Growth for growth’s sake?
Policymakers should focus on building an economy that generates good lives, not just GDP.
This article originally appeared in the New Statesman.
Labour’s proposals to fight the next election on economic growth were cleverly timed to help put the Tory leadership candidates on the back foot ahead of the public debate in Stoke-on-Trent this week.
But the bigger job at hand for Labour is to explain how its proposals will translate into better lives for real people. The goal is clear: “to maximise the contribution we all make to national prosperity. Every business, every person, every community.” And the solution, it says, is threefold: “Growth. Growth. And growth.”
“the idea that increasing the overall level of economic growth automatically benefits everybody starts to evaporate quickly”
Plans for growth aren’t new. Cameron and Clegg had one in 2011. Boris Johnson’s Build Back Better agenda followed suit, with growth posited as the vehicle for a speedy Covid-19 recovery. But if we look at the evidence, the idea that increasing the overall level of economic growth automatically benefits everybody starts to evaporate quickly.
In recent decades we have seen plenty of growth. If we average it out per head, total economic output (otherwise known as gross domestic product, or GDP) has roughly doubled since 1980. As a result, some people have done very well. Since 2010, for example, the number of billionaires and the total amount of wealth they hold has also doubled. Yet the proceeds and benefits of this growth have not been felt more widely. At the latest count, the wealthiest 10 per cent of households hold 43 per cent of all the wealth in the UK, compared to the bottom 50 per cent that hold only 9 per cent. Shockingly, the richest five households in the UK own more wealth than 13.2 million people.
When it comes to jobs, again growth has not delivered – with low pay and stagnant real wages dominating the headlines. Despite recent stories about shortages and bottlenecks being good for workers, across the majority of the private sector workers are facing falling real pay, compounding the cost-of-living crisis and the impact of rising inflation, with detrimental consequences for health and well-being. Work is also becoming less effective at warding off poverty. Over the past 15 years, all areas and nations of the UK have seen increases in in-work poverty, while life expectancy has recently stalled for the first time in a century.
“building an economy that generates good lives, not just GDP”
We need to think about the purpose of our economy, and stop thinking about growth as a positive end in itself. At the root of our predicament is whether we see our economic model merely as a wealth-generating system for an elite few, or whether we can mould and support a fledgling new economy that enables us all to prosper. Public policy should look beyond growth as the defining metric of success and pay more attention to the nature of our economic activity. The focus should be on building an economy that generates good lives, not just GDP.
Beyond the slogans, there are seeds of hope in Labour’s recent proposals. Keir Starmer has spoken of the need for “strong, secure” and, crucially, “fair” growth. He has highlighted the importance of the everyday economy – sectors such as care and retail – as well as the technological frontier.
“UK government policy needs to foster a different kind of economic development practice”
But bringing this to fruition will require more than just warm words. If we are going to promote inclusive growth, then UK government policy needs to foster a different kind of economic development practice. Its policies should focus on enabling local economies to take the lead.
Councils and combined authorities should be encouraged to follow the example of local authorities such as Islington in London, which – rather than focusing on attracting inward investment at all costs – is using its economic development activity to diversify the kinds of businesses that operate in its local economy. With a particular focus on diversity and supporting black and minority ethnic residents, Islington has commissioned a social enterprise business support hub and has founded a cooperative development agency to grow alternative models of ownership in key sectors of the everyday economy.
“regeneration fuelled by speculative property development”
Councils such as Islington are the exception and not the norm, however. Typically, progressive local economic development practice is fettered by a woeful lack of funding for local government that has seen needs-assessed grants pared back to the bone since 2010, particularly within city regions. With barely enough money to fund essential services, the drive to generate additional revenue has seen regeneration fuelled by speculative property development become one of the defining features of local economic practice. Rather than tackling deeply entrenched and systemic issues of poverty and deprivation, the rise of “residential capitalism”, where economic growth stems from appreciating asset values, has resulted in wealth extraction by land and property developers, leaving all but a few speculative winners better off.
A proper funding settlement for local government should therefore be at the top of Labour’s policy agenda, to remove these perverse incentives and facilitate a shift towards a more inclusive approach to local economic development.
“championing the importance of an inclusive and sustainable economy”
Political debate is often about lowest common denominators, and you can see the appeal in short and snappy mantras. But things are always more nuanced when it comes to economic growth. Instead of endless growth for growth’s sake, Labour should be championing the importance of an inclusive and sustainable economy, with well-being, happiness and prosperity for all at the forefront.