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Less growth, more hope?

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  • Economics and Finance

When it comes to future economic growth there are a number of fundamentally different perspectives.

There is, for example, the view espoused by Tim Jackson among others - combining concern about environmental sustainability with scepticism about consumerism - that we have no choice but to abandon the pursuit of economic growth. Then, there are economic historians like Robert J Gordon and analysts like Tyler Cowen who argue that the growth rates reached in the industrialised world in the late 19th and the 20th century were the consequence of exceptional factors that are unlikely to return. The third argument, implicit in the economic policy of almost every nation and international economic body, is that for the sake of future society strong growth can and must return.

These views are incompatible in terms of analysis and action; Jackson’s is about what should be, Gordon’s about what is and the government and economic institutions about what somehow has to be. But what if we were to combine their different elements in a new policy paradigm? This can be summed up in a sentence: 'we are unlikely to achieve anything more than modest economic growth (Gordon), we should stop seeing this as a curse and start seeing it as a necessary and in some ways beneficial adjustment (Jackson) so a key role of economic and social policy is to help us maximise human welfare in the context of low growth (the role of government)’.

Adjusting to long-term low growth has some obvious and unavoidable consequences but also some much deeper effects, the outcome of which will be determined by our beliefs and actions. In the former category of consequences lies the fiscal impact. The simple and grim truth, which the new Government must somehow address, is that public services are under ever greater pressure (the NHS is at breaking point), the austerity programme has stalled and a combination of factors (exacerbated by Brexit) suggest things will get worse in the short to medium term. With Government borrowing virtually free there is a strong case for increasing public sector capital investment but there is also a looming danger that the UK starts to look like a risky debtor. This risk is exacerbated by the other weaknesses of the UK economy including low productivity, a poor balance of trade and huge household debt.  

If we assume that a public spending squeeze is here to stay (something the RSA was arguing back in 2008 !) distributional dilemmas are bound to intensify. The pie is not getting bigger so the argument is all about the size of the slices, for different places, different demographics and different priorities. The significance of the choices we face on public spending and the triviality and dishonesty of the public debate are in striking contrast.

A related but arguably even tougher question concerns political legitimacy and social order. Without being a crude Marxist there is a strong case to be made for the view that the rise of anti-establishment populism (and to an extent the backlash against immigration) is the consequence of the long-term stagnation of living standards of large swathes of the labour force of most Western nations. In a low growth economy with an ageing population this is not going to change. Yet, there is no sign at all that either the establishment or – to be honest – the rest of us are facing up to what will happen if most of our citizens have to give up on the basic offer of liberal market society: play by the rules and your living standards will improve.

Perhaps it is because all this is so deeply worrying that nearly all our politicians (with the exception of the Greens) are simply closing their eyes and praying for growth.

But the reason we need to start talking seriously about how we manage long-term low growth is not just because of the huge economic, social and political challenges it poses; unless we face up to the down side we can’t start to explore the potential upside. First, even within a long-term low growth economy there will, as he experience of Japan shows, be periods and sectors of dynamism and innovation. The parameters may be quite low growth and very low growth but economic and industrial policy still matters.

Second, there is no essential reason why we can’t improve the quality of our lives while living in low growth era. As long as people are not suffering poverty or extreme inequality, many of the things that are most strongly connected to well-being – friendship, family, health, meaning, self-esteem – either are not, or don’t necessarily have to be, connected to income. Thinking about how to make life better under low growth it doesn’t take long to start seeing new policy options - Universal Basic Income being an obvious example.    

Moreover while the evidence on the relationship between economic growth and life satisfaction is contested, there is an intriguing implication for political discourse. A factor which drives both dissatisfaction in well-off countries and also the pursuit of personal and national income growth even when it is unlikely to result in greater well-being is the aspiration to be richer tomorrow than today.

Think about this for a moment: Not only is the insistence of Western governments that they can and must return to long-term growth based more on fear and hope than cool analysis, but this very insistence may be exacerbating the social and political consequences of low growth. Not only are we failing to undertake the deep thinking and reform we need to thrive under low growth, but by constantly asserting a target that cannot be met our leaders and policy makers are contributing to a profound feeling among the citizenry that they are being failed. In such a climate people on the right blame foreigners, people on the left blame capitalism while they, and most of the rest of us, both blame anyone in power.  

