The end of economic growth

Earlier this month, the Guardian in its Economics’ Blog, published an article called “Are the UK growth pessimists right?” The article itself is unclear, partly because it wants to make the point that Social Democrats need growth to painlessly share the wealth more equitably and fund their social investment programs. The article argues that UK economic indicators are beginning to look up, that doomsayers have always been wrong before and that technological innovations have always revitalised capitalism.

They briefly look at Robert Goodman’s work, most recently, articulated in a paper entitled, “Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds”,  which critically to me, argues that the head room for growth created by technology innovation will be restricted in the future; he argues that the 2nd industrial revolution from 1870 to 1900 was a one off platform for hypergrowth. He also argues that in the USA, there are six head winds, or macro-economic growth inhibitors, these include the aging population, the faltering (secondary) education system, growing income inequality,  foreign competition,  energy efficiency and debt repayment. His arguments are popularly summarised in an article in The Atlantic, “The most depressing economic idea of 2012: The (near) end of growth” which points at a Washington Post article where the traditional counter arguments are explored including the lack of evidence that new technology won’t offer the same levels of growth as experienced in earlier decades.

The Guardian also claims to explore some of the ideas from Stephen King from his book “When the Money runs out”.  King also claims that the exceptional growth of the last century is a one off and coming to the end. He is interviewed about the book and his ideas, in an article at www.emergingmarkets.org called, “Stephen King: When the money runs out”. His one off factors include the post-war liberalisation of trade, the entry of women into the work force, the explosion of University education. He also argues that credit market growth is a factor causing growth that can’t be recycled.

Carlotta Perez, not quoted in the Guardian, suggests in her book, “Technological Revolutions and Financial Capital” that there have been five technology revolutions not the three suggested by Goodman. She is more interested in describing economic history rather than predicting economic growth but if her models are to be believed, we are entering the “Synergy” phase of the IT or silicon revolution where the socio-economic paradigm adjusts to meet the challenges and needs of the new techno-economy. She also predicts that as rates of return on capital in the dominant technology decline, capital’s search for profit will cause the next “Irruption”. Social Democrats must hope that public investment and direction can help this process. The Synergy stages, have been in some cases, been times of great social progress, and we have reasons to hope that since IT empowers people as knowledge workers, and it no longer substitutes white collar labour that Labour Productivity will grow, and that the new economically powerful, i.e. the wealth creators will exert their interests at the expense of the corporate parasites, rentiers and legacy businesses destined to be the objects of Schumpeterian “Creative Destruction”.  The Economist, in its article, Paradise Lost, part of its 2003 special report on the IT industry, states that Perez ,

….concentrates mainly on the social and regulatory decisions needed to allow widespread deployment of new technology.

Being the Economist, they miss that in a democracy, the regulators are not neutral, they are accountable to their electorate.

One final sign of hope is that both Karl Marx and Adam Smith postulate that markets could become saturated and this market saturation is what caused the turning points in the business cycle and thus slumps, in Marx’s case of course opening the gotterdammerung of the Class War. IT enlarges markets, it reduces friction in markets and enables the ‘long tail’ to participate in effective demand. In many markets, finance and entertainment in particular, it enables a global market, fulfilled in near real time, reaching parts of the world economy, historically too expensive to supply. On the supply side, globally distributed remote workers and non-workers no longer need to travel to work, or school either. I suspect those that say that the IT revolution creates less wealth than the Steel & Oil revolutions are wrong.

There is no reason to believe that the next technology revolution will not transform our society as effectively or dramatically as the previous ones, that continued labour specialisation will be the source of new wealth and economic growth. It is also not a given that no more labour productivity benefits will be forthcoming from today’s dominant technology. However, how this wealth is shared is not just an equity issue, it is a growth issue; it’s possible that Social Democratic model of using growth to fund equality and fairness and investment programs by tax and spend policies, by stealth so that the tax burdens can’t be noticed, is over.

There remains a political agenda of hope, that the benefits of the new and old wealth can be shared more evenly, with sharing and fairness being the demand engine for new growth. The current benefits schemes show that capitalism needed mass markets and mass effective demand and the fight for Universal Sufferage was won during the previous industrial revolutions. Similar contradictions and struggles exist in the information age, most visibly in the political arena in the copyright wars and the continued fight for democracy, and in the economic arena in the obscene wage differentials existing in our societies, differentials that have no bearing on either the effort undertaken or the value created or the opportunity costs.

I suspect that Growth has not ended, but the eternal question as to who gets what, while remaining the same has new answers. We need to win the argument that fair and sharing societies are richer ones as well.

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