Economic growth in 2022 – root of all evil or economic nirvana?

Since the summer of 2016 the concept of economic growth has been less prominent in UK political discourse, until now. The objectives of the constitutional changes in 2016, involved a greater emphasis on nationalism, judicial independence, EU-independent trade policy and reductions in immigration – all at the expense of economic growth as a core aim. The Home Office became ‘top dog’ in the UK administrative system, displacing the Treasury. Although not expressly stated, ‘managed decline’ became an implicit civil service aim, not seen since the 1970s.

Perversely, it was anti-EU factions in the Conservative Party that brought economic growth onto the table again in 2022. With Britain the only G7 country yet to return to pre-pandemic economic ‘performance’, Conservatives began to scratch their heads about how to grow the economy, beyond tokenistic initiatives like freeports.

What has been absent from the debate is a more analytical consideration of economic growth itself; whether growth is homogeneous or whether there is good growth or bad growth, and what the ‘sources’ of economic growth are.

Broadly, growth comes from many sources; developing skills and expertise (specialist and eclectic), the facilitative environment for economic activity, internal & external trade conditions, quality of availability of loan/equity finance, application of research & development, and absence of barriers such as commercial premises shortages, de jure & de facto monopoly, and a thousand other such factors. In this context, macroeconomic, monetary and fiscal policy are important, but they play second fiddle. Over time, it is the (misnamed) ‘real economy’ which counts; think of Germany, Singapore, SE China, Northern Italy, and Sweden, where finance is more the servant of economic activity, not so much its master.

Thus, economic growth policy is a long term democratic endeavour involving central government, local authorities and regional institutions. It doesn’t lend itself to short-term attention-grabbing boosterism.

Is there good & bad growth? Economic growth per se, is clearly not necessarily a good thing, although economic decline is almost never a good thing; the disbenefits invariably falling on the shoulders of the worse off.

Broadening the concept of ‘sustainability’ is instructive.

Perhaps more important than the quantity of economic is the quality of economic growth. Higher quality of growth is mostly about sustainability; environmental, fiscal, social and structural.

With carbon emissions, pollution and degradation of nature, economic growth should be sustainable over time and not self-defeating. Fiscally, any government can borrow to the hilt, to spend ‘stimulating the economy’, (which can be undemocratic if the tomorrow-be-damned spending spree is aimed at governments getting re-elected). However, the UK has just experienced the impact of an unsustainable fiscus, and it’s not pretty. Social sustainability is not present if economic growth is ‘captured’ by the elite, with minimum or zero positive impact on the general population. Structural sustainability is not present if a side effect of growth is non-contestable monopolisation, leading to excessive power even more in the hands of a few.

A better way to think about economic growth, moving away from the worship of solitary headline GDP growth, comes from Alfred North Whitehead 100 years ago; ‘Civilization advances by extending the number of important operations which we can perform without thinking of them’. Ralph Waldo Emerson put it more crudely 50 years earlier, stating that if a person ‘…can make better chairs or knives, crucibles or church organs, than anybody else, you will find a broad hard-beaten road to their house, though it be in the woods’.

If such processes lead to such sustainable and beneficial ‘growth’, then society is in a better place.

* Paul Reynolds works with multilateral organisations as an independent adviser on international relations, economics, and senior governance. He is a member of the Lib Dem Federal International Relations Committee and an Executive member of Liberal International (British Group).

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14 Comments

  • Jenny Barnes 21st Nov '22 - 1:52pm

    Growth comes from using more energy, or from using the same amount of energy more efficiently/effectively. Think the newcomen steam engine for pumping out mines, then the watt steam engine – light and powerful enough to work on locomotives.

    There’s an obvious problem when over 80% of existing primary energy consumption is fossil fuel, and we are building into a climate crisis.

