Yrjö Haila palkintokirja 2018

The Perversities of Economic Growth Exposed

David Pilling: The Growth Delusion. The Wealth and Well-Being of Nations. Bloomsbury, 2018.

 

“Only in economics is endless expansion seen as a virtue. In biology it is called cancer.” (Pilling, p. 13)

“[I]f you are poor, economic growth can be transformative. Fast growth can alleviate poverty both by generating jobs – digging roads, constructing office blocks or mann calling centers – and providing governments with tax revenue that it can use to redistribute wealth and build the physical and institutional infrastructure needed for more and better growth.” (Pilling, p. 152)

 

I would be extremely surprised to meet a single YHYS-member – a student of environmental social science – who was never worried, if not distressed by the role of economic growth in environmental threats. What is more, the whole picture is far from one colored, as the two citations above from David Pilling’s new book on the problems of economic growth demonstrate. Both of Pilling’s claims are true, but they are also mutually contradictory.

In other words, the relation economic growth vs the environment presents a classical ambiguity – classical in the sense that literary scholars are accustomed to use the term. The following is the characterization of ambiguity by Michael Wood: “In its broadest description it is a way of believing two contradictory things at once; in daily practice it offers a way of making choices and remembering what the alternatives were.”[1] Another classic, the duck/rabbit image, is a good model for ambiguity: one can see the image either as a duck or a rabbit and flip from one to the other with some mental effort, but one cannot see both simultaneously.[2]

Wood’s characterization is pretty blunt in that he offers an ontological interpretation of ambiguity, i.e., that ambiguity is in the “things themselves.” I think this is adequate in many situations, including the case at hand, economic growth. Economic growth is double-faced at least, and we have to look very keenly at how it happens, where it happens, and what it does, in specific contexts.

There is another shade to this ambiguity, more akin to epistemology, i.e., the question: What can we know, and on what grounds? Years ago I mentioned in a letter to Chuck Dyke that I had got interested in the effects of the real material economy on the environment. “Good,” he wrote back, “but how do you tell apart economy (material reality) and economics (what is thought about reality)?” And he was right, of course: with an afterthought it turns out that economy and economics are impossible to tell apart. There simply is no way to form a picture of the economy without using the lens of economics. The same is, of course, true of economic growth: our understanding of it is inseparably tied to our means of explaining it. Furthermore, how the understanding has been shaped is part of the problem.

Fortunately, however, the whole picture is not quite that bleak. History offers points of orientation toward bridging the gap in specific settings. This is the approach David Pilling has taken in his book The Growth Delusion. His compass is primarily oriented toward aspects of growth that are well within the world we experience and that make the prevailing view of economic growth seem unfounded, if not absurd.

Pilling starts his argument with a story about how economic growth has been measured – a necessary prelude. He gives only a brief note on the early history and focuses on the development that culminated in the stabilization of Gross Domestic Product (GDP) as the main indicator used. The foundational work was done by Simon Kuznets, a Belorussian born immigrant who was put in charge of creating a national accounting system for the United States in the 1930s. No serious economic historian doubts the importance of the achievement – and Pilling joins the chorus; after all, a general indicator on what happens in the economy is necessary. But Pilling also calls the invention “Kuznets’ monster,” pretty much because of the cardinal error ordinarily committed by taking the indicator to be the gold standard of economic well-being – which it definitely is not.[3]

In the following five chapters Pilling explores problems that have followed from the glorification of GDP, a single measure. He goes through the following themes: Chapter 2: “The Wages of Sin” – even harmful and illegal monetary transactions are included as positives in the index, for instance drug traffic, prostitution, corruption, economic obfuscation, and so on. Chapter 3: “The Good, the Bad, and the Invisible” – outrageously high costs of healthcare and medicines increase GDP but favorable activities such as domestic and communal work are invisible in the economy. Chapter 4: “Too Much of a Good Thing” – the swelling of the financial sector has created artificial positives in estimating GDP. Pilling’s example is Iceland where the share of the financial sector grew to 26 % of the economic output and made Iceland sixth richest country in the world – for a short while preceding the financial crisis of 2008. Chapter 5: “The Internet Stole My GDP” – the vastly expanding internet-based transactions are invisible in economic statistics because service work is outsourced to consumers themselves; on the other hand, the statistics are unable to record qualitative improvement – or worsening, as the case may be – in services offered, for instance, by Amazon, Google and Facebook. Chapter 6: “What’s Wrong with the Average Joe” – an overview of the tremendous increase in economic inequality in the United States which has resulted in the decline of average life expectation particularly of blue-collared American males.

