Growing beyond growth

Nothing preoccupies the modern political process more than economic growth does. The very term ‘growth’ and its corollary connotations of progress, improvement and prosperity convinces us – before any argument or debate takes place – that it’s something worth pursuing. It’s only natural that economies ought to grow, just as human beings do (or think we do). Beyond that it is certainly more appealing to think that the world is evolving towards a better and more prosperous future than to imagine a picture of stagnancy; the enlightenment idea of progress has the ideological pillars of capitalism firmly planted in the soil: the engine of progress is undoubtedly economic growth, the expansion of volume of goods and services at human’s disposal.

It’s certainly not without cause: economic growth has lifted millions out of poverty, improved standards of livings, opened up an unprecedented array of opportunities for people to realize their potential as human beings. Until the past 200 years, standard of living has been very much like a horizontal line, almost stagnant. And where it did change, changes were virtually imperceptible and most people expected to die in the same economic conditions that prevailed when they were born. Since the industrial revolution during the 19th century, total output has increased 40-fold, per capita real output increased eightfold. People are experiencing changes at an unprecedented speed and of a nature never before seen. Increase in income gradually became the very object of life in modern society to which all men and women are dedicated – both for the real improvements that it promises and the excitation & effervescence it generates. Who doesn’t want a better tomorrow?

So economists became the priests of an increasingly influential cult. They became relentless advocates of growth as the solution all problems. If there’s inflation, grow the economy so that aggregate supply shifts rightwards to offset price increases brought about by demand increase; if there’s unemployment, grow the economy and jobs will come naturally as wind. if there’s a BOP deficit, grow the economy by making factors of production more productive and therefore more competitive in the international economy; if income inequality’s rising, grow the economy, still, so that everyone is better off instead of making some worse off through redistribution. In my A levels economics exam growth was the final solution for all economic problems, or so said the notes. (well to be exact it didn’t say it was a perfect silver bullet but it was the best out of everything else, just like how democracy is the worst form of government except all those others that have been tried from time to time) And benefits of growth are not taken to be so self-evident that hardly any textbooks bother explaining why growth should be pursued.

But there are costs to growth, and these are magnified when countries pursue growth at breakneck speed or remain indifferent to the nature of the growth that’s taking place – eyes kept peeled only at the GDP figure, blind to environmental degradation, depletion of natural resources, costs of structural changes which can lead to social instability and welfare losses.
In Singapore’s case (as in many where else) we seem to have been trapped in a false dilemma: to grow or not to grow? Either we grow and make everyone better off with higher disposable income and therefore greater prosperity, or we don’t and tumble down a road of inevitable decline and stagnancy. But recent works I’ve come across (not least cos of work at cpe) have shed new light on the nature of this problem, convincing me further that our understanding of growth has been artificially represented in the above-mentioned false dilemma.

That growth is desirable has been predicated on two major assumptions: growth makes people wealthier, and people are happier when they are wealthier. In short, more is good and richer is better. Presumably that’s why it’s restrain is so much to ask of us mankind when growth is bumping against physical limits so profound, like climate change and peak oil. There is now a large body of evidence casting serious doubt on the dual assumptions, but which is until very recently systematically ignored by policy makers and most economists yet consistent with folk knowledge that money cannot buy neither a happy life nor a happy nation.

For one, economic growth does not necessarily make people wealthier; beyond a certain point it can generates inequality and insecurity that is unsettling and counterproductive. Growth means perpetual structural changes and this means there will always be winners and losers at any one time period. In the short run some people lose their jobs, those at the bottom may experience stagnant wages for decades due to ‘competition from globalization’. In the long run everyone might be better off, but in the long run the people who lived through the short run are dead. Every short run can mean a whole lifetime in the economic time scale.

For two, more is not always better; rising incomes do not always mean greater happiness. While there is a strong and powerful argument for more economic growth in countries where large populace lives in abject poverty, the case for more rapid economic growth in developed countries seems to be losing traction. For instance, studies have shown no correlation between average appreciation of life ranking and GDP per capita or (surprisingly) even HDI. This imply that it is unlikely that in itself additional income makes much difference to wellbeing in developed countries. Other studies – John Hicks’ ‘law of diminishing marginal significance of economics’, for example – suggest that as incomes rises, income and economic factors become less important in welfare.

Further, even if higher income means greater happiness for the individual, it is not entirely clear if it holds true for society in general. Recent findings suggest that more equal societies are more happy societies: Robert Frank, in his recent book “Falling Behind” illustrates how psychological wellbeing depends not just on one’s level of income, but also on the perceived gap between one’s actual and desired income, one’s actual and expected income and ones actual income and the incomes of others. Academics like Michael Argyle would go even further to say that income inequality is a stronger predictor of national happiness than income levels precisely because people have reference dependant yardsticks of wellbeing. In other words, if economic growth causes the rich to be richer than no one is better off; for society as a whole to be better off the rich will have to be less rich. To be frank I am surprised this is even news that economists marvel about because the gut feelings of fairness and justice is something so instinctive, intrinsic so deep-seated within the human psyche! And economists have to take this long to realize something so basically human.

And at the end of the day perhaps the founding fathers of economics still knows best. “Towards what ultimate point is society tending by its industrial progress. When the progress ceases, in what condition are we to expect that it will leave mankind?”, asked JS Mill, who confesses that the idea of the stationary state is not that unthinkable afterall:

“I am not charmed with the ideal of life held out by those who think that the normal state of human beings is that of struggling to get on; that the trampling, crushing, elbowing, and trading on each other’s heels, which form the existing type of social life, are the most desirable lot of human kind, or anything but the disagreeable symptoms of one of the phrases of industrial progress... the best state of human nature is that in which, while no one is poor, no one desires to be richer, nor has any reason to fear being thrust back by the efforts of others to push themselves forward.”

The first lesson of economics has always been on scarcity: the central problem of economics is figuring how limited resources might be used to satisfy unlimited wants. From day one I had found this statement to be inherently illogical: by definition finite resources can never satisfy infinite wants – the two variables are like parallel lines that will never converge no matter how much we delude ourselves. Economics makes itself a dismal and futile enterprise by even trying to bring them in line. But there’s one thing we can change, and that is ourselves: we can be contented by controlling our wants, by knowing what we’ve got, knowing what we need, and what we can do without. We human beings need to grow – in wisdom and in understanding – before growth outgrows us to eventually lead us by the nose.