Pains and gains: Paschal Donohoe on three books about economic growth

Age of Revolutions: Progress and Backlash from 1600 to the Present

Author: Fareed Zakaria

ISBN-13: 978-0241692417

Publisher: Allen Lane

Guideline Price: £25

Growth: A Reckoning

Author: Daniel Susskind

ISBN-13: 978-0241542309

Publisher: Allen Lane

Guideline Price: £25

We Can Do Better

Author: Maja Göpel, translator David Shaw

ISBN-13: 978-1915590565

Publisher: Scribe

Guideline Price: £12.99

George Osborne was speaking at a campaign event to warn of the economic harm of Brexit. Britain’s then chancello of the exchequer referred to the impact on gross domestic product, warning of a big risk. A member of the audience interrupted him, with “What about my GDP?”

This was a pointed example that economic growth matters not just in decision-making by governments and central banks, but in political debate. The exchange was a clear reminder that economic advances are seen in very personal terms by citizens. How do they feel about their living standards? Are they optimistic or pessimistic about their own future?

It was a warning of the dangers of the disconnect between stories of national economic progress and the personal difficulty of citizens. This is all too familiar in Ireland.

So, if all politics is local, maybe all economic growth should be personal? These works examine growth from both perspectives, the macro and micro. All three focus on the origins and consequences of growth and what it means for our future.

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Daniel Susskind’s Growth: A Reckoning opens with a reminder that advances in our economies are a recent phenomenon. Humanity has experienced, for most of its history, the Long Stagnation. During this period, life did not change much, living standards were poor and miserable subsistence was all that could be achieved.

Growth changed this, increasing living standards and life expectancies. It also changed politics. Needs are always greater than the availability of resources to meet them. The essence of political decision-making is the allocation of scarce money between competing demands.

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Growth alleviates this tension. As Susskind concludes: “Rather than get caught up in debates about how to slice up the existing pie, one could instead focus on making that pie far bigger in the future, increasing everyone’s portions at the same time.”

The negative consequences of economic progress are listed, including the impact on climate, wage inequality and how powerful technologies can undermine democratic decision-making.

These “prices” are assessed, but the conclusion is still positive, that economic growth is “responsible for many of our greatest triumphs”. This is the growth dilemma: the tension between the price and promise of economic development.

Strategies for alleviating this dilemma are discussed. An approach of somewhat grandly titled “GDP minimalism” involves a “dashboard approach” where a broader set of measures are considered in addition to national income. This includes social indicators, among them measures of civic engagement.

The voices for stronger government intervention are now to be found in traditionally conservative political movements

The “degrowth” agenda is more interesting and relevant. The author acknowledges the value of this approach as it raises vital questions about the sustainability of modern economies.

Susskind is critical of degrowthers who duck the hard issues of how a reduction in growth could increase poverty and reduce living standards. He writes Degrowth, he writes, “would be an intellectual disaster, drawing our collective attention away from understanding the only process that can help us improve conditions for all humankind”.

An agenda for the flourishing of growth is proposed. This includes changing the laws of intellectual property, increasing investment in research and development, more liberal immigration policies, and a greater focus on technological development.

Growth: A Reckoning appropriately ends with an appreciation of the primacy of politics. Trade-offs are inevitable in the pursuit of economic growth. These can best be recognised and managed through democratic decision-making. This is the role of politics, “to face the mess, to take on the hard moral questions”.

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Susskind underestimates the degree to which the pursuit of economic growth has lost political priority and even legitimacy. His analysis is also silent on the relationship between economic growth and the security and standing of nations. It will neither please the “growth at all costs” or “no growth and let’s ignore the costs” brigades. That, surely, is a strength.

We Can Do Better by Maja Göpel, translated by David Shaw, also identifies a growth dilemma. Modern societies “need external energy to continue to increase their activities”. This creates “environmental or social upheavals, which they try to compensate for by growing even bigger, faster and more complex”.

The author argues that the best way of managing this dilemma is through a more holistic assessment of how economies and societies function. A “systems” approach is advocated. This recognises that economy and society are interconnected through structures and behaviours so deeply embedded that we can easily miss their power.

This school of thought encourages a broader perspective on economic issues and a willingness to consider a wider range of signals and patterns. It is a useful paradigm, as the interconnected nature of our economic, environmental and social lives is a key feature of modern existence.

