Slaying the Growth Monster

Of all the shibboleths of post-War Western policy, none is more ingrained than growth in GDP.

Of all the shibboleths of post-War Western policy, none is more ingrained than growth in GDP. There is nothing governments like to trumpet more than high growth, nothing they dread more than negative growth. And it’s easy to understand why, because people vote with their pockets. If GDP is growing you have more chance of being better off than if GDP is shrinking. Even the most undemocratic regimes have an interest in fostering growth for without the threat of free elections, they still need to keep a wary eye on their people; high economic growth is a method of quelling dissent – a strategy long employed by the Chinese Communist Party, and Vladimir Putin. Growth is also a way of improving public services without increasing tax rates. If businesses and consumers have more money, they will pay more to the Exchequer even if tax rates remain the same.

But relying on GDP growth is fraught with problems.

Tony Blair loved this idea for he believed that by fostering the conditions for growth – not the least of which was “education, education, education” – he could give ordinary people the public services they wanted without having to increase tax on business or the well-off. All governments fall back on airy promises about growth even when journalists point out that their spending plans don’t add up. Liz Truss based her abortive premiership on the idea. Even Keir Starmer has declared that growth will solve the problems caused by Covid and the war in Ukraine.

Thomas Piketty has shown, with crushing weight of research, how worthless these promises are. In Capital in the 21st Century he explains that no economy at what he calls the “technological frontier” has ever enjoyed sustained growth in GDP of more than around 2 or 2.5 per cent a year, ever, whatever their culture or economic policies. Feudal, Keynesian, neoliberal, it makes no difference. 2.5%, the totemic figure for our politicians, far from being the normal or minimum growth rate we should expect, is the maximum, a rate we achieve only fleetingly and intermittently. China had growth of 8% a year because she was industrialising her economy. Continental Europe had high growth in the 1950s because it was rebuilding itself after the Second World War.. Before the Industrial Revolution, economic growth and inflation in most parts of the world were negligible, around 0.1% a year. The Industrial Revolution transformed society when it increased this 20 times over. So if we want growth of 5% a year, to keep up with, demand on the NHS, which is growing at 4% a year, we would need a shift in our economy comparable to the Industrial Revolution. The “Information age” is not a solution.

As a left-leaning economist Piketty’s main concern is inequality. Whether you care about inequality or not, politicians argue that growth can reduce it. The Johnson government hoped that growth would be the key to “levelling up”. Piketty’s devastating argument is that unless growth exceeds the rate of return on capital, the economy is doomed to suffer an “inegalitarian spiral” in which those who own capital get relatively richer than those who do not. The average rate of return on capital – how much money the owners of capital make every year from their investments – has varied over the centuries, but it has always been higher than the average economic growth rate and for around the last hundred years, it has hovered around the 5% mark throughout the world. That exceeds the 2% growth in GDP it is reasonable to expect at the technological frontier. 2% is the average annual increase in income you can expect if your income comes from working rather than capital.

Around half the population in Britain owns no capital at all. They rely on wages or benefits or both, that are growing at best at 2.5% a year, and recently, rather less at the lower end of the income scale. The rest of us might imagine that if low earners are thrifty and refrain from wasting their money on alcohol, tobacco, satellite television, and ultra-processed foods, they will save enough money to buy their own houses. But inflation in house prices, much of it driven by the better-off investing in property, has given most low earners no chance of joining our “property-owning democracy”, even if they live like monks. They are the “left behind”.

Any increase in economic activity promotes growth, but not every increase in economic activity is beneficial neither is increasing the population. For example, if Britain was the richest and largest economy in the world from inviting industrious Chinese people to live here, before too long wages would plummet, house prices would soar, pressure on public infrastructure would be unmanageable. GDP per capita – per head of the population – would fall. The country as a whole would be richer, but her inhabitants would be much poorer.

The more areas of life we turn into financial transactions, the higher GDP per capita is likely to get. Do we really want to turn ever more areas of life into financial transactions? If instead of brushing our own teeth, we paid our neighbour to do it for us (and vice versa), unnecessary inconvenience would be brought into our lives, our dental health would probably suffer, since it is easier to brush your own teeth, but GDP per capita would receive a large boost.

