The Growth Illusion

Why Economic Growth is No Longer Realistic or Aspirational

The new Labour government has made one target to rule over all others: growth. It is to be the measure of national success, the answer to stagnation, the solution to everything from NHS waiting lists to national debt. But this devotion to growth—voiced across all parties and business lobbies—rests on an assumption that may no longer hold true: that significant, sustained economic growth is still possible in the advanced economies of the 21st century.

The evidence suggests it may not be.

For most of modern history, growth has depended on a virtuous cycle. Productivity gains led to higher wages, higher wages fed consumer demand, and that demand justified further investment and innovation. Wealth accumulated at the top, but it still circulated through wages, rents, and consumption. The system functioned because enough of the population retained sufficient capital, whether in wages, pensions, or home ownership, to keep demand alive. That appears to be no longer true.

Today, the vast majority of global capital is held by a fraction of the population whose spending capacity is already saturated. The remainder—the 99% with less than roughly £10 million in assets—now control too little capital to sustain even the most essential acquisitions: food, housing, and energy (as I explained back in May). When so much wealth is locked in portfolios rather than pay packets, and when the rich strip companies of labour in order to create further profit, the consumer economy starves. The result is not just inequality, but insufficient circulation.

Growth requires velocity: money moving through millions of hands. Yet we have built an economy optimised for retention, and which optimises labour withdrawal, not motion.

The Dead Ends of Traditional Growth

The conventional pathways to growth are still spoken of as if they remain open. In reality, each now leads to a cul-de-sac.

Technological productivity once raised living standards across classes. Today, AI, automation and digitisation primarily reduce labour costs. Every factory robot and chatbot replaces wages with cheaper technology, transferring income from workers to shareholders. Likewise, way before AI was a factor, we were glorifying billionaires who bought companies and shed staff in order to make them more profitable. Elon Musk’s takeover of Twitter being a prime example. Billionaires leveraged their wealth in order to create more wealth, by stripping industries of more jobs. Transferring more and more capital upwards. Profit margins rise, but the economy as a whole weakens, as spending power falls.

Debt-fuelled consumption once postponed the problem, allowing stagnant wages to mimic prosperity, as people borrowed to spend and boost the economy. But private debt is already near saturation, with many people leveraging themselves in debt just to own accommodation. There is little room left to borrow our way to demand, particularly as interest rates remain high in order to attempt to boost what little economic growth might be left.

Export-led growth, the escape route of developing nations, has no global outlet. Capital is internationally mobile and increasingly owned by the same transnational elite. Whether profits are earned in London, New York or Shenzhen, they pool in the same accounts, providing little net benefit to the broader world economy.

Asset inflation, the engine of the past two decades, merely shifts paper values upwards without creating real output. When houses, stocks, and art appreciate faster than wages, consumption slows even as “wealth” appears to rise. Those same houses that we saturate ourselves with debt in order to own end up decreasing our spending power.

And, finally, The intangible economy—data, patents, algorithms—which was once seen as a new frontier. In practice, it concentrates wealth further. Intangibles scale infinitely, but their ownership does not. One corporation can sell to billions while employing hundreds. The productivity is real, but the human benefit is not. What algorithms can do for the new global economic behemoths, social media companies, mean less people have to be employed, and more of the income can flow straight to those super-rich owners.

Why Some Economies Are Still Growing

There is evidence, however, that bucks this stagnating growth trend. Some countries, particularly in Asia and parts of Africa and South America, continue to post growth rates of 4–7%. India, Indonesia, and Vietnam are often cited as success stories. But these are not examples of a new economic model, they are examples of catching up.

When a country industrialises from a low base, almost any investment, be it roads, power plants, housing or manufacturing, creates a surge in output. Millions of people move from subsistence or informal work into formal employment for the first time, and the middle class expands. That naturally fuels growth because there is still so much low-hanging fruit: new factories to build, new consumers to serve and new infrastructure to lay down.

But this “catching up” does not break the pattern of global capital concentration. The companies driving growth in these nations are often multinationals or domestic giants tied into international financial networks. The capital created by new productivity does not primarily circulate within the local population; it leaks outward, through global ownership structures, shareholder returns, and the offshoring of profits. And even when solely national-owner, it flows upwards, to create the same patterns elsewhere.

When countries like Britain experienced this development, long before automation and even large parts of industrialisation, the natural cycle saw large growth and employment. These countries are booming with access to tools (such as AI) which will allow them to skip this employment-heavy phase.

What looks like national growth right now is, in many cases, the process of integrating new labour and resources into the global profit system dominated by a small number of corporations and investors. The wages paid locally may rise for a time, but the lion’s share of the wealth generated flows to the same global class of capital holders who already dominate the mature economies.