  • Paul Reynolds 21st Nov '22 - 2:59pm

    So-called ‘labour-saving devices’ are one route to economic growth, which relates to Alfred North Whitehead’s point. A relative of mine has a well in his field with a hand pump. He made a much better mechnical pump in his workshop, and was thus able to grow more food from the improved irrigation. There was no emissions or pollution impact of this ‘growth’. Correlation is not causation. The problem of assuming a necessarily causal relationship between energy consumption and economic growth (in both directions) is that it implies that the only way of addressing environmental damage and increased emissions is the shrink the economy. This is not so at all, and it obviates the scope for creativity in improving our lives without destroying the environment. Moreover, shrinking the economy, as a policy, has a devastating impact on the lives of the poorest. Sure, it shouldn’t be that way and there are better ways to structure the economy than we do now, but assuming the economy must be run down, and that there is no alternative, would be devastating for a large proportion of the citizenry.

  • Jenny Barnes 21st Nov '22 - 4:34pm

    ” A relative of mine has a well in his field with a hand pump. He made a much better mechnical pump”
    as I said: “using the same amount of energy more efficiently/effectively. ” Human energy counts, but it’s a tiny percentage of what we use.

    Also – Jevon’s paradox indicates that an increase in efficiency results in an increase in energy use. Again, the Watt steam engine was considerably more useful than Newcomen’s, so many more were installed, as well as replacing the less efficient Newcomens.

    However, I’d be very happy to see an increase, or even a standstill, in world GDP while fossil energy use declines 2% year on year. But I don’t think it’s likely.

  • Nonconformistradical 21st Nov '22 - 5:55pm

    “moving away from the worship of solitary headline GDP growth”

    Isn’t our problem as much one of inequality? As I understand the UK has a greater degree of inequality than most other developed nations. We should be utterly ashamed that people doing essential jobs are having to use food banks.

    I’m not an economist but it seems to me that free markets work well for the well-off and extremely badly for the less well-off.

    And mightn’t there be good growth and bad growth?

    e.g. Good growth – replacing fossil fuel consumption with renewable energy.

    e.g. Bad growth – using up non-renewable resources to make things people don’t really need.

  • @nonconformist – it’s hard to tell. Many of the stats used to compare inequality between countries are dodgy. There was one particular graphic doing the rounds a couple of years ago that compared the average income of large regions of Italy with individual London boroughs. You don’t need to be a stats expert to see how that would end.

    I commented on the COP27 post without seeing this, so apologies for repetition, but yes – the obsession with growth, in particular GDP is bad. That’s not to say all growth is bad, or that GDP itself is evil. When figures designed to measure something become the target they become a lot less useful, and that happened to GDP a long time ago.

    Some things that increase GDP are good, and some are bad. I don’t think we should scrap it, especially in the current climate as that will be seen as and used by government to avoid scrutiny.

    We need is a better set of measures to inform us how well we are doing. They’d be rooted in quality of life and the health of our environment. Measures will inevitably become targets, but more of them and better-defined helps. I’d include literacy & numeracy, ambulance waiting times and unemployment etc along-side our environmental performance and another plug for Kate Raworth’s Doughnut Economics.

  • David Garlick 22nd Nov '22 - 10:19am

    good conversation here.
    GDP is a poor headline that hides, amongst other things the inequality referred to.
    We do need to understand that we, in the wealthy countries have been spoilt and are living above the planets means. If the whole world aspires to that we are…in a pickle to put it mildly.
    Given that population is not predicted to peak before the end of the century we have to find a way of maintaining some of the prosperity we all enjoy whilst reducing our demands on the planet and at the same time making enough ‘consumption space’ for the ‘not so wealthy’ countries to sustainably improve their way of life.
    Are we up to the challenge?

  • “When figures designed to measure something become the target they become a lot less useful” That Fiona is true in everything. Why not have an impact assessment on economic equality for every financial policy decision made ?

  • @Nigel, in Wales there is a requirement for every policy proposed by the Welsh Government to be reviewed for the impact on future generations. Something I wish could be extended, and not restricted to obviously financial decisions or the economic impact.

    We need a much more holistic approach to decision making that considers all of society and for longer than the immediate election cycle.

  • Peter Martin 22nd Nov '22 - 1:06pm

    ” With Britain the only G7 country yet to return to pre-pandemic economic performance”

    The evidence for this claim is somewhat patchy.

    The Growth rate of the UK for 2021 was actually the best of the G7 at 7.4%. On the other hand our economy suffered a bigger fall of GDP due to Covid the year previously. I’m not sure if this was preventable by different economic policies.

    Whether or not we believe economic growth to be desirable, it is not going to be easy to find in the next couple of years.