The tooth-brusher for hire is a hypothetical example of what the anthropologist David Graeber called a “Bullshit Job”. In the early 20th Century people looked forward to an Age of Leisure as technological advances enabled more industrial processes to be automated, eventually leading, it was assumed, to a point where all the work could be done without people needing to work so hard, so they could be liberated from lives of toil to pursue their own more fulfilling activities. But this has not happened. While we might have found more efficient ways of doing the work, Graeber argued, instead of working less we have invented new types of work that are unnecessary, many of them bafflingly well paid.

Why are we doing pointless jobs when we could all be working 15-hour weeks instead? The answer is about the shibboleth of growth. If growth is an end in itself, then labour-saving advances in technology don’t free us to play with our children, converse with our friends or listen to music. As a society we continue to produce ever more goods and, increasingly, services, getting ever “richer” all the time.

Politicians operate on too superficial a level to debate these questions. But throughout human history, philosophers, religious leaders, poets and artists have contemplated such fundamental matters, and there is a remarkable degree of agreement. You can count on the fingers of one hand the deep thinkers who have deemed material wealth as the ultimate human good. Epicurus, despite his reputation, represents the contrary trend. He said the requisites for the good life were material subsistence, freedom, friends, and thought. Anything getting in the way of these was harmful. Spending ever more time doing ever more pointless things to achieve more and more material gains going beyond subsistence destroys free time. If modern society is geared towards achieving ever greater material wealth, is there not something fundamentally wrong and anti-human about modern society?

In John Freeman’s Face-to-Face interview with Bertrand Russell in 1959, Freeman asks the 87-year-old Russell if he is nostalgic about the 19th Century. Russell’s answer was surprising. While acknowledging there is a great deal less “humbug” now than in the 19th Century – a far from self-evident truth, – he says he finds everywhere he goes a little less beautiful than it was before, which he deeply regrets. Where does all this ugliness come from? From man-made activity, of course and of the kind that contributes to growth. The damage to the environment is far from merely aesthetic, and could well prove catastrophic.

A continually growing economy, even at 2% a year, means a rapidly changing society, in which half the jobs at any one time won’t have existed 30 years ago. This puts strains on social cohesion between the generations, and makes each succeeding generation seem more deracinated from its society’s past. We blame the staggering ignorance of history and incomprehension of cultural reference points displayed by even the most intelligent young people today on mass media and the education system, but the heads of the young are not empty; they just know about different things. Whatever the value of the new things young people know, if older things are crowded out, cultural transmission is lost.

How would a society with a contracting economy, producing less, getting poorer, work? It is not an appealing alternative. What about staying more or less the same? It is a peculiarity of modern economic discourse that it excludes the possibility of stasis, which has been the norm for most of human history, and in recent years, the situation of the world’s 3rd-largest economy, Japan. While Japan has experienced a number of problems, and some of her population a good deal of hardship, during her long period of economic stagnation she has remained a wealthy democratic country with a high standard of living in international terms. She is not sliding into a 3rd-World economy where nothing works.

Most of us would not want to live in a 3rd-World economy, except as part of the tiny elite. For all but that small minority, life would be precarious. because a certain period of growth is required to lift an economy beyond this. We can say growth is beneficial; it is thanks to growth, that your average benefit’s recipient in Britain today enjoys a vastly better standard of living than Henry VIII. The evidence suggests there is a certain minimum level of economic output required to make a country a tolerable place to inhabit. Beyond that minimum – an average annual income of £15,000 a year – however, there are diminishing marginal returns, and eventually, positive losses in terms of well-being.

As one of the richest societies in the history of mankind, we have surely long exceeded the minimum level of economic output required to make Britain a good place to be. The standard arguments for growth – that we need it to meet rising demand for public services, or to reduce inequality, collapse because the level of growth required is unachievable. Growth has the unfortunate drawback of forcing us to waste our time doing pointless things, or at best, of forcing us to pursue material goods at the expense of more valuable activities. It also damages the environment, diminishing our quality of life, perhaps catastrophically. We need to reduce demand, by ensuring people are paid enough to live on, and by regulating the food market to ensure the cheapest food isn’t also the unhealthiest. We should be asking what kind of society we want to live in instead of chasing the will-o-the-wisp of growth.

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