I haven’t given up on economic growth nor do I think it is impossible to de-couple growth from environmental harms. But political leaders and policy makers must combine ambition for uncertain progress with the responsibility for managing what we know. What we know is that low growth is with us and that there are strong reasons for thinking this is a trend not a cycle. In that case it is irresponsible, unimaginative and – as I have suggested – dangerous not to discuss how we could adapt to and even benefit from living with this new economic reality.

I hope the RSA makes a small but meaningful contribution to addressing this lacuna through the work of our Citizens Economic Council.

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  • In-deed. I wonder how else we can engage an increasingly complex, "chaotic" world that we have largely created through our beliefs and actions, often a long way from the "natural" ways of that world. Without looking at the deeper patterns that emerge from within us to what is contnually emerging around us - many of which are uncomfortable, unwanted, projected onto others who are blamed for the things we disown and reject - we "produce results we don't really want, and then in trying to overcome them, we keep on producing them. It is clear that if we are to live in harmony with ourselves and with nature, we need to be able to communicate freely in a creative movement in which no one permanently holds onto or otherwise defends his own ideas." (David Bohm).

  • The realism is that as a nation we are already developed enough and already happy enough and what we need to focus on now is achieving steady state which means introducing a strategy of resource throughput reduction. This will undoubtedly mean sharing more of our common wealth such as land, assets and profits but a resource descent strategy is what is going to create long lasting prosperity, not trade wars, wishful thinking or eu capitulation. This study from Dec 2015 highlights the above.

    http://www.sciencedirect.com/science/article/pii/S0959652615010471


    Btw  "In such a climate people on the right blame foreigners, people on the left blame capitalism while they, and most of the rest of us, both blame anyone in power." Actually if you read up on conservative philosophers who are actually pretty deep thinkers and not the superficial bigots liberals like to label them as, you will find that people on the right blame the (liberal) state, not immigrants per se. 

    http://www.theimaginativeconservative.org/2016/07/conservatism-means-conservation-timeless.html


    • Having read the footnoted Roger Scruton article you have linked to, I fail to see the relevance to a low growth (or possibly zero growth) economy and it's doldrums inducing political malaise. It is, beyond it's own irrelevance, vastly our of step and out of date with our current political nexus, but also possibly one of the least well argued and scattergun pieces I have read in a long time. (in it's own environmental terms, see the attempt to privatise our national forestry only a few years previously by 'green' conservative ministers. Also Scruton's "aesthetic" argument against wind power. How aesthetic is nuclear power generation or gas-powered plants compared to, say, hydro-electric generation? whither fracking policy also?)

      That piece would seem to have been written in the wish to comfort an intractable audience in their 'told you so' complacency, with some gestures of prosaic admonition of vague 'leftists' with their 'statist' solutions to problems which are contrarily, both global and local but which apparently require a solution derived from some hand-me-down, political/philosophical heritage thinking, seemingly scribbled on the back of an envelope for .

      To return to the original post above, we are and have been for some time, the 'Japan' of our recent times. Our forward territory is limited but there are many possibilities of corrective development and thus potential growth in terms of human capital, social cohesion, and economic diversification.

      Given this situation we should equip ourselves with policy and ideas which deal with this paradigm. 

      The recently repeated promises of political progress being incumbent upon an 'as and when' economic growth projection,  strikes me as tremendously facile and politically convenient to those dealing in weak governance and shaky anything goes style theoretics despite the worsening deficit/national debt etc.

      Either grapple effectively with economic governance, financial stimulation and social strategies that might engender a truly consensual 'growth' in our country or suffer a further development into sectarian thinking and blame culture while our children's potential is both limited or ignored.

      • The latter doesnt directly address lie growth unless you investigated deeper conservative tbought which argues that liberalism is the source of low growth, low productivity and ecological demise simply because liberalism abstracts the individual out of his/her community leading to demoralisation, alienation and lonliness. Hence we now have post-liberalism which tries to resituate the individual back into a cultural context.


        With regards the rest of your rethoric response, how do you achieve higher growth etc beyond rethoric. How?

