Posts Tagged ‘economic growth’

We value what we measure

Tuesday, December 14th, 2010

This is the third and final part of a series of posts about contemporary progressive thinkers who challenge the ‘conventional wisdom’ about economic growth. Part one looked at Richard Wilkinson and Kate Pickett’s The Spirit Level and part two looked at Tim Jackson’s Prosperity without Growth.

Wilkinson, Pickett and Jackson suggest that economic growth should no longer be — even cannot be — central to the progressive project. But what about those within the economics profession itself?

Joseph Stiglitz is a U.S. Nobel prize-winner, former chief economist of the World Bank, and author of Globalisation and Its Discontents and Freefall: America, Free Markets, and the Sinking of the World Economy. Amartya Sen, born in India, is also a Nobel prize-winner, and the author of Development as Freedom and The Idea of Justice. Both are highly-regarded progressive economists.

In 2008 and 2009, together with Jean Paul Fitoussi (a distinguished French economist), they headed a Commission on the Measurement of Economic Performance and Social Progress set up by President Nicolas Sarkozy of France, who felt that existing measures like Gross Domestic Product (GDP) didn’t tell a full and proper picture of the economy or society.

The Stiglitz-Sen-Fitoussi Commission produced a lengthy, thoughtful and thorough report. They argued that GDP was indeed a partial and often misleading measure, and proposed reform across three dimensions. First, classical GDP statistics needed to be refined to better take account of things like income distribution and the actual value of public services. Secondly, there was a need to complement GDP with measures of ‘quality of life’, including both purely subjective aspects such as happiness, and more objective factors drawn from Sen’s ‘capability framework’. Thirdly, we need to measure and track the sustainability of our economy, defined quite precisely as whether “at least the current level of well-being can be maintained for future generations” — for this the Commission argued that an approach based on changes in resource stocks (which Tim Jackson would recognise) would be needed.

Across all three dimensions, the Commission’s arguments are well-developed and compelling, although they were clear that their report was very much a starting point for what would be a complex exercise of statistical reform.

And, while predominantly an expert technical process, their work is likely to have important policy consequences and implications for progressive thinking. This is because the way we account for things helps determine the way we see the world. What we measure, we value; and, too often, if it isn’t measured, it slips out of view. This was a central theme of New Zealand politician and academic Marilyn Waring’s feminist critique of economic statistics, Counting for Nothing, back in 1988, and this work is very much in that vein.

In a ‘Reflections’ paper accompanying the main report, Stiglitz, Sen and Fitoussi are more explicit about this aspect of their project:

It is our belief that an open discussion of the issues – and problems – involved in measuring economic performance and social progress provides an important context within which societies can engage in critical debates about societal values. (p. 27)

Otherwise, the “risk is that as countries strive to increase measured GDP, they take actions which now, or in the future, may actually lower societal well-being” (p. 10). This can be seen with the environment:

Countries that enjoy high living standards today by depleting their inheritance of natural resources – without investing the proceeds – are “robbing” future generations. It is possible that doing this does not even increase their welfare, as people usually care about the well-being of their children, but they may unintentionally act this way, at least partially because they are not informed, absent the right metric. (p. 10)

And even with the recent Global Financial Crisis:

Many concluded, for instance, that financial deregulation was good, because it led to rapid expansion of the financial industry and an increase in measured GDP. We now know that that growth was not sustainable; that much of the profits earned in 2004-2007 might more appropriately be looked at as winnings in gambling by some, which were more than offset by the losses in 2008, and the following years, by others. (p. 11)

What, therefore, are the likely implications of measuring things in a broader and more accurate way? How would this approach, if implemented, be likely to inform the further development and renewal of progressive ‘theoretical foundations’?

In some respects, it would likely be compatible with the arguments of The Spirit Level and Prosperity without Growth. We would become more aware of which types of societal and economic development were having the most positive (or negative) impact on quality of life, and whether we were on a sustainable path. The Commission’s work can’t at this stage point to whether a strict path of de-growth is necessary, as Jackson argues, but would nevertheless encourage us to see the quantum of economic activity as just one set of factors in achieving progressive goals of equitable wellbeing. Metrics on things like leisure, happiness and political voice would help to provide a broader picture.

