The Growth Illusion

How Economic Growth Has Enriched the Few, Impoverished the Many and Endangered the Planet

Richard Douthwaite

• Publisher: Green Books
• Year: 1999
• Print ISBN: 9781870098410
• eBook ISBN: 9781907448430
• Topic: Ciencias biológicas
• Subtopic: Conservación y Protección del Medio Ambiente

The idea that growth is beneficial underlies the economic strategies of all major political parties, but the reality of recent years is that the negative effects of growth have far outweighed any positive ones. In Ireland growth has been the root cause of unemployment in Britain it has led to an eightfold increase in crime, the breakdown of family life and a deterioration in general levels of health and education in the USA real incomes have fallen in India people have been driven from the land into urban slums and the natural world suffers increasing threat and inexorable erosion. The Growth Illusion exposes the real nature of undirected economic growth, and refutes Adam Smith's belief in the 'invisible hand' ensuring that self-interest would serve the common good. Rather than strive for constant expansion to stave off collapse, nations must learn to build stable economies. This new edition updates the text with an analysis of recent developments in the UK and elsewhere.

1

Quality or Quantity?

With the Dole plan for economic growth, our economy will achieve its full potential with 3.5 per cent — or higher — growth per year, putting our country back on the right track and giving every American family the chance to achieve the American Dream. — Bob Dole, the Republican candidate for the presidency of the United States in 1996, in the course of his election campaign

Our shared ambition is to make Ireland one of the most dynamic countries in the world with a quality of life which is second to none …. The key to further growth and stability is continued partnership and mutual self-restraint. For every year that high growth continues, we can put more people to work, cut taxes and provide money for improved infrastructure and social services. — Bertie Ahem, the Irish Prime Minister, in his address to the Fianna Fáil party conference, November 1998

AT THE TIME the first edition of this book appeared, one would frequently hear politicians talk about raising the standard of living through sustainable economic growth, a formulation that almost everybody was happy to treat as just another meaningless platitude. Nobody, after all, would have expected them to promise to cut standards of living or to claim that the economic growth they were proposing to bring about would last a few years and then disappear, leaving us in a worse mess than before. Today, however, as I said in the Introduction, confident statements linking economic growth with improvements in the quality of life are comparatively rare, although the quotations above show that specimens can still be found. Quite obviously, Mr. Ahern does not see a conflict arising between a high level of dynamism and a high quality of life, and between further growth and stability, which makes him exceptional for a man of his age. Mr. Dole can be excused, though. He is older and his opinions are those of the period in which he was a young adult.

Despite the change in the past decade, many political statements on growth still exploit a confusion most of us share about the link between “the standard of living” and another phrase, “the quality of life.” On the face of it these two expressions seem to mean exactly the same. In fact they do not. “Standard of living” is a technical term that means “the per capita rate of consumption of purchased goods and services,” which in turn, given our economic system, inescapably means “the rate at which we will use up the earth’s limited resources.” But spelling things out in this way would make the politicians’ proposals sound so profligate that it is never, ever done.

And what does “quality of life” mean? In the early 1970s researchers from the British Social Science Research Council (SSRC) asked carefully selected samples of 1,500 people exactly that question three times in the space of five years.³ “There has been a lot of discussion about the quality of life recently,” they said to their interviewees each time. “What do you think are the important things which go to make it up?” The answers they got were fascinating. In a society that was regularly condemned for its materialism, non-material factors such as a good home life and a contented outlook were rated as important by more people than were such things as the quantity of consumer goods they had. Of the replies that can be put into one category or the other, 71 per cent were about things that have little or nothing to do with cash. The results of the most recent survey, that of 1975, are set out below. Because the respondents could give more than one answer if they wished, the total does not add up to 100 per cent.

