Planning For a Steady State
(No Growth) Society

It has been a core doctrine of the Industrial Age that businesses need to grow continually. There are no prominent politicians or economists challenging this axiom. In industrialized societies the concentration of capital leads to unequal distribution of wealth. In most societies there is strong pressure by the wealthy class to limit taxation of wealth, so income is taxed instead. The only recent counter-example was the use of inheritance tax in Britain during much of the 20th Century to redistribute the hereditary wealth of the land owning class. Instead we have a variety of income taxes. To keep the non-wealthy from becoming discontented it is necessary to postulate growth. This will "lift all boats" in the current jargon, meaning that even the poor will get to be better off in the future, if we only have faith in "growth". The success of this pipe dream can be seen in the recent debates of the US estate tax. Even though only 2% of the population would be effected by the tax, many people were persuaded to oppose it on the baseless assumption that they would grow into wealth. We have even changed the vocabulary used. Instead of increasing the size of a business we now "grow" a business. Thus implying some similarity with a living organism.

In previous periods of Western history, and in much of the third world, a different model has existed. These societies, which are always principally agricultural, follow of a static model of organization. In the most primitive of such societies the external pressures on the population due to disease and food limitations have also meant that the population tends to remain stable as well.

With the introduction of mechanized agriculture it became possible to produce an excess of food and this allowed the population to increase as well. The result was internal pressures on the community which led to emigration, predatory warfare and the removal of people from the land. In Europe the population excess was absorbed for some time by the simultaneous rise of towns with the opportunities for local manufacturing. When this avenue became less available, migration, especially to the new world, became an important factor.

As the societies changed in response to these factors the underlying philosophy of life changed as well. John Calvin is a good example of some one who preached the virtues of work. His ideas and how they were transformed is explained by Max Weber in his book "The Protestant Ethic and the Spirit of Capitalism". These ideas have become so ingrained in Western thought that alternatives are no longer discussed.

Compare this with the ideas of Confucius who taught the ideas of keeping one's place in the social structure and following the examples of prior generations. The concept of "progress" is totally foreign to this type of belief system.

Until the 20th Century much of the world was unaffected by the western social ideas. The interactions with other cultures were limited and the only points of contact were with those areas that supported trade. In most cases these consisted of more developed societies obtaining raw materials or other specialty items such as spices without substantially altering the trading partner.

In the middle of the 20th Century the development of efficient, inexpensive transportation vastly increased the contact between these different societies. So that now there are pressures on every corner of the world to adopt the western model of industrialization and growth.

The growth model has worked well now for several hundred years in Europe and North America, but there are increasing signs that continual growth is getting harder to sustain and is imposing undesirable side effects. As some point the rate of growth must slow, especially in the developed countries and perhaps even stop.

Growth in an economy can only be the result of three factors. First, is the rise in population. Each new person requires the basics of existence and production must expand to satisfy this demand.

Second, innovation may lead to improved productivity which allows more to be created using the same amount of input as before. Efficiencies in the use of raw materials can also allow for growth with a fixed rate of consumption. For example, we can now store an hour of music on a minuscule piece of silicon. At the start of the recording era this was 20 lbs of shellac records.

Third, we can increase the size of our economy by taking from others. This was blatant and explicit in the days of colonialism, but today is more subtle, being obscured in "free trade" programs and the like.

The world cannot continue to support an ever increasing population; the access to specialty natural resources will become limited and there may be constraints on the sources of energy as well. Compound growth is an exponential function and is mathematically unsustainable. Even a modest 2% growth rate implies a doubling of size in just 35 years.

What would a no growth Western society look like?

Even in periods of growth there have been areas that approximated the limited growth model. Mature industries that have saturated their markets are an example. During the days of the AT&T monopoly this was the case for the telephone industry. There was no incentive for innovation and essentially the entire population had telephone service. Thus AT&T stock was widely recommended for widows and orphans. It paid a steady dividend and was immune to the general ups and downs of the economy. The fact that it paid essentially the same amount year after year was considered a virtue.

