As you may have noticed, the world’s most developed countries are in a serious panic at the moment over economic growth. With the Eurozone struggling, the weak recovery of the global economy looks distinctly shaky, and the recent G20 summit promised “an Action plan for Growth and Jobs”. Here in the UK the government is falling over itself to talk about growth, lest their austerity measures be blamed for a double dip recession.
Growth is what everybody wants, but what is growth for? As far as I can see, growth offers the following:
- Ending poverty
- Delivering rising incomes and quality of life
- Meeting interest payments on debt
I’ve written before about how economic growth doesn’t necessarily lift people out of poverty. The UK has exactly the same percentage of people living in poverty as it did twenty years ago, despite a doubling of the economy. Growth can lift people out of poverty, but only if it is equally shared. Without measures to distribute it, wealth tends to accumulate far faster for those who already have plenty of it. Some countries have got this right, and turned growth to their advantage – but it is not growth in and of itself that lifts people out of poverty.
So how about point number two – is growth delivering higher incomes and quality of life? The answer here is again, not necessarily. The graph on the left shows US median wages against US GDP. Growth has soared away, but incomes have failed to rise. In fact, the average US male is earning less now, adjusted for inflation, than he was in the late 70s.
This stagnation in wages hasn’t led to the stagnating quality of life that one might have expected, because it has been easier to take on debt. As wages have stayed flat, people have taken on credit to maintain the same level of expenditure. The runaway housing market and the rise of personal credit have masked the fact that most Americans aren’t getting a fair share in the country’s growing wealth.
Meanwhile, in Britain, a similar if less pronounced trend is underway. It doesn’t seem to apply particularly for women – long term gender inequalities are being put right and so women’s incomes are rising. Male incomes have not kept pace with GDP growth since around 1980 however, and appear to have stagnated since around 2001.
Both of these graphs are from Growth Without Gain (pdf), a report from the Resolution Foundation, which suggests that in several developed countries, the benefits of growth are not filtering through to ordinary people. Growth has decoupled from income in the US, the UK, Canada, and Germany. Again, it doesn’t mean that growth doesn’t deliver rising quality of life – but that it doesn’t necessarily do so. Whether or not rising GDP means that you and I are better off depends on all sorts of other policies. Without measures to reduce inequality and income disparity, all the growth goes to the top.
So when you hear politicians talking about ‘straining every sinew’ to get the economy growing again, bear in mind that unless we ask a lot more of our government, that growth might mean absolutely nothing in real terms.