Growth is considered the foremost driver of prosperity. The growth rate of Gross Domestic Product (GDP) gives an immediate measure of how well a national economy is functioning. Such economic growth drives business expansion and job creation. The relatively low US growth rates in recent years have coincided with low labor force participation rates, a much more realistic picture of the overall supply of labor than unemployment figures. It is easy to draw a superficial conclusion that the dearth of jobs is due to low growth. But low or zero growth is actually inevitable, as Ruchir Sharma reluctantly acknowledged even while focusing concern on stagnation, particularly from a demographic point of view.

Zero growth is not something we need to be rescued from; it is something we need to learn how to live with. Demographics are indeed the ultimate driver of economic growth. Global projections foresee population growth leveling off at about nine billion by mid-century. Growth will inexorably fade.

Two centuries ago, Robert Malthus projected a collapse of civilization as population growth outpaced food supply. Ever since there have been regular warnings of imminent collapse due to some aspect of unrestricted growth. Now concerns about global starvation have receded, but population pressure also stresses living space and jobs as well as food. So, for example, in Burundi, people are killing one another over the right to farm mere acres of earth; there’s just not enough land to go around. And such pressures are not limited to overseas. Even in America laws designed to protect Native Americans are resulting in similar fragmentation of farmlands, just one example of domestic population pressures.

Population growth is already fading for most of the industrialized world. The United States appears to hold a significant advantage, with some projections showing population continuing to grow to 400 million people, driven largely by continuing immigration. But such population growth does not significantly improve the economic standing of the existing population, since immigrants themselves absorb much of the resulting economic increase, so per capita increases are much smaller. A population increase to 400 million Americans would mean a much more densely settled country, with attendant requirements for new schools, shopping areas, workplaces, and roads. Physically, there is little doubt that the United States could accommodate such an increase, but the per capita benefits would be relatively modest and this would put more and more stress on the environment.

Projections of a gradual leveling of global population growth are based largely on trends. They do not take into consideration the potential future impact of global warming, despite a steady stream of disturbing projections, particularly on sea-level rise and new drought patterns. Sea-level rise alone could be devastating for coastal areas. Indeed, several Pacific island nations are already disappearing. Nations with significant coastal population concentrations may face major resettlement requirements. Some nations, such as Bangladesh and Vietnam, simply do not have inland areas capable of absorbing a significant number of climate refugees. For the United States, major coastal concentrations from Waikiki in Honolulu to Coney Island in New York face looming challenges, not to mention locations like Phoenix where a couple million people have concentrated in a region that already has an inadequate water supply. To the extent that the effects of global warming remain at the low end of projections and take place over an extended period, say, a century, the consequences may be manageable. But there is also an obvious potential for global chaos in the decades ahead, exacerbated by the ever present potential for catastrophic pandemics. Downward pressures on population growth may increase dramatically as they have, for example, in Brazil. A demographic decrease will become a positive development.

Steady Population Reduces Demand

With an aging population living longer, the need for more working-age adults would seem to be self-evident. But thanks to modern production, the total needs of the population can actually be satisfied by a relatively modest percent of the population. As late as 1900, over 40% of the US work force was engaged in agriculture. Today, less than 2% of the work force feeds the country, as well as providing foodstuffs for export and raw materials for biofuels, particularly ethanol. Similarly, construction has been an important element of economic growth.

But as the population levels off, requirements for new homes, new roads, and new facilities significantly lessen. Many requirements shift from new construction to upgrading existing facilities or adding new amenities, meeting new “needs.” In the 1950s, for example, the average new home was only 983 square feet; by the 2000s it was up to 2,300 square feet, despite declining household sizes. This reflects higher standards for the number of bathrooms and room sizes, as well as the “necessity” of a family room and office or den. Household appliances and automobiles have considerably longer lives than past models, when a car with 100,000 miles typically seemed to be on the point of disintegration. Energy remains a critical requirement, but production is not so labor intensive.

Overall, major increases in productivity in recent decades mean that core requirements (food, shelter, clothing) can be met with a relatively modest working force. As productivity increases, labor requirements fall. If demand does not increase, better productivity simply means fewer jobs. Indeed, many sections of US industry now employ significantly fewer workers than in years past. This has become a critical feature of the US economy. Although there is a specter of an inadequate number of workers to support an aging population, the reality is just the opposite: there is an excess of workers in the raw materials and manufacturing sectors that make actual products. Some 70% of the US workforce is now in the service sector, ultimately dependent on the productive sectors.

The service sector can absorb workers no longer needed in the productive sector. Indeed, it has been doing so for some time. But the service sector ultimately depends on demand from the companies and workers in the productive sector. Shifting workers from the productive sector to the service sector means fewer workers in the productive sector to buy the services from increasing numbers of workers in the service sector. So, as jobs in the productive sector diminish, the nation has more workers than it needs and the situation is worsening.

