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.)
[...]
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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