The moral imperative is not towards making people’s lives better, but performative demonstration that you are on the side of righteousness, that you have not only ticked all the right boxes but done so with a song in your heart

The morality of growth. Robert Colvile. CAPX, January 3 2023. https://capx.co/the-morality-of-growth

Excerpts:

One of the most striking phrases to enter the political lexicon in recent years is ‘degrowth’. This is the idea that capitalism and its obsession with growth are a cancer on the planet.

When you talk to environmental activists, they insist that ‘degrowth’ isn’t about making people poorer. It’s just, according to the movement’s official website, about reducing ‘the material size of the global economy’. We should, they argue, ‘prioritise social and ecological wellbeing instead of corporate profits, over-production and excess consumption’.

This is, to me, one of the most purely wicked ideas that humanity has come up with in recent years. It is a call for others to have less, coming from those who already have so much – and who have mostly never known anything but the extraordinary comforts of our modern world.

The fact that malnutrition, poverty, infant mortality and all other indices of deprivation have plunged across the world in recent decades is the blessed fruit of the economic growth that has taken place. The faster you grow, the better the lives your citizens are able to enjoy – and the more you can invest in either mitigating the damage from climate change, or developing the kind of technologies that might actually bring it to a halt.

To say that growth is the enemy is, in fact, the ultimate example of white privilege – the privilege to tell billions of people across the world that their ambitions for heat and light, water and sanitation, medicine and education aren’t actually that important in the grand scheme of things.

A couple of years ago, in August 2020, I delivered a lecture for the Centre for Policy Studies and 1900 Club called ‘The Morality of Growth’, which inspired this current essay. The case I sought to make was that we have a moral duty not just to support growth, but to oppose policies that diminish opportunity. The mindset that apologises for growth and innovation, I argued, is one that leaves less for the most vulnerable – in Britain and beyond.

In particular, I argued that while the claims of the ‘degrowth’ movement might seem both marginal and laughable – what mainstream politician would really stand up and say that we need to actively shrink the world economy? – British politics is afflicted by a diluted version of the same syndrome. Too often, we pay lip service to growth, but aren’t willing to actually do what it takes to deliver it. Like the football team that always falls short, we just don’t want it enough.

This debate has become all the more urgent as the pandemic and cost of living crisis have driven home to people quite how little growth we have had in recent decades, and quite how little we have to look forward to. Indeed, it is both telling and depressing that the most interesting debate in British economics at the moment, triggered by my friend Sam Bowman’s essay on ‘Boosters’ vs ‘Doomsters’, is not about how to get growth back up, but whether we can get it back up at all.

A society without growth is not just politically far more fragile. It is hugely damaging to people’s lives – and in particular to the young, who will never get to benefit from the kind of compounding, increasing prosperity their parents enjoyed. It is striking that the fastest-growing societies also tend to be by far the most optimistic about their futures – because they can visibly see their lives getting better.

By temperament, I am what Sam calls a ‘Booster’ – that is, I believe that we are not in fact doomed to irrevocable decline. Indeed, the focus of most of our work at the Centre for Policy Studies is coming up with policies that help Britain grow. But in this essay, I want to do something different: not to set out specific ideas for growth, but make the fundamental argument, not least in light of the recent political convulsions in the UK, that we need to treat growth as a moral good – and treat the many obstacles to it not just as unfortunate but as a moral outrage.

 

Where did the growth go?

Let’s start by making a very basic point: there isn’t enough growth to go round.

Since the financial crisis, real GDP growth has been the most consistent since the Second World War. Unfortunately, it has been consistently abysmal. Not once in the decade before the pandemic did a rolling average of GDP growth go above 3% – the first time that had happened in living memory. And even before the economy plunged into its coronacoma, the projections for the next few years were of further stagnation.

Things look even worse if you don’t just look at GDP, but GDP per head. Data from the World Bank shows that in the UK, average GDP growth per capita across the 1980s was 2.5%. During the 1990s, that fell to 1.9%. In the 2000s, thanks partly to the financial crisis, it fell again to 1.2%. In the 2010s, it stood at just 1.1% – even before the apocalyptic impact of the pandemic.

