Expansion and Growth

The Significance of Business Expansion and Macroeconomic Growth

An Article in the Compendium of Market-Based Social-Ecological Economics

Key issues in view of the neoliberal crisis:
How can we guarantee employment and fair income?
How can we protect the environment effectively?
How should we shape the economic globalization?
What should the economic sciences contribute?
What must be the vital tasks of economic policy?
How can we legitimize economic policy democratically?

Click here for the list of all articles: Compendium
Click here for the German-language version. Expansion und Wachstum

Table of Contents

  1. Overview
  2. Term Assignment
  3. The Task of Responsible Growth Policy
  4. The Neoliberal-Obsessive Belief in Growth
  5. The Natural Limits of Quantitative Growth
  6. Quantitative Versus Qualitative Growth
  7. The Economic Misconceptions of Neoliberalism
  8. Domestic Versus Foreign Trade Economic Growth
  9. The Illusionary Hope for More Employment
  10. Macroeconomic Versus Business Growth
  11. Summary and Outlook

1. Overview

ExpansionWachstumJPG01Nothing reveals the essence of the neoliberal economic system better than its obsessive use of the term »growth«. The belief in endless quantitative growth as a miracle cure for prosperity and welfare, which has advanced to become the widespread economic mantra, has its origin simply in the selfish striving for expansion of globally engaged economic players. To absorb this fact is the first step on the way to a sustainable economic order based on qualitative development.

2. Term Assignment

The term expansion stands, in the context set out here, for the expansion of entrepreneurial (business) activities including the associated active expansion of sales markets. Entrepreneurial expansion aims at higher market shares, sales and profits. The rise in these variables is also referred to as entrepreneurial (or business) growth, which is ideally initiated by a product innovation that meets high demand and changes the rules of the game in an existing market or opens up a new market. However, entrepreneurs who act as innovative pioneers must expect other entrepreneurs to follow them as imitators. Pioneers are therefore anxious to build up the highest possible entry barriers, usually by means of new technologies, which they additionally protect with solid patents in order to keep imitators at a distance for as long as possible.

In a market economy, the entrepreneurial pursuit of expansion and profit is regarded as natural and desirable because it is a prerequisite for progress, prosperity and welfare. It is, however, a mandatory national requirement to steer entrepreneurial expansion in a sustainable, socially and ecologically acceptable direction through economic policy regulations and to prevent entrepreneurs from passing on (externalizing) costs to society and the environment at their own discretion. A market economy that claims to be future-proof must see this economic policy regulation as its central, existentially necessary task. This is the only way to put the natural entrepreneurial pursuit on a profitable business and macroeconomic track.

The term growth is synonymous here with economic growth, that usually refers to the increase in economic performance of a country or economic area, and in particular refers to the increase in production of goods and services and the associated increase in income, purchasing power and demand. In Germany – as well as worldwide – economic performance is currently calculated solely from the prices of the production result as the so-called Gross Domestic Product (GDP), which is reported for quarterly and annual periods. On this basis, GDP is a pure production indicator. After deducting the balance of primary incomes earned abroad, GDP is used to produce the corresponding income indicator: Gross National Income (GNI).

Because this is primarily about economic performance, GNI can be ignored, and I will therefore only refer to GDP. Its growth is determined from the percentage change of two periods. For example, by calculating the change from the quarter just ended to the previous quarter or to the previous year’s quarter and reporting it as the current quarterly or annual growth rate. On the basis of annual values, the annual growth rate or the average growth rate of a multi-year period can be determined analogously. Since GDP is composed of the prices of production output (goods and services), a distinction must be made between nominal and real growth rates: For the real growth rate, GDP is calculated in prices of a previous base year, so that the calculation is not affected by the change in the monetary value (inflation or deflation) that has arisen in the meantime.

In order to determine the actual extent of changes in economic variables, and also to enable historical and country comparisons, the population figures of the periods to be compared must be taken into account. The easiest way to do this is to use the ratio of GDP to population figure as a basis, so that the changes of two periods result in the growth rate per capita of the population. In this way, for example, real (average) GDP growth per capita, real (average) income growth per capita or real (average) purchasing power growth per capita can be determined and compared with historical or other countries’ growth rates.

