currently experiencing exponential growth. This is why China and India seem to be better able to deal with the crisis and remain at the racetrack. At least for the time being.