The theory of a steady state economy and the end of economic growth as we know it has been discussed more frequently today as the world struggles to climb its way out of a recession. Whether or not this theory will become reality is up for debate. However, one specific aspect of this theory is certain. If economic growth continues to diminish and GDP growth rests motionless, the impact on international business will be profound. We will now look at some of the implications this reality would hold for international business, and we will also discuss possible solutions to the problems created by growth in our finite world.
Over the past several years, the most important trend in the world of international business has arguably been the emergence of rapidly growing and developing economies, particularly in Asia and Latin America. In today’s business environment, emerging markets serve as the world’s engine for economic growth and have provided promising markets for global business. According to a study by Ernst & Young, estimates show that 70% of world growth over the next few years will come from emerging markets. With all this talk about growth in emerging markets, you might be wondering how the theory of a steady state economy is even possible. There is a major contradiction that exists between emerging markets and the theory of a zero growth global economy.
International businesses rely heavily on these emerging markets for growth and new customer opportunities. Therefore the end of economic growth theory raises many concerns for global business. The major fear is that growth in emerging economies may begin to stagnate under the zero growth theory proposed by the book The Limits to Growth. The emerging countries of Brazil, Russia, India, and China alone are expected to account for nearly 50 percent of all global GDP growth by 2020. It seems that growth in developed countries will level off while emerging markets will serve as the drivers of growth, at least for the time being. This is because the resources that fuel economic growth are more readily available in emerging markets, although now they are being consumed at a greater rate to account for rapid growth and increased global demand. Emerging markets have become the new battleground for global business and if the zero growth predictions prove to be true, international businesses may lose out on these important markets. However, keep in mind that this speculation is based solely on a theory.
Another aspect of the steady state economy debate is whether or not the growth based model for economic prosperity is even desirable. Some have argued that while emerging countries are growing substantially in terms of GDP, none of these countries are anywhere near the desired standard of living like that of developed countries. In the case of China, after years of dramatic growth the country is still faced with major inequality issues, human rights problems, and increasing environmental pollution. Therefore, some people believe that economic growth is not worth the consequences. However, if we cannot rely on economic growth to alleviate poverty and inequality, then what’s the alternative? And with this thought, that is where the global steady state movement gathers momentum.