Chapter 15 from: J.J. Ray (Ed.) "Conservatism as Heresy". Sydney: A.N.Z. Book Co., 1974


Economic Growth-Blessing or Curse?



By J.W. NEVILE

TEN OR TWELVE years ago economic growth seemed to be universally considered one of the fundamental values that no one questioned, like Motherhood and God. John F. Kennedy beat Nixon in the Presidential race in the United States partly because he pointed to the low rate of growth of the American economy under Eisenhower and promised that the economy would grow more rapidly when he was president. In the United Kingdom Wilson won an election with the slogan 'Get Britain moving again'. In Australia newspapers had economic supplements with titles such as 'Australia Unlimited'. Economic growth was the thing and its high priests, the economists, seemed to attribute to it all virtues - even mystical ones. The first great modern economist, Adam Smith, was often quoted to the effect that:

Growth endows the community with a sense of vigour and social purpose. The progressive state is in reality the cheerful and hearty state to all different orders of the society. The stationary (state) is dull, the declining (state is) melancholy.

Now, scarcely ten years later, economic growth has become a dirty word in some quarters. The zero-population growth movement has already grown into the zero-production growth movement. Even economists are writing books entitled The Costs of Growth and wondering aloud whether or not their former idol perhaps after all has feet of clay.

Is economic growth then a wonderful blessing that no nation can afford to be without? Is it an unmitigated curse that if not countered will lead us inevitably to global disaster? If the truth lies somewhere between these extremes -- as certainly it does -- is economic growth more of a blessing or more of a curse?

I am a growth man myself, and most of us are only too aware of deficiencies in our society -- both considered nationally and globally -- that can only be overcome by the increase in material resources, which are part of the fruits of economic growth. Most of us are painfully aware of the needs right here in Australia for better social services to eliminate poverty, better hospitals, better schools, not to mention universal sewerage to go with our universal suffrage. Many of us are also aware of the needs of people in the less rich countries we euphemistically call underdeveloped. These needs can only be satisfied through economic growth. The belief that economic growth is a good thing seems little more than common sense.

I want therefore to answer the question 'Is economic growth a blessing or a curse?' by examining the arguments of those who oppose economic growth, and showing that they have no substance. There are three main lines of attack on economic growth.

The first is the anti-materialism of some of the young people in developed countries as exemplified by hippies, and also by some others who would consider themselves radical reformers of the new left rather than drop outs. This rejection of affluence and of materialistic values is mainly confined to the children of affluent families who have always had material comfort and who have become bored with it. It is most evident in the U.S.A., the richest country in the world, and even there is most prevalent among children of the families who are better off economically. Such people have, of course, every right to reject materialism and material comforts for themselves. But surely it is arrogant in the extreme for them to reject it for others, many of whom have never known respectable comfort let alone affluence.

The second group attacking economic growth are a small number of economists led by Professor E. J. Mishan whose views have been very trenchantly set out in his book The Costs o f Economic Growth. Mishan's arguments against growth can be summed up in three statements: (1) Western societies already have enough material things, (2) growth leads to large scale external diseconomies (I'll explain that piece of jargon shortly) and (3) growth leads to rapid obsolescence of knowledge as well as machinery and equipment, and the change accompanying it leads to the collapse of traditional values and growth of dissatisfaction with the status quo.

Mishan's first point might have some validity if the world only contained the rich industrialised nations. Even in these nations there are still numbers of people living in poverty, but Mishan would argue that this should be cured by taking wealth and income from the rich and giving it to the poor. However it is much easier for the better off to give up part of their growth in income to help those not so well off, than it is for them to accept an absolute cut in the living standards to which they have become accustomed. This argument for continued growth has even more force when one remembers that Western nations share this planet with under-developed countries. It can be hoped that the Western nations will give more and more of their resources to help development in underdeveloped countries. They are more likely to do this if they are giving a part of the increase in their income, than if increasing aid to underdeveloped countries requires a cut in their own standard of living.

Mishan's second point has some validity. To explain this it is necessary to explain what economists mean by external diseconomies. The essence of the idea is simple: if something I do causes a cost to others over and above the cost to me that is an external diseconomy. The pollution and congestion caused by cars are good examples of external diseconomies. Mishan especially hates the motor car -- He calls 'the invention of the private automobile . . . one of the great disasters to have befallen the human race'. It is true that in the past, economic growth has often been accompanied by disregard of the costs imposed on others by a whole host of things -- from smokey factory chimneys to the noise of jet aircraft. This is not an argument against economic growth, though it may be an argument in favour of discouraging certain forms of production or consumption. It is an argument in favour of making those who cause external diseconomies bear the cost of them, for example making all potential polluters bear the cost of preventing pollution or keeping it down to an acceptable level.

Mishan's third point, that growth leads to a disrespect for traditional values, has a lot of truth in it. In most societies the fairly rapid change that often accompanies economic growth does lead to a questioning of traditional values and the status quo. How much you are disturbed by measures which increase dissatisfaction with the status quo depends on how much you love the status quo.

Overall, I cannot help but be left with the unfortunate impression that a lot of Mishan's arguments amount to little more than saying that, with economic growth, many people can enjoy things previously only enjoyed by a select few, and that this greatly diminishes the welfare of those who were the select few previously enjoying these things. For example, his tirade against the tourist industry concludes with the words 'the annual invasion of tourists has transformed once-famous resorts ... into so many vulgar, Coney Islands'.

