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New Prosperity. Is a paradigm-shift necessary given the limits of economic growth?

by Elisa Reinlein-Mertens Saturday, Jan. 16, 2021 at 5:22 PM
marc1seed@yahoo.com www.academia.edu

Politicians and economists have adhered to the principle of steady growth. One possible explanation may be that "central areas of society, politics and the economy.... are existentially dependent on constant growth"



New Prosperity. Is a paradigm shift of the well-being indicator necessary given the limits of economic growth?

By ELISA REINLEIN-MERTENS

[This 2018 reading sample is translated from the German on the Internet, Neuer Wohlstand. Ist ein Paradigmenwechsel des - GRIN.com.]

Table of Contents

1. introduction

1.1 Relevance of the research question

1.2 Definitions: Prosperity, sustainable growth and happiness

2 Economic prosperity

2.1 Economic prosperity = economic growth

2.2 Indicators of prosperity

2.2.1 Material prosperity

2.2.2 Quality of life

2.2.3 Environment and sustainability

2.3 Costs of economic growth

2.4 Rising costs of environmental damage as an increase in economic output

3 Alternative economic and growth ideas

3.1 Sustainable Development and Alternative Growth

3.2 "Sustainable" development - solution or illusion?

3.3 Relative and absolute decoupling

3.4 Approaches to growth limitation strategies

4 Happiness as prosperity

4.1 Happiness research

4.1.1 Happiness measurement

4.1.2 Findings and consequences for society, economy and politics

4.2 Indicators of life satisfaction: BNG, Happy Planet Index and happiness GDP

4.3 Satisfaction maximization as a task for the state?

5 Conclusion

6 Critical overall assessment and outlook

Summary

Growth as it is pursued today is reaching its limits, as greenhouse gas emissions are polluting the environment and natural resources are finite, and governments have also realized this. However, since prosperity of a society is the main goal of politics and prosperity is equated with economic growth, it turns out to be difficult to address the problem of growth limits. For this reason, the question of this paper is whether a paradigm shift of the prosperity indicator is necessary in view of the limits of growth. To approach this question, prosperity as it is conceived and measured today was elaborated. It was found that important factors, such as social or environmental, are largely left out of the prosperity measurement, which is not further acceptable due to increasing inequality and environmental problems. From this deficit, more and more alternative growth ideas emerge. However, these are largely, as the discussion of them revealed, not yet mature or problematic to be used as an alternative to today's growth. The biggest problem here is the decoupling of growth and resource consumption. Thus, the thesis emerges that instead of changing growth, the concept of prosperity must be redefined - as satisfaction. To this end, findings from happiness research were evaluated and indicators of well-being were presented. Ultimately, this led to the conclusion that it is questionable whether maximizing satisfaction should be the goal of the state and, on the other hand, that redefining prosperity instead of growth would be the best way forward.

1. introduction

After centuries of primary focus on the satisfaction of basic material needs, a new era is dawning: The focus is shifting from the mere acquisition of money to the pursuit of happiness. This change is also reflected in the present work.

Wealth - until recently (and even today in places) this was considered economic growth in the economic sphere and material wealth in the private sphere. For this reason, politics and business focused on the constant increase of economic growth. This has led not only to many nations becoming wealthy, but also to resources becoming scarce and climate change becoming ever more prevalent. To counter these limits to growth, new ideas for growth have been developed. Some seem to be primarily a green painting of growth, while others call for eliminating growth altogether. All of these ideas are a theoretical start, but by no means promising in practical terms. Alongside those who want to change growth are those who place happiness or contentment at the center of political and individual debates. Here, a contrast seems to want to combine: Economics, with its rational view of human beings, meets subjective factors such as happiness. They are linked by politics. Is it perhaps possible to confront the limits of growth by redefining prosperity? No longer as growth, but as satisfaction in a society?

