Going beyond growth: Why do economists have all the fun?
Policy-makers and the media listen to economists, and the policy prescriptions they offer often have far-reaching social, political and even environmental implications. Economists know that unlike they will get an audience, as shown last week when Thomas Piketty, Ha-joon Chang and 75 other economists wrote an open letter to George Osborne last week, criticising his policy to bury Keynesian economics forever by banning future governments from ever running budget deficits. It made the news in a way that 77 sociologists never would.
The prominence of economists in policy-making and in the media is of interest to me because it might help explain our obsession with GDP growth. We hear politicians talk about ‘going for growth’, or aspiring to a ‘growth-based recovery’. Growth wins elections, growth keeps governments in power. We rarely question it, but there are reasons to be sceptical about our obsession with it. Last year’s report by the IMF, suggesting that inequality is bad for growth and more unequal economies are more prone to booms and busts, caused quite a stir mainly due to the fact that it was written by respected economists and played into the idea that growth is always the goal. Anti-poverty charity Oxfam welcomed the report, saying it shows “extreme inequality is damaging not only because it is morally unacceptable, but it’s bad economics”, also echoing esteemed economist Joseph Stiglitz’s view that despite strong average GDP growth in the United States since the 1980s, incomes have not increased for the vast majority of Americans. Take-home messages: Inequality is bad for growth, and the benefits of growth often only reach the few, not the many.
But the assumption remains, even among more enlightened economists like Stiglitz, that growth is the goal. For Wilkinson and Pickett, in their hugely influential book The Spirit Level, the job of growth has largely been completed in rich countries. In the west, they argue, we have now grown enough. Wilkinson and Pickett argue that beyond an income of around $25,000 per capita, growth stops improving wellbeing in terms of life expectancy or a subjective sense of happiness. The task for governments in the future should be, they argue, to increase equity with what we already have. Chasing GDP growth only creates asset bubbles and makes the super-rich even richer, wealth fails to trickle down, inequality increases, and trust and cohesion in society is eroded. Take-home message: divide the cake up more evenly, stop obsessing about making the cake bigger.
For environmentalists, growth is something of a conundrum, and often a dividing line. Nicholas Stern’s Review of the Economics of Climate Change grabbed attention when it was published in 2006, because the report said that avoiding climate change would be cheaper than dealing with its consequences. It helped that Stern was – you guessed it – a respected economist. Stern continues to argue (as you can hear in an interview here) that due to the rapidly declining costs of renewable energy, and the rising costs of cleaning up air pollution caused by fossil fuels, particularly salient in smog-filled cities in East Asia, that going green is entirely compatible with continued GDP growth. He also argues that growth is still very necessary to lift billions of people from poverty in the developing world.
Others are far more sceptical that consumption-based growth can ever be made green, and that particularly in the West, the quest for green growth simply makes it harder to meet the social and environmental challenges of our time. Clive Spash (an er… economist) argues that Green Growth is a ‘wonderful oxymoron’, simply another “utopian vision of an economy that can accumulate capital while decreasing the amount of materials and energy used; an economy that can achieve social equity and the eradication of poverty without any redistribution policy; an economy where people are made happy by conspicuous consumption, competing to buy the latest gadgets and owning more (‘green’) stuff.”
Among environmentalists, Spash is not alone in his criticism of the ‘greening’ of growth. Its not a new criticism, back in 1972 the Club of Rome published their seminal ‘Limits to Growth’ report, warning of the dangers of never-ending GDP growth. More recently, others in the movement have sought to find innovative ways to use the wealth which already exists in our economy for more progressive ends, rather than simply trying to increase that wealth by growth. Perhaps the most obvious example is the universal citizens’ income, as advocated by the Green party in the UK, as a way for ensuring that all people receive enough money to live on, the costs of which, it is argued, can be offset by eliminating most existing welfare payments. The green party advocate:
“A Citizen’s Income is an unconditional, non-withdrawable income payable to each individual as a right of citizenship. It will not be subject to means testing and there will be no requirement to be either working or actively seeking work.”
These ideas might actually see the light of day sooner than you might think. In Finland, the recent election of Juha Sipila’s Centre party into government means that a basic income policy may be introduced there before long. Watch this space.
The idea of a zero-growth economy is one which might give politicians nightmares, and is one which most economists just cannot compute. But there are examples of prosperous countries getting by with little or no GDP gains at all. Japan is perhaps the most obvious example of a country which hasn’t really grown for much of the last twenty years. These are often decried as the country’s ‘lost years’ since the recession of 1989-90 was followed by years of low fertility and an ageing society. If those demographic trends sounds familiar, that’s because they are happening all over the developed world. If Japan’s no-growth model is a problem, then it might be one we all need to get used to. David Pilling, a former Tokyo bureau chief of the Financial Times, notes that South Korea’s fertility rate is lower than Japan’s, and those of other developed countries, from Taiwan and Singapore to Germany and Italy, are similarly low. “Much of the world is going Japan’s way,” says Pilling. “If Japan is doomed, so are many others.”But to anyone who’s visited Japan, including myself, the ‘problem’ of zero-growth isn’t very apparent at all. As Roland Kelts writes in the New Statesman, Japan comes across as a model of planning, modernity, convenience and wealth; home to a vibrant culture and a host of world-beating brands. On the economics, Stiglitz also notes that Japan’s economic indicators are much better than other ‘growing’ economies. Japan’s life expectancy (83.6 years) is one of the highest in the world, unemployment has remained low, never surpassing 5.8% in the last twenty years, and the country is less unequal than the United States, with a gini coefficient of 0.33 compared to the USA’s 0.38.
So, perhaps the idea of a zero-growth economy need not be so scary after all. If birth-rates in the developed world continue to fall, we might not have much choice in the matter anyway. In that case, policy-makers could turn attention to issues of social inequality and environmental protection instead of obsessing over GDP figures. Maybe if more economists started saying all this, we might even start believing it.