In other words, like in an Indiana Jones movie, the growth ceiling of the British economy is grinding inexorably downwards.

You can see this decline and fall even more clearly if you strip out the recessions. During the Lawson boom, GDP growth per capita went over 5% for two years in a row. Gordon Brown inherited per capita GDP growth of 3.6% in 1997 – but the economy has never even come close to hitting that again, with the exception of the artificial rebound after the pandemic.

In short, the idea that our troubles began with the financial crisis, or the fact of Tory government, is wrong-headed. Even in the years before the 2008 crash, growth per capita was only running at between 1.6% and 2.4% – which may look like unimaginable prosperity now, but was still much lower than what had come before.

To put it another way, when our politicians promised to ‘abolish boom and bust’, it turns out that they actually just abolished booms.

The ‘Doomster’ argument, if we use Sam’s categorisation, is that this decline – while historically unprecedented – is now to a large extent baked into the economy. He cites the work of Dietrich Vollrath, whose book Fully Grown argues that a combination of factors have combined to lower productivity and hence growth: a decline in geographic mobility; an ageing population and shrinking workforce; and the inexorable growth of services as a proportion of the economy, where the potential for productivity gains is lower. (It’s worth pointing out that unlike some of his British acolytes, Vollrath actually sees this as a natural and in many ways welcome result of America’s increasing prosperity – an argument which, as Sam points out, rings rather less true for a country where GDP per capita is roughly 30% lower.)

British Doomsters, adds Sam, do accept that good policies can make a difference on growth, but they tend to think they will have only a marginal impact, or be too hard to push through. They might also point out that these problems are by no means confined to the UK: even with the headwinds from Brexit, our paltry growth performance between 2010 and 2019 eclipsed that of the even feebler eurozone.

The counter-argument – made by the ‘Boosters’ – is that Britain’s performance has been so lacklustre that there are all manner of ways to improve it. We have obvious and longstanding problems with productivity, and business investment. Our failure to build sufficient housing, stretching over a period of decades, has had devastating economic consequences. One of the most obvious ways to make the country more productive is to ensure that the best workers can find places to live near the best jobs. On that front, we have absolutely failed.

The problem, though – arguably the biggest problem in British politics – is that our failure to grow becomes self-reinforcing. At a time when we should be more obsessed than ever with growing the cake, we have become ever more focused on how to share it. In fact, it is precisely because there has not been as much growth to go around that we fixate on the size of the portions.

Jeremy Corbyn was the perfect symptom of an age in which, with riches harder to come by, those who do have riches become the object of envy and resentment.

At the Centre for Policy Studies, we believe that the only way to deliver growth – proper, sustainable, cake-growing growth – is by supporting the private sector. Every job created, every product sold, every pound in tax paid, is a tiny victory in the war for our collective prosperity.

So the key question is: how ready are we to prioritise that?

The decline of business

The first thing to say is that Britain is – despite the brief irruption of Corbynism – an admirably business-friendly country.

As Liz Truss pointed out in a speech in 2019, there was an 85% increase over the three years before the pandemic in the number of 18- to 24-year-olds setting up businesses. Britain is consistently one of the strongest performers in terms of the ease of doing business, and indeed starting a business. The Global Entrepreneurship Monitor shows that the proportion of Britons involved in some form of entrepreneurial activity has increased from 15% to 20% since the turn of the millennium – and the proportion of us who own our own businesses has doubled. There also seems to have been a strong and sustained shift towards a more entrepreneurial culture in around 2010 – perhaps mirroring the change in governing party.

But things become more murky when you look not at the number of businesses we have, but what we think they should do.

A few years ago, we at the Centre for Policy Studies published a paper called  ‘Think Small’, which focused on the needs of small businesses in Britain and how to help them grow.

In the polling for it, we found an overwhelming consensus that the system of tax and administration to which those firms are subject is far more onerous than it should be – not just in terms of the amounts that are taken, but the sheer complexity of the process.

That survey also showed that people really like small businesses. They want them to prosper and grow.

And yet if you ask (as YouGov has via a regular tracker poll) whether businesses are regulated enough, only 12-14% of the country will answer ‘too much’, less than half the proportion who will say ‘not enough’. If you ask whether they pay enough tax, you get 48% saying ‘not enough’, and only 9% saying ‘too much’.

