An interesting and stimulating book on tradeoffs and moral questions
The causes and consequences of economic growth are two of the key topics in economics. The former was a focus of researchers in the twentieth century, while the latter has come into focus in the twenty-first. When growth took off during the industrial revolution, working conditions in the mines and factories were appalling, and it took many decades for them to improve, then many more decades for modern society with its science, health and education systems to develop. Those are the benefits of two centuries of economic growth. Now, however, Daniel Susskind points to the costs of growth, such as ‘widening economic inequalities, the degradation of the natural world, the hollowing out of local communities, the unleashing of technologies that we seem unable to control.’
Susskind calls this the ‘tension between the promise and price of growth’, and he warns that ‘for the first time in our history, the costs of growth threaten to overwhelm its gains.’ His book is not a detailed study of challenges of climate change, globalisation, inequality or artificial intelligence. Nor does it offer ‘definitive lists of policy interventions’ tailored to each challenge. Instead the ‘aim is different. To sweep these challenges together and look at them from a new vantage point…to deepen our understanding of the problems we face and why we have failed to tackle them until now.’
Susskind starts with three ‘simple but remarkable’ facts. The first is the fact that economic life was stagnant for millennia until the industrial revolution; the second is that growth began only 200 years ago; and the third is how economic growth has been sustained, unlike previous growth spurts that were limited and fizzled out. The first half of his book covers this history of growth, what he calls its ‘mysterious past.’
This is a familiar story. Living standards did not change from primitive humans to Neolithic hunter gatherers to medieval farmers, Economic growth was missing in Greek, Roman, Persian and Chinese empires. Historically, there was a Malthusian tradeoff between population growth and food supply, and the imperative was subsistence and survival. Susskind calls this 300,000 year period the great stagnation.
Classical economists like Adam Smith and John Stuart Mill did not write about growth. They were concerned with economic progress, but not economic growth because there was no measurement of economic growth until gross domestic product (GDP) was developed in the 1930s and 1940s as a measure of economic activity. In those days GDP was tangible, about adding up what was being made. Today, services and the intangible economy are important. Simon Kuznets, who was the first to measure GDP, didn’t think defence spending should be included, and what is in and is out of GDP raises interesting and important philosophical questions.
How did economic growth get going? The book has a deep analysis of why economic growth lifted sustainably in the industrial revolution rather than some other time in history, and why it occurred in England. Although the causes of the industrial revolution have been much debated between different schools of thought, and ‘economists have struggled to understand the process’, we now know enough understand what happened.
Susskind provides a very short history of the important ideas. The 1930s Harrod-Domar model attributed growth to increases in physical capital (plant, equipment, buildings and structures). The 1950s Solow-Swan model of economic growth identified the role of technological progress and productivity (how efficiently capital and labour are used). Susskind then highlights the work of Paul Romer in the 1980s, who made the role of new ideas fundamental for economic growth, Joel Mokyr on the role of culture in the 1990s, and Daron Acemoglu and the role of institutions in the 2000s.
The conceptual and political role of GDP is given a lengthy treatment. Firstly, because in the twentieth century increasing GDP was strongly correlated with ‘human flourishing’ and measures like mortality, health, education and employment. Second, because both economics and politics became dominated by the need to increase GDP, despite its limitations as an adequate or comprehensive measure of progress. Susskind argues that the post-war pursuit of growth and increasing GDP assumed that success would resolve other problems, avoiding associated moral questions and costs of growth.
The second half of the book is on what he calls the growth dilemma: ‘on the one hand it is associated with many of our greatest triumphs and achievements. But on the other, it is also related to many of the greatest problems we confront today. The promise of growth pulls us …towards pursuing ever more of it. But its price pushes us away with a powerful force.’ Susskind calls this the ‘troubling present’, where people are no longer confident their living standards, and those of their children, will continue to improve.
Technology is not on a pre-determined path. Britain’s role in the Industrial Revolution was also caused in part by the high cost of wages and the availability of cheap coal, known as induced technological change. Susskind emphasises the significance of directed technological change, or how governments can shape the path of technological development through policy choices. For example, the US university system has benefited from public funding for defence and space technologies, and the pandemic effects on technology adoption and behaviour shows how fast we can change. Markets on their own do not provide adequate price signals for the process of idea generation, and he suggests taxes and subsidies, laws and regulations, and social narratives and norms can be used, for example to promote technological progress that is more environmentally friendly and provide incentives for growth that is less reliant on fossil fuels.