The main section of the book is an analysis of “system traps”. To avoid the trap of societies being driven by the wrong purpose, Göpel calls for “innovative learning”. It requires more openness to transformative change and to changing who makes decisions.

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The argument could be considerably strengthened by a more precise description of what this change requires. For example, what does this new form of learning mean for our schools and universities?

Reactions to a contemporary state of “permacrisis” are analysed. The “control loop” describes our attempts to dominate events. This sees “the world as a collection of objects that we quickly attempt to standardise and categorise”. Attempts at such a level of control mostly founder.

Alternatively, the “participation loop” accepts that surprises and uncertainty are fundamental to how we experience the world. Humility and a willingness to experiment are critical traits.

We Can Do Better concludes, somewhat abruptly, with short reflections on co-operation and heroism. This book will confer wisdom on the challenges we confront but a more practical sense of how “we can do better” is elusive. But it is also an eloquent reminder that growth is, crucially, a consequence of political choices. When these choices look absent, when the direction of economies appears inevitable, this is frequently because of the power of decisions already made by politicians.

This location of economic growth in a very political context is a key theme of The Age of Revolutions by the famous American journalist and commentator, Fareed Zakaria.

It opens by recognising that we live in revolutionary times. The international order is quickly changing, with a rising China and Russia’s war on Ukraine. Economically, a consensus around the role of free trade and size and power of states within economies is quickly fading.

Another revolution is also under way, the nostalgic desire to “roll back to where we began”, to accelerate to a past that is “simple, ordered and pure”.

Zakaria asks: what are the defining features of a revolutionary era? How do these periods of disruption begin and how might they end?

A basic structure is discernible. Structural changes occur. These include the use of technology, an acceleration of economic growth and integration between economies. This then triggers a change in how societies perceive themselves.

The first half of the book is the story of historical eras of revolutionary change. These chapters of history should be read by every student of economics, as they remind the reader of what really makes a difference in economies – political choices, social cohesion, and the design of institutions and laws.

The story begins with the “first Liberal revolution”, the foundation of the Dutch Republic in 1588. This small country had, by the 17th century, become the richest European nation. Such a status was achieved through a political environment that supported entrepreneurship and trade. A famously open and urban society provided the creative engine for this change.

A common theme is that economic growth and innovation accelerates the transformation of political identity. The repeal of the Corn Law in Britain in 1846 diminished the power of land and inheritance. Allegiance to empire and religion took their place.

The pursuit of economic growth has lost political priority and even legitimacy

We are now, Zakaria argues, in the midst of a contemporary political revolution. A new populism “has destabilised the old left-right coalitions, redefining how we understand politics itself”. The voices for stronger government intervention are now to be found in traditionally conservative political movements.

The reasons for this change are described in the second half of the book. The profound changes of our modern era, including the role of technology and changes in the nature of commerce, are all succinctly described.

This is a very familiar analysis − the tempo set in the early chapters flags. The last chapter, however, is beautifully written. It could thrive as a pamphlet. While acknowledging the “acids of modernity”, it is a compelling and optimistic argument for the values of liberalism. It ends by arguing that our best days lie ahead. And they do.

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These books identify growth as central to our economies and to the wellbeing of societies. They also acknowledge the complex elixir involved in making it happen.

Susskind and Zakaria underestimate the impact of climate change on our current and future economic growth models, but wisely recognise how economic growth influences the rise, flow and ebb of societies. Göpel recognises the existential challenge at the heart of our contemporary growth model, but underestimates the complexity of the political choices in changing this model.

All three books pack a punch. They will make any reader wiser in understanding the choices that will define the future of our civilisation.

The Rise and Fall of American Growth by Robert J Gordon (Princeton University Press, 2017). A masterpiece of research and storytelling diagnosing the causes of growth in the United States between 1870 and 1970. It is sceptical about the impact of contemporary innovation and doubtful about the future performance of the American economy.

Slouching Towards Utopia: An Economic History of the Twentieth Century by J Bradford DeLong (Basic Books, 2022). How did the march towards progress become more of a slouch? Why has this progress not yielded a utopia? A slightly maddening but utterly wonderful history of the global economy during the last century.

The Entrepreneurial State by Mariana Mazzucato (Penguin, 2013). A rallying cry for the role of the modern state in supporting innovation and research. The book is a vital reminder of the leadership role of the state in driving economic development and that free markets depend on choices by policymakers.

Paschal Donohoe is Minister for Public Expenditure and president of the Eurogroup