Definition of the quality of life	per cent
Family and home life	23
General contentment	19
Money and prices	18
Living standards, consumption	17
Social values	16
Personal beliefs, religion	11
Social relationships	10
Housing	10
Health	10
Work	9
Freedom of all kinds	7
Leisure, holidays, travel	6
Natural environment	4
Education and culture	4
Comparison with past and other countries	4
Possession of consumer goods	3
Pressures of life	3
Worries, mental health	2
Negative statements	2
Altruistic statements	2
Equality and justice	2
Other	3
Don’t know	10

The most interesting thing about these results is not that people said that consumption was only one factor in determining the quality of their lives, but that anybody should be surprised that they did so. At the beginning of the twentieth century a survey that produced such results would have seemed quite banal. In those days even economists accepted that economic factors were only one element in determining what they called “happiness” or “satisfaction.” Later, wanting to make economics seem more scientific, the profession began to talk about “welfare” instead (a term introduced by a Cambridge University professor, Arthur Pigou, who used it in 1920 in the title of his book, The Economics of Welfare). Eighty years later, after doing little else but considering ways of improving welfare by increasing consumption, most economists find the interviewees’ commonsense views somewhat shocking.

The roots of their surprise feed on Pigou’s book. Whereas Jeremy Bentham, the social philosopher best known for a phrase he borrowed, “the greatest happiness of the greatest number,” held that the welfare of society was the sum of all the satisfactions of all the individuals in that society, Pigou ignored those satisfactions that could not be measured in cash terms and confined his analysis to what he called “economic welfare.” This he defined as “that part of social welfare that can be brought directly or indirectly into relation with the measuring rod of money.” For Pigou, the amount of economic welfare was proportional to the size of the national income, although he put in the important condition that everything else had to remain the same, particularly the way in which national income was distributed. “Provided the dividend [his term for income] accruing to the poor is not diminished, increases in the size of the aggregate national dividend, if they occur in isolation without anything else whatever happening, must involve increases in economic welfare.”

Pigou’s careful caveats have, of course, been forgotten. Unless they make a conscious effort to do so, most people, like most economists, no longer recall that economic welfare is merely a part of total welfare and that we can only say unequivocally that a rise in national income has improved the national welfare if no one has been made worse off — even in comparison with their fellow citizens — and if the natural world and human society have not suffered. For almost all of us, a rise in national income means a rise in national welfare, full stop, and, as a result, the terms “standard of living” and “quality of life” are bound to be confused. Even when I was halfway through writing the first edition of this book and — on an intellectual level — certainly knew better, I found I had to make a deliberate effort to stop using the phrases interchangeably in conversation. So effective has our indoctrination been that it is hard to accept the notion that a higher standard of living might, in some circumstances, be a bad thing. With this in mind, I use “a higher level of production and consumption” rather than “a higher standard of living” wherever possible for the rest of this book.

If we think in terms of the factors identified by the SSRC surveys, it is easy to envisage circumstances in which a rise in the volume of production (in other words, economic growth) could diminish national welfare (in other words, the quality of life). For example, higher rates of production at work could affect relationships at home and cause far more unhappiness than could ever be cured by higher wages. The extra production could also increase pollution and cause sickness and misery for thousands of people who could never be compensated adequately from the proceeds of the additional output, even if a way could be found to do so. And just because a country is producing more goods does not necessarily mean that its people get to enjoy them. The new production (and an increased share of the old) might be exported to pay off financiers overseas or be used for investment in new factories and roads, things that bring scarcely anyone any pleasure.

With examples like these in mind, a Dutch economist, Roefie Hueting, has argued since the late 1960s that people in developed countries might be better off if they produced less. Hueting thinks that at least seven factors play a role in determining the quality of life, only the first of which is equivalent to Pigou’s “economic welfare.”⁴ These are:

1. The quantity of goods and services produced and consumed.

2. The quality of the environment people enjoy, including space, energy, natural resources and plant and animal species.

3. The fraction of their time available for leisure.

4. How fairly — or unfairly — the available income is distributed.

5. How good or bad working conditions are.

6. How easy it is to get a job. “Supporting oneself by one’s own work is one of the essential aspects of existence and the absence of a possibility of doing so means in all probability a considerable loss of welfare.”

7. The safety of our future. “Man derives part of the meaning of existence from the company of others. These include in any case his children and grandchildren. The prospect of a safer future is therefore a normal human need and the dimming of this prospect has a negative effect on welfare.”

If we add to Hueting’s list the additional factors suggested by the SSRC survey, we come up with at least twelve things that have a claim to be considered in any computation of whether people are better off because of economic growth or indeed any other changes in society. These additional factors might be summarized as:

8. How healthy we are.

9. The level of cultural activity, the standard of education and the ease of access to it.

10. The quality of the housing available.

11. The chance to develop a satisfactory religious or spiritual life.

12. The strength of one’s family, home and community ties.

The immediate thing to notice about all twelve factors is that, with the exception of factor 1, they cannot be measured in cash terms. Indeed some of them cannot be measured scientifically at all. This has meant that they have been ignored by economists, who, in their efforts to turn their subject into a scientific discipline, have preferred to have nothing to do with those areas of life that might involve them in making “value judgements.”

