A narrow focus on the gross domestic product as a measure of well-being is misleading, but economic growth is still important to achieve prosperity and sustainability

In the past, too much emphasis has sometimes been placed on gross domestic product (GDP) as a measure of well-being. Other indicators – such as health, education, CO2 emissions or the sustainable use of natural resources are equally important and should complement GDP. However, a complete departure from GDP or an end to economic growth would not be good ideas. Economic growth is an important determinant of prosperity and sustainability.

Gross domestic product (GDP) provides a good and useful measure of the goods and services sold in a country. It is therefore a rough indicator of material well-being and is useful for economic policy. However, GDP also has disadvantages: Unpaid housework and care work, for example, are not recorded, nor is all voluntary work. Negative effects, for example on the environment, are not really taken into account. It is therefore important to consider additional indicators, which take in particular social and environmental sustainability into account (for instance, the OECD Better Life Index). However, some want to go further and establish a so-called post-growth society. But what does economic growth actually mean?

Economic growth occurs when goods or services are offered by one person or company and purchased by others. The sellers have usually created value added for which they are rewarded. For example, a carpenter who makes a table out of wood. Or a hairdresser who has completed an apprenticeship and then offers his or her skills of haircutting. This is also true for more complex goods such as a mobile phone or complicated medical treatments. What is important is that economic growth does not only occur when more goods and services are traded on the market. A significant part of the economic growth we have experienced in recent decades is due to improvements in the quality of goods and services. Cars have become safer, more comfortable and use less energy. Quality – for example in the health sector – has improved through new treatment methods, which may not always be adequately reflected in GDP due to measurement problems. The actual economic growth is therefore perhaps somewhat underestimated by the official data. Thus, economic growth is not just about consuming more and more, but about consuming better. Especially in today’s society, which is strongly characterized by services, resource consumption and environmental pollution should become less important. Intangible characteristics – such as good training, commitment, empathy or creativity – are often central to the quality of a service. This can stimulate economic growth without, for example, leading to higher environmental pollution. So growth and sustainability do not have to be opposites.

Of course, the aim should not be to maximize economic growth. But as long as we live in a free society, economic activity cannot be steered in such a way that no growth is generated. Calls for a zero growth society are difficult to implement simply because people’s freedom would have to be severely restricted to achieve that goal. Every year on New Year’s Day, GDP starts again from zero. It would be surprising if at the end of the year the same figure came out every year. And if the GDP cannot be controlled so precisely anyway, it is better if it increases somewhat rather than decreases compared to the previous year. Growth often happens almost automatically as a result of technological change, which often – although not always – leads to better goods and services. Thus, for a zero-growth society, public and private research activity would probably have to be reduced and universities would have to become significantly smaller.

It is clear that material prosperity, for which GDP is a reasonably good indicator, does not in itself make people happy. Nor does it automatically lead to a socially and environmentally sustainable society. This requires political and social accompanying measures. For example, there must be a price if a person or a company emits CO2 through their behavior. In the long term, however, economic growth is an important – perhaps even a necessary – prerequisite for economic prosperity and a socially and ecologically sustainable society.

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