An economy based on zero growth could be more stable and bring higher wages, suggests a recent study.
Running counter to dominant economic thinking, the University of Sussex research showed that economies can be stable with or without growth and are in fact likely to be less volatile if we stop chasing ever-increasing GDP.
The idea of a no-growth economy is not new - British economist John Maynard Keynes in 1936 predicted an end to growth - but it has gained traction in the past few years as people have increasingly come to view infinite growth as environmentally unsustainable.
Dr Adam Barrett, a mathematician at the School of Engineering and Informatics at the University of Sussex, said: "Our economic system relies on growth but, because we live on a finite planet, most people agree there is a limit to how long this can continue."
"Slowing down economic activity therefore makes a lot of sense in theory but the charge has always been that this leaves you vulnerable to financial crises," he said, adding, "My research suggests that not only is this not necessarily true but that, if anything, zero-growth scenarios are more likely to remain stable. An end to growth did not trigger instability in my tests."
Instead, financial crises have much more to do with erratic debt behaviour than whether or not the economy is growing, Barrett noted that the more rapidly businesses try to change their level of debt in response to changing conditions, the more likely there is to be an economic crisis.
The study found that, in contrast to the alarming conclusions of French economist Thomas Piketty, an end to growth would not cause rising inequality: the share of profit going to workers would actually increase. However, the study does concede that this would be accompanied by more frequent substantial drops in levels of employment.
Interestingly, all the scenarios modelled by Barrett included a positive interest rate for loans, a key feature of a capitalist economy. This could be seen as a sign that a move to a stable no-growth economy could be achieved without dismantling our entire banking system. Indeed, the research modelled gradual and sudden transitions to a post-growth economy and found that neither would trigger a crisis; although, again, there would be some fluctuations in the level of employment in the absence of an active government.
The research is published in the journal Ecological Economics.
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