Balancing an ever-increasing economic growth

Yesterday I woke up with the question "how do we balance ever-increasing growth?" in my head. I thought this was interesting, especially since it was expressed verbally in English and English isn't my native language. Not too strange though, since these are thoughts that have been flying around in my head for quite some time. I'll figure I'll take the idea and run with it, see where it leads.

Let me first say that economics isn't a subject I've got anything other than cursory knowledge about, so this will obviously be very speculative. But going with the theme of this blog, I hope to provide some kind of alternate perspective on the issue.

The way I see it, our current economic system is to a great extent built on expected future returns coupled with the abstract concept of capital. The eternal economic growth which is so often closely tied to the notion of prosperity comes out of an increase of capital generated by these expected future returns. The idea is that capital (in the form resources) constantly increases. You invest capital with the expectation of receiving future returns exceeding what you originally put in. Since prosperity is thought to come out of capital, ever increasing capital leads to ever increasing prosperity.

I think this is untenable in the long run, and it is a path which can only lead to disaster. This is because what you really have is on the one hand value (in the form of resources) and on the other hand debt (in the form of the expected future returns to the investors). I will try to make this a bit clearer.

If I have a business idea, I need someone to put in capital for it to generate a profit. The way I go about doing this is to convince you that my business is a viable one, that if you put in capital in the form of $100 I can turn that $100 into $120, thus making a $20 profit. This profit is shared between us and so we both gain something. As this goes on, our shared capital keeps on increasing and everyone wins.

The problem here is that the original $100 represents something. Ideally, it would translate to resources - either natural or human. But what's happened is that the concept has become more and more abstract, and drifted further away from the original source (according to Buckminster Fuller, for instance, the original source was cattle). Turning capital into something abstract, has made it something we can trade in and further increase. The infinite economic growth presupposes that this capital can increase infinitum, but that would require that the resources that capital represents are infinite as well. Today we know that they are not. We are bound by the limits of our ecological reality.

Since what we deal with are expected future returns, we can keep inflating this bubble, so long as we don't decide to "cash in" on our investments. If we were to do that, we would realise that our capital far exceeds the natural resources it originally represented. Of course, natural resources are not all we have to deal with, there are also human resources.

Human resources differ somewhat from natural resources. Where natural resources are strictly material, and thus inevitably finite, human resources are immaterial and therefor infinite - at least in a sense. The problem is, of course, that immaterial human resources (such as imagination, creativity and so on) are dependant on actual people, and people are a finite (although renewable) natural resource.

So, what happens when we realise that the debt exceeds the resources? What happens when it becomes obvious to the investor that the business invested in cannot give the expected future returns?

I think the actions of the International Monetary Fund and the World Bank during the 90's are a fairly good case-in-point. We saw entire nations going more or less bankrupt and the IMF and the World Bank effectively buying them. When the natural resources present couldn't cover the debt, the investors turn instead to the human resources. Of course the human resources cannot pay back the debt in full either, and so people are more or less forced to work for these investors infinitely to pay off the debt.

I realise this is highly simplified, but I do think it sums up the general mechanism. Capital is being aggregated in the hands of fewer and fewer people, generally (but not only) with multinational companies. Conversely the debt is shared by everyone else. The increasing amount of capital "consumes" first the natural resources and then the human resources. This is because capital refers to resources, and there must be a balance between the two.

Disconnecting capital from finite natural resources is what makes eternal economic growth possible, but this would entail making natural resources valueless, and instead valueing human resources. We would have to start thinking very differently about the natural resources, to see them as "common property" or perhaps not as property at all. The natural resources are the basis for our existence, the life-sustaining pre-requisite for human growth and real prosperity. They are not something to be speculated in.

So long as we maintain the idea that natural resources are property to be claimed and controlled, rather than to be shared and nurtured we will be heading straight for disaster.