Malignant growth

Ernest Schumacher

Joseph Pearce is the author of the book Small is still beautiful, whose title clearly indicates the influence of Ernest Schumacher's best-known work, Small is beautiful. In this book, Schumacher proposes the idea that large companies and organizations are not the most efficient way to achieve human happiness, which in fact should be the goal of every economic activity, rather than increase the profits.

Pearce addresses the question of the Gross National Product (GNP), usually used to measure growth. GNP is often taken as a measure of success: the higher its growth, the better the economy is supposed to be. In Pearce's opinion, this way of measuring economic success is not appropriate for the needs of society, because it presents the following problems:

•         It just takes into account human activities involving money exchange. As a consequence, fictitious activities can have a significant weight in GNP. Let’s look at an example: One individual may agree to pay a certain amount to another individual in exchange for a fictitious job, while the second may agree to pay back the same amount for another fictitious job. Those two amounts will be added to the GNP, although they actually cancel each other. This was first pointed out by the American sociologist Alvin Toffler in his book The Third Wave (1979).

•         It considers economic activities as though they were neutral, regardless of whether they are good or bad. For instance: if drug use increases, more funds must be devoted to the treatment and rehabilitation of drug addicts, which implies more economic activity, and therefore an increase in GNP. Should we infer that an increase in drug use is good for the economy? If the number of murders increases, it will be necessary to invest more in prisons and hire officials, which will also count as an increase in GNP. Should we deduce that an increase in the number of murders is good for the economy?

•         Planned obsolescence consists of manufacturing consumer goods in such a way that after a certain time these goods spoil beyond repair, so that the consumer must replace them. Consequently, the less these goods last, the more GNP will grow. It does not matter that we are turning the world into a garbage dump and depleting non-renewable primary goods. Pearce puts it like this:

The world of economics resembles a Mad Hatter’s tea-party where all the crockery is smashed at the end of festivities so that the economy can be boosted by the necessity of buying a whole new tea-set. 

It is curious, says Pearce, that our economic system considers that a person who economizes (i.e., saves) behaves uneconomically, since the money saved does not participate in the GNP and does not correspond to any measurable money exchange economic activity.

Assume that it were possible to achieve a cumulative GNP annual growth of 3%, and that this growth could be prolonged indefinitely, as most economists claim. Would we have reached Utopia, would we live in the best of worlds?

Maybe, but not for long.

A simple calculation shows that a growth rate of 3% would double the GNP in 23 years; it would be multiplied by 10 in 78 years; by 20 in a century; by 100 in a century and a half; by 400 in two centuries; and by 7,100 in three centuries. Natural resources or social systems cannot support this rate of growth.

As every mathematician knows, a cumulative growth at a constant rate generates an exponential curve, but in nature exponential curves do not exist. Gordon Moore, famous for his law on the evolution of computer components, put it this way in 2005: No exponential is forever. All exponential growth stops sooner or later, due to the action of natural causes. The curves that at first seem to grow exponentially, finally become logistic curves, where the growth reaches a maximum and is then slowly reduced until it disappears.

Faced with this situation, revolutionary ideas are needed: sooner or later we will have to accept a world where economic growth becomes zero: a self-sufficient world. Perhaps every economist should be made to read Schumacher's book. 

The same post in Spanish

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Manuel Alfonseca