Our Demand to Grow

19 January 2012. "The Great Transformation: Shaping New Models" is the main topic of this year’s World Economic Forum in Davos, which will start this time next week. The triple crisis caused by the succession of the financial, economic and debt crises has resulted in massive distortions and possibly even in shifts of influence in the global economy. The experiences of countries such as Greece, Ireland and Spain are again urgently raising the question as to how we can develop prosperity in the long term and whether it is possible in the first place.

Growth and Employment Models

In the years before the crisis, many countries pursued a mostly debt-financed demand-oriented growth policy. The short-term upturn this generated has obscured the answer to the question, "why we are able to grow in the first place," i.e. how possible in the future will increases in the standard of living or reductions in working be. The question is urgent, and therefore the coming World Economic Forum will devote a special topic to it, namely Growth and Employment Models.

Searching for innovation

Where can a possible answer be found? To be exact, even after the crisis nothing really speaks against the possibility of continuous growth or, more precisely, the development of new opportunities and thus an improvement in our prosperity. However, this cannot be pure volume growth, which would be impossible anyway due to limited natural resources.

This argument makes it clear that the continuous source for increases in prosperity can only be found in innovations. But what is the driving force behind these? Do they simply come out of nowhere?

Our demand to grow

New products or better services can only be discovered and applied if they satisfy new demand. This is because the search for technical novelties that could lead to better products or the reduction of working hours is an entrepreneurial activity that requires time and other resources. In other words, every application of resources to research, no matter whether at a university or in company, is ultimately driven by demand. In concrete terms: we grow because we want to. If the growth requirements no longer existed, there would no longer be any need for innovations, and entrepreneurs would no longer seek them.

A fixation on growth?

This fundamental nexus is often misunderstood. Economics as a science is erroneously blamed for being growth-fixated. Even many professional economists hold the view that we “have to” grow.

It must only be welcomed if on the occasion of a thought-leadership conference such as the World Economic Forum, the question as to why we want to grow in the first place is raised anew. As indicated before, the answer can only be found in entrepreneurs identifying or anticipating new requirements. This is the foundation of qualitative (and thus also sustainable) growth that is based on intelligent new combinations and is capable of evolving without any further consumption of resources.

Photo: WEF, Andy Mettler