Essay based on speech to The Other Economic Summit (TOES South), Epsom 1993

Alternative Perspectives on Economic Growth

Keith Rankin, 7 April, 1993

 

Growth-obsessed Economics?

One of the more enduring popular images of economists is that, while disagreeing among themselves about most things, they are all convinced that economic growth is the means to cure all our economic ills.

Indeed it is true that, if asked whether economic growth is a good thing to have, 99% of economists would say "yes". Nevertheless, few economists specialise in the study of growth. That is a peripheral area of research left mainly to economic historians (such as myself). The discipline of economics is neutral about the virtues of an indefinitely increasing output of goods and services.

Economics is about the efficient allocation of resources - maximising consumption levels per unit of resource utilised; maximising the value of outputs relative to a given amount of inputs. It is not about maximising production or consumption. Rather, it is about maximising human welfare; maximising our collective well-being. Economics is pro-welfare, so it is pro-growth only so long as growth is likely to be a means of raising welfare.

 

Industrialism and Welfare Growth.

Economic growth as is conventionally understood means "more marketed output of goods and services for eventual consumption". It is measured as the rate of change of a society's gross domestic product (GDP) per capita. While the term "industrialism" is not used by economists, it is perhaps are good term to describe a commitment to GDP growth. Thus, it is industrialism rather than welfare growth that Green activists are most concerned about. In this essay the word "growth", unless qualified, will mean welfare growth, and not industrialism.

A possible Green approach is to recognise that, while industrialism has had an important place in history (indeed we should recognise that environmental crises existed long before the industrial revolution which in fact came about because of massive deforestation in England) future growth should take alternative forms which de-emphasise industrialism.

Increased consumption is only one way by which our well-being can improve. Other ways include spending less time doing activities we dislike (and therefore more time in "leisure" or "cultural" pursuits) or in improving our public environment. Environmental improvement includes issues like (i) preserving forests, the ozone layer or air quality, (ii) improving the technical efficiency of our production processes and our consumption activities, (iii) improving the aesthetic quality and durability of much of our hardware such as buildings and machinery, (iv) improving public access to information sources such as libraries and computer networks, (v) safer neighbourhoods. A society with an expanding GDP will actually be experiencing negative growth if environmental erosion more than offsets the benefits of increased consumption.

All valuation is subjective. Therefore the existence of economic growth is subjective. Growth can never be measured objectively. Market values reflect the values of rich people. "Greens" can be thought of as people who place a greater value on environments than do other people in the community. Thus, Greens tend to be more far-sighted than others in the time-frame they adopt when assessing community welfare. Greens assess value in a historical context; a context of future history as well as past history. They also place much emphasis on the interdependence of communities - global ecology - and so think along extended geographical as well as historical lines.

Greens thus have a key role as social conscience and cheerleaders as well as advocates of different forms of growth. Greens must be there to raise the awareness of easily ignored environmental costs being incurred, and must also be there to raise public awareness of environmental successes that may be taking place at a time when other observers can only see slow growth. Greens should not be seen only as purveyors of gloom.

 

The Ideology of Industrial Growth

Journalists, politicians and other economic hobbyists - purveyors of popular economics - believe that growth is the gain that may or may not come after the pain of right-wing restructuring. In fact, dry "new right" economic rationalism is an anti-growth ideology. The economic discipline invariably advocated, as if there were no alternatives, is intended to induce recession and stifle growth. Recessions give those who possess scarce resources an increased rental income (ie scarcity return) on those resources.

Painful policies are advocated by today's privileged for today's privileged; not for future growth. They are not policies to encourage investment. Instead, they are the "policies of contentment" to steal a phrase from J.K. Galbraith's most recent book. Unlike Greens the contented do not think historically. The most spectacular victims of the 1987 sharemarket crash vehemently supported the economic policies that were quickly and obviously destroying their own financial habitats.

The ideology of indefinite industrial growth is in fact a labour ideology. Industrialism was a form of growth that was an appropriate break out from the landlord dominated pre-industrial system, whereby the idle privileged consumed and the poor produced. One product of industrialism was the emergence of a prosperous working class with a high level of male full-time employment, and its reflection in the political emergence of Labour Parties. The labour lobby see industrialism as good because it is a means to 1960s'-style full-employment, which in turn is a means to an equitable distribution of goods and services.

As a result of industrialisation, full-industrial-employment became the standard means of achieving an equitable income distribution. Our present commitment to industrialism as a panacea for social ills is still a result of our perceived need for high-fulltime employment as a means to bring about equality. This is compounded by our realisation that the rising productivity needed to ensure the international competitiveness of New Zealand firms requires a rate of output and consumption growth higher than our historical average in order to raise and then maintain employment levels.

The Green challenge is to think creatively about growth, giving equal emphasis to the aspects of our well-being other than consumption while not decrying industrialism per se. How can we have equitable growth without having high levels of full-time market-driven employment. Green economics must address the issue of income distribution in a society in which fewer people do work for other people in return for a high weekly wage, and in which many people's skills are of socio-cultural value but not sufficiently saleable to provide a secure family income. The challenge is to de-link income distribution from the labour market.

 

The Transition from Pure-Market to Cultural Employment

My vision of "post-industrial" growth is one of an increasing proportion of the population living in comfort (rather than in luxury) while employed in cultural activities rather than pure-market industrial activities. Industrial activities satisfy existing consumer markets. Increased technical efficiency in satisfying consumerism should be releasing people into cultural activities rather than into the poverty of demoralising unemployment.

Cultural activities are self-motivated and self-satisfying but not selfish. Their outputs are in small or large part a gift to the community. (Indeed, cultural activities help to create and define communities.) The value placed on cultural "products" is, by definition, uncertain. Some cultural products will attain a high market value, but most will not. What matters is that they have some value to somebody, and that they are not harmful (ie not illegal).