The titles of the chapters that I cite above give a taste for the fluent writing of Pilling, an experienced editor of the Financial Times.

The second part of the book is focused on the developing world (which is at the center of Pilling’s professional career). First Pilling takes up problems of collecting even minimally reliable statistics in different African countries; some incredibly innovative procedures have been adopted (Chapter 7: “Elephants and Rhubarb”). Chapter 8: “Growthmanship” is about India which can with full reason be considered an economic miracle. Prominent Indian-born economists, however, differ in their assessments of the quality of the development; Pilling gives a voice to Jagdish Bhagvati, Amartya Sen, and Partha Dasgupta. The juxtaposition of their disagreements makes the chapter very interesting. Chapter 9: “Black Power, Green Power” is on China. Pilling describes the efforts of China to mitigate the serious pollution problems created by the rapid and absolutely unprecedented growth that started in the 1980s.

The third part of the book is entitled Beyond Growth. It takes up four themes: What is the nature of wealth (Chapter 10)? How to estimate the total amount of national economic assets – or is it possible at all (Chapter 11)? How do economic standards of life compare with happiness (Chapter 12)? What should GDP 2.0 consist of (Chapter 13)? The titles are self-explanatory. The section offers a comprehensive review of critical aspects misinterpreted or missed by the sanctification of GDP.

In a brief concluding chapter Pilling draws together his main conclusions. He gives two main recommendations that are worth quoting in full.

First (p. 288), “… [the reader] should have a better understanding of what our growth statistics capture and what they don’t. What is in there that arguably should not be: pollution, crime, long commutes, missiles, long working hours. And what is not there and arguably should be: good jobs, green space, decent healthcare, any measure of sustainability.”

Second (p. 288), “… the question that always comes up in any discussion of growth and GDP: ’What would you replace it with?’ None of the alternatives is robust enough or broad enough to supplant GDP altogether so the answer is this. Rather than replace GDP, we should add to it, so that we can flesh out a more nuanced view of our world.”

Pilling offers good arguments in support of these conclusions and, before wrapping up the chapter adds one more recommendation p. 299): “Another strong recommendation of this book is to improve how we measure public services. We tend to undervalue state provision of education, healthcare and roads. That is because they are provided free of charge. … If we don’t measure the contribution of the public sector properly, the likelihood is that we will privatise it into oblivion, although that is precisely what many countries – steered by the invisible incentives of growth – are seeking to do.”

Pilling’s book is a refreshing contribution to the economy/ economics conundrum. Ultimately, the question is – or should be – quality, not quantity. He does not offer any grand model that would solve the “Big Picture.” Rather, he makes an inventory of critical features of the current growth of existing economies, most of them perverse, but in between there are some important favorable results, too. The reader is welcome to disagree with any of the specific points, but in my view the approach is very good. The economy/ economics conundrum is not a kind of problem that would have a simple grand solution. Some of the chapters present more technical details than my overview perhaps lets to expect, but they are all written in understandable, colloquial language, avoiding difficult terminology. Besides, the book includes sources that help the interested reader to dig further.

That is a good starting point. I think – with the support of quite a bit of personal effort – that Pilling offers a more rewarding overview than arguments about economic growth based on economic theory. Nothing wrong with theory but, after all, we environmentalists are usually more interested in what really happens in the real material economy than what arcane theories claim that happens. Pilling’s book offers lots to learn.

Yrjö Haila

 

[1]                      Michael Wood, Literature and the Taste of Knowledge (Cambridge UP, 2005).

[2]                      Plenty of good depictions on offer on the web.

[3]                      On GDP, good recent narrative analyses are available. My favorite is Diane Coyle: GDP, A Brief but Affectionate History (Princeton UP, 2014).