It should be noted that GDP records the production result quantitatively in prices and that GDP growth rates therefore express the quantitative increase in the production result in prices. However, the qualitative impact of the production result on society and the environment is not monetarized and thus not recorded as part of the GDP, so it is not possible to draw conclusions about the qualitative development that is absolutely critical for the social welfare of a society. This lack of data can lead to political misjudgements of the social and ecological development. For example, if the qualitative positive or negative values of a balanced or unbalanced income distribution and a future-proof or future-threatening environmental protection are not included in the GDP and consequently can not be detected and translated into political action. Thus there is a constant danger of the misconception that the desirable sustainable qualitative development of an economy and society is already sufficiently ensured by quantitative growth (volume growth).

It is particularly dangerous that the limits of quantitative growth are not to be inferred from the GDP figures and therefore come under scrutiny too late. For example, if the cultivated areas for food production become scarce, non-renewable resources such as minerals run short or renewable resources such as arable land, forests and water reservoirs lose their regenerative capacity due to pollutant inputs. But also, as indicated, if quantitative growth is accompanied by an extreme unequal distribution of income so that mass purchasing power is ultimately reduced to such an extent that economic cycles collapse and a vicious circle of economic decline develops. Positive GDP growth, which is commonly expected to increase prosperity, can then unexpectedly turn into negative GDP growth (shrinkage) due to declining demand.

3. The Task of Responsible Growth Policy

A responsible, sustainable growth policy must, as a matter of priority, be within the frame of the limits set by the finiteness of natural resources. This means in detail that it must

  1. limit land use in a way that preserves biodiversity,
  2. reuse non-renewable resources such as minerals in cycles or replace them with renewable resources,
  3. use renewable resources such as biomass, humus, water and air within the frame of their natural regenerative capacity and pollute them with correspondingly low levels of pollutants, and, finally, it must
  4. limit the population density of its settlement area accordingly as a precondition for the enforcement of the above points.

If the growth policy is implemented within the frame set by the natural limits, it then means in economical terms that it efficiently allocates the production factor natural resources to the production processes. Subordinate to the natural resources it must also ensure an efficient allocation of the two other production factors: labor and production capital. In concrete terms, this means that it must prevent centralist structures (monopolies and oligopolies) by returning the economy to decentralized (subsidiary) structures in an ongoing process of economic policy control. This finally constitutes a direct responsibility of local and lower level economic participants for their social and natural environment, which leads to the necessary social and ecological efficiency of the allocation of all three production factors and consequently to the necessary efficiency of the production processes, or in other words: to the necessary social-ecological productivity of the economy. The decentralized responsibility of economic players presupposes subsidiary democratic structures that correspond to the economic structures.

Under such structural conditions, the efficiency of the factor labor results from the subsidiary participation (including a fair share of the economic outturn) of all players in economic life, i.e. from full employment and living wages. The efficiency of the factor natural resources results from the small-scale, upwardly open cycles that are of subsidiary origin, i.e. from decentralized responsibility for environmental protection. While the derivative factor capital (physical and monetary capital) is unrestrictedly and exclusively at the service of the original factors labor and natural resources. Its efficiency therefore results indirectly from this servitude. An isolated capital efficiency – which, as practised in the neoliberal system, leads to capitalist excesses and ultimately self-destruction – is excluded by the structural conditions described (see also the article Factors of Production.

In the following section I explain in detail how the prevailing neoliberal economic doctrine prevents a responsible, sustainable growth policy.

In principle, growth policy is to be understood as all measures aimed at a quantitative increase (within the limits stated) and qualitative improvement of the per capita social product (per capita GDP) of an economic area. Measures include public and private investment in production capital (buildings, machinery, tools, etc.), in human capital (education and training) and technical progress (research and development).

Investments in technical progress will increase

  1. the efficiency of the allocation of all three production factors,
  2. the efficiency of production processes, i.e. economic productivity, as well as
  3. the efficiency and usefulness (effectiveness) of investment and consumer products.