We still have some examples, especially in staple consumer items. Things like toothpaste and soap are part of a static market. But because of the prevailing pressure from the growth and progress market these industries expend much effort trying to expand their businesses anyway. Meaningless product variations are introduced, but mostly this is just a competition to take away market from a competitor. So while individual companies can do slightly better or worse the overall demand is population limited. Expansion into foreign markets is another way to raise the income level as is merging with other companies. True growth, however, does not really occur.

Successful companies have been able to obscure their static markets reasonably well for the past forty years, but even the best of them are coming under closer scrutiny.

For example, Coca Cola has been unable to change its market dynamics appreciably over the past decade. The company pays out close to half its earnings in dividends and has a price/earnings ratio of about 22. Even at this fairly generous pay out rate the effective yield is only about 2.5%. Its capital investment is about 20% of earnings. Over the past 60 years the average P/E for the S&P 500 has been in the 15-20 range, although it has risen to the 20-30 range over the last 15 years or so.

If we take the above as a typical, mature company than we can see that the return to a typical investor doesn't even match the rate of inflation. Let's assume we transition to a no growth scenario. During the transition period we would expect that most investors would plan on having dividends as the principal source of income. If we also assume zero inflation than a return of 3% might seem reasonable. However, after the transition there would be no revenue to exceed inflation. Since excess above inflation implies growth.

With the transition to a no growth economy the need for capital investment will be lessened. This implies that the banking sector will contract as companies have less need to borrow and can finance replacement and operating expenses out of income. With a smaller banking sector investors will have limited places to put their money. This will tend to drive up the stock prices slightly and probably shift much of the money to government bonds.

But, government bonds also need to be financed somehow. Let's assume a lifespan of 80 years. The first 20 or so are non-productive as are the last 10. So a person is contributing to society about 5/8 of the time. Let's also assume an additional 10% is non-productive due to disease, disability, childbirth or other factors. So, as a rough estimate we can assume that society is about 50% "productive". In a steady state economy we would thus need a tax collection of about 50% overall. Then the funds collected would be redistributed to those not otherwise receiving income. This is not necessarily in the form of money. For example, tax-based schooling is an in kind income distribution to the students.

Can we achieve a no growth society?

Let's separate the case of a country such as the US from a typical third-world country where many people are not even receiving an adequate diet. Obviously there needs to be a mechanism to provide a basic lifestyle to everyone, subject to the global limitations on resources.

For the US, is is apparent that we already have enough "stuff" to go around. We have a degree of maldistribution that affects the bottom 20% of the population, but generally people are housed, fed and taken care of when incapacitated. To maintain our current society, however, we are using a non-sustainable amount of resources. The obvious one that is usually discussed is oil. But we are already using an unsustainable amount of fresh water in much of the country, for example. And even if a raw material, like coal, can be expected to last for several hundred years, it's obvious that this too will run out. We have based our economic model on "growth" and in order to follow it we import labor and raw materials and export a deficit. This is not a sustainable model. As shown above we need to transition to a model where we recycle about 50% of our income to the non-productive sectors of society and restore a balance with the rest of the world.

The difficult issue that arises is what is every one going to do if we stop acquiring so much "stuff"? The usual answer of: "we will become a service economy" does not work. Even services require raw materials, a trip to a nail salon, for example, means transportation for the customers and the staff, running the business (heat and light) and the supplies of the trade. There are no services that don't use resources. We can look as some pre-industrial societies to see if they can provide a model. For example, in the South Sea Islands, there was a stable society based upon local produce (bread fruit and the like) and fishing. Housing was made of local organic material. Society had enough material abundance that it was not a subsistence life. Thus, the population had time for leisure activities. This included relaxation, rituals, socializing and sex. Without the need to produce that which could not be consumed the amount of work was modest. Now we have people working 80 hours a week so they can afford a second home, but not having any time to visit it.

The growth model must fail at some point. There will always be some limiting factor that will inhibit growth, it may be energy or water or arable land, but there will eventually be a choke point. We can start taking steps now to plan for such a day or we can continue to pursue pointless growth until we hit the brick wall of shortage.

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Copyright © 2005 Robert D Feinman
Feel free to use the ideas, but the words are mine.