Are we right to worry about growth?

Economic growth is a measure of how much more a society produces now than in the past. In his new book Growth: a reckoningeconomist Daniel Susskind examines how we understand growth and its history. He calls for a better understanding and measurement of growth and for better policies that accompany it. But he believes those campaigning against pro-growth policies are wrong.

Growth: a new idea

Surprisingly, the political discussion about economic growth is relatively new. Susskind points out that the term was hardly mentioned in politics or economics until the 1950s. But as the Cold War developed over the next decade, it was used by rival countries to gauge their relative performance as they could no longer measure their success on the battlefield. But since then it has gradually come to dominate politics and economics, sometimes to the exclusion of other important factors.

Cover of Susskind's book on growth

Economic growth itself is relatively new. For most of human history, not much changed from generation to generation, or century to century. But over the past few centuries, economic growth has taken off, vastly improving the quality of life for most people, even in the poorest countries.

But this comes at the cost of inequality, cultural and social disruption and environmental damage. And since the 1970s, there has been increasing opposition to growth, especially from people concerned about climate change and environmental degradation. They claim that the Earth’s resources are being depleted.

At the same time, however, slowing economic growth in the developed world has created worrying political instability.

Why the ‘degrowthers’ are wrong

Susskind argues that today’s opponents of growth are wrong on two counts. First, they underestimate the damage caused by our current approach to growth. By focusing so heavily on climate and environmental degradation, they ignore the serious damage we are doing in other areas – to the quality of work, to politics and to the community.

Second, they misunderstand the nature of economic growth itself. They, and most politicians, are working on an outdated idea of ​​economic activity: an idea rooted in 19th century economics. When almost everyone worked in agriculture or manufacturing, measuring inputs and outputs was relatively simple. It was easy to see if we were producing more stuff. But that’s not how the knowledge economies of the 21st century work.

Growth from ideas

He argues that most growth now comes not from the production of more goods, but from the production of more ideas. Improved technologies and cultural and economic incentives help us use resources more efficiently. That’s what growth should mean: not just making more things, but improving work and lives, and creating healthier communities and stronger politics.

And he argues that economic growth, even with our limited measures, has proven compatible with environmental improvements. Between 2005 and 2019, each of the 25 countries he examined experienced economic growth alongside a reduction in CO2 emissions.

As an example of how growth, understood in this way, is compatible with environmental goals, he mentions the costs of eliminating CO2 emissions. In 2006, the Stern Report found that reducing global emissions by 80% would cost about 2% of total production or gross domestic product (GDP) per year. Now the UK Climate Change Committee estimates the cost at less than 0.5% of GDP. This is good growth: the result of new ideas, new technologies, regulations and cultural changes in what is considered acceptable.

That’s why, he argues, we need to invest more in ideas. He points out that the world’s leading companies typically invest 15% of their turnover in research and development, seven times as much as the average developed country.

The limits of GDP

Susskind believes that although GDP per capita is a crude measure, it is useful because it correlates well with many indicators of social and personal well-being. However, it has limitations. It is basically a measure of the products and services that are bought and sold. So it cannot directly measure the ‘output’ of schools and hospitals, it ignores unpaid work and it assumes that price is the best measure of the quality of products and services.

So we need it and we need to improve it. But he argues against those who propose one new measure that would combine economic with social and personal factors. For example, they argue for the inclusion of well-being indicators, which are already collected but reported separately).

GDP and politics

He sees the call for a single measure as a well-intentioned but misguided attempt to reduce political issues to technical, quantitative questions. This would be wrong for two reasons. First, they are different in nature and technically difficult to combine into a single measure. But more importantly, because they are essentially moral issues, and therefore the domain of politics, not economics. It is up to us as a community to decide how to balance economic benefits, measured by GDP, with social and cultural factors. The problem is not growth, but its misuse: allowing a technical measurement of growth to dominate our politics.

Many of the issues affecting the “degrowth” movement, he said, could be better addressed with better politics, rather than abandoning the goal of growth itself.

We need to keep GDP, but refine it as a limited measure of something important, but combine it with reforming politics, which is the right way to recognize social value. Susskind thinks he sees optimistic signs in the emergence of new political forms. An example is the increasing use of citizens’ assemblies in building political consensus to shape public policy – ​​such as on abortion in Ireland, nuclear energy in Korea and assisted dying in France.

He therefore calls for recognition of the real nature of current growth, and for much greater investment in ideas and technology, in addition to reformed and renewed politics.

A wise person once said, “Knowledge and love are the only things that grow when you give them away.” We need growth, but we also need good measures, and to keep them in place.

Not everyone will agree, but this book is an important contribution to an ongoing debate.

More of East Anglia bylines