Growth imperative
Growth imperative is a term in economic theory regarding a possible necessity of economic growth. On the micro level, it describes mechanisms that force firms or consumers to increase revenues or consumption to not endanger their income. On the macro level, a political growth imperative exists if economic growth is necessary to avoid economic and social instability or to retain democratic legitimacy, so that other political goals such as climate change mitigation or a reduction of inequality are subordinated to growth policies.
Current neoclassical, Keynesian and endogenous growth theories do not consider a growth imperative or explicitly deny it, such as Robert Solow. In neoclassical economics, adherence to economic growth would be a question of maximizing utility, an intertemporal decision between current and future consumption. Other sociological and political theories consider several possible causes for pursuing economic growth, for example maximizing profit, social comparison, culture, or political ideologies, but they do not regard them to be compulsive. Possible growth imperatives are discussed in Marxist theory, Schumpeterian theory of creative destruction and ecological economics, as well as in political debates on post-growth and degrowth. It is disputed whether growth imperative is a meaningful concept altogether, who would be affected by it, and which mechanism would be responsible.
Meaning and definitions
At the macroeconomic or political level, the concept of growth imperatives is used by some authors when there seems to be no acceptable political alternative to economic growth, because insufficient growth would lead to economic and social instability up to "severe economic crises". The alternative to growth would not be a stable stationary economy, but uncontrolled shrinkage. The consequences of a renunciation of growth would be unacceptable; growth appears to be without a politically acceptable alternative. While some search for purely "structural theoretical explanations for the commitment to growth", others argue that this macroeconomic phenomenon must be examined at the micro level in line with methodological individualism to explain how and why individual actors act and how this interacts with collective structures, and correspondingly study the growth of enterprises with microeconomics and business administration and the increase of consumption using consumption sociology or consumer choice theory.The discussion on growth imperatives is part of a standing debate over the primacy of structure or agency in shaping human behavior. In the social sciences the term social coercion is used when situation-related circumstances or strong social pressure determine the behaviour. According to Marxist theory, a coercion for firms to "grow or die" is due to economic competition. According to these Marxists, capitalism "cannot stand still, but must always be either expanding or contracting". Similarly, the environmental economist speaks of a growth imperative for firms only when they are existentially threatened by steadily declining profits and ultimately bankruptcy; in other cases he uses the weaker term growth driver. These definitions can be summarized that a growth imperative exists if exterior conditions make it necessary for agents to increase their economic efforts as to avoid existential consequences.
Microeconomic theories
Firms
The first theory of a growth imperative is attributed to Karl Marx. In capitalism, zero growth is not possible, because of the mechanisms of competition and accumulation.Therefore, a company's growth is considered necessary to ensure the survival of the company : "investment is not an option, or a discretionary decision, it is an imperative that constrains every capitalists' actions and governs the overall economy" Correspondingly, some authors argue that the compulsion to grow can only be defused by overcoming structures of market economies, or by pushing back profit-oriented companies that expropriate the surplus value. Other authors criticize this Marxist perspective: a company could be profitable without growth if a positive accounting profit is distributed as dividend to the owners. Only if net income had to be retained, companies would be compelled to grow. If a company shows an accounting profit, it has not yet achieved an economic profit in the economic sense, because a return on equity and an entrepreneurial salary would have to be paid from it - the profit would not necessarily be available for growth. Therefore, a market economy with profit-oriented companies is compatible with zero growth, as it is in the models of neoclassical theory.
