page_title: Growth imperative
section_title: Firms
hierarchical_section_title: Growth imperative / Microeconomic theories / Firms
caption_attribution_description: Factory Automation with industrial robots for palletizing food products like bread and toast at a bakery in Germany, robotics
context_page_description: Growth imperative is a term in economic theory regarding a possible necessity of economic growth. On the micro level, it describes mechanisms that force firms or consumers to increase revenues or consumption for not to endanger their income. On the macro level, a political growth imperative exists if economic growth is necessary to avoid economic and social instability or to retain democratic legitimacy, so that other political goals such as climate change mitigation or a reduction of inequality are subordinated to growth policies.
  Current neoclassical, Keynesian and endogenous growth theories do not consider a growth imperative or explicitly deny it, such as Robert Solow. In neoclassical economics, adherence to economic growth would be a question of maximizing utility, an intertemporal decision between current and future consumption. Other sociological and political theories consider several possible causes for pursuing economic growth, for example maximizing profit, social comparison, culture, or political ideologies, but they do not regard them to be compulsive.
context_section_description: The first theory of a growth imperative is attributed to Karl Marx. In capitalism, zero growth is not possible, because of the mechanisms of competition and accumulation.
  [T]he development of capitalist production makes it constantly necessary to keep increasing the amount of the capital laid out in a given industrial undertaking, and competition makes the immanent laws of capitalist production to be felt by each individual capitalist, as external coercive laws. It compels him to keep constantly extending his capital, in order to preserve it, but extend it he cannot, except by means of progressive accumulation.
  — Karl Marx
  Therefore, a company's growth is considered necessary to ensure the survival of the company ("grow or die"): "investment is not an option, or a discretionary decision, it is an imperative that constrains every capitalists' actions and governs the overall economy" Correspondingly, some authors argue that the compulsion to grow can only be defused by overcoming structures of market economies, or by pushing back profit-oriented companies that impropriate the surplus value. Other authors criticize this Marxist perspective: a company could be profitable without growth if a positive accounting profit is distributed as dividend to the owners. Only if net income had to be retained, companies would be compelled to grow. If a company shows an accounting profit, it has not yet achieved an economic profit in the economic sense, because a return on equity and an entrepreneurial salary would have to be paid from it - the profit would not necessarily be available for growth. Therefore, a market economy with profit-oriented companies is compatible with zero growth, as it is in the models of neoclassical theory (→ zero-profit condition).
  On the basis of concepts of evolutionary economics, other authors point out that firms can become dependent on growth as a result of certain economic conditions. Joseph Schumpeter had described the creative destruction in which the existence of firms is endangered if they cannot keep up with the innovation competition. This is interpreted as a need to invest in new technologies and to expand production - but which investments would be necessary can only be understood in the light of growth theory. Within neoclassical growth accounting it is largely undisputed that only technological change and new combinations of factors of production make sustainable growth of firms and per capita income possible. However, the contribution of single production factors to economic growth has been disputed for decades: While endogenous growth theory concentrates on the role of human capital (ideas, education, innovations), proponents of ecological or environmental economics emphasize the importance of energy consumption as well as raw materials, which are often non-renewable resources (e.g. fossil fuels). While from the human capital perspective no ecologically damaging growth imperative arises, the resource perspective emphasizes that raw material consumption is lucrative for firms because it allows them to substitute expensive labour with cheaper machines. Accordingly, they would constantly invest in new resource-intensive technologies plus the human capital needed for development, which increases resource consumption and compensates advances in energy efficiency (rebound effects).
  There is also disagreement as to whether these dependencies can be overcome at the company level - provided that this is desired by the owners or the management. Proposals include new management practices, changes in product range, supply chains and distribution channels, as well as the creation of solidarity enterprises, collective enterprises and cooperatives. Other authors call for institutional solutions: reforms of corporate law to overcome the legal constraint of public limited companies to maximise profits, reforms of competition law to prevent externalisation at the expense of common goods, or an institutional limitation of resource consumption and/or increasing their costs through ecotaxes or emissions trading (Cap
caption: The link between technical progress and resource use is disputed
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