The crazy theory which is destroying our societies

by | 23 Mar 2024

For nearly 50 years politics has been utterly captured by a theory which says the primary purpose of government is to grow the economy. The damage this has done is enormous.

First published by Common Weal

There is a problem underlying our other problems. The current plan to solve all our problems is to use the initial problem which caused our other problems to solve our other problems. If we don’t snap out of this stupidity we’re in big trouble, yet instead we’re accelerating our belief that the solution to the problems is the initial problem. This is how civilisations decline.

So quiz question; what’s the difference between ‘inclusive growth’, ‘sustainable growth’, ‘levelling up’ and ‘green growth’? I don’t mean the rhetorical purpose. Each of these words attached to growth (with the exception of ‘levelling up’ in which growth is assumed) is a modifier. It is intended to modify the meaning of the word ‘growth’ to indicate a different characteristic of the growth.

It doesn’t and can’t mean ‘other stuff you do with the growth afterwards’, because all of those things have their own name, like ‘public investment’ or ‘redistribution’ or ‘regulation’. So it can’t be what you do after the ‘growth’ has happened, because by modifying the word ‘growth’ you’re indicating something different about the nature of the growth itself.

So what is it? What is different about the growth which is ‘sustainable’ and the growth which is ‘green’? And what is the difference between them and good old common and garden variety growth? Do you have any ideas?

Well you won’t find it in the Jeremy Hunt’s Budget, Rachel Reeves’ speech to the City of London or the SNP’s sprawling smorgasbord of nice adjectives and vague sentiments added to the same thing the other two are doing.

It is 2024 and everything all of them are proposing is exactly the same as they were all proposing in 1994. I mean almost literally; it’s the same action programme give or take some contextual changes. Basically they’re going to ‘manage the market’ with a ‘light touch’ and the market is going to deliver ‘growth’ which can then be invested in public services.

Why are we engaged in national culture wars? Because the ruling classes (in Britain and Scotland) have settled on a unanimous position on an unchanging underlying policy approach to government so they need something to fight about in the staged theatre put on now and again when the polling stations are looming.

Let’s just get fired into this then; it shouldn’t take long to dismantle the whole stupid idea (you just need to present the basic facts and some basic data). First, growth doesn’t fund public services, tax funds public services. How can it be that personal tax take is at its highest in many decades in a period where we’ve had 40 years of pretty sustained growth and yet we’re struggling to pay for public services?

It’s because the thing that growth theory did to the tax base more than counteracted the impact of the growth. Tax is efficient when wealth is spread fairly evenly and highly inefficient when it creates wide disparities.

The failure to invest ten years ago is measured as a business failure today

What I find interesting is that this fact is as certain as any of the science we were told we must follow during the pandemic, yet our national politics prevents anyone ever, ever mentioning this truth. You can see it presented beyond reasonable doubt in seminal book The Spirit Level. You can see it in practice in Common Weal’s work from about ten years ago (£5bn of extra income from Nordic levels of equality without altering GDP or tax).

You can just say it out loud and it becomes clear; if wealth is in the hands of those who can avoid paying tax and if large proportions of the public have so much wealth redistributed away from them that they can’t afford to pay any tax anyway, increasing the total volume of wealth can actually reduce your tax take.

And the thing that created the massive inequalities in wealth is the growth theory which is still there presenting itself as the solution to the problem it created. ‘All growth is good growth and anything that stops growth is bad’ is still the theory. Except all growth isn’t good and taking away regulations to prevent deeply harmful behaviours that make people rich is the cause of the inequality.

Next, growth theory is deeply harmful to investment. Why is Europe’s economy in such an overwhelming crisis (especially Britain)? Because we don’t invest in industry and infrastructure at anything like the rates we need to. Why? Because that kind of investment is a barrier to growth (in the immediate term), and growth theory does not believe in patience.

