The financial crisis must be over.
Whenever the economy crashes, wise men and women say we need governments to manage the financial world for everybody’s benefit. Capitalism, left by its lonesome, can’t make everybody rich.
But when the economy is growing, those sages complain that being rich is no good anyway.
Take one of the keynote speakers for this year’s Alfred Deakin lecture series. Tim Jackson, a professor of sustainable development and author of Prosperity without Growth?, claims that the era of economic growth is over. Jackson writes: “Questioning growth is deemed to be the act of lunatics, idealists and revolutionaries. But question it we must.”
French President Nicolas Sarkozy wants nations to abandon their “fetishism” for growing their gross domestic product (perhaps easy to say if you’re the president of a country whose economy has had a sluggish few decades). And luminaries like Nobel Prize winning economist Joseph Stiglitz also believe we have to drop growth and focus on well-being.
This message has its appeal. There is only so much coal, copper, tin, iron and uranium buried in the ground. We’re richer, but we seem more stressed. We have more choices, but they’re complicated and confusing choices. We have better hospitals, but we have fatter stomachs too. And then there’s the environment.
Nevertheless, the growth sceptics couldn’t be more wrong.
We can mock all the trivial inventions and gadgets which make up modern life. (Although I believe the invention of the flat-bottomed taco shell is a worthwhile innovation.) But economic growth is about more than iPads and tooth-whitening solutions.
Growing richer means getting healthier. People in wealthy countries live longer – this graph, which compares GDP per capita with life expectancy demonstrates that clearly enough.
In the first world, only steadily-increasing personal wealth will make expensive health technologies affordable. In the third world, basic public health requires strong economies. To eradicate malaria you have to drain swamps. It’s expensive.
Then the big one: a wealthy country is a clean country. That’s counterintuitive, sure. But the same policy settings which fuel economic growth – property rights, individual liberty, and the rule of law – are a powerful incentive to protect the environment. The drive for wealth involves the drive for competitive efficiency. There is nothing less efficient than waste and pollution.
Electricity generators in the first world are cleaner than those in the third. Priuses cost money.
And it is only desire for profit which leads entrepreneurs to develop and commercialise green technology. If we powered down to a motionless “stable” economy, as growth sceptics believe we should, we’d be discarding our biggest incentive to invent green things.
Yes, many natural resources are limited, but our capacity to innovate – given the incentive to profit – is unlimited. The economist Julian Simon wrote a book called the Ultimate Resource. He was referring to humanity’s ability to adapt to changes and invent new ways of doing things.
We’ve all heard the trite quip the Stone Age didn’t end because we ran out of stone. But we’ve been abandoning finite resources in more recent times. We used to light our homes with whale oil and heat our homes with Europe’s ancient forests. Now trees are mostly farmed in plantations and whales are only used for scientific purposes (I’m sure).
In Prosperity without Growth? Jackson writes economic growth has “failed the two billion people who still live on less than $2 a day”. This is tragic. But it’s still an improvement on past performance. The developing world might be poor, but it’s wealthier than it was. And healthier. With good governance, stable legal systems, and secure property rights regimes, there is no reason to believe the poorest parts of Africa and Asia couldn’t be future boom economies.
Those countries will need that economic growth if they are to adapt to natural and unnatural climate change.
It is fantasy to believe through careful planning and clever coordination we could get the inestimable benefits of economic growth without having the growth itself.
And it’s a weird sort of hubris to imagine we are the generation who will see the multi-millennia project of economic growth suddenly stop.
We want growth because we want our children to live better than we do – to be richer, with all the health, education, and lifestyle benefits wealth can bring. We want the poorest members of our society to be richer than we are now. We want the developing world to be infinitely richer. We want the Bangladeshis of tomorrow to be twice as rich as the Australians of today.
To pursue economic growth is to believe progress – better living standards, better health, and a better environment – is possible.
Chris Berg is a research fellow with the Institute of Public Affairs and editor of the IPA Review. You can follow Chris Berg on Twitter.