This means the trajectory of these emerging economies still follows the same curve, just much steeper: rapid gains while cheap labour and expansion persist, then convergence towards the same pattern now seen in the West, where the non-super-rich population reaches a kind of financial equilibrium at the bottom, with limited savings, limited asset ownership, and limited upward mobility, while the super-rich accumulate global control of capital.

In other words, globalisation is not equalising wealth but synchronising inequality. It will benefit workers in developing nations to a point. Escaping extreme poverty for more affluent conditions is still a worthy goal. But quickly these gains will stop, and reverse, as capital flows upwards once profits are maximised. The system still functions by pulling new populations into the lower rungs of a global economic hierarchy whose upper tier remains astonishingly stable.

Why Growth Still Appears to Exist

A criticism of this theory is: “If the engine is broken, why does the dashboard still show motion?” Countries like the UK are still showing positive growth, all be it of only 0.3%, similar to other developed nations. Indeed, the juggernaut US economy continue at 3.8%, even if this is lower than it’s historical rates. The answer lies in the difference between real expansion and statistical momentum.

Much of what we record today as “growth” is not genuine increase in productive output or welfare, but rather the side effects of concentration, inflation, and accounting. Economies can appear to grow even while their underlying vitality declines.

How? First, inflation lifts nominal GDP. When prices rise faster than output, the total money value of an economy increases, even if people can afford less. The headline number goes up, but living standards and future growth potential (due to future consumer potential) falls.

Second, rising rents and asset values register as growth, even though they simply transfer income from the majority to the wealthy. When property or insurance costs climb, GDP rises. Yet this is negative growth in human welfare, reclassified as success.

Third, debt acts as artificial respiration. Governments and households continue to borrow to sustain consumption, creating temporary demand that counts as output but represents future contraction. This is the modern equivalent of eating tomorrow’s meal today. Yet the slowing of growth, as already explained, demonstrates why debt is becoming saturated already.

Fourth, consolidation creates the illusion of expansion. Giant corporations grow by absorbing competitors, concentrating market power, and extracting more from the same pool of consumers. GDP counts their revenues as progress, but this is redistribution masquerading as creation.

Finally, global integration still provides residual fuel. As new countries industrialise and join the global economy, their labour and resources feed into the profits of established capital. That flow temporarily boosts global output, but mostly in ways that reinforce concentration rather than diffuse it. Again, this system is already slowing as more and more countries have industrialised, and won’t create narrow growth figures forever.

The result of all this is a form of statistical afterglow. Like a star long past its prime, the system continues to emit light even as its core collapses. The movement we observe is not new growth, but the inertia of an economy still spinning on yesterday’s energy.

The Thermodynamic Limit of Capitalism

What we are encountering is not a cyclical downturn but the equivalent of a thermodynamic boundary. An economy cannot expand indefinitely if its energy—capital in circulation—ceases to flow through the majority of its participants. Beyond a certain concentration threshold, capital stops behaving as an economic lubricant and starts behaving as a heat sink, absorbing energy, but releasing little back.

This is why monetary policy, fiscal stimulus, and deregulation all fail to revive growth. The inputs remain trapped at the top of the system. No amount of “confidence” or “innovation” can fix a system that has lost its capacity for internal exchange. It’s the equivalent of turning all your radiators up, and adding more and more radiators in the hope of heating your home, yet failing to realise next door has siphoned off the water from the pipes.

Without sufficient consumer capital, the real economy starves while the financial economy feasts. Eventually, even asset prices stall, because there is no longer enough productive output beneath them to justify the illusion.

The Political Mirage

Governments continue to chase growth because their budgets and promises depend on it. Growth allows them to increase spending without raising taxes, to pay debts without default, and to promise opportunity without redistribution. It is the last unifying myth of modern politics.

Yet governments, which rely on employment and consumer taxes to fund vital services, are victims of an economy which has now reached its pragmatic end game. The mechanism no longer works, and the pursuit of growth has become a form of denial; an insistence that the old model can be revived with enough optimism and AI.

The uncomfortable truth is that advanced economies may have reached the point where significant growth is structurally impossible without wholesale redistribution of capital. That redistribution need not be ideological or punitive; it could be engineered through systemic redesign (as I explained earlier in the year) . But until some version of it occurs, the economy will remain in a state of high inequality, low demand, and near-zero growth. A kind of late-capitalist stasis. Perhaps not the dramatic collapse you expect when you think about economies failing to function, but for those in developing countries who find themselves in poverty, whilst billionaires have more wealth than ever before, that collapse has already happened.

The End of Expansion

The 20th century was powered by expansion: of populations, markets, resources, and credit. The 21st is defined by saturation. The money exists, but it no longer moves. The capital exists, but it no longer circulates.

If the Labour government—or any government—seeks genuine renewal, it must first confront this reality. Growth is not returning through the old channels, no matter how efficient our AI or how confident our investors.

We must re-engineer our economic system to be fit for the present and to function in the future