Reuters - Must We Always Grow the Economy? E-mail

By James Ledbetter

In one chapter of his sharp new book "The Next Convergence," the economist Michael Spence asks a simple yet evocative question: Why do we want our economy to grow? Spoiler alert: He does find a few good reasons. It's rare, though, to hear an economist raise even theoretical doubt over such a deeply ingrained assumption in Western economies; one may as well ask why we want electricity.

In the United States, we hear that economic growth should trump nearly all other social and political considerations (a position held by some on the right), or that growth should be tempered by other important values -- environmental protection, health and safety, wealth redistribution -- which is widely believed on the left.

But almost no one anywhere on the modern political spectrum argues that we should try not to grow the economy, or that never-ending growth is impossible.

Yet it's a curious consensus since, as Spence notes, "for most people, the main goal is a decent level of income." We may associate growth with providing material comfort for ourselves, but growth is primarily a means to an end, rather than an end in itself.

Many people will quite reasonably say that they want the economy to grow so that standards of living can improve for the worst off. Yet there is ample evidence that in the world's largest economies, the growth that has occurred in recent decades has made economic inequality worse, not better.

At a minimum, if raising living standards for the poor is a society's main goal, there are faster paths to getting there than waiting for that old rising tide to lift all the boats.

Moreover, our automatic assumption about the virtue or even feasibility of growth is hardly universal. John Stuart Mill, a towering philosopher of the 19th century, assumed that advanced societies would grow their wealth until they reached a "stationary state," a point at which all basic human needs had been met and the accumulation of greater capital would be unnecessary. He viewed this evolution not only as inevitable, but desirable.

"The best state for 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," Mill wrote.

Such a view is obviously hard to square with American conceptions of liberty and self-determination. Most Americans accept that the state has a right to tax them, but would never accept the idea that they or their businesses could be coerced to stop increasing their wealth. And a glance at the Forbes 400 list of billionaires suggests that voluntary wealth caps aren't very popular, either. ( here )

Even in America, however, economic growth has not always been as reflexive a political goal as it is today. Particularly before trade became truly globalized, there were usually easier ways for corporations to increase profits than to invest in the capacity to grow. In the 1940s and 1950s, many industrial businesses prioritized lower taxes and price stability over growth, and the Eisenhower administration largely agreed.

It was in fact the political left -- trade unions and the liberal economists who came into power under John Kennedy -- who urged the country to adopt a stance of permanent economic growth. They saw sustained growth as a way to create jobs and to pay for social goods, such as poverty reduction.

As Daniel Bell noted in his classic book The Cultural Contradictions of Capitalism: "The idea of growth has been so fully absorbed as an economic ideology that one no longer realizes how much of a liberal innovation it was."

There have, of course, been challenges to this world view in subsequent years. The most prominent came from the "Club of Rome," whose 1972 book Limits to Growth laid out much of the critique that is today widely associated with the slow-to-no growth philosophy of many environmentalists.

Yet no major government on a national level has seriously tried to pursue a strategy of keeping its economy from growing. So long as competition exists among nation-states, the failure to grow will be associated with a fear of being overtaken, economically or even militarily.

That competition may be one reason that Mill's idea of a stationary state seems so distant to a modern reader. Another, discussed by Spence, is that innovation inevitably fuels economic growth, and so long as humans innovate they will create growth, even unintentionally.

Still, history and nature provide precious few examples of anything that grows forever. Increasingly as we integrate into what Spence calls a "multispeed world," we will encounter instances in which growth itself is not sufficient. The recent election in Peru, for example, saw the victory of an anti-poverty leftist, even though Peru's per capita gross income has risen 82 percent in the last five years. (The Wall Street Journal cited an economist's study title as summing up the national mood: "It Isn't the Economy, Stupid: Economic Growth Does Not Reduce Political Discontent in Peru." --here )

And so the challenge for the West is: Can we channel our thirst for economic growth into something more effective, like better distribution of wealth?

James Ledbetter is the op-ed editor of Reuters. He is the author of the new book "Unwarranted Influence: Dwight D. Eisenhower and the Military-Industrial Complex," published in January 2011. The opinions expressed here are his own.

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