Economics, Environment, Politics, recent

The Growth Dilemma

More is more and more is also different
~
Benjamin Friedman, The Moral Consequences of Economic Growth, 2005

For much of the last 70 years, economic growth has lifted the quality of life in Europe, North America, and East Asia, providing social stability after the violent disruptions of World War II. Today, however, many of the world’s most influential leaders, even in the United States, reject the very notion that societies should improve material wealth and boost incomes given what they believe are more important environmental or social equity concerns.

This sharp break from the past is occurring as growth in Europe, Japan, and the United States has fallen to half or less of what it was just a generation ago, and while fertility rates are at levels not seen since the medieval era. This promises to create a tsunami of retired people whose retirements can only be addressed by economic growth.

The combination of reduced real income, green-driven rises in energy and housing costs, and growing concern about pensions has sparked a new wave of protests in countries as diverse as Norway, the Netherlands, France, and Chile. The dismal future prospects suggested by slow growth have also led to protests in developing, politically fragile countries such as Lebanon, Brazil, Iraq, Sudan, and Algeria.

Growth: The Forgotten Ideal

Until just a few years ago, the need for economic growth to sustain societies was almost universally acknowledged. This was not just gospel on the free-market Right. Whatever its failings, 20th century socialism was growth-oriented and espoused the notion, however poorly realized, that greater material progress was critical to expanding working-class wealth.

Now political leaders in France, Iceland, as well as the European Commission increasingly believe, along with influential economists such as Joseph Stiglitz, that growing the economic pie should be supplanted by such goals as better health care, less inequality, and fighting climate change.

Many, particularly on the environmental Left, go even further and advocate “de-growth,” essentially urging societies to consciously reduce their economic wealth. This agenda requires that energy, housing, food, and other consumption costs steadily increase, or be legally prohibited, so that ordinary people will be unable to eat meat regularly, use more energy, live in larger spaces, and travel freely. There’s even a quaint notion that we need to return to a more primitive state of existence, essentially cancelling out the progress of the last few centuries. America’s Green Party, for example, would seek to limit long-distance trade entirely in favor of a feudal economy that is “largely self-sufficient in the production of its necessities.”

Even in the United States, where growth has long been an unquestioned priority, virtually none of the leading Democratic candidates for President even mentions the word. Vice-President Joe Biden, the leading “moderate” in the Democratic party primaries, has explicitly stated that he would wipe out fossil fuel employment in the country to pursue a green agenda.

The American Left’s abandonment of economic growth marks a dramatic shift from the approach of Bill Clinton, or even Barack Obama. In the 1990s, progressives still believed that economic growth was indispensable for improving the lives of the middle- and working-class families. Now, rather than seek to outperform the somewhat more robust economy and modest uptick in blue collar jobs under President Trump, progressives focus mostly on identity issues, environmental piety, and income redistribution.

Fundamentally abandoning growth means the effective end of the old social democratic program. Many self-defined socialists—typically academics and media personalities rather than industrial union leaders—reject the fundamental Marxian emphasis on “materialism” in favor of low growth “sustainability.” “Growth can be quite dangerous,” suggests Peter Victor, an economist and environmental scientist at York University in Toronto. The once popular notion that “green growth” could somehow substitute for historical economic progress has been widely debunked by new studies from the UN and Germany.

Some zealots on the Left, such as the Guardian’s George Monbiot, openly welcome economic decline and believe that recessions will reduce carbon emissions, even if it causes people to lose their jobs and homes. Monbiot and many other climatistas offer only a degraded quality of life, including rationing of virtually everything and calls for restrictions on having children due to their “carbon legacy.”

Degrowth advocates tend to believe that affordable single-family houses must be eliminated in favor of crowded, small apartments. Some scientists suggest the world must eliminate hot dogs in favor of “maggot sausages” and even recommend that we consider recycling ourselves by embracing the finer points of cannibalism. Since such measures may prove unpopular, environmentalists increasingly seek to construct a global “technocracy” to preempt popular control and ensure that only experts will design and implement policies for hoi polloi.

Slowing Growth, Mounting Social Disorder  

In his magisterial 2016 book, The Rise and Fall of American Growth, historian Robert J. Gordon documented how steady economic growth has allowed hundreds of millions of people worldwide to achieve higher living standards, with the expectation that their children would do better still. Most of the technological changes during higher growth periods were also largely democratic in nature as the development of highways, electricity, and gas heating benefited the working-, middle-, and the upper-classes alike.

“More growth is better, period,” he concludes, while slower growth increasingly threatens the livelihoods and retirements of the middle- and working-classes. As noted in a recent OECD report, the more democratic expansion of decades past has given way to widespread economic uncertainty, anemic income growth, higher prices, and greater inequality, leaving even the once secure middle-classes “increasingly like a boat in rocky waters.”

