Berlin Institute for Population and Development supported by Is economic growth over? Why state, citizen and business may be facing a New Normal ++++ diminishing economic growth in industrial nations +++ conventional instruments of economic policy are failing +++ debating secular stagnation +++ environmental dividends feasible +++ productivity gains are declining +++ state, society and business depend strongly on economic growth +++ demographic change as an obstacle to economic growth +++ Japan as a pioneer +++ growing inequality +++ savings glut +++ businesses under pressure to grow +++ critical test for democracies +++ the environmental dangers of stagnation +++ central banks under criticism +++ About the Berlin Institute The Berlin Institute for Population and Development is an independent think tank investigating issues related to regional and global demographic change. The Institute was founded in 2000 as a non-profit foundation. Its mission is to raise awareness about demographic change, promote sustainable development, introduce new ideas into the political debate and develop concepts to solve demographic and development problems. The Berlin Institute carries out studies, pens discussion and background papers and prepares scholarly information for the political decision-making process. For further information or to subscribe to our free regular newsletter “Demos” (in German), you may visit www.berlin-institut.org. Support the independent work of the Berlin Institute The Berlin Institute receives no public funding. Its successful work is made possible by project grants, research commissions, donations and endowments. The Berlin Institute is a registered charity. Donations and endowments are tax-deductible. 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With legal status under civil law, the foundation is legally independent. Funding for scientific projects is made available through revenues deriving from the foundation’s assets. The foundation’s main office is located in the former house of the Carl Benz family in Ladenburg. It also maintains an office in Berlin in Haus Huth at Potsdamer Platz. Berlin Institute for Population and Development supported by Is economic growth over? Why state, citizen and business may be facing a New Normal Imprint Original edition June 2017 © Berlin Institute for Population and Development This work is protected by copyright. All rights reserved. Published by the Berlin Institute for Population and Development Schillerstraße 59 10627 Berlin Tel: (030) 22 32 48 45 Fax: (030) 22 32 48 46 E-Mail: [email protected] www.berlin-institut.org You can find the Berlin Institute on Facebook and on Twitter (@berlin_institut). Authors: Reiner Klingholz, Manuel Slupina Organisation and Research: Julia Legge Consulting: Stephan Sievert Translation: Alper Baysan (www.baysan.eu) Editing: Luke Tudge Design: Jörg Scholz (www.traktorimnetz.de) Printing: Laserline Berlin The authors: Dr. Reiner Klingholz, 1953, Doctorate from the Department of Chemistry at the University of Hamburg. Director of the Berlin Institute for Population and Development Manuel Slupina, 1979, Diploma in Economics from the University of Cologne. Head of Department Urban & Rural Areas at the Berlin Institute for Population and Development The Berlin Institute extends its gratitude to Christine Ax, Matthias von Bismarck-Osten, Martin Faulstich, Maja Göpel, Hartmut Graßl, Mathias Greffrath, Jörg Klein, Reinhard Loske, Meinhard -Miegel, Eckard Minx, Hermann Ott, Rainer Sartoris, Thomas Schmitt, Stefan -Schneider, Klaus Töpfer, Bodo Vogt, Angelika Zahrnt and Klaus Zimmermann for constructive comments on the manuscript and discussions over three workshops while conceptualising the study. The Berlin Institute thanks the Daimler and Benz foundation for the collaboration as well as the funding of the study. CONTENTS WHEN CERTAINTIES FADE ................................................................................................ 4 EXECUTIVE SUMMARY ...................................................................................................... 6 1. EVERYONE WANTS THE SAME THING: GROWTH ........................................................... 8 2. WHY GROWTH IS FADING ........................................................................................... 15 3. HOW POLITICS AND BUSINESS HAVE REACTED SO FAR ............................................. 28 4. THE CONSEQUENCES OF DECLINING GROWTH ........................................................... 40 5. CAN THE END OF GROWTH SOLVE GLOBAL ENVIRONMENTAL PROBLEMS? ............... 54 6. WHERE DO WE GO FROM HERE? ................................................................................. 64 FOOTNOTES AND SOURCES ............................................................................................ 72 WHEN CERTAINTIES FADE Are we witnessing a turning point in history? As growth vanishes, so too does the Are we witnessing a “secular Crises are piling up. Conflicts are once again possibility of enabling broader segments stagnation”? on the increase across the globe. Terrorism of society to partake in their share of is spreading. Climate change is altering our increasing welfare. Belief in the idea that The question is whether economic stagnation planet. Old truths and certainties, alliances future generations will be better off is will be dispelled by new inventions, and coalitions are increasingly being called beginning to waver. This is a fundamentally technologies and the spread of data and into question. new experience for societies suffering from robots – as “Industry 4.0” predicts. Or diminishing economic growth, as growth whether we are in fact witnessing a secular All these developments evoke a diffuse is all they have ever known. Systems have stagnation in the manner US-American feeling of uncertainty among many people, evolved accordingly and are dependent on economist Lawrence Summers has but identifying the underlying causes is often growth in many areas. This dependency is in described: a very long-lasting period of rather difficult. Germany is no exception in fact so strong that the provision of adequate anaemic growth. this regard – a country that is today perceived pensions, proper infrastructures and debt as a haven of stability by international repayment are hardly conceivable without According to all available statistics, standards, with high government revenue, growth. As Chancellor Angela Merkel once diminishing economic growth has become political stability, functioning institutions and put it, in a statement that is as fitting as it a consolidated phenomenon over the past low unemployment rates. is fatalistic: “Growth is not everything that decades. It is enduring and structural in is true. But without growth everything is nature. Put briefly, stagnating economic Fears and worries are taking hold in nothing”.1 growth is the consequence of the success of Germany too. Comprehending underlying people living in highly developed countries: developments may be difficult because because these individuals are enjoying more noticing creeping change is seldom an easy education and are better off, they have fewer task. Research institutes, the International offspring and live longer. As a consequence, Monetary Fund and the World Bank have population growth is coming to a halt. This all made projections emphasising a global process of demographic change is considered economic upswing, yet growth rates in one of the main causes of shrinking economic developed countries have already entered growth. According to this view, stagnation is a lasting downward trend. These countries’ a system-immanent consequence of socio- economies are in fact yielding ever lower economic progress, and will become the relative welfare gains, a pattern that becomes most pressing issue of the 21st century. For discernible if viewed over the course of this developmental trajectory is not only several decades. 4 Is economic growth over? applicable to industrial nations but also to A future without a plan B Both for economists and for ecologists, this emerging countries, from China to Brazil, realisation is a bitter pill to swallow. Most where it will materialise with a significant Highly developed societies have so far not economic analysts would need to break with delay, yet its impact will come at a higher genuinely worked out a “plan B” that would a central dogma, since growth stands at pace and with greater force. All countries address the question of how to ensure the the forefront of many of their theories. And on a course of development will be subject welfare of people