A secondary but still important consequence might be to counter negative images of the effectiveness of public services. The modern image of the public sector languishes under the constant suspicion of inefficiency and dysfunction, a far cry from the chilling efficiency of ‘bureaucratic authority’ depicted by Weber and which (I have argued) helped underpin the Keynesian-era confidence in the state. Cautiously, without wishing to prejudge, the Stiglitiz-Sen-Fitoussi Commission suggests that if we could better measure the value and not simply the input costs of non-market public activity, we may see a more positive picture of improved value over time (often in form of better quality and more effective services in areas like health and education, rather than larger volumes).

That may be one more way in which the seemingly mundane process of statistical reform could transform the way we see things, and deconstruct some of the statistical ’story’ that neoliberalism has constructed about the primacy of growth and markets.

Links:

  • The main Stiglitz-Sen-Fitoussi Commission report.
  • The accompanying ‘Reflections and Overview’ paper from Stiglitz, Sen and Fitoussi.
  • My earlier post on Weber.

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Macroeconomics without growth

Tuesday, December 7th, 2010

This post follows from last week’s, which discussed how Richard Wilkinson and Kate Pickett’s The Spirit Level argued against the continued value of further economic growth. This week’s post looks at the work of Tim Jackson, who, as discussed previously, also argues that it is both possible and desirable for modern economies to operate without growth.

Economic growth is not good for our society or our environment, argues Tim Jackson, the author of Prosperity without Growth: Economics for a Finite Planet.

That’s not a new position for someone coming from an ecological perspective. What is a bit more unusual that he also faces up to the economic problems that a “steady-state economy” would face, and goes some way towards demonstrating that they can be overcome.

The new ecological macroeconomics that he is developing has the potential to become an important contribution to the ‘theoretical foundations’ of progressive thought in the 21st century.

But, before addressing this, it is worth touching on another important aspect of Jackson’s book, which is his refutation of what he calls the ‘myth of decoupling’. A standard feature of more mainstream economists’ efforts to take climate change seriously is an effort to show that it is, while not easy, manageable for us to make the transition from our current carbonised economy to a much less carbon-intensive one, which could otherwise carry on much as before. The work, for instance, of Nicholas Stern falls into this category.

Jackson, by contrast, makes a convincing case that this is arithmetically impossible. In 2007 a global population of 6.6 billion had an average income level of $5,900, with a carbon intensity of 760 grams of CO2 per dollar. This produced 30 billion tonnes of CO2 emissions.

The IPCC’s targets for 2050 is 4 billion tonnes of CO2per annum. In order to reach that, assuming a population of 9 billion (the UN’s mid-range estimate) and per capita income growth of 1.4 per cent a year (the same as between 1990 and 2007), we get the following equation: 4 billion tonnes of of CO2 = 9 billion X around $10,700 income X a carbon intensity of round 36 grams per dollar! That’s a 21-fold improvement on 2007 levels of intensity.

If we were to assume a higher-end population projection projection of 11 billion and allow for the developing world’s incomes to converge with those of the EU, the target gets harder again. Moreover, there would then be a need to continue to reduce carbon intensity beyond 2050. By 2100, writes Jackson, “to all intents and purposes, nothing less than a complete decarbonisation of every single dollar will do to achieve carbon targets.” Looked at this way, ongoing growth begins to look rather problematic.

But non-growth (decroissance, to use the French term) has its arithmetical problems too. Jackson points out that our modern capitalist economy has, as its basic driver, investment. And investment produces returns for the investor by increasing the productivity of labour and other resources. Therefore, over time, the amount of labour needed to produce the same bundle of goods and services declines. And so, if growth were to cease, but investment and productivity gains continued, then the economy would shed labour each year.

That would create an unstable spiral, as increased unemployment led to reduced consumption and thus a drop in investment.

Jackson calls this the dilemma of growth: growth is unsustainable but de-growth is unstable. But he believes it is possible to get around this. Drawing on earlier work by Herman Daly, Avner Offer and Peter Victor, he sets out both an idea about the kind of non-growing economy that might be stable and some thoughts about how we might develop a macro-economics to analyse the dynamics of such an economy.

