One of the best ways to get more economic growth is by narrowing inequality, says UK economist and author Daniel Susskind.
We need more economic growth. It’s one of the few things politicians agree on, according to economist and author Daniel Susskind. It provides jobs, meets material needs and “is associated with almost every measure of human flourishing”.
But, as he explains in his new book, Growth: A Reckoning, politicians aren’t the only people with an opinion or a stake in how the world is run. With an eye to environmental challenges, a degrowth movement, represented by the likes of David Attenborough and Greta Thunberg, is gaining – though definitely not using up – ground.
Who’s right? Neither entirely, but the politicians are probably righter.
Susskind is a research professor in economics at King’s College London, a senior research associate at the Institute for Ethics in AI at Oxford University, and an associate member of the economics department at Oxford. And he is unequivocal that we still need growth, but a different kind of growth from the one we are used to. He is quick to point out the many problems – familiar and often overlooked – with having it as a goal.
“Growth is associated with many of the greatest challenges that we face. Most obviously, it’s associated with climate change: that we are, in some sense, growing our way towards an ecological catastrophe.
“But globalisation [also] disrupts local places and communities. The growth dilemma is that it has extraordinary promise, but it’s also got this great price as well.”
In particular, he thinks gross domestic product as a measure of growth is misleading, and not in a vague “yes, but it doesn’t put an economic value on hugs and kittens” kind of way.
Although it’s a standard benchmark for measuring growth, GDP is, in fact, a relatively recent and problematic concept.
Hugs and kittens aside, it also doesn’t measure growth factors such as environmental degradation, social inequality, community cohesion, quality of life, technological progress and unpaid work.
So, given our level of ignorance, what is the bottom line of Susskind’s reckoning, to borrow a term from accounting?
“One of the few things we know is that sustained economic growth doesn’t come from using more and more of our finite resources. It comes from the world of ideas and discovering ways of using those resources more efficiently and more effectively.”
The world of tangible resources is finite. The world of ideas is, if not quite infinite, at least much less finite.
“The constraints on growth don’t come from the fact that we live on a finite planet. The real constraints on growth come from our failure to discover new and better ideas about the world. A lot of the policy proposals in the book are around how we become the sorts of societies that are best to discover new ideas about the world.”
Susskind is no iconoclast shunning all tradition. In fact, he has to apologise to his interviewer if there’s too much background noise because, where he lives, “Thursday is the night that the church next door does their church bell practice.”
Hurting the planet
Some technologies are hurting the planet, but “we can change the direction of technological progress if we want to. The great example of this is what has happened in the climate setting over the past 40 years.”
In summary, Sir Nicholas Stern, in a UK review of the economics of climate change in 2006, estimated it would cost 1% of GDP a year to reduce emissions by 80%. The next year, he said he had underestimated the problem and it would actually cost 2%.
“Fast forward to the year 2020: the [UK] Climate Change Committee concludes that to eliminate emissions – not simply reduce them by 80%, but to eliminate them – would cost just half a per cent of GDP. In other words, the trade-off between growth and the climate has dramatically improved.”
So, we should definitely order in more of that technology.
As an example of the sort of trend he is describing, he cites solar power. “Solar begins in the 1970s as a sort of tool of last resort if you want to generate electricity in an isolated lighthouse or in outer space, but today, it’s completely commonplace. Why? Because there’s been a precipitous fall in the cost of generating electricity by solar, something like a 200-fold decrease over the past few decades, so there’s been an explosive uptake as a result.” We have shown we can “develop technologies that not only lead to greater prosperity, but also do less damage to the other things that we care about”.
Economists are well aware that humans need a bit of nudging to change their behaviours. In the case of solar, new “interventions, taxes and subsidies, rules and regulations, social norms and customs just completely transformed the incentives that people faced”.
But Susskind is also apparently sanguine about using more impactful levers to create incentives and drive change, such as higher fuel taxes to promote the use of alternatives.
“It’s not so much that I’m in favour of them, but I recognise that they can solve the problem. So, we know, for instance, that a carbon tax of about $100 per metric tonne of carbon by 2030 would essentially allow us to meet the ambitions that we have for the climate, that it will sufficiently reduce emissions. The challenge is that it’s not necessarily politically feasible.”
New Zealand, of course, doesn’t have a carbon tax. We have an emissions trading scheme.
Susskind says that, as well as trying to cut down oil use via one mechanism or another, “we have to accept that we’re going to be living on a warmer planet if we can’t adopt the kind of technical interventions that would deal with climate change.”
That leads to some hard choices in which either option comes with unpalatable costs. “There are costs associated with protecting the climate, with narrowing inequality, with turning away from technologies like AI, which are doing damage to work and politics. This forces difficult trade-offs upon us, and one of the arguments of the book is that we need new political institutions that are capable of creating a space where there can be greater deliberation among citizens about these difficult choices.”
By now, it’s not clear whether that ringing sound is church-bell practice down the road or alarm bells at what might sound like revolutionary proposals. But what he’s suggesting is already happening in some jurisdictions [see below].