1.1 Relevance of the Question

To clarify the relevance of the question of whether a new indicator of prosperity is needed, it is useful to consider the limits to growth. Growth and prosperity have been the primary goals of politics for decades. The constant pursuit of increasing growth has had its relevance in Western industrialized nations and continues to have it in emerging economies. It has led to prosperity and life satisfaction among the population. However, the increase in economic growth no longer promotes an increase in life satisfaction and has, above all, led to resources becoming scarce and CO2 emissions exceeding environmentally acceptable limits. The limits of growth have been reached - according to today's consensus. Moreover, gross domestic product (GDP), as an indicator of a society's prosperity, is generally considered inadequate because it does not measure ecological factors or the well-being of citizens. For this reason, countries such as France and Germany commissioned studies to find a more appropriate indicator than GDP. This reorientation suggests a shift in values: well-being instead of growth. After decades of striving to increase growth, this sounds almost revolutionary. That a paradigm shift is necessary is beyond question. What remains open is what will be changed: Growth or the definition of prosperity. Alternative ideas for growth have been emerging for some years, both nationally and globally, but they have been criticized in terms of their feasibility. Although government leaders and political parties continue to call for more growth, they initiated commissions to look for an alternative indicator of prosperity. In France, it was Nicolas Sarkozy in 2008 who set up a commission to research more comprehensive methods of measuring prosperity besides the limits of GDP (see Kläsgen 2009). In 2010, the German government set up the Enquete Commission on "Growth, Prosperity, Quality of Life." Here, too, the goal was to develop a holistic indicator of prosperity. The results of the two studies showed, among other things, that the factors of quality of life and sustainability, in addition to material prosperity, must be included in order to be able to depict societal prosperity holistically.

1.2 Definitions: Prosperity, sustainable growth and happiness

Prosperity is generally defined as "the degree to which goods and services are provided to individuals, private households, or society as a whole. This material well-being ... is usually measured for an economy by a social product measure (e.g., gross domestic product or per capita income)" (bpb 2016). The measurement of a country's prosperity is done by looking at prosperity indicators, which will be explained later. A sustainable system is one that is "maintained in its essential characteristics, i.e. is self-regenerating" (BT-Drucksache 17/13300 2013: 50). Sustainable growth, or sustainable development as it will be called in the following course, refers to development that meets the needs of people living at present and at the same time does not endanger or restrict the livelihoods of future generations (cf. Lexikon der Nachhaltigkeit 2015a). This new guiding principle was first clearly verbalized in the Brundtland Report in 1987: "Sustainable development is development that ensures that future generations are no worse off in meeting their needs than those living at present" (Pufé 2014). This definition emerged in the context of expanding globalization and its increasingly negative consequences for people and the environment. Thus, the (verbal) foundation was laid here for a "more equitable distribution of growth and wealth between North and South" (ibid.). This gave rise to a definition of sustainability in the economic sphere that is still widespread today and primarily calls for profits to be "generated in an environmentally and socially compatible manner" (ibid.) instead of "merely" investing them in social or environmentally compatible projects.

While prosperity is clear and sustainable development is largely definable, happiness is much more vague. In the Duden dictionary alone, three descriptions can be found that ultimately have in common that "happiness" is a momentary state and, among other things, a "pleasant and joyful state of mind in which one finds oneself when one comes into possession or enjoyment of something that one has desired" (Dudenredaktion o.J.). This definition can inevitably be associated with "consumption" - a topic that will come up again and again in the following work when it comes to a new concept of prosperity.

Even though the research on happiness that will emerge later on focuses on the concept of "happiness," "satisfaction" will still be the focus and clearly distinguished from the concept of happiness. Satisfaction "occurs when an expected or desired goal is achieved" (Spectrum 2000). This implies, on the one hand, that this state can only be achieved through personal effort and, on the other hand, that this status does not contain a time limit. If we talk about satisfaction, then we talk, as it were, about expectations and the discrepancy between these and what is actually achieved. Having fully achieved a small goal may make one more satisfied than seeing a large goal only partially realized.

2 Prosperity in the Economy

In this chapter, prosperity as it is currently understood will be presented. That is, the focus is on the economic concept of prosperity, which is often equated with economic growth. The theoretical aspects of prosperity and growth will be presented, as well as the historical development of both phenomena, in order to highlight the importance of prosperity and growth. In the following, economic prosperity will be put in relation to growth, in order to look at two further indicators, quality of life as well as environment or sustainability, in addition to material prosperity. This ultimately leads to critical aspects of economic growth. This last point of the chapter forms a transition to alternative growth ideas.

