You Gotta Get Down To Get Up: Creatively Destroying the Growth Myth

May 10, 2012

Growth fever is rife. Everyone, it seems, wants to “restore” growth, increasing production, incomes and profits. Francois Hollande has come to power in France counterposing the politics of “austerity” to his own politics of “growth.” The British Labour Party seeks to portray itself as the party of growth and the coalition, as disciples of austerity. Yet for austerity buffs, their policies too lead to growth. Their route, via “restructuring” will supposedly make economies leaner and more flexible – a kind of economic yoga. The fat of benefit cheats, lumbering companies, wasteful public services – all of this will be shed by assuming the lotus position, leaving the nation slender, efficient and ready for “growth” again.

This is, to an extent, part of the usual capitalist rhythm of crisis and restructuring. What the economist Joseph Schumpeter would have called “creative destruction” (although he would not have been keen on the demand destruction going on via an unwillingness to raise taxation levels on the rich). For some Marxists too, this represents a phase of retrenchment in which the conditions needed to “realise” surplus value are generated by lowering the cost and power of labour, destroying unprofitable capitals and creating the ground for new industries to spring up.

But there is no guarantee that creativity will follow destruction. Several factors mean that austerity need not create the conditions for firms to grow (at least, European firms). First off, there are no obvious new technologies with the capability to act as the great consumer goods industries did after World War Two, or computerisation did after the 1970s slump. Neoliberal advocates of restructuring tend to point to “services” as a growth area, without ever really defining that is meant by the term. Services can stretch from cleaning ladies to Goldman Sachs, with wildly differing future prospects. Indeed, the expansion of the financial services sector led to the collapse of 2008, and we do not want to see this reoccur, yet that is precisely what is being encouraged by the governments of Britain and the Eurozone. Instead of supplying broad based growth based on new technologies, this kind of expansion will produce, at best, a new bubble economy, just with lower wages and bigger banks to bail out when they over-reach their securitisation activities.

Another factor acting against renewed growth is commodity prices. Oil remains costly, due to supply issues and security in key producing areas. It won’t be plummeting to 1980s levels again, nor will we see the kind of expansion injected into the world economy after World War Two by the rise of the automobile and all of the infrastructure needed to ensure that it dominated affluent societies. But other commodities are costly and may not flood world markets anytime soon – copper, gold, foodstuffs, rare earth metals. These are significant constituents of economic growth, and without extreme geological good fortune, or agricultural ingenuity of the highest order, the future will be more expensive, stifling growth. Energy costs will rise, feeding into the cost of food. There are risks of fertiliser price spikes as phosphate supplies run short. Speculation by financial institutions will not make dealing with this any easier, and nor will continued efforts to turn food into fuel. It is worth remembering the 1970s, when oil and food prices rose dramatically and growth flatlined. That wasn’t an easy slump to evade (and both the financialisation route and the North Sea oil windfall that we in Britain used to get out of it are hardly available to us now).

Thirdly, globalisation makes the restoration of growth harder to achieve. In some ways, it has to be admitted, access to global markets is a boon. Exports can flow to Chinese, Indian and Latin American customers, not consumers in the depressed economies of Europe or the United States. However, if globalisation, by increasing competitive pressures on national economies, results in a reduction in wages in richer nations, then this impacts upon demand, making recovery slower. And previous means of growing the economy may have permanently fled to cheaper labour markets – such as high-tech manufacturing or, depressingly, some renewable energy technologies. The gap between the 2008 crash and whatever recovery follows it may well see lower wage economies develop their higher-value sectors and educational infrastructure so that the comparative advantage held by countries like the UK with its venerable universities and “silicon fens” become rather irrelevant. The inability of firms to monetise the “creative industries” – and to make the web pay as say, Hollywood did in its golden age, or the recording industry once did – is significant as well. In a global economy dependent and fuelled by information, products that might have been easily commodified in previous eras of growth are now easily pirated or imitated.

These are strong arguments against the likelihood of renewed growth in Europe and the UK anytime soon. There are other factors too. Finance is still unready and perhaps unwilling to divert money away from speculation to industrial investment, despite receiving an unprecedented degree of public support. And politically, the situation makes it very hard for states to compel the rich to supply enough capital to craft a workable “industrial policy” via infrastructural development, research funding and forms of public subsidy. This worked in the past, pretty much everywhere capitalism took hold (as Cambridge economist Ha Joon Change never tires of repeating), but few countries outside China appear to recognise this. In the USA, income tax levels for the highest earners used to be 91 percent. Diverting money from luxury spending by the rich helped to fund the post-war recovery (and lending to recovering economies around the world). Everywhere, neoliberal economics has eroded the legitimacy of such taxation, such that the idea is now deemed preposterous, a political joke. Yet it is sorely needed. After all, who seriously thinks that Lear Jets will be a significant aspect of the economy in twenty years time relative to say, marketable tidal electricity generators?

