China Confronts the Limits to Growth

Economic growth is slowly but surely coming to an end, not for a few quarters or years, but to an end. It will still take some time given the mighty momentum behind it, as well as the power of our denial, but the signs are clear that both processes have begun.

Let me be clear that I’m not talking here about the long philosophical debate on the relative merits of growth – that rich countries getting richer does not improve their quality of life. What we face now is not a political choice – it’s too late for that. We have put in place the processes that will force the end of growth and nothing can now be done to change course.

China is perhaps the best example, exaggerating all that is good and bad about the growth model. We have seen spectacular rates of growth in recent decades and with it, many hundreds of millions of people being brought out of poverty. These people are now enjoying the fruits that global growth has delivered to many of us over the last century in technology, health and easy access to food. On the other hand China has paid an enormous price for this growth, in air pollution, degraded soil quality, spoiled waterways and longer term risks to food supply. It is now even taking from the USA the ignominious title of being the world’s largest current contributor to climate change (though we mustn’t forget China’s per capita emissions are still dwarfed by the pollution rate in the OECD countries).

So China sums up the paradox of the global economy, and provides an accelerated and exaggerated example of the problem. On the surface the growth model seems appealing, indeed powerful and invigorating.  Everyone who has witnessed the growth machine at work in China in recent decades comes away in awe and wonder at the pace and scale of its achievements.

China has now, however, become the best example that demonstrates that the Great Disruption is underway – the state we have now entered, as I argued in my last column. In the same way China provides an exaggerated case of the good aspects of growth, they are now hitting the limits we are hitting globally, but doing so faster and harder, making it more noticeable and harder to deny. So unlike our political leaders, the Chinese leadership is slowly but surely facing reality. They observe their high growth rates, they observe the degradation in both their environment and limits to resource availability and they draw the obvious connection. Prime Minister Wen recently told parliament that “growing resource and environmental constraints are hindering growth.”

The Minister for the Environment gave deeper insights into their views when he recently said “In China’s thousands of years of civilization, the conflict between humankind and nature has never been as serious as it is today…. The depletion, deterioration and exhaustion of resources and the worsening ecological environment have become bottlenecks and grave impediments to economic and social development.”

You got it Mr Zhou – grave impediments to growth. They haven’t yet come to the conclusion that these are in fact “impenetrable limits to growth”. But they will.

Their response gives us good insights into what we are all going to face and also to the considerable benefits our response will bring when it comes. As we hit the limits to growth we will desperately and aggressively pursue clean technology and other measures to reduce the impacts we are having on the global ecosystem and to respond to our limited resource supply. We will think this will be enough to keep growth going.

China is again a good example of what we can expect. They are doing all they can to slow down the cause of the problem with aggressive targets and action, and the economic benefits they will gain in doing so will be considerable. In renewable energy, electric cars, high speed trains and many other areas China is investing heavily and looking more and more like it’s going to lead the world in this, the next industrial revolution. They are even deliberately slowing down the rate of their economic growth, recognizing this is the primary cause of their problem, to give themselves more time to adapt.

As well as benefiting their economic competitiveness, their approach will bring considerable benefits to all of us, with new energy technologies being taken to scale and prices falling as a result. We can expect some sensational developments in this area with tomorrow’s Googles and Microsofts all positioning right now across China to be the global winners in this epic opportunity.

But in the end China will, like us, have to face the reality that economic growth has its limits. We can argue about what they are and when they will hit, but the idea of an infinite growth on a finite planet is quite delusional. Just do the math yourself and ask how big do you think the economy can get? Tim Jackson, author or Prosperity without Growth did this and concluded:

“The global economy is almost five times the size it was half a century ago. If it continues to grow at the same rate the economy will be 80 times that size by the year 2100.”

The Global Footprint Network calculates that we need around 150% of the available land on planet earth to support our current economy, which means we’re burning up our capital every day to maintain the current state, let alone support any further growth. So you have to ask yourself, even allowing for sensational improvements in efficiency and technology, how big can the economy get before the physical limits are hit? Twice as big as the planet? Three times?

Despite the clear, rational logic, denial will be strong. People will argue oil price spikes are being caused by political unrest, not the underlying reality of peak oil. That food shortages are caused by market inefficiencies, not the underlying reality of climate change and the broken model of oil dependent, non renewable industrial agriculture. The worse the crisis gets, the more fanciful the excuses will become. That is the nature of denial. Given this is a serious addiction we have developed this denial will be strong.

But in the end, this is not philosophy – it’s physics and chemistry. Remember this:  the core proposition our economic model is based on is a simple but impossible concept – infinite growth on a finite planet. So that means the end will come. The sooner we start getting ready, the better off we’ll be when it arrives.