One of the problems with the post-growth movement is that it can appear theoretical. More of the ideas have been tried than you might think, but certainly they haven’t all been tried at once as a deliberate strategy. No matter how confident we might be, we lack proof that a post-growth economy is possible.
Or do we? Perhaps the world already has a post-growth society, albeit an unintentional one. Here’s what Japan’s GDP has been up to for the last twenty years:
As far as economists are concerned, this is a tragedy and a disaster. How the mighty have fallen. Japan’s GDP is essentially unchanged since the early nineties, its share of global GDP falling from 17 to just 4%. China overtook it last year to become the world’s second largest economy, and now it limps along as a economic failed state, a cautionary tale for students of capitalism.
And yet, the lights are still on, everything still works. Literacy is high, and crime is low. Life expectancy is better than almost anywhere on earth – 82 years to the US’ 78. The trains run to the second. Unemployment is only 5%, and levels of inequality are enviable. Real per capita income growth matches America’s at 0.7% over the past decade. It’s hardly a basket case. In fact, it is living proof that growth isn’t necessary to deliver a high standard of living.
That’s not to say that Japan is to be envied or emulated. A legacy of failed stimulus ideas has left it with big debts, and the future is as uncertain as it is anywhere. Neither is it a steady-state economy in the way that matters most – in its materials. Japan consumes considerably more than a one-planet share and is not sustainable in that sense.
The point is that for well over a decade, one of the world’s most important economies hasn’t grown. And at the end of that stint, it’s still a great place to live.
So maybe Japan isn’t a failure. Maybe it’s just ahead of its time – not ‘stagnating’, but settling into the plateau of ‘enough’.
After 15 years of fretting, maybe it’s time Japan embraced its post-growth state and told the economists where to stick their theories. Professor Norihiro Kato recently suggested that Japanese youth culture was doing just that, downsizing and taking a more measured approach to consumerism. Japan’s population had already levelled off, he noted. He even suggested Japan was entering a post-growth era. “Japan is a small country” people are saying, “and we’re O.K. with small. It is, perhaps, a sort of maturity.”
The Economist declared this “one of the saddest things I’ve read in a long time” in an article entitled ‘Pity Japan‘, but the Economist has not yet entered the 21st century. Kato’s comments certainly struck a chord with others. Environmnental campaigner Junko Edahiro agreed that young Japanese are beginning to aspire to “a kind of prosperity not based on resources.” You might expect that from Adbusters magazine, but how about this from the Financial Times: “If the business of a state is to project economic vigour, then Japan is failing badly” wrote David Pilling. “But if it is to keep its citizens employed, safe, economically comfortable and living longer lives, it is not making such a terrible hash of things.”
Japan, whether it likes it or not, is the world’s first post-growth economy. It won’t be the last, and I suspect several other countries are dropping onto a growth plateau, perhaps including the UK. If so, let’s work with it. Japan proves that growth isn’t necessary to safeguard the things that matter most in life. There’s nothing to fear in levelling out, and if the alternative is boom and bust, then the plateau is a far safer place to be.
(cross-posted at PostGrowth.org)
The Earthbound Report 
Fantastic post! very stimulating and very relevant, I think, to the UK, as I am convinced that it is now impossible for the UK to achive anything like the growth rates it is historically used to. The UK will simply have to adapt to a post-growth economy simply because it is horribly exposed to peak oil which, of course, is now impacting with ever increasing force. Also, its banking sector is now systemically dysfunctional, and the spending cuts will force the UK into a double-dip recession anyway. The only growth worth having is in the renewable energy and green products and lifestyle sectors. It’s good to shout that Japan is the way to go, and its rich Buddhist heritage and tradition, with its emphasis on simple living and inner contemplation and meditation does offer them ways of living happily with less anyway. Indeed, contemplation and meditation is common to most of the world’s religions and spiritual traditions, including Christianity, so I suspect such activities will be a lot more popular in a ‘post-growth’ society.
An important aspect to note here: the interest rate in Japan has been hovering near zero for a quite some time – basically it is near nil since, incidentally, 1995. If I were an alien from outer space and only would know these corner data – the size and ressource situation of the country, the stop of population growth, the general wealth and welfare level – I would probably conclude that they decided, quite reasonably, to stop growing. When the base interest rate is practically zero, economic growth changes from a mandatory goal to an unnecessary option. I always marvelled at the motivation of multi billionaires to make yet another billion. So why would a ridiculously rich country want to become even more ridiculously rich? I do not see a disaster. I see Zen and the Art of Economics. So to say. (A closer look however reveals that some regions of Japan are in pain, similar to the Ruhrgebiet in Germany, which went through a painful 25 year transition from coal based heavy industry to high tech). Panta rei. Life is change.
@andydharma: great post! You were stressing a few things I also had in mind. In my novel “Rabenwelt” (German, meaning “Raven World”) that I published 12 years ago, a Taoist Master asked a Westerner: “What were the happiest moments in your life? (….) And yet what do you spend most of your time with?”