As a result, the profession has done almost no research on the overall effects of economic growth on non-monetary aspects of human welfare. Of the handful of recent studies it has produced, Life During Growth (1997)⁵ is perhaps the most important, not least because the author, William Easterly, is a senior economist at the World Bank. Easterly set out to investigate whether “life improves when a poor Togo becomes a richer Togo” by looking at how ninety-five indicators of human well-being in a wide range of countries had been affected by increases in national income over the past thirty to forty years. He found, much to his surprise, that only five indicators could be shown to have been improved by growth. The improvements were higher protein and calorie intakes, more telephones, more commercial vehicles (some of his measures of human welfare are rather odd) and governments that broke contracts less often. “The evidence that life gets better during growth is surprisingly uneven,” he concludes grudgingly.

Work by researchers from other disciplines has shown that very few people feel that growth has improved the quality of their lives. Indeed the SSRC survey showed that people in Britain believed that their quality of life was declining. Interviewees were asked how their level of consumption had changed over the previous five years, and almost unanimously they said that it had gone up and they expected it to continue to do so in the next five years. Yet when they were asked to rate the quality of life at the time of the survey on a scale from 0 to 10 and to say what they thought it had been five years previously and what it would be in five years’ time, their verdict was almost unanimous: the quality of life was going down. Britain, they said, rated 8 five years earlier, was 7.2 at that time (in 1975) and would be 6 by 1980 if things carried on as they were.

The SSRC research program was axed in 1976 in an effort to save £100,000. In 1977, however, two researchers in Dublin, Earl Davis and Margret Fine-Davis, got funds from the European Commission to ask 2,000 people in each of eight European Union (EU) countries (Britain, France, Germany, Italy, Ireland, Denmark, Belgium and the Netherlands) a barrage of questions about their lives.⁶ Perhaps the key question they asked was, “Taking everything into account, how satisfied are you with your life in general?” From the piles of answers they found that the best predictor of whether people would say they were content was whether or not they were happy with their health. They also found that there was a close correlation between the way people felt about their health and their actual health as determined by a doctor. Other factors had a bearing on life satisfaction too, of course. There were statistically significant links between how people felt about their housing and the neighbourhood in which they lived. Married people tended to be more satisfied than those who were single, widowed or divorced. But, surprisingly, income did not matter, at least not in France, the Netherlands and Britain, and it was only the seventh or eighth most important predictor in Italy, Ireland and Denmark. Only in Germany, where it was number three, and Belgium, number four, did it seem to have any direct bearing on how people felt about their lives.

Other surveys of whether people are feeling content or not have also failed to show any strong link between the level of contentment they reveal and rises in per capita national income in the country concerned.⁷The Economist commented recently:

Up to now, studies have tended to find that the strongest influence on happiness is employment: people with jobs are very much happier than the unemployed. Low inflation also makes people happier. Income promotes happiness a bit, but the effect tends to be small and insignificant. In many countries incomes have risen sharply in recent years. This has not increased happiness overall: national surveys of “subjective well-being” have stayed flat. Within countries, comparing people across the income distribution, richer does mean happier, but the effect is not la...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright
• Contents
• Graphs and Illustrations
• Acknowledgements
• Foreword
• Introduction
• 1. Quality or Quantity?
• 2. Why Capitalism Needs Growth
• 3. Ill Fares the Land
• 4. The Benefits of War and Depression
• 5. Mrs. Thatcher and the Struggle Against Inflation
• 6. Ned Ludd Was Right
• 7. Growth and the National Health
• 8. How Growth Damaged Family and Community Life
• 9. What Has All the Growth Done?
• 10. Growth Must Have a Stop
• 11. Growth in the Greenhouse
• 12. The Dutch Dilemma
• 13. The Mahatma’s Message
• 14. De Valera’s Dream
• 15. The Myth of Sustainable Growth
• 16. Guiding the Invisible Hand
• Epilogue
• Notes
• Bibliography
• Index
• About the Author