Growth is good

Benjamin Friedman’s new book makes a decent stab at defending affluence, but doesn’t go far enough in its attack on ‘growth sceptics’.

Daniel Ben-Ami

Topics Politics

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The Moral Consequences of Economic Growth, Benjamin M Friedman, Knopf, 2005.

The Moral Consequences of Economic Growth is a useful if ultimately flawed attempt to defend rising living standards against their numerous critics. Benjamin Friedman, a professor of economics at Harvard, argues that economic growth has important moral benefits – by which he means social and political ones – in addition to material advantages. His main argument is that economic growth helps foster openness, tolerance and democracy. While there is much truth to this point, he avoids tackling the most powerful anti-growth arguments head on.

The difficulty in countering anti-growth sentiment today is that it invariably takes an indirect form. Apart from a few Deep Greens it is rare for economic growth to be attacked outright; to do so would invite hostility from the general public, understandably hostile to the prospect of cuts in their living standards. Instead growth is subject to various indirect assaults. For example, it is argued that growth damages the environment, causes unhappiness and widens inequality. That is why the term ‘growth scepticism’ is useful to describe this kind of criticism (1).

Friedman’s starting point in challenging these arguments is to locate himself in the tradition of the Enlightenment of the eighteenth century. In one of the most interesting chapters of the book, he makes the point was that one of the key innovations of the Enlightenment was to put material development at the centre of human progress. Anne Robert Jacques Turgot in France and Adam Smith in Britain both made this connection.

The link between economic growth and social progress was also generally accepted during the subsequent Age of Improvement. For instance, Auguste Comte, a nineteenth-century French philosopher, argued that: ‘All human progress, political, moral, or intellectual, is inseparable from material progression.’ (2) At the same time the Romantic reaction to the Enlightenment started questioning the benefits of economic growth. Thinkers like Thomas Carlyle in Britain and Ralph Waldo Emerson in America, as well as novelists such as Charles Dickens, railed against the effects of industrialisation. But the critics were in the minority as mainstream thinking, as well as public sentiment, generally favoured growth.

Friedman’s next step – and the main part of his argument – is to try to re-establish the link between economic growth and social progress first made by Enlightenment thinkers. By examining American and Western European history he attempts to show empirically that rising living standards and progress are closely correlated. The emphasis is on America (on which there are four chapters), while Britain, France and Germany take a chapter each.

In most cases the facts seem to fit Friedman’s argument. American society, for instance, generally moved towards openness and tolerance in periods of economic growth, such as the Horatio Alger era (1865-80), the Progressive era (1895-1919), the Civil Rights era (1945-73), and in what Friedman calls New Beginnings (from 1993 onwards). In contrast, it moved in the opposite direction during periods of economic slowdown, including the Populist era (1880-95), the Klan era (1929-29), and the Backlash era (1973-93).

Some of the specifics of Friedman’s links are open to question. But the period that most challenges his thesis, by his own admission, is the Great Depression of the 1930s. During that time the economy suffered a severe slowdown yet the policy response, President Franklin Delano Roosevelt’s New Deal, is generally seen as a progressive measure. Friedman explains this paradox partly in terms of Roosevelt’s personality and partly because the impact of the Depression was so broad that people were forced to respond in cooperative ways.

If there’s a fault with Friedman’s argument in its own terms it is that he does not understand the link between broader historical trends and economic developments. He certainly concedes that influences besides economic ones can have an impact. But he doesn’t seem to appreciate how some of the key developments in history – such as the Russian Revolution or the discrediting of racial thinking through the experience of the Second World War – also played a key role.

More important though, in relation to Friedman’s goal of defending economic growth, is his failure to get to the root of the contemporary anti-growth arguments. He has only one chapter on the environment, one on equality and a few pages on the happiness debate. Both the environment and inequality chapters draw heavily on the work of Simon Kuznets, a twentieth-century American economist and Nobel laureate. Kuznets argued that economic growth tended to widen inequality in the early stages and then narrow it as time progressed. Friedman accepts this argument and adapts it to the environment – the early stages of industrialisation may cause environmental damage, but as the economy becomes richer society also becomes less polluted.

Although there is some truth to Friedman’s arguments, they do not go nearly far enough. In relation to the environment, for instance, the growth sceptics’ argument emphasises not only actual damage but potential damage in the future. In their view, it is necessary to be exceedingly cautious in the present because of the damage human activity can do to future generations. Sometimes this is referred to as a precautionary approach, while at other times ‘sustainability’ becomes the buzzword – and this approach is best captured in the debate about climate change. To counter this argument it is necessary to show that excessive caution is a barrier to progress. For example, the mainstream approach to climate change – essentially to put limits on development – undermines humanity’s capacity to increase its control over nature. Restraining economic growth means forcing human beings to live in a poorer environment for them.

Similarly, the current discussion of inequality shouldn’t be taken at face value. Far too much time is spent on an arid statistical debate about whether global inequality is widening or narrowing. Either way, it should be clear that the gulf between rich and poor is enormous. The distinctive character of the contemporary debate is that the critics of inequality are not arguing for a better society; rather, the thrust of their argument is that we need to level down. Rather than raise the economic level of the poor to that of the rich – which they regard as unfeasible and undesirable – their goal is to curb the consumption of those living in the industrialised nations.

The discussion of happiness is also not what it seems. Critics such as Richard Layard, a professor at the London School of Economics, correctly point out that since the 1970s economic growth does not seem to have coincided with greater happiness (3). However, they are wrong to conclude from this coincidence that economic growth is to blame for unhappiness. There are alternative explanations for why a mood of deep social pessimism has come to the fore in recent years (4). And whatever the subjective mood, it should be clear that in objective terms economic growth remains beneficial. For example, the ability to pay reasonable pensions or other social benefits depends on having a wealthy economy. In contrast, Layard’s emphasis on happiness leads him to argue for an ever greater number of mental health professionals as a policy intervention (5).

Friedman’s book provides a reasonable starting point to defending the benefits of economic growth. But his underestimation of the scale of the problem means that he fails convincingly to dispel the key arguments of the growth sceptics.

Buy The Moral Consequences of Economic Growth by Benjamin M Friedman from Amazon(UK) or Amazon(USA).

Daniel Ben-Ami is the author of Cowardly Capitalism: The Myth of the Global Financial Casino, John Wiley and Sons, 2001 (buy this book from Amazon (UK) or Amazon (USA))

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(1) The term has been used by Geoff Mulgan. See Beyond the Growth Fetish, by Daniel Ben-Ami

(2) Quoted in The Moral Consequences of Economic Growth, Benjamin M Friedman, Knopf 2005, p31

(3) Happiness: Lessons from a New Science, Richard Layard, Allen Lane 2005

(4)See, for example, Culture of Fear, Frank Furedi, Cassell 1997

(5)See Workers behaving sadly, by David Wainwright

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