2 1/2 years ago I voluntarily reduced my job from full to half time. I don’t have that much monay anymore, but guess what: my little kids have more fun going to the river with me and feed the ducks and gulls with old bread than going to a theme park. We do more things ourselves, grow some of our own vegetable, installed a solar space heating system, buy used books… quality of life has little to do with economic growth. This so called growth, after all, has a lot to do with debt service, interest and with the production, marketing and sales of totally superfluous stuff. Some quietude and contemplation really is dearly needed!
Thanks, Stefan. I gave up working to bring up my daughter soon after she was born and have not worked since, except as a voluntary worker and teacher at my local meditation centre. I’ve therefore been very happy despite having very little money. My wife and I have a thriving vegetable plot, orchard, and chicken family in our back garden. And we are now getting into building a solar and wind power system off grid. We have no debt whatsoever, so we can use our cash in whatever way we want without anxiety, and we are beginning to participate in the Transition Town movement. Life looks good from where we are simply by downsizing from what we used to do – ie. spend all our time earning money in very stressful jobs in order to finance a mortgage and stuff like cars. I’m also very interested in how even politicians here in the UK, including the present UK Prime Minister, recognise that GDP is not good enough any more and they are now supporting attempts to build a well-being index that will largely supplant GDP as an accurate level of societal progress. Just as well, as some politicians have sussed that they can no longer guarantee continued GDP growth anyway. No good promising more jam tomorrow if it ain’t gonna come!
That makes three of us that have chosen to live more simply. I work three days a week, and keep the other two for growing vegetables, renovating the house, writing, and campaigning. There are things my wife and I can’t afford, and money will be tighter when our first child is born later this year, but as you say, quality of life has little to do with a rising income.
The question is how are the social indicators moving while the economy is stagnating?
For example society is becoming less equal in Japan, the Gini coefficent is rising during stagnation while it was falling in the preceding growth phase.
The Japanese do not seem to be a happy nation at the moment and that seems to be tied to the stagnation of their economy.
Generally speaking Japan has been more equal than Western nations. Which direction it’s going in I don’t know. As for happiness, I know that happiness in the UK and the US has been on a plateau since the 1970s despite all our growth, so I suspect that other factors are in play. Perhaps Japan would be happier if they stopped beating themselves up over their failure to grow, that would be a good start.
@DevonChap: that a transition of such an enormous scale involves painful changes is clear, and as long as some still expect (and insist on) continuously growing profit from their capital, inequality naturally rises. But Japan has been on a plataeu since the mid ninteties now, and despite problems, it is far from being a failed state. At the same time it has a very significant debt problem. What also concernes me: since Japan is not an interesting market to invest in these days and interest is near zero, the tremendous japanese capital probably is roaming the global market, significantly contributing to the erratic price movements.
@Jeremy and andydharma: Wealth and happiness are only loosely connected. That’s ancient wisdom. But it is also difficult to be happy when you live in absolute poverty that leaves you hungry and freezing and your children sick without being able to afford a doctor. But I think that there is a certain income level that’s “enough” and beyond which any sacrifices tilt the scale away from the realms of a contented life. But what is enough? It seems to be difficult to define for most. A fundamental problem of man appears to be that his momentary desires always seem so much more important than the needs of the future. Having said that, it has a very immature feel to it. Like a child that wants something. And NOW. The curse of craving. Someone said a long time ago:
Surrounded by craving,
People run around like frightened hares.
Held by fetters and bonds,
They suffer, repeatedly, over a long time.
Time to introduce some facts. Japan is not a zero growth economy per head. Its population is declining. Therefore a static economy is one in which the smaller number of people are getting richer. According to the Economist the annual GDP per head growth rate frome 2001-2010 was +0.8%, higher that of Canda or the United States and just less than the UK.
http://www.economist.com/node/18061550
Japan’s handwringing stems from the fact that on a country to country basis it is falling back because of the declining population and the rise of China. It has also transitioned from rapid growth from the 1950-80s to a rate pf growth per head more common with fully developed countries and it is that transition that is causing the cultural malaise.
Um, I hate to burst Japan’s post growth bubble(it’s effectively an enormous debt bubble), but I am pretty sure that they are massively (and I mean , way more than the US or UK or Greece, Ireland etc.). They experienced their own property and bank debt bubble back in the 90’s, and guess what, they opted for ‘bail-outs’. Thing is, at the time there was lots of real money within the japanese system in the form of private savings which they started tapping(and promising to pay back), only now the well is starting to run dry. Put another way, the government has been kicking the proverbial can down the road for the past 20 years now by just putting everything on the national credit card, in the process. Is this starting to sound familiar? It’s totally unsustainable and a debtbomb waiting to go off. There is good reason to believe their in the near future.