The abandonment of growth as a goal reflects progressives’ increasing lack of interest in, if not disdain for, the aspirations of the working- or middle-classes. Obama’s Treasury Secretary Lawrence Summers has admitted that Democrats have little interest in the middle echelons, preferring to serve a “coalition of cosmopolitan elite and diversity.” Under Obama, Summers’s “elite” did well even with painfully slow income growth, as assets like urban real estate and tech stocks rose, sometimes dramatically, while share of the country’s wealth going to workers continued to decline.

Slow growth particularly impacts the young. According to University of Georgia economist Jeffrey Dorfman, the average American would double their per capita real income in just 28 years assuming historically typically 2.5 percent GDP growth, but would need 70 years to increase incomes with a 1 percent annual expansion. As growth rates have faltered, three-fifths of American adults today, notes Pew, predict that their children will not be better-off than they are. Pessimism about future generations is even worse in slower growing France, Britain, Spain, Italy, and Germany. In Japan, a remarkable three-quarters of those polled believed things would be worse for the next generation.

The Cost of Living Rebellions

The global phenomena of low economic growth and rising prices has sparked middle-class-led rebellion—what one Marxist publication describes as “a strike against the rising cost of living.” While the specific issues may vary in each instance, the new protests are motivated by middle- and working-class fears that slow and de-growth conditions will “proletarianize” their once decently comfortable living standards.

Many of the progressive gentry dismiss these movements as primitive populism, producing detestable things like Brexit and the election of Donald Trump. But the “great revolt” has since expanded to countries with liberal cultures and evolved welfare states, including France, Chile, even Norway and the Netherlands. In most places these rebellions are led not by perpetually outraged students, laid off workers, or angry immigrants, but by solidly middle-income workers who feel their long-term prospects, and those of their children, are increasingly dismal.

These fears are particularly acute for workers in environmentally inconvenient industries, such as energy, manufacturing, or home-building, who are losing their jobs or have been explicitly targeted for unemployment by the green Left. Those who continue to work in unavoidably energy-intensive industries like agriculture continue to be saddled with ever rising costs for critical commodities like diesel fuel. These energy price rises particularly impact most Europeans who drive to work.

France’s devastating and occasionally violent gillets jaunes rebellion is perhaps the clearest harbinger of this phenomenon. This protest was ignited by President Emmanuel Macron’s energy price increases, which were couched in the usual green pieties and remain popular in elite salons. But they were strongly opposed by the French population in Paris’s vast suburban rings, as well as smaller cities and towns of La France Périphérique. This pattern can be seen in the protests across Europe, as well as in Chile where green policies raising energy costs as well as rising subway fares, resulted in major protests around the capital Santiago, with 20 deaths and 1200 injured.

As the new green Left pushes policies that can only harm, not improve standards of living for all but the wealthy, climate change advocacy has emerged as a flashpoint for political rebellion. In the 2019 elections held in Australia, a country dependent on fossil fuel and mineral exports, the sometimes-over-the-top antics of the environmentalist Get Up group was widely credited with moving voters away from the progressive party and towards the conservatives. Middle- and working-class revolt against green zealotry has helped to spur political change in the U.S., Britain, and Germany.

The Pension Time Bomb

Slow growth is also hastening the retiree crisis in high income countries. Since 1980, the dependency ratio, the proportion of retirees to the working age population—has soared by 50 percent or more in Italy, Japan, Germany, and the Netherlands. By 2050, according to Pew, all these trends will worsen considerably, and spread to relatively younger countries, like the United States and Australia. The most rapid growth in aging, however, will take place in developing countries such as India, China, and Mexico, all of which lack the wealth accumulated by higher income nations and won’t be able to cope with a greater imbalance between workforce and retiree, absent high rates of growth.

In Europe, East Asia, and America, pensions, both private and public, face extraordinary pressures; even unionized workers in welfare states like the Netherlands are seeing their pensions cut. In the United States, the unfunded liability for just public sector workers could be as high as six trillion. The money to pay for retirements can only be sustained by higher economic growth or ruinous, politically impracticable taxation. Some countries, like Japan and Germany, already have raised taxes to meet the costs of more retirees.

At the same time, attempts to reform pensions generated a new series of rebellions in France, all but paralyzing the country for a while. Pension issues are also sparking protests in other countries, such as Russia, Spain, Chile, Brazil, and Argentina. Many of these places counted on economic growth to fund the pensions of the retiring generation, but, unless growth is restored, greater conflict is the more likely result.