Sustainable growth policy makes use of targeted investment control through taxes and subsidies in order to steer economic development in socially and ecologically compatible directions. Growth policy is thus closely linked to social, employment and environmental policy, and with regard to this link it must in particular ensure that productivity increases are regularly compensated by reductions in working hours and/or wage increases in order to allow the entire population to participate in progress and to maintain the macroeconomic balance of productivity, wages, purchasing power and demand. Reductions in working hours without wage increases are appropriate if no additional demand is to be expected through an increase in productivity. Apart from that the application of the two means must be carefully balanced.

For the financing of public and private investments the following is decisive: tax revenues, the savings ratio (savings as a percentage of GDP) and an appropriate increase in the money supply through money creation by the central bank and credit creation by commercial banks. The more money from these coffers flows into investments, the higher the growth rate, regardless of the growth shares attributable to quantitative and qualitative growth. However, in order to achieve sustainable positive growth rates, funds must be large enough not only to finance replacement investments for the normal wear and tear repair of physical capital, but also to enable net investment in advanced productive capital and the associated training of the workforce (human capital) as well as in research and development.

4. The Neoliberal-Obsessive Belief in Growth

ExpansionWachstumJPG03Since the nineties of the last century there has been no other term that has been used so frequently and obsessively in economic policy discussions as the term »growth«. Under the regime of the neoliberal economic doctrine, any undesirable development is adventurously associated with a lack of economic growth. Reason for this is the general belief that an endless growth of the gross domestic product is not only possible, but was a necessary condition for prosperity and welfare. It comes as no surprise that this obsession offers little room for a distinction between quantitative and qualitative growth. Because the roots of this obsession lie

  1. in the striving for expansion and profit of industrialists and investors, which is fundamentally desirable from a market economy point of view, but whose economic policy restraint is presented as doctrinaire and harmful,
  2. in the growth illusions of neoclassical and neoliberal economists, and finally
  3. in the entanglement of the interests of industrialists, economists and politicians.

The constant indoctrination produced by this entanglement serves to strengthen the general belief in endless growth and creates the freedom for industrial protagonists to pursue their interests unmolested.

For a better understanding of the broader context, it should first be noted that neoliberal competition in open global markets is decided by absolute price advantages in dollars or euro, and that the irrevocable crowding-out of inferior competitors is one of its salient features. That is why it is rightly referred to as predatory competition. Against this background, so-called growth stimuli are now offered as patent remedies for the alleged overcoming of neoliberal undesirable developments – usually with reference to high unemployment. Above all, the relatively high labor costs and unit labor costs in Germany in absolute dollar/euro comparison are presented as an obstacle to growth and a disadvantage in global competition and are held responsible for job losses. This argument, that seems logical from a neoliberal perspective, but is otherwise macroeconomically misleading, serves as justification for wage and social services cuts. However, as soon as »growth stimuli« are implemented, they lead to losses of purchasing power – with the consequence that on the one hand consumers are forced to buy more cheap imports, thereby curtailing the turnover of locally and regionally operating companies and subsequently causing economic desertification (de-industrialization) of peripheral areas over time, on the other hand that globally operating companies are encouraged by declining domestic growth to shift their striving for expansion more and more into exports.

In their striving for expansion, global players naturally come under even greater cost pressure from global competition and are forced to enter into mergers and to relocate jobs to low-wage countries – resulting in new losses of purchasing power and widespread economic desertification. This is how the vicious circle emerges, that is so characteristic of neoliberalism and that is always driven anew by wage and social services cuts.

Since, in the long term, higher growth rates in saturated markets can neither be achieved for individual companies nor for domestic economies as a whole, it is not surprising that the welfare optimum hoped for by the general public, including a high level of employment, living wages, optimal social equality and undamaged natural resources, is moving further and further away under neoliberal conditions. In addition, I recommend the article Sustainable Social Welfare.

The harmlessness that neoliberalism creates for itself through its growth mantra, and the »growth stimuli« justified with it, at the same time stabilises the industrially desired fixation on the efficiency of capital investment and consequently on the priority of the return on investment at the expense of the efficient use of the production factors labor and natural resources. Therefore, both labor and natural resources are in a similar situation: With the intent to indoctrinate it is suggested that an economy can only provide sufficient employment and sufficient funds for environmental protection from a permanently high growth rate of the domestic product (GDP). Meanwhile, the return on capital investments flows to an industrial minority, while the costs of unemployment and environmental damage caused by inefficient factor allocation are passed on to the general public (see also Excesses of Capitalism.