Sure, and I think you’ll find that at no point in the post is Japan singled out as a shining example.
Apologies for making a hash of my original post trying to use tags.
Jeremy,
Ok, true, you do not single Japan out as a ‘shining’ example. You single it out as an avant-garde example of post-growth satiety, “So maybe Japan isn’t a failure. Maybe it’s just ahead of its time – not ‘stagnating’, but settling into the plateau of ‘enough’.”
This is nonsense. Japan does not have ‘enough’. Otherwise, why would the country have to borrow so massively? By your own admission, “Japan consumes considerably more than a one-planet share and is not sustainable in that sense.” What other sense is there? They consume more than they produce, they pay for the difference with loans.
You claim that, “In fact, it is living proof that growth isn’t necessary to deliver a high standard of living.” It does nothing of the sort. This is the same type of delusional thinking by which someone with no credit card limit is ‘living proof’ that living beyond their means is a legitimately sustainable practice.
Look, I do not dispute that decent standards of living are possible in a no-growth economy, I am simply pointing out that what Japan is doing does not provide your elusive proof: “No matter how confident we might be, we lack proof that a post-growth economy is possible.”
Japan is delivering it’s ‘high standards of living ‘ by adhering strictly to an economic policy of ‘more’: substituting ever greater borrowings in place of economic growth. It is not ‘ahead of its time’, it is forestalling the inevitable, desperately borrowing from the future, forgetting this means there will be much less for tomorrow. In effect it is practicing totally unsustainable, good old-fashioned, growth economics.
“The importance of illusion in people’s lives and the tragedy that befalls from its eventual breakdown” – F. Scott Fitzgerald’s The Great Gatsby
I think Japan is ahead of its time not in what it’s doing, but in the emerging understanding of what it could be doing. It is a cultural movement and not yet a matter of policy – the stuff Professor Kato is describing about economic maturity.
Japan may be better placed than most to transition to a sustainable economy, but as you say, it is in a pretty desperate race against its own debt.
Hi again Jeremy,
That Japan may be ahead of the curve, so to speak, with regard to a cultural movement is very interesting and I enjoyed Kato’s piece in the New York Times. I did not understand this was the emphasis of your piece.
Whether Japan is better placed than most to transition to a sustainable economy is worthy of closer examination, you don’t present any solid basis for this in your article. Japan’s strong cultural identity with emphasis on family & community and their serf like work mentality will possibly stand them in good stead when the monetary economy disimproves. However you would also have to look seriously at factors like their fossil fuel dependence and domestic food production for a predominantly urban population of 130million of relatively high density.
I guess my main point is that Japan hasn’t grown for 15 years, and it is therefore a post-growth economy, whether it likes it or not – and it doesn’t. But having come this far, it would be easier for Japan to move to embrace a post-growth economy than those that have seen nothing but growth.
Whether they will or not remain to be seen. They may continue to pursue growth at all cost, racking up the debt until it crashes, which is just as likely right now. I think your own analysis is correct there, that Japan’s debts are impossible to ignore.
My impression is that Japan arrived at an end point of a mature industrial society. It has indeed been in a post growth phase for 15 years, and it indeed suffers from an enormous debt bubble ready to burst any moment, and it is out of the question that the current global financial system and the contemporary money systems are unfit for a postgrowth society. To quote from Bernard Lietaer (The Future of Money):
quote:
—
1. Interest indirectly encourages systematic competition among the participants in the system.
2. Interest continually fuels the need for endless economic growth, even when actual standards of living remain stagnant.
3. Interest concentrates wealth by taxing the vast majority in favour of a small minority.
—
I would add 4: Interest automatically leads to rising public debt in a post growth society.
Japan has the highest debt (compared to GDP) of all industrialized nations, yet it also holds almost 900 Billion in US Treasuries. The question always also is “who is indebted to whom?” It is not a natural law that money is concentrated in some hands while scarce in others. That is a systemic issue.
What also strikes me as odd: since the gold standard was abolished money has no real base anymore. Money forms out of nothing, and fiat money basically is backed by nothing but faith.
Ok Jeremy, I see where you are coming from. Sorry if I came across as being overly critical.
I guess my contention , that an economy like Japan’s should not be considered a de facto post-growth economy simply because its GDP has stagnated, is a little unconventional. I see the growth shifting from the more ubiquitous GDP figure to other measures. Government expenditure and national debt have both grown steadily over the past 15 years both in nominal terms and as a percentage of GDP. Effectively the same growth-economics process is at play.
It remains to be seen what happens to the standard of living re employment levels, education, healthcare, etc. when the national credit card is cancelled and genuine ‘post-growth’ effects are actually allowed to manifest.
Yes, and that’s the difference between post-growth as a fact and post-growth as a policy. Japan is still trying to restart growth, and it’s been a fool’s errand. I fear the UK is about to embark on a similarly futile course.
And thanks for the discussion!