    Is there a pro-EU subtext to this oft repeated claim? There usually is. Naturally ‘remainers’ tend to be anti Tory in the UK but we all do need to recognise that the EU is run by their own ‘Tories’. They may not refer to themselves as such, but they do occupy the same position in the political spectrum. There isn’t going to be a huge difference in relative economic performance.

    https://www.icaew.com/insights/viewpoints-on-the-news/2022/apr-2022/chart-of-the-week-g7-economic-growth

  • Roger Billins 22nd Nov '22 - 2:06pm

    Growth is not necessarily a good or bad thing-it depends on how the growth is achieved. The other point is that growth is only necessary because of population growth-otherwise a growing population is sharing in a static or dwindling resource.
    Finally, the fruits of growth are unfairly shared at present and it is thsi which progressive political parties should address.

  • A good metaphor for the economy is a garden. To thrive it must have the major nutrients, NPK (nitrogen, phosphorus, and potassium) plus many minor ones. But it also needs soil that’s not too wet or dry, sunshine, equable climate etc.

    Then there’s the question of what sort of garden. Do you want to optimise for wildlife, for vegetables, for shrubs, or for flowers? And the gardener must have the time and skills to deliver the desired result. Absent skills, a plan, and much effort, the weeds will take over and choke everything, yielding little that’s useful.

    We have, at least two BIG problems.

    Firstly, the financiers are in charge and their plan for the garden is self-serving exploitation of people and planet. If it goes wrong, they will retreat to a pre-prepared bolthole somewhere. They tell us taxes are BAD (because they cost) but manage to arrange lots of ‘not tax’ costs (in the form of monopoly profits, PFIs, PPE procurement, student loans, unaffordable housing etc) which are hugely profitable to themselves. The result is the cost-base of the economy is so high that many firms can only survive by cutting wages and job security.

    Secondly, the opposition parties don’t really know how a modern economy works so they fight on their opponents’ terrain and that is always a terrible plan! Costs (excluding wages) must be cut, while a better understanding would identify key pressure points where applying a little leverage would have a big result.

  • Paul, I share your concerns about growth. Brexit has damaged many businesses (now compounded by Covid and energy costs) and I’m not aware of significant offsetting gains.

    IMO this is just the latest stage in the long running relative decline of UK competitiveness which arguably dates from the mid-1800s. Much of that was inevitable as other countries industrialised but much was due to basic flaws in the UK’s approach. Being ‘first-mover’ can create competitive advantage, but it can also bake in weaknesses that are hard to identify let alone fix.

    At an NUS conference in about 1972 I came across a small group of Tory activists who aimed to reverse the decline which they blamed on Labour/ Unions and state control. Their thinking eventually led to Thatcher and a new paradigm about how the economy should be run – roughly ‘markets uber alles’.

    As the record shows they were wrong, but we are still stuck in that neoliberal paradigm. Growth has been maintained, even supercharged, for a few, but only at the expense of the majority creating a desperately unequal and unhappy country.

    We need a better paradigm, one that’s dynamic, works for everyone, and yet treads lightly and sustainably on the Earth. But how to develop one?

    I see a case for a small open group like those 1972 Tories to take up the challenge of developing a new paradigm. The Internet should make that much easier now than back then.

    What do you think?

  • Gordon, yes:
    “Being ‘first-mover’ can create competitive advantage, but it can also bake in weaknesses that are hard to identify let alone fix.”

    Britain has never had an effective active Industrial Strategy. At present it does not even have the Tory fig leaf, which was abolished by Sunak, himself a product of the finance industry. Other countries had to create supportive institutions to try to help on industrialisation into their countries., then mostly continued to the present.

    Germany’s support to industry is on so many levels and makes a nonsense those who say the the EU prevents this sort of activity, or for taking companies state ownership.

    Britain still has the expertise of technology, science and industry at every level to build on, but it is being passed over, squandered and allowed to wither. Instead we could re-shore much work lost to Asia using robotics and advanced algorithms and cut down on shipping and air freight. In any case China is at the start of a decline as globalisation goes into reverse and countries will need to work more regionally and internally.

    We will have to rejoin the EU’s economic aspects, at least

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