Very broadly, a non-growing and environmentally-friendly would have three characteristics:

  • Firstly, the logic of pursuing productivity growth would be turned on its head by deliberately seeking to focus growth in the lowest-productivity (i.e. most labour-intensive) sectors of the economy, such as ‘personal and social services’.
  • Secondly, there would need to be a deliberate process of sharing out the work, via reductions in working time, rather than allowing the reduced labour hours to be borne by a minority of unemployed people.
  • Thirdly, the drivers and expectations around investment would need to change significantly, with the growth of ecological investment. In many cases, this would have much longer return -horizons than currently, or no returns at all. This would imply a much greater role for the public sector in leading this sort of investment.

Jackson sets out a complex typology of different investment ‘dimension’, each with slightly different  targets and conditions:

He sees a more detailed and complex understanding of the differing dynamics of these different types of investment as a distinctive feature of a new ecological macroeconomics.

Jackson’s model is a work-in-progress, but even in its current form it stands as a powerful rebuke to the notion that ‘zero-growth’ proponents must always be utopian, a bit fluffy and unwilling to really work through the hard analytical issues.

The question of whether progressives should abandon growth, as The Spirit Level counsels, or continue a champion it remains unresolved. But attempts to short-circuit that debate by dismissing de-growth as ‘pie-in-the-sky’ now face the demanding task of refuting this impressive work. I look forward to Im Jackson’s further elaboration of it.

Next week, I’ll look at the claim against GDP as a measure of progress, and particularly the work of the Sarkozy Commission.

Links:

  • An electronic copy of a slightly older version of Prosperity without Growth than the one in the bookstores can be accessed via the Sustainable Development Commission website, here.

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The Spirit Level versus the ‘investment state’

Tuesday, November 30th, 2010


Written by two epidemiology researchers, Richard Wilkinson and Kate Pickett, The Spirit Level has become the progressive publishing sensation of the last couple of years. Based on a broad range of cross-country comparisons, it takes the progressive championship of inequality to a new level.

According to Wilkinson and Pickett, greater equality doesn’t just produce better outcomes (life expectancy, educational performance, mental health etc) for the poor. They claim that (as their subtitle asserts) “equality is better for everyone”. In other words, even relatively well-off citizens are likely to achieve better outcomes in more equal societies than in less equal ones.

Why? Because, they say, more unequal societies suffer from higher levels of insecurity and status-related anxiety. This is associated with a focus on self-promotion and a weaker sense of community. These characteristics permeate the whole society, and afflict rich and poor alike. So even those who in a material sense may have ‘done better’ out of inequality may be sicker, less happy and generally less well-off as a result.

Such a theory strikes at the heart of anti-progressive political outlooks, in both their traditional-conservative and free-market manifestations. It is no wonder then, that while avowedly non-political (and occasionally cited approvingly by UK Conservative leader David Cameron), The Spirit Level has come under heavy barrage from the political ‘Right’. Policy Exchange and the Democracy Institute have each published counter-publications, by Peter Saunders and Christopher Snowden respectively, aiming to discredit it.

My main interest, however, is not the threat that The Spirit Level poses to the ‘Right’, but the challenges it presents to the theoretical foundations of much of modern progressive thinking.

Because another central plank of the Spirit Level platform is that the beneficial effects of economic growth in the advanced capitalist countries have now largely been exhausted.

The graph above illustrates that as countries develop economically, there is a reasonably close relationship with life expectancy — as the country grows and develops, its population lives longer. But the graph also suggests that, beyond a certain point, that relationship breaks down: among the rich countries life expectancy is not related to national differences in average income. The same pattern, say Wilkinson and Pickett, applies with happiness and other measures of wellbeing as well:

Sooner or later in the long history of economic growth, countries inevitably reach a level of affluence where ‘diminishing returns’ set in and additional income buys less and less additional health, happiness or wellbeing. A number of developed countries have now had almost continuous rises in average incomes for over 150 years and additional wealth is not as beneficial as it once was . . .

At the same time as the rich countries reach the end of the real benefits of economic growth, we have also had to recognise the problems of global warming and the environmental limits to growth . . .

We are the first generation to have to find new answers to the question of how we can make further improvements to the real quality of human life. What should we turn to if not to economic growth? (pp. 10-11)

Moreover, they go on to argue that the cultural logic of economic growth is intrinsically bound up with the unhealthy ’status anxiety’ that permeates unequal societies.