Good post. It is about time policy makers stopped using GDP growth as an indicator of economic and social progression. Taking the UK as an example, there is enormous scope to improve the equity and balance of the economy, as well as society, without resorting to risky, short term GDP stimulants.
At least Japan hasn’t gone down the track of limitless and perpetual growth addiction to boost it’s GDP. Nations should primarily exist for the benefit of its citizens, and those of the future. For all Japan’s faults, they believe in themselves, and arrogantly don’t take on the world’s problems. They haven’t gone down the track of mass immigration, and this is offensive for economists and governments in Australia who believe we must continually grow our population and grow our economy. Nations are people linked together by a common purpose and a common history rather than be a resource for big businesses to grow their profits whether it’s in our interests or not.
“Once Japan has a trade deficit it will all be over pretty quickly, since then of course they will have to attract funds to finance the deficit, and this is where things will start to get pretty tricky.” – Edward Hugh
Japan Economy Watch
And, look what at just came in:
World’s Largest Pension Fund Needs to Sell Japanese Bonds; Japan’s Demographic Time Bomb Officially Goes Off
“Will growth be sufficient to make a long-term dent in Japan’s debt? I scoff at the notion. Moreover, rising energy prices will take a big bite of of Japan’s trade surplus.
By the way, in case you missed it, Japan’s trade surplus went negative last month. Supposedly it’s a one-time thing.”
As for “Japan: the world’s first post-growth economy” aaahhmm, no. It will be all over soon.
God help us all.
Troubling news for Japan. Can you explain how it disproves the idea that Japan is a post-growth society?
Jeremy,
Interested in your thoughts about Japan now that it has suffered natural, economic, and nuclear disaster. How does a post-growth economy move forward, saddled with debt and starved of resources?
Will their circumstances force a new generation of post growth economies (specifically the US)?
This would be a major setback for any country, but Japan’s debts make it particularly challenging. That’s why I was disappointed to see the government pump £200 billion into the markets this week to maintain liquidity – money that turns to steam every bit as fast as seawater pumped into a melting reactor. That kind of spending, anywhere in the world, is waste.
This has to be a turning point for Japan. It’s just slipped a place to the world’s third largest economy, and it can’t afford to see that as a threat. It’s already admitted that it will lose 1.5% of GDP to the disaster, possibly more. If it pursues growth again at all costs, it’s going to bankrupt itself. I’d like to hope that it accepts a little economic re-balancing and formally changes its goals.
So yes, I think Japan has reached the decision point that every country will face sooner or later. The circumstances will either force a more recognised post growth economy, or break Japan’s economy for good.
Hi All,
The fact that Japan will soon have not enough domestic workers to support all of the retired pensioners that currently live longer than most, therefore having a longer period of economic dependance, has been missed. Yes, technically Japan’s economy isn’t growing. Is it a good example of where to aim for post growth? No way. Japan has a more recent history of true self sufficiency than most other “Western” nations. For thousands of years, Japan existed apart from the rest of the world as an island of 30 million feudally governed artisans, poets and agrarians. The Japanese population is already headed back down towards 30 million from around 112 million today. How will they repay their national debt with reducing worker/consumer numbers? They won’t. They will have no choice but to default. In the meanwhile they will have to sell of US treasury bonds. Who will buy those bonds? They are worthless, as China seems to already know. China has been selling down US bonds and buying gold for a while now.
The third largest economy of the world cannot default without causing another massive shakedown in the global arrangements.
Japan is already culturally suited to simply close the doors and turn their collective back on the west, returning to the far higher standard of living they enjoyed under isolated agrarianism. I think this has a high chance of becoming the official Japanese response to decades of economic stagnation and now critical safety and energy issues caused by trying to prop up continual growth in a closed system.
Hmm, I’m not sure Japanese lifestyles were better under agrarian isolationism. But even if they did want to return to that, Japan’s population is too big to provide for all its needs within its own territory. It has to trade and import food and oil, so in that sense it has no choice but to play a part in the global economy. Difficult times ahead, either way.
ﾒｰﾙ友達がすぐに作れちゃうｻｲﾄ!完全無料だからはじめてでも安心・簡単に作れちゃいます。趣味別、年齢別など豊富なｼﾞｬﾝﾙから探せるからﾒｰﾙ友達が作りやすい。
Japans links to china will determine their future of growth in the long term. Another good thing on japans side is they are ahead of the game in technology. we can tale a leaf out their book if we wan to succeed.
The Economist piece actually makes a good argument in defence of its position that Japan’s position is pitiable: it says that while young Japanese may be free to reject consumerism, it should be a choice, rather than something forced on them by reducing economic opportunity.
This idea of growth and wealth as choice seems to me an interesting one philosophically. I may become convinced of the idea that growth is over, but I’m having much more trouble with the idea that that isn’t a tragedy. What do you say to this idea of wealth as freedom?