The word "cultural" has no snobbish overtones. Surfing is a cultural activity. Sport is a cultural activity, with professional sport having a greater market component than amateur sport. Raising children is a form of cultural self-employment. Education is a cultural activity, while vocational training is essentially an industrial activity leading eventually to a predictable market income. Invention is typically a cultural activity. Aesthetic enhancement of buildings and other features of the human environment are cultural activities.

People are paid to some degree or other for cultural employment, but enjoyment and the creative impulse are integral aspects of the motivation for the choice of activity. Economic growth means more people doing things they enjoy doing, and having control over the allocation of their time. It is inherently equitable. Natural and human resources are used efficiently and creatively rather than as cheap commodities.

 

Private Domain versus Public Domain

We are accustomed to receiving our incomes through either the private domain (wages, profits, rents, dividends, interest) or the public domain (benefits), but not both. As we have receded from the labour ideal of full-industrial-employment into the Dickensian world of unemployment and exploitative labour contracts, people are seeking ways to combine income from both domains while using the time saved by reduced industrial employment constructively if not creatively. This process is creating a lot of tension in establishment circles, in which only a very limited range of activities (such as "actively seeking work") are seen as acceptable for public domain income recipients.

A world in which cultural employment dominates will have to develop a flexible balance between public and private income sources. Sustainable yet equitable future growth will see most people receiving increasing amounts of their income from public sources.

It should be emphasised that public domain income is not a gift from The Government. The words "public" and "government" do not mean the same things. Public domain incomes are administered by Government appointed agencies such as the Inland Revenue Department, but they do not represent a charitable distribution of The Government's own money. The revenue is public revenue, not government revenue.

Private incomes depend on our inherited human and physical environments. Private incomes are acquired by a mixture of private and public resources. It is therefore appropriate that incomes initially accounted for as private are in fact split. The split is called taxation. An appropriate split may well be something like 50:50. Half of a nation's accounted income becoming gross public revenue, which is then distributed through public channels.

Public distribution entails traditional tax-funded services such as education, secondary medical care, and defence. It also includes bureaucratically targeted social welfare benefits. The most efficient way of reforming the public domain is to reduce the bureaucratic costs by distributing a "benefit" to everyone. Cultural activities cannot be objectively valued, so we shouldn't try. Public domain funding must be 100% non-discriminatory. Traditional public services must be equally available to all.

 

A Universal Tax Rebate

Higher nominal taxes ensure that there is a net distribution from people in well-paid market employment in favour of people in part-time or poorly paid cultural employment. Taxing all private income at a rate of about 50%, and returning about half of that revenue as a universal tax credit/rebate brings about an elegant form of progressive taxation by which additional income of poor people is taxed/abated at the same rate as the additional income of rich people. Low income people end up with a net income in excess of their gross income.

Such a public domain "basic income" or "support income" can also be thought of as a cultural subsidy payable in return for the non-market component of the cultural activities we increasingly wish to be involved in but which cannot be valued objectively.

Any system of public income distribution needs to be flexible - recognising different people do face different circumstances which affect their ability to earn private income - as well as simple and equitable. But, most importantly, it needs to liberate rather than proscribe creative activity. It needs to facilitate alternative forms of growth; forms that reflect the values of each community within a pluralist society.

As the productivity of industrial activities continues to grow, which will happen if cultural activities are allowed to keep adding to our base of knowledge, then it becomes appropriate that an increasing share of society's gross market income (GNP) should be devoted to public domain distribution. The basic income becomes a complete income rather than a support income. One can conceive of a world in the distant future in which only 5% (say) of the population receive private incomes for performing essential work, with that income being taxed at a rate of 90%. Despite such tax rates, those paying the taxes would still be receiving higher disposable incomes than the 95% who lived primarily on public domain income.

 

Summary

My vision of environmentally sustainable growth involves people increasingly being employed in (or employing themselves in) cultural activities that have a minimal negative impact on the environment (and in many cases have a positive impact), and which essentially involve educated people making a social contribution in the way that they themselves think most appropriate. For me, economic growth means more people having control over what they do and when they do it.

To achieve such growth, as diminishing amounts of labour will be required to achieve a satisfactory level of comfort, we need to introduce more progressive taxation through a truly universal income support structure. Gross market incomes become more narrowly distributed as rising labour productivity lessens the amount of labour required. The benefits of future growth can only be shared through an efficiently managed public domain. In the absence of such means of public income support, people will be increasingly forced to exploit their environment as a means of making ends meet. Deprived people cannot afford to take a long-term perspective of their welfare. Indeed, today these distributive effects are quite apparent. While the economy has not grown under any measure for nearly a decade, families are supplying more labour to the industrial marketplace than at any other time this century, despite a fourfold increase in real per capita incomes since 1900. This is a result of grossly inadequate means of distributing the benefits of increased labour productivity.

As a global society of communities and nations, we have to place a high value on our physical and human environments. They are the most valuable parts of our collective wealth. Today, some of us make quick profits by eroding this underpriced capital stock. Far better for us to increasingly pay people to not exploit their inheritance, and to thereby free people to contribute to society in creative and sustainable ways.

Growth is not in itself a bad thing. We can always conceive of a better collective future. We can also conceive of futures in which we are poorer even if conventional economic indicators suggest otherwise. We need to make better use of the public domain to ensure against such market failure; to raise the monetary value of activities and qualities which a lop-sided market cannot value on its own. An efficient market reflects the values of everybody, not just the rich. We need a form of growth that reflects all our values. This requires an adequate level of economic security for all, thereby making it possible to base our values on broad time and space horizons. Each one of us needs to feel that we have a stake in our planet's future before sustainable growth is possible.

 

© 1993  Keith Rankin


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