This, I would argue, is a major challenge to mainstream progressive thinking. Similar propositions have been put solely in ecological terms, but this takes the argument right into the heart of progressive territory: concerns about poverty and inequality.

It is hard to exaggerate how much of a departure this implies from standard Marxian, Keynesian and ‘third way’ prescriptions. (Although Marx, Keynes and Giddens themselves do each, in their own ways, conceptualise a post-materialist end-point).

This is particularly true of the ‘third way’. The success of Keynesian social democracy came from its perceived ability to keep the ‘motor’ of the economy going by acting as the ‘consumer of last resort’. As Przeworski writes, ”it was a theory that suddenly granted an universalistic status to the interest of workers” as a way of stimulating aggregate demand.

But the ‘third way’ went further, framing the idea of an ‘investment state’ whose job it was to work hand-in-glove with capital to achieve the most innovative, competitive, productive, successful national economy possible. Areas like education and science were seen more strongly than ever before as mechanisms to be used to attain national competitive advantage.

And social goals were largely seen as being achieved through the tax dividend from all this growth. Rather than worrying about an economy that was driving increasingly unequal conditions in the marketplace, the state would focus on ameliorating those effects through redistribution (via tax credits like Working for Families in New Zealand, other targeted assistance, and social spending designed to combat inequalities).

The theory and prescription of Wilkinson and Pickett stands starkly opposed to the logic of this approach, which can be seen as essentially Rawlsian.

John Rawls was perhaps the most important liberal political philosopher of the late 20th century. His “difference principle” held that inequality could be justified insofar as it contributed to general prosperity in a way that made even the poorest members of society better-off than they would be in a more equal society.

To be fair to Rawls, this could be interpreted as permitting only a very small amount of inequality. But, in practice, the Rawlsian approach was primarily taken up by those who accepted that there was a capitalist equality-prosperity trade-off, but that some of the fruits of that prosperity should be invested in making the poorest better off. They were, in other words, what John Kay has called ‘redistributive market liberals’.

And to a large extent ‘redistributive market liberalism’, and a Rawlsian view of economic growth, were at the heart of the ‘third way’.

The Spirit Level, on the other hand, seeks to turn the ‘difference principle’ on its head. Rather than inequality-generating growth being good even for the poorest, it is to be seen as detrimental even for the very richest.

Rather than the state trying to run ever faster to ameliorate inequality after the fact, Wilkinson and Pickett counsel us to abandon the culture of consumerism and reorientate towards a steady-state economy in which everyone has much more equal shares.

To this it might be objected that, even if such an approach were desirable, it is not feasible. The basic logic of a modern capitalist economy, it can be argued, is not compatible with a steady-state — without growth, it would become unstable and generate increasing levels of unemployment. This is the dilemma that Tim Jackson in his book Prosperity without Growth has sought to address with a new ecological macro-economics. And it is to this work I will turn in next week’s post.

Links:

  • Wilkinson and Pickett’s Equality Trust website.
  • Perhaps the best example of the debate over The Spirit Level — a session at the Royal Society for the Arts (RSA) where Wilkinson and Pickett squared off against Saunders and Snowden [audio and presentation slides].
  • A recent policy forum at the Institute of Policy Studies in Wellington entitled Does Inequality Matter? started with a video-linked presentation from Wilkinson, and spurred me to write this post. [presentation slides plus audio/slides for Wilkinson] The presentation by Tony Blakely (University of Otago Wellington) is one of the best critiques of The Spirit Level I’ve come across (and comes from a broadly progressive perspective).
  • My earlier post discussing Przeworski’s view of Keynes.
  • Four posts I’ve written on the ‘third way’: (1) (2) (3) (4)
  • Wikipedia on John Rawls’ A Theory of Justice.
  • An earlier post I did on Tim Jackson.
  • Two posts I did on James Purnell’s arguments about the limits of the redistributive strategy are also relevant: (1) (2).

Further Reading:

  • Richard Wilkinson and Kate Pickett, The Spirit Level: Why Equality is Better for Everyone (revised edition, 2010).
  • John Rawls, A Theory of Justice (1971).

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