@R.C. Gera: perhaps I can solicit my view. It is surely true that wealth per se can be equaled with freedom, at least in many respects. I also agree that the end of growth does involve many tragic and painful transitions and changes. But the question is not so much whether we find the end of growth desirable, but whether or not the concept of perpetual exponential economic growth is an outworldish concept in the first place. For me the questions that have to be focused on involve:
*What is growing? And why?
*How does this growth benefit society at large (building ever more huge office towers is not necessarily a benefit to society at large)
*How is the wealth stemming from this growth distributed within society – and: how does this distribution CHANGE with ever more growth? Is it successful “trickle down” or is it ever more concentration of wealth from capital income?
*And finally: even IF more growth means more average purchasing power for the average person (short: it doesn’t!), does that, beyond a certain level, increase their well being, their happiness, their quality of life at large? (Again short: it doesn’t).
And about increased freedom: what kind of freedom? The freedom to consume ever more? The freedom to influence political decisions with the leverage of monetary might (that takes a lot of capital)? The freedom to choose which elite club to join and which elite school you can send your children to? To enhance your perceived social status by expensive, shiny possessions? Big house, fancy, clothes, jewelry, big boat, big artificial boobs? (sorry for being a bit explicit). I for example have a totally average income here in Germany – a country very comparable to Japan. I could probably earn twice as much if I would make earning more money a life priority. But I think we have all we need. Yes – there is always a point where you would WANT more, but we don’t need more. There is a point when income gives you the freedom to live a decent life, but there also is a point where that degrades into something very cheap and immature. The grabbing of things, the striving for status, keeping up, showing off. That is childish. So as I see it there is an income optimum for an average family where work and life are balanced. Then comes a final question: why does this balance deteriorate when growth comes to an end? Why is slow or no growth always a crisis? micro economically we don’t need growth. The small artisan does not need ever more customers and ever more turnover. It suffices for him to have a steady income. And even if that income dwindles a bit that is not necessarily a crisis. Unless, of course, he is indebted.
Many mathematically working analysts come to the conclusion that debt and compounded interest (and fiat money created with a debt burden from the outset) is the main culprit to be blamed for the growth requirement. Should we then continue with a MATHEMATICALLY impossible exponential growth economy and wait until it quite literally explodes into our faces? It think it can be argued that it is a very slow motion explosion that already is well under way. The way the system works is that it sucks capital away from the general working population and the state while being automatically transfered to capital owners. The recent German poverty report showed it clearly: the spread between rich and poor widened extremely during the last ten years. The super rich corporations and individual capital owners benefiting mainly from capital income extremely increased their wealth, while the state sank knee deep into debt.
What I find interesting about Japan: Normally they should long be bankrupt – but they aren’t. They are indebted like hell, but interest rates are negligible. Similar in Germany. State bonds are bought for parking money despite near (or actually) zero interest rates (even below zero when considering inflation). What does this tell me? a) The situation can be stabilized by lowering (or abolishing) interest. b) There is so much capital on the market, that it cannot find profitable AND safe real-world investments anymore.
There is more, of course, but ultimately it seems that growth itself is what causes the worst crisis, and then there is not much freedom left, and we don’t see much trickle down – it is more trickle up.
I think your comment answers why limiting growth is against freedom. You say ” I think we have all we need.” You know what is enough for you and have the freedom not to increase your wealth but there are others who do want more and do not want you to decide if they have enough. What basis do you have to remove their liberty?
Growth comes from two things, increased use of resources (which have a finite limit) and new ways of using those resources. The only limit of that is human creativity and the potential there is limitless. For example 3D printing will allow production without waste close to the point of sale, reducing transport emissions and inventory. More for less = growth.
An interesting counterpoint to the claims that growth doesn’t benefit the poor is that whilst over the last 30 years the Gini coefficient of inequality has grown in almost every country, if you measure the Gini coefficient for the whole of humanity it has fallen. The poor have grown richer compared to the wealthy.
The Gini coefficient is meaningless if I look at absolute numbers: more people now living in absolute poverty, globally, than have been in existence 150 years ago. It is one of these beautiful meaningless make-believe indicators. In this case you have to look at the actual frequency distribution, and it quickly turns out that the poorest of the poor tend to get poorer. It is similar to looking at the average income or median income. The average income necessarily grew with GDP growth (the money goes somewhere, after all), the median often did not. The richer half can get richer, the poorer half gets poorer, while the Gini index, since it basically is a weighted integral of the complete Lorenz curve, makes a general statement about the distribution but naturally misses out on the details. It simply doesn’t say where precisely in the distribution the inequalities occur. That is a weakness of every relative indicator.