This »capitalist« imbalance has a particularly dramatic effect on open global markets, because in the pursuit of entrepreneurial expansion and GDP growth, all economies compete with each other and try to pave the way for their resident companies to invade the social, ecological and economic spheres of other countries by means of all conceivable dumping methods. The social achievements, the natural resources and the national wealth generated become fair game in this worldwide competition for every player who recognizes an opportunity and takes action fast and powerful enough. The neoliberal economic doctrine is therefore a guideline of incessant destruction of national wealth.

A deeper insight into modern neoliberalism is provided by the following articles: Neoliberal Vicious Circle, Neoliberal Economic Doctrine and Neoliberalism – old and new.

5. The Natural Limits of Quantitative Growth

The US-American economist Herman E. Daly, co-founder of Ecological Economics, made a clear statement on the subject of growth during his teaching activities, published on the website of the University of Maryland:

»I see the economy as an open subsystem that depends on the natural ecosystem for its raw material sources and waste sinks. The ecosystem is finite, non-growing and materially closed. Our economy has grown so strongly relative to the ecosystem that its influence threatens to overburden the ecosystem’s natural capacity to regenerate resources and absorb waste. For me, this means that the direction of economic progress must be changed from growth (quantitative expansion) to development (qualitative improvement)«.

Daly uses the term ecosystem comprehensively in the sense of all renewable and non-renewable resources that are necessary for the survival of life on earth. This includes the biosphere with the oceans and the troposphere responsible for the energy exchange, the hydrological cycle and the climate, but also includes the raw material deposits of the lithosphere that are claimed by humans. The demand for qualitative improvement of the ecosystem is not a figment of imagination of left-wing ecofreaks, but a scientifically justified political imperative. Because, in principle, any new state of equilibrium of the ecosystem resulting from human intervention is worse than the initial state and can contribute to bringing the system into a life-threatening state within an indeterminable period of time.

ExpansionWachstumJPG04There are narrow natural limits to the »economy« as an open subsystem. As we know, the ecosystem is the result of more than 1.5 billion years of biological evolution, the quantitative expansion of which was completed millions of years ago with the formation of an optimal mass of biological material. Since then, biomass has not increased any more, but, as during its quantitative expansion, continually developes further into increasingly complex forms of life. This qualitative development can continue indefinitely as long as the sun supplies our planet with energy. For our access to natural resources, this means: it must be brought to a standstill and be returned as quickly as possible to an uncritical level as long as there is still a chance for a future-oriented coexistence of human economic activities with the life-sustaining functions of the ecosystem.

All scientific data indicate that we have little time to avert more serious consequences. The decisive factor will be whether we succeed in curbing our economic-quantitative expansion and transforming it into qualitative development. Three tasks are paramount:

  1. the fight against the population explosion,
  2. the substance-preserving use of renewable and non-renewable resources, and
  3. in particular the changeover from fossil and nuclear energy sources to all forms of (renewable) solar energy and geothermal energy.

Energy changeover should take center stage and be carried out decentrally and in decentralized responsibility in order to facilitate other tasks. A centralized changeover, such as planned by the Desertec project, with which the transnational energy companies want to transmit solar electricity from North Africa to Europe, would cement neoliberal structures and social inequality.

As a supplement I recommend the articles Economy and Biosphere and Economy and Entropy.

6. Quantitative Versus Qualitative Growth

An economic policy strategy aimed at quantitative growth, as pursued by all economic areas worldwide under the current neoliberal doctrine, focuses on increasing production capacities and production volume. Thereby all measures aimed at qualitative growth are automatically banished to the background. That means concretely: Qualitative growth is in fact not excluded, but the development of process and product quality and the sustainable use of resources, which are indispensable for the improvement of the social and ecological quality and for the realization of social and ecological yields, are subordinated to the obsession of the neoliberal system to volume growth. This obsession is founded in a doctrine that is one-sidedly focused on the highest capital efficiency (return on investment), leading to production being increasingly concentrated (centralized) in order to achieve the highest possible economies of scale. Economies of scale increase with the degree of mass production as overheads decrease and production processes are progressively optimized. The competitive advantage results from the correspondingly decreasing unit costs and the resulting scope for pricing. Economies of scale are indeed a suitable and desirable means of increasing entrepreneurial (business) productivity, but only if they are applied decentrally under subsidiary structures and under the direct responsibility of all participating and affected economic players, and if democratic control can ensure that they do not cause external costs in the form of unemployment and environmental pollution and thus reduce macroeconomic productivity.