Analysis by the OECD and other institutions has consistently shown that taxes on businesses and investment are absolutely the worst for growth. Yet when Boris Johnson and Rishi Sunak needed to pay for the costs of the pandemic, it was taxes on employers that went up first and most – because that was by far the most popular option.

More generally, there is a small forest of opinion research that will tell you that people these days don’t think the business of business should just be business – more people say that a brand’s ‘stance on wider society’ is very important than not at all important. (And yes, that sound you can hear is Friedman and Hayek spinning in their graves.)

A recent edition of Deloitte’s regular survey of millennials showed that they overwhelmingly feel business success should be measured in terms of more than financial performance. A foreword from its ‘global chief purpose and people officer’, which is a pretty telling title in itself, found that ‘if anything, the pandemic has reinforced their desire to help drive positive change in their communities and around the world. And they continue to push for a world in which businesses and governments mirror that same commitment to society, putting people ahead of profits and prioritising environmental sustainability, diversity and inclusion, and income equality.’

In the 2022 edition of Deloitte’s survey, less than half of young people agreed that business was having a positive impact on wider society – the fifth consecutive year in which the percentage had dropped. Previous research by Matthew Elliott and James Kanagasooriam, for the Legatum Institute, found – even more starkly – that the words that young people most associated with ‘capitalism’ were ‘greedy’, ‘selfish’, ‘corrupt’, ‘divisive’ and ‘dangerous’. Frank Luntz, in more recent polling for the CPS, asked people whether they agreed with the statement: ‘When I look at corporate leaders and how they treat us, I just think ‘f*** them all’.’ By 50% to 23%, they agreed. (The only consolation is that the figures for politicians were even worse.)

There’s a fascinating case to be made that much of this ties into the broader culture war. YouGov has found that the focus on companies’ wider responsibilities is being driven by a group it called the ‘catalysts’ – the most influential, and opinionated, section of society.

To quote:

‘…catalysts are overwhelmingly likely to be members of the ABC1 social grades… and over two thirds… are in the highest AB brackets… Their favourite newspaper is The Guardian (31% vs. 4% nationwide) [and] they’re more likely to be left-leaning Remain voters: almost two-thirds (65%) voted for Labour, the Lib Dems, or the SNP at the 2017 General Election, while almost three-quarters voted to stay in the EU (73%).’

In short, half a century after Milton Friedman first set out the argument that the business of business is business, that argument is being decisively lost. And it’s being lost within the business community itself – even though people are pretty clear (as Frank Luntz’s polling showed) that when they’re actually making purchasing decisions, and living their lives, what they really want is good, cheap products, excellent service, and for companies to treat their workers fairly. Not to have an ice cream company like Ben & Jerry’s lecture them via its Twitter account on the Government’s policy towards refugees.

What’s less appreciated, however, is that all this is doing economic damage, because it’s not only diverting capital from productive ends but moving the policy debate away from what we actually need for growth.

In particular, there is a dangerous gap between what people think is happening in the business world and what is actually happening.

In a celebrated speech in 2012, Andy Haldane of the Bank of England pointed out that the UK had moved from employing one regulator for every 11,000 people working in the financial sector in 1980 to one for every 300 in 2011.

Financial regulation had become much more complex, with the latest Basel rulebook requiring large banks to carry out several million calculations, as opposed to single figures a generation ago. Over a single decade, the proportion of Citigroup’s global workforce devoted to compliance and risk went from 4% to 15%. George Osborne warned in 2013 about over-regulation leading to ‘the financial stability of a graveyard’. It is striking, and alarming, that Britain’s regulators – unlike many of their counterparts – have generally had no specific duty to promote growth, or to consider the dynamic impact of their decisions. And when the Government tried to bring one in recently, all hell broke loose.

The CPS has recently been carrying out extensive work on regulation. We will be publishing the full details later this year, but it is fair to say that our team were genuinely shocked by the ease with which Whitehall can impose extra costs on businesses and consumers, and the flimsiness of the justifications that have been used to do so.