I am not to decide who gets what. That is true. But I maintain that greed is a weakness, a character flaw, perhaps even a disease and that – if it can be proven that the system benefits the capital owners more than the workers – it is unfair – and undemocratic. Again: the playing field has to be leveled. That is my opinion. And regarding the limits to growth: during the more than a quarter century that I spent with and around the topic I found nothing that even remotely suggested that economic growth and energy/resource consumption can be de-coupled. Reduced: yes. De-coupled: no. As a result exponential growth will quickly gobble up every efficiency improvement, where the ultimate limit is NOT human ingenuity but thermodynamics.
Speaking about getting richer: look at Hawaii. Ordinary working people cannot even afford housing anymore. In Honolulu even a medical doctor cannot afford a normal 3 room house anymore. What is that? Look at Uganda or Tanzania: people who lived as subsistence farmers in rural communities (poor as hell according to statistics, with zero income!) move to cities like Kampala, where they live in slums in absolute dispair, trade in drugs and charcoal, can barely survive, contribute to resource degradation big time. But what a miracle! They contribute to GDP growth! The Gini index falls! The Gini index is flawed on many other respects to the level that it becomes useless even as a crude indicator. A better picture is given by the Pareto distribution. Approx. 1/3 is left behind by “the system”.
Look at the real world. Like GDP itself, the Gini index has nothing to do with the real world, says nothing whatsoever about the life of real people and what really happens “out there”. It is an artificial construct by a fascist Italian theorist sitting at his cozy desk and working out pseudo scientific justifications for fascism.
And another perspective: we regulate many types of behavior society considers undesirable. Murder is prohibited. Speeding is, too. Drug dealing, rape, human trafficking, and in the more civilized world possession of firearms is, too. Now if it can be proven that certain economic activities or principles have drastically undesired effects similar to or worse than some of these undesired behaviors: shouldn’t they be regulated? Or adjusted? Some will just write them off, those poor people. Some will never care about environmental degradation, resource depletion etc. etc. as long as they have their “freedom” to move on to a private patch of soil with unspoiled view and unspoiled water. But here is another aspect of reality: the growing rest has the freedom to do something about that. And I am all in favor of truly democratic decisions in this respect. Fact based.
The innocent belief in human ingenuity solving the self-caused problems (while being unable to avoid them in the first place) is quite charming. There are, of course, no rules of architecture for a castle in the clouds.
Less people are living in absolute poverty than 30 years ago. In 1981 1.9 billion were, in 2008 that was less than 1.3 billion. That is amazing given the huge growth in the World’s population. In 1981 there were 4.5 billion people, in 2008 it was 6.8. So in that time nearly 3 billion people escaped extreme poverty . In relative terms, the proportion of people living in extreme poverty dropped from 52.0% in 1981 to 22% in 2008. Since 2005 the numbers of extreme poor has even started to fall in Sub-Saharan Africa. These in extreme poverty are not getting poorer.
You have to ask yourself why “people who lived as subsistence farmers in rural communities (poor as hell according to statistics, with zero income!) move to cities like Kampala, where they live in slums in absolute dispair, trade in drugs and charcoal, can barely survive, contribute to resource degradation big time.” They do it because no matter how bad it is, it is better than being a subsistence farmer. If it were worse they would go back to the countryside, but they do not. The myth of rural poverty being better than urban has been with us since the industrial revolution and it is as wrong now as it was then.
There are many reasons to remove liberty, so people follow God’s Word, for the good of the Father/Motherland, to Free the Workers, to save Gaia. All so far have been taken over by those who want power over their fellow man. If you can convince people democratically via free elections that Greed should be made a crime then good luck. Quite how you repress a characteristic that humanity has displayed for all of recorded history while maintaining freedom is one I can not imagine.
I will take hope over fear. The “innocent belief in human ingenuity solving the self-caused problems” over a requirement to crush our humanity to solve our problems in a predetermined way.
Fortunately greed (or the potential to greed) is only one characteristic of human nature, but not the only. I am not saying that greed should be made a crime, but that economic structures that systematically cater to greed ought to be regulated. Since you had brought up the Gini coefficient: I maintain – with quite some mathematical backup – that the current system as it is within the EU, the US and many other countries, is a continuous re-distribution machine from bottom to top, or, more placative, from the have nots to the haves. That is not a myth, that is econometric math. Re-distribution from capital income outperforms the balancing re-distribution by means of taxation, which was not always so, or not as pronounced.
About the poverty improvement: Interesting that you chose 2008 as your reference year! The old art of choosing a fitting interval for the argument. Be that as it may: poverty in World Bank and other common definitions is defined as an income threshold. That threshold neither adjusts for the (quite dramatic) punctual cost increases (e.g. for charcoal in Uganda, to stay with the example), nor for actual inflation, leave alone the loss of culture, social contacts, integration, risk and other “soft” factors. It is all awfully complex and I, again, stress that it cannot be assessed in an even remotely realistic way by crude econometric indicators. On Monday I talked to a colleague from Uganda who is doing his Ph.D. on the topic of sustainable cooking in his country. Matter of factly his country will run out of fuel for cooking within ten or fifteen years at current rate. And whether you believe it or not: his view of why people go to and stay in the slums of the cities have very little in common with your views. A mix of being lured away by the shiny promises, of being driven away by corporate agricultural interests, a witches brew of corruption, lack of education, hunger, sheer desperation…hope – and still the economy grows, and your monetary indicators are actually improving. It is not a myth that life as a fisherman or subsistence farmer in a functioning community is better – in fact dramatically better – than life in the slums at the periphery of the big cities. If you ever had walked through the slums of the one or the other third world Megacity and also explored one of the few still functioning (stress!) agricultural communities in developing countries, you would not make such a claim. I hope.