In short, entrepreneurial economies of scale can only be justified if they are accompanied by macroeconomic returns. (See also the article Scale Economies and Productivity.

Because of its exploitative nature, continued quantitative growth is not only destructive but also finite. As indicated above, the figures of the GDP currently calculated do not indicate the destruction process, nor do they predict the inevitable end of an economic order focused on quantitative growth. This is because the social and ecological costs caused by economic processes are not quantified (monetized) and therefore not recorded in GDP, and consequently the data for economic policy countermeasures are missing. Under neolibral conditions, economic players and society are only becoming aware of an imminent danger when indispensable natural resources are close to extinction or society threatens to plunge into chaos because of extreme unemployment and social dislocation.

With an economic strategy aimed at qualitative growth, the substance preservation of social and natural resources is a priority, therefore production capacities and activities have to serve this priority by being focused on it. That is:

  1. People and society (human and social resources) must democratically determine the design of the useful function that economic capacities and activities have by their very nature. In other words, all economic participants, as producers (self-employed and dependent workers) as well as consumers, must be self-determinedly involved in economic processes, so that economic processes can serve people, and not vice versa.
  2. Biological (renewable) resources are only to be used within the framework of their natural regenerative capacity.
  3. Mineral (non-renewable) resources are to be permanently reused in production cycles or replaced by renewable resources.

In particular, qualitative growth means that production processes and products are becoming more and more efficient in terms of resource use, on the one hand by consuming fewer resources and generating less waste over their entire life cycle, and on the other hand by becoming better and better in terms of their human and social utility value.

It should be noted that qualitative growth does not preclude a temporary increase in production capacities and quantities, i.e. quantitative growth. Volume growth can take place under the condition that technological progress allows it and that it is socially and ecologically compatible. For example, compostable (biologically recyclable) products can be produced in any quantity that enables the products to be returned to the natural cycle immediately after use without the need for expensive industrial disposal.

In summary: Qualitative growth implies that economic output shifts from production volume to the quality of production processes and products. Since both quantity and quality growth increase the economic price aggregate, both are shown as growth of economic output by recording them in GDP and by comparing individual GDP periods. However, in order to enforce qualitative growth in economic policy and to use GDP as a suitable tax instrument, GDP must be extended to include social and ecological indicators in addition to the pure price recording of products. These indicators must reflect the quality of social and ecological development, whether positive or negative, in quantified form, and, in a first step, relativize the price aggregate »truthfully«. In a second step, it is the task of economic governance to use the indicators to enforce truthful prices by taxing harmful factors and subsidizing useful ones. Thus the decisive prerequisite is fulfilled for ensuring qualitative growth, which ultimately manifests itself in full employment and environmental protection, provided appropriate subsidiary economic structures are in place.

7. The Economic Misconceptions of Neoliberalism

From a purely economic point of view, the belief in growth is founded in two misconceptions:

Firstly
, in the equation of short-term private economic benefit with long-term macroeconomic benefit. This automatically places entrepreneurial interests at the center of economic governance and focuses events one-sidedly on the production factor capital.

Secondly
, in that a quantitative limitation of economic activities is considered unnecessary. This turns systemic dependencies upside down and gives the ecosystem the status of a freely disposable resource and a freely accessible space into which the human economic system can grow without limitations or consequences.

ExpansionWachstumJPG05The doctrinal mixture of one-sided capital efficiency and boundless eagerness for growth degrade human labor and natural resources to economic dumping grounds, which can be charged with arbitrary burdens and arbitrarily high costs. These cost shifts result in pricing that is socially and ecologically misleading. Prices are formed that say nothing about the actual state of society and the environment and thus do not fulfil their function as an economic steering tool for the efficient allocation of social and ecological resources (see also article Economic Pricing).

