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Prosperity without growth

8 December 2014 By Hugo Dixon

Is the good life possible without economic growth?

Merely raising the question challenges the conventional contemporary wisdom that a society’s prime goal should be to boost its income continually. But it is one that the West, especially Western Europe, may have to confront. Europe is not just suffering the after-effects of a nasty cyclical downturn, it has probably entered an era of low growth.

The trend rate of GDP growth is likely to be lower than it was in the past. Part of the slowdown is due to the rapid ageing of the European population. Part may be due to increasing competition from developing countries: their growing prowess puts pressure on many Western businesses and workers. Part may also be down to environmental constraints: measures to slow down global warming, for example, are pushing up the cost of energy.

In countries where populations are ageing especially rapidly and entrepreneurialism is subdued – Italy is the prime example – the trend annual growth rate may now be practically zero. Even Britain, which is ageing less rapidly and enjoys a vibrant entrepreneurial culture, is probably looking at less than 2 percent.

It is easy to see how a low-growth economy could become a dystopia: high youth unemployment could lead to wasted generations; unsustainable government debt burdens could force further cuts in public services; sections of society could be trapped in poverty; politics could become increasingly embittered.

Is there a way of living with slower growth? The beginning of an answer is to recognise that the economy should serve society, rather than the other way around. What this means is that the economy’s social task is to provide the conditions in which people can lead good lives.

That raises the question: what is a good life? Here, it may be useful to go back to Aristotle, who thought a good life involved acting well in accordance with our nature. The Greek philosopher also thought that we have two natures – animal and human. One way of rephrasing Aristotle’s doctrine is to think of the good life as having two components: the life of the body, which we share with animals, and the life of the mind, which is distinctly human.

So a good life certainly requires a certain amount of physical stuff: most obviously food and shelter, but many other material things too, in particular health. Modern societies are paying increasing attention to doctors and fitness regimes. But we only have to look around and witness phenomena such as the obesity epidemic to realise that all is not well with the life of the body.

The life of the mind encompasses a broad array of human preoccupations: values, creativity, the appreciation of beauty, intellectual curiosity and the struggle to make sense of our lives. Consuming more stuff doesn’t necessarily help us do any of this. Indeed, studies by economists such as Richard Layard suggest that, beyond a certain point, additional income does nothing to promote happiness.

Economic growth in the West has been accompanied by growing loneliness and depression. This suggests that a materialistic-only philosophy is not in accord with human nature. In the relentless pursuit of growth, other precious things can get damaged. This includes our social environment – our communities and networks of friendship and family – as well as our physical environment.

One could imagine that the West’s rich societies ought to be able to create the conditions for a good life without much more growth. They would focus more on quality than quantity. They would still value economic dynamism, but not identify success primarily with making money. And they would take care of the social fabric.

But even with less growth-dependent values, there would still be vexed questions, such as how to deal with unemployment and public debt without GDP growth. One place to look for answers might be the Green movement, which has been advocating zero or negative growth for decades. But a recent volume of essays by Green House, the UK think-tank, does not provide compelling solutions.

For example, Green House advocates “sharing” work as a way of solving unemployment. The idea is that people who are overworked should cut their hours, making room for the unemployed to get jobs.

If only it were that simple. For a start, people working long hours may not want to work less. Even if they were forced to (and such compulsion would prima facie be contrary to the good life), that might not lead to more jobs for unemployed workers, many of whom lack the necessary skills. Rather than sharing work, the emphasis ought to be on training and education.

Meanwhile, the Green House solution to high public debt is to carry out an audit to determine whether it was incurred with the consent of the people and for their benefit. Debt that didn’t satisfy these criteria would be deemed “odious” and repudiated. Such proposals are echoed by left-wing populist parties such as Spain’s Podemos and Greece’s Syriza.

When a tyrant, such as Iraq’s Saddam Hussein, runs up debts, it is reasonable for his successors to repudiate them. But Western democracies are not remotely in this situation. Unilateral debt write-offs would cause economic mayhem and more unemployment. They are not the solution.

But even if the Green movement does not have the answers, one thing is clear: it won’t be possible to find them without a change of mindset that values the good life over economic growth for the sake of itself.

 

 

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