On the basis of concepts of evolutionary economics, other authors point out that firms can become dependent on growth as a result of certain economic conditions. Joseph Schumpeter had described the creative destruction in which the existence of firms is endangered if they cannot keep up with the innovation competition. This is interpreted as a need to invest in new technologies and to expand production - but which investments would be necessary can only be understood in the light of growth theory. Within neoclassical growth accounting it is largely undisputed that only technological change and new combinations of factors of production make sustainable growth of firms and per capita income possible. However, the contribution of single production factors to economic growth has been disputed for decades: While endogenous growth theory concentrates on the role of human capital, proponents of ecological or environmental economics emphasize the importance of energy consumption as well as raw materials, which are often non-renewable resources. While from the human capital perspective no ecologically damaging growth imperative arises, the resource perspective emphasizes that raw material consumption is lucrative for firms because it allows them to substitute expensive labour with cheaper machines. Accordingly, they would constantly invest in new resource-intensive technologies plus the human capital needed for development, which increases resource consumption and compensates advances in energy efficiency.
There is also disagreement as to whether these dependencies can be overcome at the company level - provided that this is desired by the owners or the management. Proposals include new management practices, changes in product range, supply chains and distribution channels, as well as the creation of solidarity enterprises, collective enterprises and cooperatives. Other authors call for institutional solutions: reforms of corporate law to overcome the legal constraint of public limited companies to maximise profits, reforms of competition law to prevent externalisation at the expense of common goods, or an institutional limitation of resource consumption and/or increasing their costs through ecotaxes or emissions trading, so that technical innovations would put a stronger focus on resource productivity instead of labour productivity.
Private households
An imperative for private households to increase their income and consumption expenditure is rarely discussed. In neoclassical household theory, households try to maximize their utility, whereby, in contrast to the profit maximization of firms, they are not subject to market imperatives. Therefore, a growth imperative is usually not assumed here, but rather a free decision between current and future consumption. This "intertemporal optimization" is represented, for example, by the Keynes-Ramsey rule. In consumption sociology various theories of consumer society examine the influence of social norms on consumption decisions. Examples are conspicuous consumption, which was addressed as early as 1899 by Thorstein Veblen in his book The Theory of the Leisure Class, or competition with positional goods, which was described by Fred Hirsch in 1976 in the book Social Limits to Growth. Some authors claim that comparison with others and the unfair distribution of income and power would lead to a growth imperative for consumers: Consumers would have to work and consume more and more in order to achieve a minimum level of social participation, because the economically weak are stigmatised. The reasons given for this behaviour are fear and powerlessness, guilt and shame. However, whether these theories can actually justify a compulsion to increase consumption is disputed, as long as it is not a matter of securing one's livelihood.Another line of argument views certain consumption decisions rather as investments for future growth, but sometimes to increase one's own productivity. Technical products such as vehicles, kitchen appliances or smartphones were used to save time and retain opportunities to earn an income. Over time, these goods would become a necessity, therefore a compulsion to increase one's consumption expenditure could be derived in order to not be left behind technically and economically.
Macroeconomic theories
Political resp. macroeconomic growth imperative
Economic growth has been formulated as an important economic policy goal for decades. Examples include the "growth duty" in British legislation, but also the Canadian Jobs and Growth Act, the African Growth and Opportunity Act or the European Stability and Growth Pact of 1997. This has been criticised as politically adhering to a dogma or ideology by some critics of growth.The theory of a political growth imperative, on the other hand, argues that economic growth would be necessary to avoid economic or social instability and to retain democratic legitimacy, or to guarantee national security and international competition. Some authors stress that public finances or social insurance systems such as unemployment insurance or pensions are dependent on growth. Raghuram Rajan sees the cause primarily in political promises that are inherent to social systems. Unemployment, which would occur in the event of technical progress and simultaneous lack of economic growth, is identified as a central problem. Thus, growth above the employment threshold is repeatedly called for in political debates, in order to reduce unemployment. Growth enhancing state investment, but also numerous incentives for private investment would not be simply politician's free will but indispensable to prevent social instability through mass unemployment. This situation would be aggravated by international competition and free trade.
As a way out, a redirection of technological development with the help of resource taxes is discussed, but also a general reduction of working time to reduce unemployment. At the same time, a more equal distribution of income is demanded, either by fighting the privatisation of economic rents such as land rent or resource rent, or by calling for an unconditional basic income.