Growth is falling, its rewards are ill-shared and it is bursting planetary boundaries. Time for a rethink.
Economic growth has long been considered the primary indicator of prosperity and a sacred policy goal, above any other measure. It has also been seen as the silver lining to the inequalities produced by capitalism. A strong articulation of this logic—’A rising tide lifts all boats’, as the American president John F Kennedy put it—came from Simon Kuznets, who famously argued in the mid-1950s that growth would benefit everyone and decrease inequality.
This idea gained traction during the cold war as a way to address distributional concerns without explicit state intervention. As Matthias Schmelzer contends, it ‘turned social conflicts into non-ideological and technical questions of output and efficiency’, depoliticising income and wealth inequality.
Essentially, for much of the 20th century, growth was believed—whether naïvely or strategically—to deliver justice in something of the sense of John Rawls. Even if it led to more inequality, it was still a step toward justice as long as it improved living standards for the least well-off.
Wealthier beneficiaries
This view, always flawed, is exhausted. First, Kuznets has been proved wrong about inequality. Economic growth has not led to declining income disparities in industrialised and industrialising countries. Unlike the postwar golden era during which Kuznets developed his ideas, recent growth has largely benefited the wealthier segments of society.
One could claim, as has the economic historian Deirdre McCloskey—in a manner akin to the Rawlsian principle emphasising absolute rather than relative improvement—that ‘equality lacks relevance if the poor are growing richer’. McCloskey argues:
As more than one historian has pointed out, poor people in the United States and other developed countries live better than 18th-century European monarchs. Today, supermarkets and other stores are stocked with an ever-growing variety of goods, lifespans have been extended by decades, and (in the past 40 years alone) billions of people have been lifted from poverty. These are just some of the amazing achievements that have come about as the result of the Great Enrichment, a flowering of opportunity and economic growth unparalleled in human history.
It is still however hard to maintain that a Rawlsian bargain has been achieved, notwithstanding the short-term material improvements, given that growth has come at the expense of an ecological crisis that will adversely affect future generations massively. In this scenario, no one is better off. Those rising tides, once metaphors for growth, now evoke images of the destruction caused by global heating, affecting the world’s most vulnerable regions and peoples the most.
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Planetary limits
The pursuit of growth has reached its planetary limits. Attempts to ‘decouple’ increases in gross domestic product from ecological damage, as Schmelzer notes, have fallen short of achieving the necessary absolute reductions. While this does not necessarily mean abandoning ‘green growth’ in favor of ‘degrowth’, it does indicate that nations will not be able to decarbonise sufficiently if they hold on to their current growth aspirations.
Regardless of its expected effects, growth is in any event slowing down. In the aftermath of World War II, advanced countries, especially in Europe, experienced unprecedented growth but this is unlikely to be repeated. Many economists, including Thomas Piketty, expect that by the end of the 21st century growth will fall to 1-2 per cent per annum, reminiscent of the 19th century—accompanied by rising returns to capital at the expense of labour, worsening inequality.
It is time to stop viewing prosperity, welfare and income distribution through an economic lens that ties and subordinates them to growth. The prosperity created by growth has come at the cost of ecological destruction and its benefits have accrued to the top of the income and wealth scale, while its costs have been borne by those at the bottom.
Reconceptualising the state
In the face of declining growth and the gathering ecological crisis, it is time to reconceptualise the state as it developed in response to the precarities engendered by industrial capitalism. For most of the 20th century, state protection against risk, or at least mitigation of it, meant ensuring fairness or attempting to correct disparities in earnings in the labour market (through minimum-wage laws, transfers or taxation) and providing social insurance for when citizens were not able to sell their labour-power (old age, disability and unemployment).
With income and wealth distribution increasingly skewed, redistributive intervention on the part of the state is ever more necessary. To begin with, top marginal tax rates need to go up. In a 2016 paper, Emmanuel Saez arranged countries by how much they had cut their top marginal tax rates between the early 1960s and the late 2000s and by how much the income share accruing to the top 1 per cent had changed meanwhile. Unsurprisingly, there was a clear association between the two variables, with the United States and the United Kingdom leading on both.
Rethinking the state’s role, we also need to incorporate the crises and vulnerabilities unleashed by climate change. Theories and tools are needed for the ‘ecostate’ as a novel site of protection and distributive justice. We must consider what it means to mitigate precarities and compensate for the damage created by climate change, unequally distributed within and across jurisdictions.
This is the challenge and direction that should define political economy in the coming years.
Basak Kus is an associate professor of government at Wesleyan University in Connecticut. She is the author of Disembedded: Regulation, Crisis, and Democracy in the Age of Finance(Oxford University Press).