Current Affairs Digest: Economics (December 2023)

1. Debating economic growth: Three perspectives compared

In the recent King’s Speech, the government said its focus was on “increasing economic growth”.^[1] Similarly, the opposition has said that one of the driving ‘missions’ of a future Labour government would be to “secure the highest sustained growth in the G7”.^[2] However, in the wake of a secular slowdown in growth across advanced economies, it is no longer clear how or whether a strong rate of growth can be attained.^[3] Moreover, with increased attention being paid to the environmental costs of ever-expanding production,^[4] some have questioned the desirability of boosting economic growth, even if it is possible.^[5]

Three different perspectives from the contemporary debate about economic growth are considered below. Recent pieces from thinkers in the field have been selected as representative of these perspectives. Each advocates for a distinctive approach:

• First, the case for a renewed commitment to market-led growth, where economic growth is understood to be an inherently beneficial development that should be targeted by policymakers.
• Second, the case for mission-oriented growth, whereby economic growth is understood to be a healthy by-product from the solving of societal problems rather than something which should be the main object of policy.
• And third, the case for degrowth, where the continued growth of already rich economies is understood to be an environmentally harmful development that should be discouraged.

2. Market-led growth

In January 2023, the director of the Centre for Policy Studies, Robert Colville, published an essay, ‘The morality of growth’.^[6]  As suggested by its title, this essay makes the case that growth should be treated as a “moral good” on which our prosperity depends, with living standards directly related to economic growth. “The faster you grow, the better the lives your citizens are able to enjoy”, Colville suggests.

For Colville, more growth means more jobs and more goods and services, but also more taxes paid. Therefore, as well as increasing consumption, growth increases the resources available to deal with societal challenges. For example, with respect to climate change, Colville argues that the more growth you have, “the more you can invest in either mitigating the damage from climate change or developing the kind of technologies that might actually bring it to a halt”. As such, Colville suggests we should view every increase in economic activity as an inherently desirable thing: “every job created, every product sold, every pound in tax paid, is a tiny victory in the war for our collective prosperity”.

In terms of how to deliver that growth, Colville argues that the only way to deliver “proper, sustainable, cake-growing growth” is by supporting the private sector. However, he says that the “free-market machine has become gritted up”, with “Nimbyism” allowed to flourish. If we are to increase growth, Colville says we need to be willing to do things that “are not popular, that do annoy people, that challenge incumbents and vested interests”.

Given how important growth is, Colville suggests that we need to start treating obstacles to it not as merely unfortunate but “as a moral outrage”. Colville suggests that businesses have recently been infused with a kind of faux morality, where their focus has been on “performatively demonstrating” that they are “on the side of righteousness”. Instead, Colville argues, they should focus on the actual “moral good” of being “profitable and successful and attractive employers”.

For Colville, this misunderstanding of what the truly “moral” approach is means that it is “more important now than ever” for “thinkers, politicians and business leaders to persuade people of why growth matters”. A mindset which “apologises for growth and innovation” is one that “leaves less for the most vulnerable—in Britain and beyond”.

3. Mission-oriented growth

In an August 2023 Project Syndicate article, ‘Rethinking growth and revisiting the entrepreneurial state’, Mariana Mazzucato, professor in the economics of innovation and public value at University College London, accepts that growth is important but argues that it is a mistake to put it “at the centre of economic policymaking”.^[7] She argues that growth “in the abstract” is not a “coherent goal or mission”.

Mazzucato suggests that economic growth has a direction, as well as a rate, and that policymakers should focus on the former rather than the latter, because the economy will not “grow in a socially desirable direction on its own”. “After all”, she says, “what good is a high growth rate if achieving it requires poor working conditions or an expanding fossil-fuel industry?”. For Mazzucato, achieving “green and inclusive” growth will require a new approach, shifting away from our current economic model which is “more often than not about value extraction and short-term profit maximization, rather than value creation for the sake of society as a whole”.

