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.