The misleading prices in neoliberalism are an indication that the market lacks political guidelines and that the supposedly free neoliberal market economy is in reality an unregulated, anarchic (lawless) economy without a constructive price and market mechanism.

The misleading prices continue with wages (prices for labor) and prices for natural resources:

About the factor labor:
Although more and more products can be produced with increasing capital intensity and correspondingly lower labor costs, at the same time the distribution of the volume of work in society worsens and the share of earned income decreases in favour of capital income. Without an optimal distribution of work and earned income and without an optimal share of earned income in total social income, however, not only the efficiency of the factor labor suffers, but to the same extent the overall macroeconomic efficiency and ultimately also the business efficiencies. Broad income distribution is necessary to generate high purchasing power throughout a country or economic area, which in turn is a prerequisite for self-sustaining decentralized economic cycles and a high level of employment.

About the factor natural resources:
Natural resources are becoming increasingly scarce and the limiting factor of production due to the high consumption of developed countries and the increasing industrialization of underdeveloped countries. Here, too, the reason lies in pricing. Prices are predominantly determined only by the costs of exploration and development, while no price is awarded to the resources themselves. Their actual price is arbitrarily low and creates incentives for exploitation and wastage – at least as long as there are no noticeable shortages.

The more obsessively we strive for higher volume growth and higher return on investment, the poorer we become in terms of social and natural capital.

From an economic policy point of view, the constant call for growth and growth stimuli is the most effective way to conceal selfish economic goals that do not serve the common good.

The beneficiaries of economic power and capital concentrations, who also seek political power to safeguard the social inequality and ecological exploitation they cause, are cynically perceived as credible only if they doctrinarily declare the suboptimal distribution of income and the suboptimal use of resources as a result of lack of growth.

8. Domestic Versus Foreign Trade Economic Growth

With the extensive market saturation in the eighties of the last century, a forty-year period of high growth rates ended for the western industrialized countries. The sudden stagnation led to frustration because post-war growth was not seen as temporary and entrepreneurs saw their expansion and profit aspirations running out of steam. In order to continue to satisfy quantitative expectations, industrial interest groups began to focus on “liberalization” and geographical expansion of markets. With this project, the hot phase of neoliberal globalization was initiated, which continues to this day. For a more detailed description, I recommend the article Economic Globalization.

From the perspective of the German export industry, »market liberalization« has so far been very successful. However, the export industry has not been able to live up to its role as the »growth engine« of the economy as a whole. Under the cost pressure of global competition, more and more domestic shares of value added in export production were replaced by imports and domestic economic cycles were weakened. Thus the export economy was affected by the so-called bazaar effect, i.e. increasing imports of intermediate products were simply channelled through the country for the purpose of final assembly and immediate export – like in a bazaar. In fact, in Germany the share of domestic value added in the total value of exports has been declining since 2003. In the medium and long term, Germany’s unprecedented dependence on exports including the bazaar effect will have catastrophic effects. Because with open global markets, neither weak domestic cycles can be revitalized nor can outsourced shares of value added be brought back. As one of the major export nations, Germany is therefore permanently exposed to the extreme influence of external economic developments and shocks.

In addition, Germany is being pushed into ever more capital-intensive production niches by the progressive industrialization of emerging economies, while on the other hand it imports almost all labour-intensive and increasingly also capital-intensive products. In the face of global competition, those sectors of the economy that produce predominantly labour-intensive for domestic markets have nothing to counter the squeezing-out by cheap imports. For the domestic labor market, predatory competition, including unlimited international specialization and division of labour, is doubly harmful: jobs are being cut both in the increasingly capital-intensive export economy with its international division of labor and in companies threatened by cheap imports. The result is a »continuous neoliberal depression« with mass unemployment, underemployment, precarious working conditions, loss of purchasing power and extreme unequal distribution of income and wealth, caused by »liberalized« foreign trade and foreign competition and the resulting concentration of economic power and capital.

A further effect is added: the continuous depression is initially accompanied by current account surpluses as export production continues to grow. However, the released financial capital flows into foreign direct investments and into portfolios of the global financial markets and is used outside the country to set up low-cost, highly productive production facilities, the products of which in turn drive up the volume of imported intermediate and end products. Sooner or later, the export strategy aimed at growth will have the opposite effect, namely diminishing domestic value added.