The use of citizens’ groups to consider policy is an acknowledgement that some issues, such as the environment or inequality, are “not technical issues about mis-measurement, they are moral issues about what matters. And the place to resolve that moral disagreement is not in Treasuries and statistical offices. It’s not for economists and bureaucrats to be deliberating. It’s for citizens. For these difficult trade-offs, between different things that we value, we need to create new spaces in which citizens can deliberate on these issues.”
Basic ambitions
So, how do we grow our economies? First, we put the past away. Many economies are trapped “in an 18th- or 19th-century conception that growth comes from building long bridges, fast roads, fast trains, high-speed rail, lots of houses”.
One of the reasons degrowth is unacceptable is that it will leave developed countries developed and undeveloped countries undeveloped (unless developed countries are prepared to trade off their advantages, which seems unlikely). There needs to be growth, or inequality can’t be addressed.
Twenty-first-century growth, as we have heard, needs to come from ideas, “so the question has to be: how do we generate more ideas? It’s around investing vastly more in research and development. It’s about reforming our antiquated intellectual property regimes. It’s about getting more people into the parts of the economy that are responsible for developing these ideas. And it’s also about using these technologies themselves to help us generate ideas. The good ideas in the 20th century came from the heads of human beings. In the 21st century, these ideas are going to increasingly come from our technologies themselves.”
By sticking to current intellectual property regimes, which restrict the exchange of information about technology that can relieve the problems facing those nations that are trailing behind, we are failing to do our best for humanity. “That is how we could have a really big impact on climate change. Not by changing our behaviour as consumers, but by sharing our ideas more freely around the world, by shaping the kinds of technologies that get developed in these far more consequential parts of the world.”
Similarly, putting more resources into research and development and spreading the load between private enterprise and government institutions will generate more of the kind of ideas needed for growth. It was public-private collaboration that put humans on the Moon, still something of a benchmark for getting things done.
And more people need to be brought into the process.
“One of the best ways to get more growth is by narrowing inequality. There are lots of good moral reasons for thinking that inequality is a bad thing. But from an economic point of view, it’s just extraordinarily inefficient that so many people have amazing talents and abilities and don’t get a chance to put them into economic use.
“There’s an amazing statistic, which is that if black men, women and children from low socio-economic backgrounds invented at the same rate as white men from prosperous backgrounds, you would get a quadrupling of innovation in the US. The idea being that there’s extraordinary inventive capability, which doesn’t have the chance to be unleashed because people don’t have equal opportunities. We can have more growth and less inequality.”
Not all economists are optimists, but perhaps Susskind’s core belief, underlying all his thinking, is that things can be fixed. As he says in the book: “It is a dangerous situation when people lose confidence in the future.”
The Listener asked National, Labour, Act, New Zealand First, Te Pāti Māori and the Greens, what, if any, policy they had on growth. Only National responded; a spokesperson for the Prime Minister said: “National’s top priority in government is rebuilding the economy and bringing inflation down. That’s why we’re reining in wasteful spending, slashing red tape and supporting Kiwis with the cost of living through income tax relief. Bringing inflation down means interest rates can begin to fall and the economy can grow again. By tackling the drivers of inflation and creating the foundations for growth, we can lift incomes, create opportunity, and get New Zealand back on track.”
No, you decide
Around the world, panels of citizens are helping governments faced with hard decisions.
Daniel Susskind says the right sort of growth can be encouraged by the right decision making. “Around the world, particularly in OECD countries, there’s been a big rise in so-called mini-publics, which convene citizens to deliberate on some of the most intractable questions. They used these sorts of platforms in Ireland to debate abortion, and in France to debate euthanasia.”
Most people are in favour of any form of democracy that comes up with the result they want, and so far, so green-friendly. But then Susskind, proving his point about the inevitability of trade-offs, brings up Korea: “They used [mini-publics] in Korea to debate the role of nuclear energy post-Fukushima [site of a major nuclear accident in 2011]. There was a big concern about having nuclear as part of the energy mix. But anybody who looks at the numbers knows that if you want to respond to climate change, and also grow the economy, you have to have some nuclear energy as part of your mix. The politicians found themselves in a real bind: they’d committed to turn away from nuclear, but they needed it. They put it to the citizens’ assembly, and they reached the conclusion that, yes, we do need nuclear. That allowed the government to do a U-turn.”
Similarly, climate change has led to choices around growth that have polarised populations. “A way of channelling some of those legitimate grievances, some of that deep moral disagreement is by putting these debates, in a formal political setting – these mini-publics.”
The groups can take various forms, with varying degrees of authority. “Some of them are very modest – panels of citizens who self-select. Then there are stronger forms where it’s a bit like jury service: you are selected by the state, you must take part. Citizens are briefed by leading experts, leading policymakers, the people from industry, politicians. They are not legally binding, [but] there’s a sort of expectation that the government will adopt and respond to them. They work best where there is a sense that they capture the collective conversation in a legitimate way.”
Susskind compares mini-publics favourably to referenda. “It’s a participative institution that sits somewhere between the remoteness of traditional politics where you delegate your politicians to resolve your political concerns, and the bluntness of discrete referenda. Brexit in the UK is a good example of these participative institutions not working well, being badly constructed – an incredibly difficult question with a straight yes or no answer, without the sort of careful deliberation that makes these things work well.”
Growth: A Reckoning by Daniel Susskind (Allen Lane, $40) is out now.