Class Warfare by Another Name

Traditionally, business leaders were powerful advocates for economic growth out of their own self-interest if nothing else. But, increasingly, a large part of the business establishment in wealthier nations has adopted the low or negative growth and “sustainable” economic ambitions of the green Left.

Few now realize that the bible of “sustainability,” the influential Limits to Growth, first published in 1972, was itself financed by major corporate interests, led by Fiat’s Aurelio Peccei. The authors’ long-term vision was based on the notion—later shown to be vastly exaggerated—that the planet was rapidly running out of resources. In a formulation close to feudal perspectives, they proposed a “global equilibrium” which would control future growth and create “a carefully controlled balance.” Economic growth was to end in this century, putting an effective end to upward mobility as we have understood it.

Support for draconian anti-growth policies remains remarkably strong at the top of the global elite. Non-profit foundations—depositories for the wealth of old money, including the fossil fueled fortunes of the Fords and Rockefellers—have become leading advocates for radical climate policies. The biggest backers of California’s draconian climate change laws include not just ragged tree-huggers, but many of the state’s biggest hedge funds, venture capitalists, tech firm CEOs, and their fortunate heirs. The marriage of old capitalist money with Left green policies has been called “the new face of the environmental movement.”

As an increasing number of the ultra-rich and their foundations turn to the green Left, corporate leaders, particularly those secure in oligopolies, feel little reason to risk the wrath of activists. Some support hectoring other industries, such as oil and gas, while earning windfall profits from environmental schemes to promote renewable energy and such things as electric cars. Others are cloistered in powerful institutions like academia or government positions, nesting places that shelter them from the impact of tough regulations. Despite an epic collapse in newspaper, magazine, and other such employment, the media continues to be largely uncritical of the Left green agenda, possibly because modern journalism depends increasingly on patrons from the progressive rich.

It is no surprise that blue-collar workers, traditional a constituency of the Left, are deserting progressive parties for the likes of Donald Trump, and most recently, Boris Johnson. As socialist author Leigh Phillips has observed, the scarcity politics of the greens represents a form of class warfare he characterizes as “eco-Thatcherism.” The British historian James Heartfield suggests that the neo-Malthusian “green capitalism” favored by today’s progressives represents a modern effort by the wealthy to suppress and control the ”yeoman” middle-classes and the expanding serf-class below them. The green vision, he adds, “resembles not the social democracy imagined after the Second World War, but increasingly a socially bifurcated place increasingly resembling that of Victorian times.”

Why We Need to Return to Economic Growth

Ultimately a low, no-growth or “de-growth” regime is itself unsustainable within a democratic system. The prospect of stagnating incomes amidst ruinous pension and other costs comprise a toxic cocktail with potentially profound de-stabilizing effects. The “proletarianization” of the middle-class was a major factor in the rise of Nazi Germany, notes City University historian Eric Weitz and now is leading to increasing extremism, of both the Right and Left varieties, throughout the West.

As Benjamin Friedman suggested over a decade ago, economic growth is critical not only for its own sake but it has, at least in the West, nurtured more enlightened and generous societies. “Economic growth—meaning a rising standard of living for the majority of citizens—more often than not,” observed Friedman, “fosters greater tolerance of diversity, social mobility, commitment to fairness, and dedication to democracy.”

Friedman also identified the environmental benefits of a fast-growing economy. When a population feels its material future is assured, he demonstrates, it is far more willing to invest in such things as clean water and air, and in preserving critical habitat; much of the landmark environmental legislation in America, for example, to clean the air and water were enacted during the 1960s boom.

It is also not a coincidence that environmental protection is stronger in wealthy countries such as Europe, North America, or Japan, than it is in still emerging powers like China and India, as well as even poorer countries in Asia and Central Asia. Political leaders in these countries—globally over one billion people lack reliable electricity—tend to be more concerned with access to power than how to generate it without boosting greenhouse gas emissions.

Without economic growth, and the opportunity for people to rise up the class ladder, we will devolve, as Tocqueville warned, towards a class structure more favorable to “aristocracy” and authoritarian rule. Rather than seek to restore the class structure of the Middle Ages, we should again embrace growth, and look to innovation rather than punitive measures to address climate and other environmental issues. Economic growth should not be seen as a hindrance to a better world, but our best chance for greater social cohesion, upward mobility and a commitment to an improved environment. It is an ideal we can lose, but only at our own peril.

 

Joel Kotkin is a Presidential Fellow in Urban Futures at Chapman University and Executive Director for the Center for Opportunity Urbanism. His last book was The Human City: Urbanism for the Rest of Us (Agate, 2017). His next book, The Coming of Neo-Feudalism, will out from Encounter early next year. You can follow him on Twitter @joelkotkin