But it is not just about regulation. In many firms, the proportion of people actively devoted to the core task of generating profits has shrunk and shrunk. Meanwhile, the global human resources industry grew from around $343bn in 2012 to $476bn in 2019, and the number of diversity roles has increased by 71% over five years.

The adoption of a wider definition of corporate purpose has been accompanied by a growth in the number of staff whose mindset is effectively public sector rather than private: their role is to ensure that the company does good and is good, rather than that it meets its targets. And of course, for many public companies those targets are in any case geared more towards meeting investors’ quarterly expectations than delivering long-term growth – or pleasing institutional investors such as Larry Fink at BlackRock, which have wholeheartedly embraced the gospel of ESG.

The death of Adam Smith

My argument, in other words, is that business has indeed been infused with morality – but the moral imperative is not towards making people’s lives better, but performative demonstration that you are on the side of righteousness, that you have not only ticked all the right boxes but done so with a song in your heart.

This flies in the face of a fundamental point made by Adam Smith. He famously said that: ‘It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest.’

This was, at the time, a revolutionary argument. For centuries, philosophers had stressed the importance of leading a good life. What Smith was saying was that – at least in economic terms – it was perfectly fine to look after number one, because in doing so you looked after numbers two through 20,000.

But today, that is no longer true. Today, you not only have to do good – by creating jobs, providing goods, paying taxes and dividends. You have to proclaim that you are doing good. And if you transgress those rules, you are cast out of polite society.

Recently, the journalist Ed West wrote a book called Small Men on the Wrong Side of History. It was about, in essence, how conservatives are losing the culture war. As he says in that book, ‘The Left has developed a moral monopoly, so that those outside the faith are under an unspoken obligation to prove their moral worth before their views can be heard.’

I was reminded of this a few years ago when I got a message from my local council leader:

‘It is no longer enough to be simply a low tax council,’ it said. ‘It is also not enough to say we are good at delivering services.

‘People’s priorities have changed, and their expectations have increased.

‘We need to work harder to be seen as being on the side of residents.

‘And we need to re-earn our place in residents’ hearts and their minds. This is what will determine where they put their cross.

‘Our key response to the changing times is Smart Growth and our commitment to be inner London’s greenest borough.

‘Smart growth is green growth and is fair growth for all.’

I’ve quoted that email at length for one simple reason: I live in Wandsworth. What was long the lowest-tax, toughest-minded council in the country. The place where the Thatcherites proved that you can win even in the heart of a Labour-leaning city by delivering, delivering and delivering.

Except that, according to that email, you couldn’t. (Not that it mattered: in the most recent elections, the borough voted in Labour anyway.)

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It’s almost a quarter of a century old, but there’s a wonderful passage in the original Bridget Jones columns that perfectly sums this up, in which Bridget suddenly finds out that Mark Darcy, her new boyfriend, is a Tory.

The Tories, she explains, stand for ‘braying bossy men having affairs with everyone… then telling all the presenters off on the Today programme.’ Labour ‘stands for sharing, kindness, gays, single mothers and Nelson Mandela’. It’s not hard to know who to vote for.

The morality of growth

Because of shrinking growth, we’ve become more and more obsessed with how to share the cake, and who deserves which particular slice. But that has reached the point where it is actively preventing us from returning to growth – because the free-market machine has become gritted up.

There was a lot of coverage a couple of years ago, for example, of the fact that Apple is now larger than the entire FTSE 100. It seemed like proof of the superior dynamism of the US tech firms.

But there’s a more interesting story here. In the five years before the pandemic struck, the FTSE All Share index went up by 20%. But the actual collective market capitalisation of Britain’s listed companies was completely flat. In other words, shares went up, but the number of listed firms went down. In 2019, just 34 firms applied to be listed – the lowest since the financial crisis.

There are many reasons for this. But one of the simplest is that we have made it such a chore to be a listed company, and to be a director of a listed company, that fewer and fewer rational people want to do it. The result is that the kind of popular capitalism that Margaret Thatcher dreamt of – an economy built around mass ownership of homes and shares and savings – becomes harder to achieve.

In the City, and across the wider economy, we have tilted the balance towards security and away from risk. And in doing so we have lost the sense of the value of business. Of the urgency of growth. Of the idea that creating a job – any job – and growing the economy should be considered a heroic act.

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