Freedom, which is so precious to you, is automatically taken away, because concentration of capital goes along with concentration of power, and that power is not in any way democratically elected. We already see corporate rule in many arenas. It is strange that immediately the communist spectre is brought up when the idea of totalitarian corporate rule and constant re-distribution of wealth from poor to rich are challenged. I want the state, that represents all of us, to protect us against that uncontrolled power that only serves its own profit interests. The “invisible hand” has to be kept at bay.
I wasn’t choosing 2008 figures for any other reason that they are the most up to date complete ones the World Bank has released.
Development is a marathon, not a sprint. If I set out to run a marathon at the start of my training I’ll hurt badly and feel worse than someone who chose to remain on the sofa. But as the weeks go on I’ll get fitter and faster than will feel the difference. My friend on the sofa will have stayed the same.
We look at slums in the developing world and see the poverty and deprivation. We don’t see the long view. Kampala 2012 is very similar to London 1712. That had slums with drugs and degradation. Yet London today is a city where, despite huge inequality, the population have a standard of living unsurpassed in human history. Every country that has developed has gone through similar stages. It can’t be skipped. The poor of Britain, of Germany, of America, of South Korea, of China and on and on have got wealthier. Those who moved to the cities with their slums overtook those who remained in the country as the generations developed. Otherwise how do you explain the fact that I am writing this on a computer in a centrally heated house with running water and electric light and am well fed and clothed. Some of the proceeds of growth have come my way. I’m better off than my parents were, they better off than theirs. My work colleagues in India are better off than their parents and grandparents.
While charcoal is the main heating fuel in Uganda it is unsurprising that it will shortly run out. But growth and human ingenuity holds the key. If coal fired ranges were still the main heating in Britain we would have run out decades ago. But technology in the form of mains gas and electricity means we have far more efficient methods of heating. and the coal stays in the ground. But it would have been no good in 1800 because we did not have the wealth in the country to build those grids. Technology holds the key for Uganda too. Modern simple cheap efficient cooking stoves can reduce fuel use by up to 50% while decreasing pollution. Solar ovens remove the need to use charcoal entirely.
The fact is that subsistence farming can’t provide a good life for the current population of Africa. It is too large. We need growth if those slums are to advance to decent cities. Or to be able to import food to make up for the low productivity of subsistence farming.
The capitalistic free market has been the greatest engine for economic growth and human advancement yet invented. Free markets on the whole and in time lead to democracy and freedom. There are very few cases where that has not happened. And in a free market the accumulation of capital is a free process. No one made me buy my computer software from Microsoft or my phone from Apple. It was Bill Gate and Steve Jobs genius and creating products I wanted and at price I could pay. People who wanted to be rich have advanced the world from Matthew Bolton and Thomas Edison onwards. Their greed moved humanity forward.
No planned system would have created the PC, or the mobile phone or bothered that those phones be well designed. The mobile phone is a tremendous boon that is having a huge effect in developing Africa, allowing farmers to find the best price for their produce and revolutionising commerce.
When we give power to the state the state will abuse that power. Every time a state takes great power there has been abuse, and those abused are normally the weakest. The power hungry and the greedy are the ones who capture the state power for their own ends. Once the state decides what gets bought and sold, the first thing bought and sold is the state. The reason communism is brought up when discussing replacing capitalism is that it is the most recent example of the failure of alternatives. Also the current proposed alternatives all sound a lot like communism with central control of the economy deciding what people should and should not have. There are no perfect systems but free market capitalism linked to representative democracy is the best yet and advancing the conditions of all mankind. Capitalism, like democracy, is the worst system, apart from all the others.
Stefan, I would like to see the evidence for the claim that the poor have gotten poorer. I know of none. The gap between the poor and rich has grown, alarmingly, but that’s because the poor have got richer at a slower pace than the rich. In some places, like the US, median incomes have flatlined. But the poor getting poorer? Often said, never evidenced.
Stefan, I can’t reply to the right comment for this, but you say:
“poverty in World Bank and other common definitions is defined as an income threshold. That threshold neither adjusts for the (quite dramatic) punctual cost increases (e.g. for charcoal in Uganda, to stay with the example), nor for actual inflation.”
