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
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
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
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
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
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
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.