9. The Illusionary Hope for More Employment

There are several reasons for the increasing underemployment under neoliberal conditions:

  1. The effects of the extreme export orientation described above,
  2. the low GDP growth of 1.5% on a long-term average, which is overcompensated by the increase in productivity and thus does not generate any additional volume of work,
  3. the constant relocation of production facilities and jobs to low-wage countries,
  4. the financial and real-economical consequences of the financial market crisis in 2008, and finally
  5. the systemic or cost-based blockade of trade unions, which excludes reductions in working time as a means of equal distribution of the volume of work (employment) since the 1990s.

In addition, companies are seeking to pass on their labor costs directly to the general public in the face of low positive growth rates. Economic policy measures resulting from these efforts include transforming full-time jobs into part-time jobs, from permanent to temporary jobs, from paid employment to bogus self-employment, as well as extending working time without equal pay and reducing or avoiding all the variations in non-wage labor costs, taxes and conditions. All these measures exacerbate inequalities in income distribution and reduce real incomes, purchasing power and domestic demand.

The creation of new permanent jobs is avoided as far as possible in view of the short-term growth phases and the increasing cost pressure on companies. As soon as the competitive pressure increases again with declining growth, and investments made in physical capital unfold their productive effect, a new round of job cuts begins every time. It is comprehensible that the influence of national economic policy on the social and ecological orientation of productivity increases is getting smaller and smaller as markets are further opened (»liberalized«). Whenever productivity grows faster than GDP, not only jobless growth becomes the neoliberal norm, but also growth with job losses. The interdependencies described explain why the »growth stimuli« introduced by politicians and economists under industrial pressure neither increase growth nor stimulate employment. Instead, they exhaust themselves in a ridiculous zigzag course of fiscal and social policy. As a supplement see the article Full Employment.

10. Macroeconomic Versus Business Growth

As already mentioned above, the calculation of GDP proves that the quantitative growth of the national product alone is believed to ensure the well-being of society as a whole. This one-sidedness sets the wrong signals and provides the official justification for the ongoing attempts from the political and private business side to continue volume growth beyond the limits of ecological compatibility. In the public the impression has thus been created that the economic imbalances – especially the lack of employment – could be eliminated in the long term by increasing the volume of the national product.

In Germany, the misconception of volume growth was already anchored in the 1967 Stability and Growth Act (StWG). This law still obliges the Federal Government and the German states (Bundesländer) today to strive for the overall economic equilibrium through measures that are directed evenly at the four target variables stable price level, high employment level, foreign trade equilibrium and continuous (quantitative) growth. The equal weighting of the four objectives underlines the widespread notion that a macroeconomic equilibrium could not be achieved without volume growth. However, the globalization process with its open markets has meanwhile destroyed the foundations for independent national economic policies to such an extent that, with the exception of a stable price level, none of the targets can be influenced by national control anymore. That is, the German StWG was de facto replaced in the 1980s by the neoliberal growth doctrine, so that the focus is ever since on entrepreneurial expansion only. The same applies analogously to the unsuitable attempt at EU level to combat high unemployment and foreign trade imbalances through investments within the framework of a so-called growth pact.

If the German Federal Government and the EU therefore try to combat the lack of employment exclusively with »growth stimuli«, then they ignore the global economic facts which they themselves have created through the opening (»liberalization«) of markets, and the Federal Government also violates the equal weighting of economic policy goals laid down in the StWG, and reveals that it disdains the mandatory ecological requirements which have emerged in the meantime.

Irrespective of the neoliberal aberrations, however, it is generally true that the actions of individual companies in market competition can and must also be motivated by volume growth. The pursuit of financial benefits in turnover and profit is a decisive driving force for entrepreneurial action and an expression of an unconditional will to succeed, especially in the marketing of new products and in new markets. Even in a sustainable, socio-ecologically regulated market economy, the entrepreneurial pursuit of volume growth is an indispensable component of competition and a prerequisite for employment, progress, prosperity and welfare.

In this respect, there is no contradiction in a socio-ecologically regulated market economy between, on the one hand, the entrepreneurial pursuit of higher turnover and profits and, on the other, the economic imperative of ultimately limiting and stopping the burdening and exploitation of social and ecological resources as a prerequisite for sustained qualitative growth.