The structure of the European Union presents a similar challenge to the kind of innovation needed to even contemplate renewed growth. Under terms of membership, nations are bound to respect free market principles that make it extremely hard to protect fledgling industries from international competition. At the same time, they are forced to fund agricultural subsidies which maintain unsustainable and socially unjust farming practices, at huge cost to both the ecosystem and taxpayers. And for Eurozone countries, they are stuck with a currency, yet do not have the redistributive tools needed to direct industrial investment to peripheral regions nor provisions for their exit should the Euro prove a mistake. So the EU itself is another factor inhibiting renewed growth, if it remains in the form that it does now. Perhaps if the single currency was accompanied by an effective industrial policy and a Europe-wide taxation system, it might work, but such measures are clearly politically impossible.

So is it possible to create a new round of economic growth? Will creativity succeed destruction? There is no guarantee that this will happen, and if it does, that it will happen soon. Nor is there any certainty that this growth will be broad-based, or that it won’t be a “jobless recovery” with stagnant wages and a new resort to finance to boost incomes through the delivery of credit.

However, there is a bright side to the situation. Very few commentators mention it, but for decades, economists have debated whether an economy even needs to grow, and what measures would need to be taken to create a “steady state” economy. After all, growth on its own does not ensure happiness and stability. Up to a point, affluence is correlated with improvements in social indicators and reported contentment, but above that level, far less so. And growth with inequality seems to be corrosive of social harmony and, for many, actively harmful. So there is an argument worth making for a politics and economics of “zero growth” on a social basis alone.

The environmental case is equally valid. Economic growth is clearly correlated with the depletion of natural resources and the build up of greenhouse gases in the atmosphere, as well as the production of many other pollutants. There is an argument that affluence can “buy” environmental protection, but this has not been proved to any noticeable degree. Incentivised environmental tools like carbon trading seem to be unworkable and ineffectual. Growth in richer nations may “solve” some problems while generating newer, more devastating ones. It seems that sustainability can only be ensured by an end to economic growth, and a turn away from market-based conservation strategies which seek to value nature in monetary terms, suggesting the securitisation of the ecosphere and, with the bubble’s collapse, the ultimate credit crunch as humanity’s debts are called in.

But apocalyptic scenarios aside, the steady state idea is important to bear in mind given the extreme difficulty involved in restoring growth. The truth is that we do not need growth. We need production, jobs, government and public services, and we need finance too, but we need these things within the limitations imposed by the development of capitalism and the ecology of the planet. It may be possible to ensure an abundance of some goods – such as parks, the performing arts, social care, rest, organic foods, at the expense of others, such as cars, jumbo jets, big budget films, reality television and fast food. The point is that we can choose the degree to which growth is necessary, and we can choose to create a society which provides sustenance for the human soul and body up to the point at which such provision becomes actively harmful and counter-productive.

Ivan Illich, the philosopher of technology and advocate of “convivial” tools which maximised individual freedom, was fond of using the term austerity in a sense far removed from its current meaning. For him, austerity was a noble goal, a state in which individuals and communities determined their engagement with the natural world and each other, and were not dominated by governments or corporations. Instead of large-scale industry flooding the market with consumer products, he sought to stress the importance of tools that all could master and use to create their own products and their own cultures. This did not necessarily imply a kind of primitivism. The ideas of Illich have fed seamlessly into the free software movement and hacking community, where the ability of large numbers of people to access programming techniques is deemed vital to ensuring quality and preventing corporate control. What his work does imply, is a form of radical democracy. I think this is where he becomes relevant for the present day. To forge a steady-state economy, we have to grow our democratic confidence and structures, so that we can create an abundant austerity in which freedom is maximised and resources are fairly distributed. This is the kind of growth I visualise when I hear commentators yearn for alternatives to austerity, and the kind of austerity I desire when I hear smooth-tongued politicians trying to sell cutbacks in vital services. It is, in Schumpeter’s terms, how we can creatively destroy the unfair and dysfunctional economic system that years of misrule has bequeathed us.

 

 

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