Growth — it’s time for a reckoning

Most politicians want more of it. Some eco-warriors think there’s too much of it. And, according to the economist Daniel Susskind, too few people understand it. In Growth: A Reckoning, he claims to help with all three.

The book starts with a canter through centuries of muddled thinking. Thomas Malthus and his contemporaries thought that growth was inherently unsustainable, as a growing population would eventually run out of resources. Later, development economists at the World Bank sustained a “‘fetish’ for investment”, relying on models that saw physical capital — stuff that people could touch — as key for generating development.

Most recently, there are “degrowthers”, who include the likes of activist Greta Thunberg and anthropologist Jason Hickel. Although their views are (too) often vaguely defined, the basic fear is that more economic growth will gobble up the Earth’s resources, and so policymakers should seek less of it to prevent environmental catastrophe.

Susskind says the degrowthers are partly right in that there can be trade-offs between growth-maximising outcomes and environmental protections. “It falls to us to explicitly confront the tradeoffs presented by growth’s promise and its price,” he writes. Good policy is about minimising those trade-offs, and there is already evidence that it is possible to deliver higher growth alongside falling emissions.

But ultimately in all three cases there is an underappreciation of the power of ideas. They are limitless in that they can be used again and again. And generating more of them means that society can do more with less.

History showed that growth beyond Malthus’s wildest dreams was possible, as innovation allowed people to escape cycles of boom and bust. The Nobel laureate Robert Solow found that American growth over the first half of the 20th century came overwhelmingly neither from investment nor growth in the labour force, but from using what resources there were more productively, whether through inventions or new management practices.

As for degrowthers, Susskind argues that they are abandoning the left’s tradition of imagination when they reject the possibility of unlimited growth. “The infinite universe of ideas allows us to sidestep the constraints imposed by a finite planet,” he writes. There are a vast number of ways ideas can be combined. And yes, many will be clangers like “fried chicken ice cream”, as noted by the economist George Akerlof. (Apparently this flavour does, in fact, exist.) But only a few need to be useful to matter.

Having been generous in his criticisms, Susskind moves on to doling out advice. Our leaders should shift their attention towards the balance of growth and away from its magnitude. For too long they have seen the pursuit of raw growth as a way to avoid tricky compromises about who gets what. But trade-offs are inevitable, and best acknowledged.

For example, free trade might cause job losses, undermining “traditional sources of collective identity and shared purpose”. The spread of new digital technologies in social media platforms might be a boon for shareholders, but risks concentrating power in the hands of unelected tech bros. Dealing with the environmental costs associated with growth should involve carbon taxes — and before the degrowthers dismiss this as politically unfeasible because people don’t like things becoming more expensive, they should probably reflect on how unpopular their own proposal of a recession would be.

Perhaps the cult of gross domestic product maximisation is so strong that it would help to redefine it, and align metrics of economic value and social value. One could argue for including childcare done at home, for example, which could increase its perceived value. Or one could argue for exclusions, as the economist Simon Kuznets did in the 1930s, when he called for “marketing, financial speculation and expensive housing” to be ditched.

But since it is impossible to align economic and moral measurement, Susskind argues that it is better not to try. Instead he preaches “GDP minimalism”, which makes the measure as dull and as technocratic as possible, while promoting a dashboard of indicators that directly measure things we care about.

His policy prescriptions centre on how to generate new ideas. They include enforcing the rule that patents can only be for “non-obvious” things, unlike the current regimes that have granted protection for “a circular transportation facilitation device” (a wheel) or “single-action ordering”. Policymakers should experiment with prize funds for scientific discoveries and revive stagnating research and development. The British government, for example, should not congratulate itself for planning annual research and development funding of a third of what Alphabet spends.

But when it comes to other policies, he is relatively dismissive. He does not see current broadly cross-party favourites such as investments in education or planning reform as priorities, given diminishing returns to schooling and the declining relevance of place in a world of remote work. Expanding broadband coverage could be handy to help ideas spread, but as a source of long-run growth infrastructure won’t deliver the goods.

Susskind is right that ideas matter most for pushing the frontier of economic development forward. But those trying to catch up will be left wanting. And overall he is more helpful for working out how to think about growth than what to do about it. The great growth puzzle remains.

Growth: A Reckoning by Daniel Susskind Allen Lane £25, 368 pages

Soumaya Keynes is an FT economics columnist

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Letter in response to this article:

Impoverished definitions of GDP — that’s the issue / From Sheila Hayman, London NW1, UK