Susskind believes confronting the growth dilemma is ‘one of the most important tasks that now faces humankind.’ Further, it is an ‘opportunity for moral revitalization, to create a renewed sense of collective purpose in society in pursuit of what really matters - not simply a more prosperous economy but the many other ends that people care about’ such as a fairer society, a healthier planet, good jobs and the quality of our politics. This is the ‘uncertain future’ of growth.
One response is to ‘tinker’ with GDP and make it more representative, favoured by technocrats. This ‘misunderstands the nature of the challenge that we face: it is not a technical problem about mismeasurement but a moral one about what matters.’ He argues that markets will not always provide the right price signals, and will not embody all the things that society actually cares about. In particular, market pricing does not deal with externalities, such as the future impact of climate change.
The other response is to give up on growth, and slow down the economy through degrowth. Susskind argues this focuses on the price of growth while neglecting the promise of future benefits, and at a ‘time when growth is slowing around the world, this seems particularly misguided.’ Degrowth is not a solution to the growth dilemma, instead there is infinite potential for ideas. A weak version of degrowth is to accept that growth is only one of the goals society cares about, for example we might introduce a wealth tax even if it reduces economic growth.
Looking at what we might do, Susskind is sceptical on the effectiveness of conventional approaches like building more infrastructure, reforming planning and land-use, and more education. The important and most innovative sections of the book are on the solutions Susskind advocates, which are about dealing with the tradeoffs involved, such as between growth and the environment, or growth and inequality. He suggests three approaches: where possible, tradeoffs should be avoided; we should attempt to weaken tradeoffs using the tools of policy, regulation and incentives; and in some case tradeoffs must be accepted, where the choice is between less growth and ‘other important outcomes we care about’, which raises moral questions on what we should care about and how much we should value the future and future people.
Susskind thinks most of these tradeoffs cannot be avoided, therefore we should confront them and the moral issues involved directly. On equity versus efficiency, he argues we are inside the frontier for the optimal point on this trade-off. On growth versus the environment, the decline in the cost of reducing or removing emissions has changed and still is changing the tradeoff. A difficult tradeoff is between globalisation and the damage done to left-behind places, and he argues for ‘dynamic competitive advantage’ where a country does what is best for it at any given time. He says ‘It falls to us to confront the tradeoffs presented by growth’s promise and its price,’ by managing them where possible but, if that is not possible, accepting the need to choose between objectives.
His answers to the growth dilemma can be frustratingly imprecise. For example, he says ‘we should care about the future far more’, and ‘we should care about other valuable ends far more.’ Exactly how we do this and what they are is not always clear. On how to pursue growth in the future, he believes the key is the creation and unleashing of ideas, through reform of the patent system, increasing R&D, and faster development of technology. He warns inequality risks losing the idea-generating potential of people without access to education or resources to create and take advantage of their ideas.
Although some people ignore the trade-offs between growth and its costs, denying that they exist, there may be (or possibly will be) a point where policymakers need to accept that meeting climate and other social objectives requires slower growth. When it becomes necessary to choose among objectives, Susskind suggests leaving the choice ‘to the world of politics.’ He proposes more use of collective deliberation such as citizen assemblies (100 or more people) for major policy issues, and ‘mini-publics’ such as citizens juries and citizen panels (30 or more people) for ‘important, but less consequential questions such as the location of a new hospital.’ There are also consensus conferences and citizen dialogues that offer feedback.
Susskind concludes with this shift from our current ‘representative’ democracy to this ‘deliberative’ democracy. ‘The leaders to whom we have delegated the growth dilemma … have failed to confront the tradeoffs that it presents us with. This is why we feel the tension between the promise and price of growth so acutely today.’ He is optimistic that people want to be more useful citizens and, if given the chance to participate, would resolve the tradeoffs the growth dilemma presents us with.
This is a most interesting and stimulating book, particularly the last couple of sections on the tradeoffs and the moral questions. Whether or not one shares Susskind’s optimism about people as citizens and solutions to the growth dilemma, his view that the direction of growth is something we can control is important. His analogy is the difference between a train that runs in one direction on tracks and a sailing boat that can be steered by raising and lowering the sails and can go in any direction on the open sea. That is a message people and policymakers everywhere should heed.
Daniel Susskind, 2024. Growth: A Reckoning, Penguin Books.
