The miracle of equitable economic growth, and why we need it now more than ever.
My first proper job for Oxfam was wonderful. I had just returned from living in Malawi, and I got a job supporting Oxfam offices working on governance and public policies. As part of this job, I travelled for the first time to Vietnam, and I remember thinking to myself ‘Oh- so this is what development looks like!’. In Malawi every year people felt like they were poorer, or at least barely any richer, and their lives were not that different to their parents or indeed their grandparents- they still farmed maize with handheld hoes. In Vietnam, today’s generation experience a life totally different to that of not just their grandparents but their parents- per capita income today is more than ten times higher than it was in 1990.
All of this has had an incredible impact on people’s lives in the country- they have solid houses, with fridges, with televisions, with the internet. Their children go to good schools that are well resourced. Their government has the tax revenue to invest in infrastructure, in public services, in supporting people and in investing in the future. Life is far from perfect, and in particular persistent inequalities are increasingly a concern for the government. But for the majority life is unrecognisable compared to just a few decades ago.
My friend Hoa is the head of the Oxfam Vietnam team, who are doing really pioneering work on inequality. Her grandparents and parents were both rice farmers north of Hanoi, and she grew up on a farm. She was the first in her family to go to university, which was heavily subsidised by the government. For her generation such stories of rapid social mobility are commonplace. Vietnam is one of the most recent examples, but there are many others, of what were known then as the East Asian Tigers, economies that managed to achieve incredible levels of economic growth in a very short period. These stories have since been eclipsed by the story of China’s growth, but there is one crucial difference- during Chinas incredible growth, inequality also rose sharply. China used to be more equal than Sweden, and now has levels of inequality similar to the USA. In recent years the Chinese government has made significant attempts to reduce inequality from its peak, but it remains high. In contrast countries like Japan and Korea actually saw inequality reduce at the same time as experiencing very high levels of economic growth.
A kind of madness
The celebration of economic growth of any kind without examining the nature of that growth is I think a kind of madness. I remember during those same years visiting our programme in Georgia, and having a meeting with the IMF resident representative, who was a chain smoking man who described himself as ‘Rhodesian’. He was very proud of Georgia’s 5% growth rate that year. The young Georgian economist I was with pointed out that this was driven largely by scrap metal exports, and this in turn was the result of the dismantling of Georgian industry, and that people were using hoes in the fields for the first time in decades.
But growth that predominantly benefits ordinary people and coincides with a reduction in inequality, is I believe truly an incredible thing in terms of what it can deliver in terms of human wellbeing. This discussion matters more than ever now because growth has always come at a huge environmental cost that is now threatening planetary survival. Whilst there is a furious debate as to whether growth can somehow ‘decouple’ from its use of material resources (isn’t that what Chris Martin and Gwyneth Paltrow did, perhaps we should ask them??) there is no doubt that for now at least this is not the case, because the vast majority of economic growth today is based on fossil fuels, – and inevitably extinction.
Maximising the benefits of growth
So, it follows from this that we should do all we can to reduce the total amount of growth needed to achieve progress. To do this we need growth that reduces inequality simultaneously. Our current global economy, where 20 cents in every dollar of global income goes to the top 1%, more than twice the amount that goes to the whole of the bottom 50%, is insanely inefficient and environmentally suicidal.
To give an example from a recent world bank paper, to eliminate extreme poverty Burkina Faso will need to grow by 62%. But if they also reduce inequality by 10%, the amount of growth needed to eliminate extreme poverty is more than halved.
You could of course argue that there is no need for growth at all, that the world is rich enough already, and instead we simply need to redistribute more to deliver wellbeing for everyone. After all, if global wealth were evenly divided, we would all be worth $87,000 dollars. I definitely agree that we need far, far more redistribution of wealth in our societies and our world, but I don’t think we can say that redistribution alone can do it.
Equally, many are also arguing that we should drop the focus on growth altogether and focus on other measures of progress instead. I definitely agree that growth for growth’s sake is a very poor and in fact dangerous proxy for human progress. Huge parts of human life are left out, not least the billions of hours of unpaid care that predominately women perform to support our economy. Our twin goals should I think be both human and planetary flourishing. But I also think that equitable economic growth must play a vital part in achieving the goal of human flourishing.
As Jason Hickel has pointed out it is not growth itself that delivers wellbeing but the policies that governments put in place, his example is that in the UK economic growth in the 19th century did not deliver major improvements in life expectancy- it was in fact policies to improve sanitation and provide clean water.
It seems definitely true to me that public policies, public services, and purposeful interventions by governments are critical, whether water, or healthcare or public transport. But a certain amount of revenue is needed to do this, a certain amount of wealth, and this comes from economic growth. Growth is basically necessary, but not sufficient.
I think what is also true is universal public services maximise the benefits of economic growth, and in this way minimise the amount of growth required. Costa Rica, with its universal health system, has a higher life expectancy than the US, with thirty percent of their GDP per capita and one eighth of their carbon emissions. Beyond a certain level of income per capita, the higher incomes become decoupled from better social outcomes and in fact can sometimes even reverse.
Governments can also promote policies like cooperatives, or worker-owned businesses and other ways of legislating, so that more of the national income accrues to workers or is invested in new technologies and toward green transition, rather than feathering the beds of super rich shareholders. Technology must not be locked up behind the walls of intellectual property, driving immense monopoly profits, but instead be available to all nations at the lowest possible cost. Nations in the Global South need to learn other lessons from the East Asian tigers too and take strong steps towards economic nationalism in order to prevent the constant extraction of value to the rich people in Northern countries at the top of neo-colonial global supply chains. But above all economic growth must be accompanied at all times by a sustained reduction in inequality; focused on lifting the incomes of the poorest to a level of wellbeing, not on increasing the incomes of the already rich. This has always been good policy, but now if we want our planet to survive without condemning the majority to continued poverty, it is surely imperative.
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