True, there are inadequate workers in some occupations, such as agricultural harvesting and landscaping. Poorly paid seasonal migrants cover many of these jobs, while illegal aliens in others are grossly exploited. And such low-paid workers simply cannot support jobs in the service sector. Although economic growth in the productive sector could indeed absorb some of these excess workers, the problem is exacerbated by the fact that many of the workers without jobs lack the specialized skills needed in a modern economy. And by and large, the nation does not need more production, for global demand is also weak, with vast numbers of excess workers. Partly as a result of automation and partly because of foreign competition, the American dream has faded. New jobs for the unskilled have all but vanished. Those that remain are often dead-end jobs that Americans are reluctant to take because the pay is so poor. These shortages represent not a lack of workers but a lack of wages.

Dealing with Excess Workers

The real domestic challenge is what to do with excess workers. Shorter work weeks and longer vacations could require companies to hire more workers to maintain output. Higher wage rates could also support more secondary jobs in the service sector. Theaters, restaurants, vacation trips and social services could all expand. But changes on a scale that would make a real difference would require some basic realignments in the economy. On a less immediate scale, some analysts see technology eventually driving such large increases in productivity that workers essentially become redundant, that machine intelligence produces enough economic surplus to liberate much of humanity from labor. Thanks to the economic contributions of their predecessors, typical citizens could simply receive a universal basic income.

Although such a favorable state of affairs is hardly at hand now, it does focus attention on how to distribute assets as the need for workers drops. The steady decrease in labor force requirements – jobs – is not due to lack of growth, but rather to significant increases in productivity. Even skilled workers are losing employment and finding their economic status declining as the shift to a service economy is proving to be an inadequate source of employment.

Growth is often seen as an essential element of successful business, but there are other models. For many years “blue chip” utility stocks paid regular dividends and were considered a solid foundation for the overall economy. For many of these companies, growth was modest or even nonexistent. Zero growth did not mean stagnation, as new technologies were developed and implemented. This is clearly evident today as utilities are involved in dramatic shifts, with coal plants being replaced by natural gas or renewables. In actuality, growth is not an essential element of a successful advanced economy. As with utilities, other sectors can show significant innovations and improvements without actually growing. In a zero-growth economy, there will be continuing turnover of individual firms as some grow and prosper and others decline. Continuing innovation will drive novel technologies. New businesses will arise and others fade. Continuing upgrades of existing capital stock can indeed result in continuing low-level growth of national economic assets, though not of GDP.

Economic growth also helps to spur growth in asset valuations, and this is a major vehicle to move wealth from workers to privileged classes – those with significant financial assets. If someone buys a house for $100,000 and several years later sells it for $200,000, then there is a $100,000 capital gain that essentially represents no value increase at all. If the cost of everything doubled, then this capital gain would essentially be irrelevant. But if inflation is modest, then this is a windfall for the owner, a windfall not available to those without the financial assets to buy a house. If there are a million such transactions, then there are a million relatively well-off people who are now even better off than they were, and some million(s) of others who are relatively poorer. Indeed the search for such unearned appreciation drove much of the housing bubble, with banks, mortgage brokers, and insurance companies profiting handsomely, protected from the eventual losses that resulted in many thousands of foreclosures affecting citizens with limited financial resources.

The same motivations drive much of the activity in the stock market, with the same wealth transfer effect but on a larger scale. Although capital gains from real increases in company value provide some real increases in worth, most gains from appreciation, like real estate increases, simply do not represent any real increase in value. By one estimate, the recent seven-year bull market made investors $16 trillion richer.

Much money put into the stock market is not put in to promote business expansion, but is put in for speculation. People “make” money by “playing” the stock market. Typically, if someone wins, someone else loses. The real losers are the people who cannot “play” efficiently, or who do not even have the assets to “play” at all. The net result is the same as with real estate, except on a much larger scale. Wealth again transfers from everyday workers, people without significant financial assets, to the privileged groups that do have the assets. So while dividend paybacks from the stock market largely reflect actual working profits, capital gains typically allow “investors” to “make” money, often lots of it, without making any real contribution to the economy. The ultimate in this trend is the rise of ultrafast trading where differences in milliseconds can result in large profits but provide zero economic benefits. Such asset “growth” goes not to increase prosperity but to increase the wealth of the privileged classes.

The ultimate driving force behind the focus on economic growth is the associated asset appreciation that facilitates wealth accumulation. The core economic challenge of the Twenty-first Century is not economic growth, but sustainability – creating an economy that provides a comfortable life for all its workers, supporting not an equal distribution of wealth but an equitable one based on each person’s real contribution to society. As Zachary Karabell concluded in a study on Japan, reaching the limits of growth does not equate to reaching the limits of prosperity. The key question is not how to maintain growth as the population stabilizes, but how to maintain prosperity with a stable (or decreasing) population.