27 January 2015

Growth is Dead. Long Live Growth! Does the Quality of Growth Matter?

Yesterday I was at the launch of the new book “Growth is Dead.  Long Live Growth! The Quality of Growth and Why it Matters” published by JICA, AFD and IDS (Editors: Haddad, Kato and Meisel).

The book is a collection of papers looking into the different dimensions of the quality of economic growth: for example when does it reduce poverty, undernutrition and unemployment and minimize the emissions of greenhouse gases?  

My introductory powerpoints are here.  The table of contents is here.  The overview chapter is here.  The full book will be available online in early February.  

My takeaways from the launch.

1. Do we need growth? Someone in the audience asked why we needed growth at all.  A good fundamental question.  Low and middle income countries want social services that high income countries take for granted.  That takes money and much of that will have to come from taxes, taxes taken from increased personal and corporation income flows.  But the high income countries need growth too, as their dependency ratios increase due to aging populations.  If people in these countries are not willing to work many more years, then growth is needed to fund longer retirements.

2. Governments need to be more discerning about growth.  Don’t trumpet your latest IMF backed GDP/capita figures unless you know something about their ability to reduce unemployment, reduce poverty and what they have done to the environment.  It would be great to hear politicians on the radio say “the growth numbers appear to be good, but we will wait to see what they have achieved before we run on them”

3. What about business?  In most countries businesses are responsible for 60-70% of economic activity and why should they invest in higher quality growth?  Piketty’s arguments about capitalism and inequality rest on the fact that the returns to investment in capital are higher than the returns to human capital and the gap has been widening.  Are there institutional innovations that could create greater incentives for firms to invest in human capital?  But firms don’t “own” their employees, so what is their incentive to invest in employees if they might just up and leave? One way of minimizing this risk would be for employers and employees to split the costs of training if the employee leaves before a pre-specified time.

4. On measurement we talked a lot about all-encompassing indices that wrapped everything up into one mega-measure of quality.  These will always be contested and difficult.  Perhaps a simpler approach would be to specify the resource use per unit of growth, or flipping the numerator and denominator, asking how much poverty was reduced by a unit of growth.  These simpler measures might make the measurement debate less charged.

5. Politics is so important.  If citizens get the politicians they deserve, perhaps we also get the growth we deserve.  In other words we can choose the growth we get.  Options around the rules that govern markets need to be more explicit and the choices made more transparent. 

So don’t moan about the quality of growth, push your elected leaders to do something to improve it.  It might even improve the quality of their electoral hopes. 

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