11. Summary and Outlook

The neoliberal growth doctrine represents an absolutization or perverseness of the natural entrepreneurial striving for higher market share, turnover and profit. It relies on a single, undoubtedly indispensable challenge to entrepreneurial action and transfers it to the macroeconomic level, where it creates a one-dimensional image of human economic activity narrowed down to growing quantities. This leads to misconceptions of the real meaning and significance of efficiency, productivity, progress, prosperity and welfare. Thus, the actual causes of undesirable developments in society are not seen and prevent an effective safeguarding of the future.

It is an iron economic law that national wealth can only be increased by growth if the yields from economic activity are greater than the costs. At present the costs exceed the yields by far, so that we grow into a self-inflicted social and ecological poverty. While we concentrate all forces on the growth of the one-sidedly calculated GDP, our welfare dwindles. In this situation, relying on the forces of a market that is slowly sinking into chaos of mutual squeezing-out without any political control is highly naive and dangerous. We cannot expect that the players focused on the highest return on investment are interested in an efficient use of the factor labor (a high level of employment) and a sustainable use of natural resources, and that they voluntarily renounce their principle of socializing economic costs, of which they claim in a perversely neoliberal logic that their cost relief pays off by making general prosperity possible in the first place.

The urgently needed macroeconomic efficiency and productivity, which depends on optimal income distribution and sustainable resource use, can only be achieved through political regulation.

The national accounts and especially the calculations of GDP and GNI are suitable to overcome the fixation on purely quantitative growth. In addition to the currently recorded production figures or income figures respectively, qualitative indicators in quantified (monetarized) form must also be included in the calculations. Indicators that reflect the state of society and the environment and serve as a database for future-oriented political control. The following indicators are suitable:

  1. Data on political and economic organisation and structure,
  2. on the inventory of knowledge and intellectual property,
  3. on income distribution, family, health, education, working life, co-determination, leisure, culture, social inclusion and personal security,
  4. on the usage of non-renewable resources such as oil, gas and minerals and the burden on renewable resources such as the atmosphere, water and soil, including biodiversity.

The actual value of the national product then results from the sum of the production or income figures plus the sum of the monetarized indicators. This calculation would currently result in a negative national product and, because exploitation is increasing, also negative growth of the national product. However, the truthful calculation is an indispensable prerequisite for making the undesirable development visible as red figures and for introducing the necessary legal and fiscal measures to increase social and ecological efficiency.

These measures are likely to create constraints and incentives for all market participants to include (internalize) the costs incurred in the production, use and disposal of products in the pricing process instead of transferring (externalizing) a part of them to the general public. The effect of legal and fiscal measures on the price mechanism will ensure that all costs are finally internalized. Only in this way can social and ecological yields be achieved instead of social and ecological costs, and the chance be opened up for lasting full employment and a sustainably intact environment.

The economic priorities, and with them the competitive advantages, shift decisively in a socio-ecologically controlled market economy. The priorities are:

  1. The development of decentrally applicable technologies, especially with regard to the use of all direct and indirect forms of solar energy,
  2. the associated subsidiary structuring of the economy with a basis of nationwide, small-scale economic cycles,
  3. the development of energy- and raw material-efficient production processes,
  4. the development of ergonomically designed, safe, reliable and environmentally compatible products,
  5. the development of socially acceptable, profitable services,
  6. foreign trade on the basis of bilaterally agreed exchange rates, which neutralize average price gaps between trading partners and allow competition in foreign trade based on relative rather than absolute price advantages, so that countries with arbitrarily different productivity levels can mutually benefit from each other,
  7. the adjustment of individual import prices to the domestic price level through autonomously defined customs duties,
  8. the balance between imports and domestic production created by autonomously defined trade quotas and the limitation of transport volumes, and
  9. the complementary expansion of trade in intellectual property (intangible goods).

The practical implementation of subsidiary economic structures under the conditions of neoliberal globalization as an entry into a post-neoliberal economic order is dealt with in the article Building Subsidiary Economic Structures.

Click here for the German-language version. Expansion und Wachstum.

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