If you post £100m in profit as a business that has the same growth effect irrespective of what you do next. But if you then reinvest that into your company, for example by investing in new machinery, that £100 million is effectively tied up until it creates productivity growth of a sufficient value to repay it (the machinery will almost certainly be bought from abroad). If instead that business leader takes it out and invests it in property, it immediately generates rents and the asset quickly appreciates (rather than depreciates as with machinery). The GDP impact is immediate.

Investing in your business harms short-term growth but strengthens long-term performance; stripping your business of available assets creates short-term growth but weakens the business. So when do we measure long-term growth? Now, we’re measuring it now. So why don’t we value it? Because we measure it in the short term.

Or let me put that another way; the failure to invest ten years ago is measured as a business failure today. We lose the GDP today because we banked it ten years ago – except we lose it again tomorrow and forever because the thing that was generating the wealth (the business) is gone. Yet tomorrow the GDP will still have been banked a decade ago. Next year it will have been banked 11 years ago.

Eventually a business that might have been there has been gone so long that it becomes impossible to think in terms of ‘if only we hadn’t done that thing 30 years ago that killed the thing generating wealth 20 year ago then our GDP would actually be higher today’. Why? Because we’re a stupid species which forgets things.

How do you balance this? How do you balance growth theory with long-term investment? You can’t. You cannot maximise wealth extraction today while facilitating wealth in the future that would have been based on investing the wealth you extracted today. You killed the future. You can incentivise long-term investment, but only at the expense of short-term GDP.

Our problem is assuredly not lack of growth, it is inequality, lack of productivity and enormous social and economic failure resulting from the externalities inherent in growth theory

The third idiotic thing about growth theory? It refuses to measure its negatives, only its positives. Since I was writing about it a couple of weeks ago, let’s pick food as an example (but it applies just as easily to housing or the environment or town centres or dozens of other things). 

Let’s do this with a thought experiment which is only marginally fictional; if you could substitute bread with another product that resembled bread but from which you can extract more profit, growth theory demands you do it. But what if that bread contains a chemical which induces extreme lethargy so the people who eat it can’t work? 

Growth theory says ‘we have an inactive workforce that cannot be made active so we need increased immigration and we have an overwhelmed NHS so we need to privatise it’. The idea that perhaps they should stop selling the profitable-but-poisonous bread is more or less against the primary tenets of growth theory. It is these ‘externalities’ which are sinking our public services.

I could keep going like this; GDP growth as a sole measure of economic success has failed in loads of ways – and regardless of what they all say, it is the sole measure of economic success. It is the non-negotiable policy position with which all other policy positions have to negotiate.

But those are the big three. We’re all screwed because we’re at the far end of the period where the value of the future was banked by the chancers in the past. We have no money today because they took it yesterday. People not able to pay tax today are in that position because someone else redirected that person’s share of the economy to themself.

We’re hopelessly unproductive because we effectively disincentivised businesses investing for the future in favour of maximising a theoretical number that politicians like. And our public services are decimated because we removed the restrictions on the way big business can devastate society for the same reasons; maximising growth. So we pay for the devastation.

It was an economic theory as threadbare as miasma was as a theory of how disease was communicated or phrenology was as a medical diagnosis tool. Yet the politicians either can’t see this or don’t have the courage to see it. Our problem is assuredly not lack of growth, it is inequality, lack of productivity and enormous social and economic failure resulting from the externalities inherent in growth theory.

So a last piece of science for the ship of fools that is modern politics; there is one period in the last 150 years where both economic and social development actually improved and the ability to invest in public services increased. You can graph it, count it, measure it, see it in practical outcomes – the whole ‘scientific method’ used to define the meaning of ‘true’.

It is 1945 to 1975, the period of public investment, redistributive taxation, careful, cautious, patient regulation of the financial system and an industrial policy. Now go and look at the data again and tell me when that period came to an end? Yup, it came to an end with growth theory.

So let’s be honest; we’re all Liz Truss now, we just won’t admit it. The growth fairytale lives on in every broken public service, every starving family, every failed Scottish business. Yet we cling to it like scared children. 

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