Economic growth – do we really need it?

Car crashes are also good for economic growth Keystone

Hardly a day goes by without politicians, economists – or even mass-circulation newspapers – trumpeting the message that "we need more economic growth".

But is that really the case? And what would Switzerland – and the world – look like if gross domestic product (GDP) increased every year as fast as the textbooks say it should.

One man who challenges the conventional wisdom is former consumer affairs journalist Urs Paul Gasche, co-author of a best-selling new book called “Das Geschwätz von Wachstum” (“The Claptrap about Growth”).

In an interview with swissinfo, Gasche talks about the problems of conventional economic measurement, the need for new approaches – and the reluctance of the professional mainstream to embrace alternative ideas.

swissinfo: Are you really against economic growth?

Urs Paul Gasche: Let’s ask what would happen if the prophets of growth actually got their way. If GDP were to increase by three per cent a year annually – as everyone now seems to think it should – then our production of goods and services would double within 23.5 years and increase four-fold within 47 years.

Imagine the results: four times as many houses, cars, hospitals or fast food restaurants in our tiny country. And that is just by 2050. In 94 years, we would have a 16-fold increase. Is that really what we want?

swissinfo: So are we measuring the wrong things?

U.P.G.: In economic terms, productivity is what matters. The goal of all technical development should be to make work easier and to improve life. GDP may then increase – but it might also remain stable if the productivity increase results in people simply working less. Most economists forget that – they are so busy staring at GDP like a rabbit at the headlamps.

Also, GDP does not include the true costs of many things. For instance, the environment is treated as a “free commodity”; there is no charge for using up natural resources, such as forests or fish stocks, or indulging in activities that may destroy the planet.

Economists recognise this problem – they talk about “external costs” – but the reality is that we still don’t include them in the equations, and the measurements, we actually use.

swissinfo: Is it just a measurement problem, or is the concept wrong?

U.P.G.: GDP measures all economic activity, regardless of whether it makes sense. For instance, if you get ill more often or crash your car and have to go to hospital (and to the garage), this increases GDP. If you travel further to work, this increases GDP. But what people really care about is quality of life.

Since 1968, GDP in Switzerland has risen by 50 per cent in real terms. Of course we have things today that we did not have then – PCs, mobile phones, faster motorways (at least outside rush hours).

But is our quality of life today 50 per cent better? Are our jobs more secure? Is it easier to pay the rent or the health bills? Do we live in better surroundings? Endure less noise?

swissinfo: What would happen if we declared an “end to growth” – unemployment is high enough as it is?

U.P.G.: In the OECD as a whole, GDP grew by an average of 2.7 per cent a year in real terms from 1971 to 2002. Meanwhile, unemployment has doubled. In Switzerland, GDP increased by 1.5 per cent a year average, but unemployment went from 0.1 per cent to 2.8 per cent. Yet we continue to tell the unemployed that we just have to wait for higher growth.

The reality is that unemployment increases because productivity increases. The question now is what you do with that productivity. You can work less and produce the same amount, or you can work the same amount and produce more. If people want to choose the former, you should give them incentives to do so. But the current pension system, for instance, still penalises people who work less.

swissinfo: That brings us on to another argument for growth – that we need more now to fund future pension payments.

U.P.G.: We are faced to a certain extent with scaremongers in this field. The statistical trends show that in 2030 one worker will have to contribute for 40 per cent more pensioners than today, but what really matters is how many workers you have compared to non-workers overall.

If you look at the whole picture, then the ratio only increases by 15 per cent, as there will also be proportionally fewer children and young people in education.

swissinfo: What about escalating health costs? Does the economy not need to grow at least in line in order to keep pace?

U.P.G.: The health sector is an excellent illustration that growth has little or nothing to do with quality of life. Thirty years ago, we spent about four per cent of GNP on health; today it is about 12 per cent. We have a record number of hospital beds in Switzerland, and have doubled the number of doctors per capita, but are we better off in health terms than other countries?

You don’t read in the newspapers at the end of the year that Swiss people went four per cent less to hospital, or were four per cent less ill. Indeed, a doctor whose patients come back less often is punished financially.

swissinfo: If all this is true, why is there still a majority in favour of the “growth doctrine”?

U.P.G.: There was a survey carried out of Swiss economists, asking what could be alternative ways to boost quality of life in the absence of notable economic growth. They effectively replied that they had no answer because this is not what they study.

If you are an economics professor today, you will not have a successful career unless you belong to the mainstream, which defends this concept and these values. You won’t become a professor by developing recipes for a stable non-growth economy. There are always outsiders, but they tend not to be taken too seriously.

swissinfo–interview: Chris Lewis

Key facts

GDP is a measure of the total value of all final goods and services produced in a country in a given year.
Switzerland still comes near the top worldwide in terms of GDP per person – a standard measure of national productivity.
However, for many years now, it has recorded slower rates of GDP growth than other OECD members.

In brief

Gasche and co-author Hanspeter Guggenbühl say increasing GDP growth will neither reduce unemployment nor fund the “pension gap”.

They urge economists and politicians to concentrate on finding better measures for both economic productivity and quality of life.

The book’s publication comes against the background of a growing debate about Switzerland’s “stagnating” economy.