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Global Trends and Politics

The future needs growth

In view of scarce resources and climate change, would it be better for us to do without economic growth? Absolutely not! says Michael Menhart, Chief Economist at Munich Re.

13.10.2015

Back in 1957, Ludwig Erhard – famed as "father of the German economic miracle" – asked "... whether it is still useful and accurate to produce more goods and generate material wealth, or whether it is more meaningful to gain further leisure and free time, more relaxation and consciousness." At the time, per capita income was the equivalent of €10,000 (in western Germany), whereas these days it amounts to somewhat more than €36,000 (for all of Germany). Is this reason enough to scale back our ambitions for economic growth? Only at first glance.

Angela Merkel is right in saying: "We must learn to redefine growth for the 21st century." After all, we live in a world of finite resources, and are feeling the consequences of environmental destruction and climate change. We have also come to realise that steady economic growth alone is no guarantee for prosperity and human welfare. On the contrary, greed for ever greater prosperity – achieved through overindebtedness – has been the cause of many a financial and economic crisis in the past. And we should also not rely solely on an increase in gross domestic product as a measure of a country's economic progress.

As an indicator, GDP growth has its flaws, since it does not take account of unpaid activities such as voluntary work, bringing up children, or providing nursing care. What an intriguing thought, however: Maintaining our current standard of living, consuming a little less, but having more leisure time in the bargain. Yet as tempting as this may sound, it will not work. We need to keep pushing for growth in the future as well. This obviously applies to those parts of the world that are still a long way from enjoying Western levels of prosperity. Without economic growth, people in developing countries will not be able to meet their basic needs, and emerging economies will not be able to approach the standard industrialised countries have reached.

A long-term economic standstill would also have dramatic consequences for highly-developed countries – especially for the labour markets. Technological progress enables us to generate our economic output with ever fewer employees. Without growth, unemployment figures would therefore continue to rise steadily. Besides, significant investments are needed to master the challenges of the future – including major infrastructure measures and the transformation of the German energy system. Investment without growth is unthinkable.

Key role for insurers

Nobody regards economic growth as a panacea. We should rather ask ourselves how to direct growth into more sustainable modes, for instance by leveraging the experience and creativity of insurers.

Adequate insurance coverage against losses and accidents contributes to successfully introducing new industries and innovative technologies. Contemporary forms of old-age provision and healthcare help to address demographic change. It is not only in their own interests that insurers strive for growth – it also serves the health and well-being of the macroeconomy.

Munich Re Experts
Michael Menhart
Chief Economist at Munich Re
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