Economic growth is a measure of how much more a society is producing now than it did in the past. In his new book, Growth: a reckoning, the economist Daniel Susskind explores how we understand growth and its history. He argues for a better understanding and measurement of growth and a better politics to go with it. But he believes that those who campaign against growth-led policies are wrong.
Growth: a new idea
Surprisingly, political discussion of 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 built up in the following decade, it came to be used by rival countries to measure their relative performance, when 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.
Economic growth itself is relatively new. For most of human history nothing much changed from generation to generation, or century to century. But, in the last couple of centuries, economic growth has taken off, bringing huge improvements in the quality of life for most people, even in the poorest countries.
But this has come at a cost in inequality, cultural and social disruption, and environmental damage. And since the 1970s, there has been a growing body of opposition to growth, especially from people concerned about climate change and the degradation of the environment. They argue that the earth’s resources are being exhausted.
However, at the same time, slowing economic growth in the developed world has been creating 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 harm caused by our current approach to growth. By focusing so heavily on climate and environmental degradation, they neglect the serious damage that we are doing in other spheres – to the quality of work, to politics, and community.
Second, they misunderstand the nature of economic growth itself. They, and most politicians, are working on an outdated notion of economic activity: one rooted in 19th century economics. When almost everyone was employed in agriculture or manufacturing, measuring inputs and outputs was relatively simple. It was easy to see if we were producing more stuff. But that is not how the knowledge economies of the 21st century operate.
Growth from ideas
He argues that most growth now comes not from producing more goods, but producing more ideas. Through improved technologies, and cultural and economic incentives, we make more efficient use of resources. That is what growth should mean: not just making more things, but making work and lives better, and creating healthier communities and stronger politics.
And he argues that economic growth, even by our limited measures, has proved compatible with environmental improvement. Between 2005 and 2019, in every one of 25 countries he examined, economic growth has taken place alongside reductions in carbon emissions.
As an example of how growth, understood in this way, is compatible with environmental objectives, he cites the cost of eliminating carbon emissions. In 2006, the Stern report assessed that reducing global emissions by 80% would cost around 2% of total production or Gross Domestic Product (GDP) per year. Now, the UK Climate Change Committee estimates the cost as less than 0.5% of GDP. This is good growth: the result of new ideas, new technologies, regulation and cultural changes in what is seen as acceptable.
So, he argues, we need to invest more in ideas. He points out that the world’s leading companies typically invest 15% of their revenue in research and development, seven times as much as the typical developed country.
The limits of GDP
Susskind believes that although GDP per head is a crude measure, it is useful, because it correlates well with many indicators of social and personal wellbeing. However, it has limitations. It is really a measure of products and services which are bought and sold. So, it cannot directly measure the ‘production’ 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 a new single measure which would combine economic with social and personal factors. They argue, for example, for the inclusion of wellbeing 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 ones. Doing so would be wrong for two reasons. Firstly, they are different in kind, and technically difficult to combine into a single measure. But more importantly, because they are fundamentally moral issues, and thus the territory of politics, not economics. It is for us as a community to decide how to balance the economic benefits measured by GDP against 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 which concern the ‘degrowth’ movement, he argues, would be better tackled with a better politics, rather than abandoning the objective of growth itself.
We should keep, but refine, GDP as one limited measure of something important, but combine it with reform of politics, which is the proper way to recognise social value. Susskind thinks he sees optimistic signs in the rise of new political forms. One example is the rising use of citizens’ assemblies in creating a political consensus to shape public policy – as on abortion in Ireland, nuclear energy in Korea, and assisted dying in France.
So, he calls for a recognition of the real nature of growth today, and for much greater investment in ideas and technology, alongside a reformed and reenergised politics.
A wise person once said ‘knowledge, and love, are the only things which grow when you give them away’. We need growth, but we need good measures, and to keep it in its place.
Not everyone will agree, but this book is an important contribution to an ongoing debate.
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