The end of economic growth in the West is being discussed as a serious possibility. Some are predicting a world where living standards do not rise in the way they used to and there is no growing pie for people to divide. If this happens what does it mean for politics in the UK? The theory has become somewhat fashionable as economists search in vain for an explanation for the sustained nature of the economic crisis. It is something that seems more plausible as the Office for Budget Responsibility continually extends the date at which austerity will end (currently 2018) and the International Monetary Fund reports predict anaemic growth for advanced economies. The long term outlook seems grim.
The idea has been kicking around for a while and was recently highlighted by the Financial Times columnist Martin Wolf. The argument says we cannot assume economies will continue to grow forever. Prior to the 18th Century most economic growth came about because of population growth and in the mid-18th Century until recently innovations, such as electricity and sewage, meant growth went beyond that brought about by population increases. The innovations that we see today, such as smartphones and the internet, are not enough to drive growth. The main champion of this argument is Professor Robert Gordon of Northwestern University. His paper on this topic argues that large step changes in technology, like the change from using animal power to motor power or oil and gas replacing coal, were one offs and we will not see their like again. Advances in computer technologies, although seemingly dramatic in our personal lives, do not go as far. As Wolf neatly puts it, he would happily give up every innovation since 1970 if it meant going without running water.
While this is just a theory, the sluggish economic performance is making it an attractive explanation for what is happening to Western economies. Some even believe that having a “’steady state’ economy should be a policy goal as it will bring a stop to endless increases in production and consumption. The problem is that economies without growth would have a terrible impact on the debt ridden Western world. As Andrew Sissons of the Work Foundation points out, we need growth to solve three of the biggest problems facing us: unemployment, debt (public and private) and the ageing society. Tony Blair’s former health adviser, Paul Corrigan, argues that if there is no growth there will not be enough cash to pay for increases in the health budget.
If a steady state economy becomes a reality Labour, the Conservatives and even the Liberal Democrats will need to reassess how they approach policy. While in Labour circles there is some discussion of how to be a social democratic (or democratic socialist) party in an era of low growth, what will it be like in an era of no growth? What does it mean for Keynesian arguments that government should be borrowing to invest if there is no prospect of a growing economy to pay off the debt? It is too early to tell whether we are experiencing the development of a steady state economy. It is also impossible to predict the future. People are generally inventive and new innovations continue to occur. Nonetheless, it is a possibility and if it does come to pass it will have profound consequences for politics in Britain.
The author blogs at johnmichaelclarke.wordpress.com