2.1 Economic prosperity = economic growth

Economic growth is considered an indicator of prosperity in a population and is measured by GDP. This assumption can be broken down to the following equation: More growth in an economy leads to increasing investment and production as well as to a higher number of jobs, and consequently the prosperity of a society increases.

Economic growth must, of course, be viewed more comprehensively. First, "growth refers to the increase of an economic quantity over time" (bpb n.d.).[1] Continuous economic growth characterizes advanced economies, such as Germany (see Fig. 1). Economic growth is measured by real GDP [2], where the GDP value divided by the population size yields GDP per inhabitant, which serves as a measure of prosperity (Metz 2016).

GDP per inhabitant shows that an "increase leads to a better material supply of goods for the population" (bpb n.d.), while an explanation about the labor productivity of the employed is given by relating GDP to the number of them (cf. ibid.). Long-term economic growth is of particular interest, as it is distinguished from "short-term, cyclical changes in the national product" (ibid.). For this purpose, potential output [3] is considered instead of the national product.

A distinction must also be made between quantitative and qualitative growth with regard to the present work. While the former "aims at the purely quantitative increase of the overall economic production in the sense of the increase of a social product size (e.g. GDP) [d.Verf.]" (ibid.), qualitative growth comprises goals that go beyond that. In addition to increasing the quality of life, this also includes reducing the burden on the environment (cf. ibid.). While quantitative growth is the subject of the first part of the paper, the second part will focus on qualitative growth.

The history of GDP will now be briefly explained, as the origins and development of this measurement tool can provide information on why GDP is still considered the most important instrument for measuring prosperity today.

The British economist William Petty began collecting data on income and resource distribution in the Age of Enlightenment, as he believed that humanity's situation could be improved by measuring and evaluating its circumstances (see Schnaas 2013: 3). However, he did not use this method for the benefit of humanity, but rather the data were used for political purposes to gain advantages for a few powerful people. In the 19th century, a phase followed in which social issues, through economists such as Cecil Pigou or Alfred Marshall, became the focus. They were primarily interested in examining consumption and income in this context. It was not until the crisis years of the 20th century, between 1930 and 1950, that GDP became the recognized measure of wealth (see ibid.). However, even in these early years of GDP, voices were raised criticizing the limited suitability of this wealth indicator to measure the prosperity of a society. However, these objections were not heeded. Since the measurement of GDP, it has risen constantly, not only in Germany, up to the present day, with the exception of a few cyclical ups and downs (see Fig. 1).

While GDP was still at a value of 49.69 billion euros in 1950, it had risen to 3.26 trillion euros by 2017 (see Statista 2018). The focus on the steady increase of GDP began in the years of the Second World War. The main question in those years was: "How high is the war potential of the economy?". How high can the armaments sector be driven without risking shortages in other sectors of the economy?" (Schnaas 2013: 4). States discovered that while a war economy has a negative impact on consumption, it is beneficial for employment, investment, and productivity (cf. ibid.). Since then, "the focus of political interest has been on increasing the quantity of goods (GDP) rather than on increasing taxable income" (ibid.). This remained unchanged after 1945, when a "peacetime economy" was implemented. The American economist Simon Smith Kuznets raises the objection that in peacetime "the production of goods [is] for man and not vice versa" (ibid.). For this reason, he argues, the "good life" must serve as the characteristic for measuring prosperity in these times (cf. ibid.). But unheard of the objection, production (GDP), as a means to achieve the purpose of economic activity, remains in focus (Schnaas 2013: 4). Increasing productivity has increased prosperity after World War II. Since then, politicians and economists have adhered to the principle of steady growth. One possible explanation may be that "central areas of society, politics and the economy ... as they are shaped today are existentially dependent on constant growth" (Seidl/Zahrnt 2010: 23).

If one defines prosperity in purely economic terms, i.e., as the endowment of a society with products and services, the equation "economic prosperity equals economic growth" is accurate. That this established assumption, literally, reaches its limits will become clear later on. [...]

[1] This growth increase can refer to companies, private households or equity (bpb o.J.).

[2] This means that GDP has been adjusted for price changes.

[3] This means "that domestic product [which] could be generated if the existing stock of physical capital and labor were fully utilized in the production process" (bpb o.J.).

University of Witten/Herdecke

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