The third type of attack on economic growth has come from the ecologists and conservationists. The most famous example is the study entitled Limits to Growth undertaken by Meadows and others for the Club of Rome. There are two separate issues in what the conservationists are saying. One is the pollution problem and the other the conservation of non-renewable natural resources. I've already said that the proper response to pollution is to make the polluters pay the full costs of removing or preventing the pollution. One must add to this the further point that there may well be some activities that should be banned altogether -- e.g. the discharge of mercury wastes into the sea.

The other barrel of the ecologists' shotgun is that even if we stop polluting, we must still stop growing because otherwise we will exhaust the non-renewable natural resources of this world, perhaps in fifty years, perhaps in a hundred years but certainly sometime. This argument has two parts. One is that if population continues to grow at its present rate the population of the world will double every thirty years and soon there will be standing room only on space ship earth. The mathematics of these projections are unimpeachable, but population is unlikely to continue to grow at its present rate, particularly if we have economic growth. World population growth is dominated by the growth in the population of a small number of large underdeveloped countries, where population is growing very rapidly because the deathrate has fallen much more rapidly than the birthrate. The surest way of reducing the birthrate in these countries is by economic growth. To argue, as some ecologists have, that aid to underdeveloped countries will only give them a higher rate of population growth and make matters worse, is to fly in the face of this fact.

On the other hand it is true that in many underdeveloped countries, reducing the rate of population growth is very important if efforts to improve the standard of living are to have much chance of success. For the world as a whole it is true that the sooner the rate of population growth is drastically reduced the greater the chance of eliminating much of the poverty throughout the world.

The second part of the argument, by some ecologists, that achieving zero population growth will be fruitless, because it will merely postpone the doomsday when we run out of natural resources, is pessimism gone mad. If we can achieve zero population growth in the next seventy-five years and greatly reduce the rate of population growth almost immediately (as the largest country in the world, China, already appears to have done) the doomsday when we deplete this earth's resources will be pushed further into the future, giving us more time to change and adapt our patterns of production and consumption. Consumption patterns will change in any case with economic growth -- as communities become richer they spend more and more on services rather than goods. Productive patterns will also change automatically since if certain resources appear to be likely to be scarce in the foreseeable future their prices will rise -- encouraging both economy in their use and a search for substitutes. Consumption patterns and technology will both have to change greatly over the next 150 years. It seems hysterical to denounce economic growth because of a fear or assumption that change will not take place.

In conclusion I think that all the arguments against economic growth in the sense of growth in output and income per head, are mistaken. They are also extremely dangerous. In as much as they lead more countries to adopt measures to deal with external diseconomies they will do some good, but the danger is that they will distract the nations of the world from doing anything about the real world crisis in our midst -- the disparity in living standards between the developed and undeveloped nations -- between Australia and Indonesia to give but one example. The arguments of the doomsday men are particularly dangerous as they may lead to a fatalistic feeling that if everything is going to end in disaster it is not worth trying to improve living standards in underdeveloped countries or among the under privileged in rich countries. The world does face a crisis lying in the difference in living standards between rich and poor nations. Economic growth, as properly understood, holds the only solution.



Postscript

Because the above was constrained by the absolute limits imposed by a thirteen and a half minute radio talk many points were omitted or touched on only very briefly. Letters that I received after the broadcast showed that this led to some misunderstanding of my general position. Let me therefore add the following five points by way of a postscript.

(1) I do not advocate maximum economic growth as a goal of national policy. Like all economic goods economic growth has costs about which I said very little in my talk. One not insignificant cost is the consumption which must be foregone now to make possible the capital accumulation that is part of economic growth. I am not arguing that we should maximise economic growth. I am arguing that the benefits of economic growth at an appropriate rate far outweigh the costs. I have not considered at all the thorny question of what is the optimum rate of economic growth, except to assert, very strongly, that it is significantly greater than zero.

(2) I am well aware that growth in gross national product, as conventionally measured, is a faulty indicator of economic growth. Not only are various goods, such as the services of housewives not measured in gross national product, but many costs, e.g. many pollution costs, which should be subtracted from gross output to get net production also escape measurement. It is of course genuine economic growth, not growth in the imperfect statistical indicator called gross national product, with which I am concerned.

(3) My talk was concerned with per capita economic growth in total and not with the composition of output. I too would like to see more emphasis on many of the types of goods and services desired by many 'no growth' advocates; for example, I would like to see more of our growth in output devoted to preserving bushland in national parks, to better health services and to better education at all levels, and none to increasing the number of cars per head of population or introducing colour television. This point can be enlarged and strengthened. I indicated in the talk that there will have to be big changes in production and consumption patterns over the next fifty years. To some extent these will happen without any extra market pressures, as certain goods become more expensive due to increases in the relative scarcity of some resources. I see no reason why changes in consumption patterns should not be speeded up; not by government fiat but by forbidding things such as advertising campaigns which at present bias consumers' desires in the direction of more, bigger, and perhaps better material possessions.

(4) The distribution of gross national product is at least equally important, in terms of human welfare, as its total. If economic growth occurs only by the rich getting richer, with no improvement in the lot of the poor I would not consider it worthwhile. This maxim can be applied to the distribution of gross national product between countries as well as to its distribution between people in one country.

(5) Finally I am not one of those "madmen or economists" who think that exponential growth can go on for ever. However, I do believe that if zero population growth is achieved relatively quickly, growth in output per head for the world as a whole can continue at the present rate, or even slightly higher rates, for another 150 or 200 years. There will be immense problems in changing to a no growth world. It does not seem unreasonable to postpone consideration of these until a no growth world is only 100 years ahead, and to concentrate now on the equally immense and equally important problems facing the world in this century.



This paper was originally delivered as a 'Guest of Honour' broadcast on A.B.C. Radio