It used to go without saying that growth matters.
But if former US Treasury secretary Larry Summers now feels the need to take to the pages of the FT to make the “progressive case for economic growth”, it shows just how far other issues, whether inequality or climate change, have come to dominate the thinking of much of the political left.
Summers is primarily addressing the US Democrats in worrying that the “objective of increasing growth has been discredited in the minds of too many progressives”, but his message applies to Labour too. Compare the number of times Jeremy Corbyn has talked about the distribution of income versus achieving higher GDP.
How has this come about? Partly, no doubt, due to the failure of planned economies to deliver promised improvements in living standards. With free markets succeeding, a new focus was sought. After the fall of the Berlin Wall, the co-option of the anti-growth wing of the green movement into the “progressive” family strengthened this feeling too.
But those who say they care about the poor (as Corbyn and Owen Smith do) should make economic growth front and centre of their offering to voters. Not just for the reasons that Summers outlines, though he is right that robust growth potentially provides more resources for the NHS and other public services, and safeguards employment. No, the case for economic growth is much stronger even than Summers implies.
First, it more dramatically impacts living standards than anything redistribution could achieve. Even growing at the 2.2 per cent the Office for Budget Responsibility believes is our sustainable annual growth rate would increase GDP by 87 per cent in 30 years. If we were to increase that rate to 2.5 per cent, this would double GDP over the same period.
Second, as economists have shown, material prosperity strongly correlates with many other areas of human development. The Joseph Rowntree Foundation has found, for example, that higher incomes boost children’s development and outcomes. Growth enhances all-round well-being.
Third, at a global level, growth increases the likelihood of a focus on conservation. If your family is starving, the benefits of chopping down a forest to sell wood look pretty attractive. As income levels increase and primal needs are fulfilled, people are more willing to focus on issues such as sustainability.
And finally, growth undermines the political conception that the economy is a zero-sum game. Inequality has become a more politically salient topic after the financial crisis, despite being largely unchanged for the past 25 years in the UK. Much resentment towards “the rich” and the feeling of a “divided society” appears to come about due to economic stagnation.
Given the relatively weak post-crisis recovery, and with significant headwinds against growth in the future, it’s crucial for the prospects of the poor that all parties, including Corbyn’s Labour, take growth seriously. The question then becomes whether higher growth is achievable – and how.
With labour market participation strong and women more fully integrated into the workforce, the most important component of future GDP growth will be labour productivity increases arising from innovation. Nobody quite knows just what degree of an impact government policy could have in improving this, though my reasoning suggests it is worth trying.
Here, sadly, even leftish growth advocates such as Summers engage in wishful thinking. He implies that merely raising government spending and “demand”, coupled with minimum wage hikes, can permanently enhance productive potential. It is difficult to see where we can find theory let alone empirical evidence for these claims.
Of course, it’s much easier to win support for economic growth if the “solutions” for getting it are what other left-wing thinkers propose anyway. It’s also much easier to propose big “macro” solutions than detail the large number of very small things, such as changes to regulations, tax reform and institutions to deliver new infrastructure, that could really enhance innovative activity.
But that is a debate for another day. Summers’s key message – that politicians of all parties should shift concern from static issues to focusing on growth – is both important and timely.