Why the return of economic growth is a neoliberal illusion

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(Image by Christopher Dombres / Flickr.)

Some commentators are feeling chipper about the prospect of a return to growth but to many scientists and economists, growth looks like the problem. Mike Dowson searches for growth that is plainly beneficial.

IN 1903, ELIZABETH MAGIE invented a board game to demonstrate the dysfunction of an economic system where wealth comes from rents, rather than productivity. In one of history’s ironies, Charles Darrow took the idea, inverted it and commercialised it. The game became "Monopoly" — that celebration of exploitative accumulation now played the world over.

Something similar happened with GDP. The economist Simon Kuznets developed it as a way of measuring and comparing economic output. But he warned against it as an indicator of wellbeing. Quantity and quality are very different things.

Unfortunately, Magie and Kuznets were long ago silenced by the "greed-is-good" crowd. Politicians, business leaders and mainstream economists typically love growth because it relieves everyone of the difficult challenge of improving human lives while taking care of the Earth. Poverty, insecurity, climate change — no time for that now. We’ll fix that up later.

But somehow, later never arrives. The custodians of this system never seem to get around to securing our children’s future. When it comes to GDP, apparently there’s no such thing as enough.

It’s true there’s a historical correlation between security, prosperity and growth. Those were the days when “trickle-down” worked. It worked because the trickling down occurred through higher wages and better social services at the insistence of a strong labour movement when our media weren’t just corporate mouthpieces. That’s all changed.

But isn’t GDP still growing? Sure. GDP can grow along with population, even while living standards stagnate. In that case, growth doesn’t help us. In fact, right now, poverty is also increasing in Australia. Shouldn’t that cancel out the boost to GDP from population growth? Something else must be increasing too. What could that be?

Have a look around Australia’s leafy suburbs, marinas and premier retirement locations. There you’ll see a level of opulence once reserved for royalty. It would be churlish to begrudge that, surely?

Well, if this good fortune applied to more than a minority of the population, if it came from improved productivity and if it didn’t have any negative consequences, it would be grand. But, unfortunately, none of that is the case.

Once we adjust for population growth, much of our meagre GDP growth goes with it. If this affected the entire population equally, nobody’s wealth would be increasing. But, in fact, it’s the poor who are bearing the brunt, while the rich get richer. In simple terms, existing wealth is being redistributed upwards. So poverty and inequality are rising.

Growth can signal general improvements in material living standards but only when it’s per capita growth and widely shared. Over the last few decades, however, our immigration, monetary and taxation systems have been restructured to favour the already wealthy. If our political class appears disinterested in fixing our economic dysfunction, remember who created it, to begin with.

One alternative model to the growth economy is the so-called "steady state economy". The name speaks for itself. Any clever things we do to make our lives better must not deplete Earth’s finite resources, or produce more waste than Earth can absorb — that is, if we want to leave a habitable world for our descendants.

This ought to be common sense. But it has some implications that deter many people. Sadly, we reached Earth’s limits some time ago. So where is the extra wealth we desire for ourselves going to come from?

There are two answers and the one we choose will determine not just our fate but that of generations to come.

One answer is what we have now. Inequality. Getting rich at the expense of others. Poor countries, your neighbours, your elderly parents, your children. Just find a way to charge them rent for something they need. That’s what you do in Monopoly.

The problem is it can’t last. As ordinary people work harder for less – and sacrifice quality of life just to survive – the callous laughter from your mansion in Park Lane will become insufferable. Inevitably, as American billionaire Nick Hanauer warned his peers, the villagers will reach for their pitchforks. Even your vicious robot sentries won’t be enough to protect you from widespread popular wrath.

The other answer is to shift the paradigm from wealth to wellbeing. That’s success measured by health and happiness, rather than the crude value of material consumption.

Humans are natively very good at this. For hundreds of thousands of years, that’s what we did. We learned through experience and observation. We invented technologies to improve productivity. We passed valuable knowledge on to our young. And we created institutions to preserve security and stability.

This is where good forms of growth come into their own. Biodiversity, soil fertility, air and water quality, health, longevity, literacy, social engagement, science, creativity, the arts. When these grow, the benefits are spread.

We also benefit when we learn to procure things we want with fewer resources and less waste. Renewable energy and water recycling are contemporary examples. Growing these would be a good idea.

Then there are valuable services. Care for children, the aged, the sick and the disabled is a base marker for a civilised society. Many other helpful services, from therapies to skills training, to art, sport and entertainment, can promote health and happiness without violating planetary boundaries. The growth of these has only positive effects.

Why shouldn’t you be rewarded when you contribute to these benign forms of growth? Much of the enormous talent and energy of our young people is looking for opportunities. What’s wrong with these?

Why is a lump of coal more valuable than a child’s health? That’s because the people with the money think so. By investing in asset price bubbles like real estate, extractive industries like fossil fuels, and exploitative products like gambling, alcohol, junk food and pharmaceuticals, they’re counting on our lives getting worse. Damage pays them a return. Complicit governments reward them with tax breaks, sweet deals and weakened regulation and help fulfil the prophecy by withdrawing services from the rest of us.

A responsible system would encourage investment into enterprises that promote wellbeing instead. If we’re going to help the rich get richer, let’s at least make it survivable. Pricing in externalities, like social and environmental harm, would help. That’s what the carbon tax was intended to do.

The feature of the sustainable model that greedy people really don’t like is that you must earn your wealth. That doesn’t mean turn up and punch the clock in some ruthless machine of destruction. It means to do some good, invent something useful, improve it, or provide it. But you can’t just make off with the goodies, even with a clever financial advisor and a sophisticated tax minimisation strategy. That’s unsustainable, because it depends on others missing out.

The system that took over the world in the last 200 years used a different approach. It improved material existence for many and made a small cohort obscenely wealthy, but at the cost of ransacking the Earth, exterminating First Nations peoples and robbing our descendants. That train has run out of track.

Planets are finite. Earth might appear inexhaustible from an office tower or a plush recliner, but the data tells another story. A lot of people don’t like it, many refuse to accept it but, so far, the cosmos doesn’t seem to care how we feel about it.

Once we stop buying their snake oil, our leaders will pursue the objectives that we collectively insist are important. That’s why many people believe our definition of progress must change.

Mike Dowson is a private management consultant. 

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