The state has an “important entrepreneurial role to play” in steering growth in the right direction, Mazzucato argues. Governments need “economic-policy roadmaps with clear goals” which are “based on what matters most to people and the planet”. To help achieve those goals, states should make “goal-oriented investments in their own capabilities, tools, and institutions”. A “hollowed out” public sector will be “susceptible to capture by vested interests”, but by investing in its own capabilities, governments will be better equipped to “successfully mobilise resources” and create “purposeful growth and public value over time”. This kind of growth will still require the private sector, but it requires the public and private sectors to “coordinate efforts” and to “work together symbiotically”.

In terms of efficacy, Mazzucato also argues that the governments that have been most successful in “catalyzing growth” are those who have been pursuing other goals, rather than treating growth itself as the objective. For example, she notes that NASA’s mission to land a man on the moon yielded significant innovations (in aerospace, materials, electronics, nutrition and software) which would later create significant “economic and commercial value”. However, NASA did not set out to create these technologies for that reason and it “probably never would have developed them at all if its mission had been simply to boost output”.

The question we need to ask, Mazzucato says, is “not how much growth we can achieve, but what kind”. If we want to achieve economic growth which is both “inclusive and sustainable”, then governments will need to “embrace their potential to be value creators and powerful forces shaping the economy”.

4. Degrowth

In ‘On technology and degrowth’, an article published in the Monthly Review, Jason Hickel challenges the idea that continued growth is compatible with internationally agreed targets for carbon emissions reduction.^[8] He argues that “green growth” scenarios rely on “several deeply problematic assumptions”:

• First, they assume the overshoot of emissions targets in the short-term and “rely on mass deployment of speculative negative emissions technology in the future […] to pull excess carbon out of the atmosphere”. Hickel suggests that this is both a technological risk, given that such technologies have not been proven at scale, and a political risk, as such technologies would require “vast tracts of land […] up to three times the size of India” and would thus generate geopolitical tensions.
• Second, they assume efficiency improvements which “radically decouple” GDP from energy use. Hickel acknowledges that efficiency improvements are important, and that some decoupling has already taken place, but argues that they will not “deliver the results we need” for as long as our economy is “organised around growth”. Hickel says that in growth-oriented economies “gains from efficiency improvements tend to be leveraged to expand processes of production and consumption, which tends to erode absolute reductions in energy or material use”.
• And third, they assume that high levels of energy use in high-income countries are maintained by “constraining energy use, and therefore development, in the Global South”. Such an approach, Hickel argues, is “immoral and unjust” and “clearly unacceptable to Global South negotiators”. In addition, decarbonising high-income economies with their existing levels of energy use would require “extraordinary levels of material extraction for all the energy infrastructure and batteries” that would be necessary. Most of this would be obtained, Hickel suggests, from the Global South through supply chains which are “already in many cases socially and ecologically destructive”.

Hickel says that once we “reject the idea that growth in rich countries should be maintained at the expense of the Global South” it becomes clear that technological change will not be, “in and of itself”, enough to solve the ecological crisis. Hickel says that we do need “fast renewable energy deployment, efficiency improvements, and dissemination of advanced technology (induction stoves, efficient appliances, heat pumps, electric trains, and so on)”, but that this needs to be combined with high-income countries dramatically reducing aggregate energy and material use.

To achieve these kinds of reductions, Hickel argues that we need to “abandon growth as an objective and actively scale down less necessary forms of production”. Hickel argues that this would not be a problem. GDP, he suggests, does not measure “what is important for people” and its growth does not reflect “innovation, or social progress, or improvements in well-being”. By “organising production around sufficiency and human needs” it will be possible to “ensure decent living standards for a global population of ten billion people” while preventing climate breakdown. If we want to achieve specific kinds of innovation, Hickel says that we should “target those directly rather than grow the whole economy indiscriminately and hope it will magically deliver the innovation we need”.

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Cover image by ijeab on Freepik.