        • I'm not really looking for a return to higher growth and I'm not sure it is actually achievable (re Matthew's introductory paragraph above). I found that cycle to be hugely divisive and very costly in terms of the 'public good' and the commonly held wealth of our nation. There is also the law of diminishing returns e.g. there is nothing left to privatise, public-private contracts become self-serving or moribund, people opt out of political debate when they find their personal financial 'comfort zone', failures of policy are met with shrugs or scapegoats are sought rather than brokering a review of the intended outcomes or probing for more productive solutions.

          If we can expect only low growth we need to try and increase the availability of such growth across a greater demographic and across more industrial sectors than the previous winners enclosure of high growth seemed to allow. Achieving this without cumbersome micromanagement is admittedly a difficult circle to square.

          "resituating the individual back into a cultural context" initially sounds like a cruel joke. You could far easier recruit grains of sands for 'project mortar' than try to explain how they can count themselves among the proud inheritors of a historically larger, rock-based dynasty which once stood firm before being endlessly 'liberalised' for high growth - which has itself since gone with the wind and changing tides. (apologies for the rhetorical analogy).

          Economic granularisation and it's, apparently, conjoined social atomisation was peddled as a desirable outcome for each individual concerned for so long that it's reversal looks like punishment, hood-winking or enforced communitarianism. 

          Greater decentralisation and a renewal of local public institutions is very welcome when handled well. A form of quantitative easing for the real economy (possibly incubating new areas of economic activity) would be better than that currently insulating our major financial institutions. However, i'm not an expert!

          I did find skimming through the following instructive;

          http://quarterly.demos.co.uk/article/issue-1/a-postliberal-future/

          Thanks for the link to the resource descent / steady state article.

  • I'm wondering if economists in general are looking at how automation will completely change the current economic system within the next 20 years?

    Check the Oxford University study on the loss of jobs to automation over the next 17 years. And, i think the timeline has actually accelerated, so it will be less than that.

    Automated Transportation is almost here (Mercedes is now advertising their new E-Class)

    Check out the various Tech Forums, and/or talk to Tech Friends, and they will tell you how quickly this is going to become a reality.

    Once that's in place, - no more cab drivers, truck drivers, bus drivers, train engineers, heavy equipment operators, etc, etc, etc, and this is only the beginning of completely replacing the current "job" in virtually all job categories. With the world jobless rate at 50% or higher, the current economic system won't be able to sustain itself. It will completely fail.

    We need economists to start planning a completely new economic system, and start to talk with our governments on how to implement it, and this needs to happen very soon.


  • I often wince when on long-term strategic thinking and public policy, the issues are put down to 'the need for a narrative', or,'presentation'. On the matter of how to seriously address long-term low growth, however, I'm finding that narrative and presentation are likely to be crucial. I suspect that this applies to the (not unrelated) issues of low growth and 'inclusive growth'.In discussing around Scotland the ascendant interest in inclusive growth, I'm finding some default assumptions. Those assumptions include that inclusive growth is some sort of intention to impose a particular mode of growth - at base a collective ownership mode entailing highly interventionist regulation,re-nationalisation etc. Another assumption is that inclusive growth is about accepting only a certain type of somehow 'approved' growth that is highly circumscribed in accordance to the intended outcomes and beneficiaries. That would be even at the cost of further weakening overall growth. It all sounds like a recourse to the familiar, and discredited, modes of post WW2 UK and similar economies.I declare myself to be with the pro-growth perspective. That comes with being also party to the 'low growth is here for the foreseeable future' perspective. Together, the two perspectives make a compelling case for continuing the pursuit of growth, but with more structuring policies and actions to ensure that the proceeds of growth are not denied to those who have an earned and merited claimThat all needs, firstly, a significantly new, credible and persuasive narrative and the various means of presenting the case.It's heartening that the RSA's work has been at the fore-front of raising the issues around low and inclusive growth. That work includes: the City Growth Commission; the Citizens Economic Council; and the Commission on Inclusive Growth (and on the latter, a number of us Scottish FRSAs have formed the BIG network on inclusive growth and hope to make a helpful contribution to the work of the Commission).

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