I believe this is incorrect. Don’t the income measures (eg $1 and $2/day) use purchasing power parity, accounting for both inflation and increases in prices? They may lag a year or two behind, but they do recognise long-term trends.
Again, I really would love to see evidence for your claim the poor have gotten or are getting poorer over the medium to long term. I do acnowledge that since 2008 food prices and hunger stress are a big issue, but I think the overall measures of poverty are still trending positively.
Stefan, thanks for the interesting response. On the freedom point, I think it’s vital you differentiate between ‘Western levels of wealth’ and the reality of most Westerners’ lives. Clearly, if you are a multi-millionaire, the happiness benefits of extra money are minimal. I think that’s part of the case for progressive taxation. But the majority of people in the West, though rich in comparison to the very poor, are not ‘rich’ in any conventional sense. The median income in Britain is what, £20,000? We’re talking about teenage children sharing rooms, elderly people rationing their use of heating, and people saving up for years and years for their dream holiday only for it to rain for a week. Ordinary life is full of disappointment and frustration and stress that more money would fix. Financial stresses are a leading cause of divorce. You get the idea. Most people could identify truly worthwhile things they would love to do if they only had more money.
Now, I recognise that you and Jeremy would probably blame these things on ‘inequality’, implying that if the rich had less money, ordinary people would magically have more. It doesn’t work like that, but that’s a different discussion I don’t want to get into here. Suffice to say that, if it’s hard to ensure the majority get a decent share of the ‘pie’ when it’s growing, surely it’ll inevitably harder to ensure it when the pie isn’t growing?
I pretty much stressed the point that beyond a certain level of income the actual benefit of increased income to ones well being or happiness dwindles. It feels pretty much like a logistic curve – which it actually becomes quite literally, again beyond a certain level. I can use actual incomes as an example. In Germany you have to work for 40 years at an income level of above 2500 Euro to finally receive a pension above social welfare levels (that is around 680 Euro). In our neighbour country Netherlands, which all in all has a comparable socio-economic structure, every citizen receives a basic pension of 1,100 Euro upon reaching the pension age (currently 65). Now despite having the same average income and the same average tax- and social insurance burden people in Germany fear falling into poverty upon old age while in Holland they can live quite decently with their basic tax financed state pension alone. It is not only about wealth – it also is about expectations and perceived or actual security.
The scenario I stress is that yes, with economic growth the situation can improve. It by no means has to! If I look at history economic growth did not only lead to comfortable social webs, to decent living, to pensioners whos worst nightmare that it rains during their trip to Mallorca. It also was intertwined with two world wars, enormous environmental and health risks (and actual massive disasters) and degrading working conditions akin to slavery. That for many years it looked as good as it did in Western Europe had many reasons, but social reform as far as I can tell was just as important a reason as economic growth. And then we began to observe something else. In the mid 90s I lived in the Executive center in downtown Honolulu, where I met a most interesting man: Dr. Wali Osman, then the chief economist of the Bank of Hawaii. He had already then observed – and published – that for several years the average (not only the median!) purchasing power of working Americans declined. DESPITE ECONOMIC GROWTH! It appears that the underlying mechanism of the compounded credit money leads to a continuous re-distribution of capital fro bottom to top. Believe me – this has nothing to do with envy. It is merely one aspect – besides the physical and resource aspects – that makes the system utterly unsustainable – and unstable. It simply doesn’t work in the long run!
We have a peculiar situation in another respect: the classic theory of inflation involves an imbalance between the amount of money available and its coverage by “real values”, i.e. precious metals. In that view the value of money decreases by printing more. The neoclassical idea sees the cause in an imbalance between supply and demand. But what we see nowadays is that the available capital by far exceeds all available real world goods, and at the same time money is covered by nothing but faith. Why is there no massive inflation, then? Because money itself became a good. Money and derivatives of money. The main products traded in our time are certificates of the one or the other sort that represent monetary risk or monetary future expectations.
Now to go beyond that: why doesn’t economic growth necessarily benefit the poorest countries in the world? Aside from the fact that it is entire nonsense to compare, for example, Kampala in the globalized world of 2012 to London in the17-hundreds, there is another issue: Credit and risk. They money for investment is there, but as it happens, the poorer you are, the higher the risk, the more interest you pay. The more interest you pay, the less competitive you are, the more prone to stay in – and sink ever deeper into – debt. I mentioned Uganda, because there it is very visible that for the vast majority of the population every bit of economic growth – even if they participate at all – is more than compensated by rising costs, in fact by rising cooking fuel costs alone.
It is easy to think that I am a communist, but I am not – certainly not in any way as it has ever practiced on a state level in the real world. But I also cannot avoid to see that, to compare two countries with a similar Spanish/US colonial history, in many respect for most people it is better to live in Cuba than to live in the Philippines. Even in the US a single serious disease can stand between a career and middle class life and the loss of everything. In theory for a country like Uganda a communal system along the lines of their traditional pre-colonial agriculture – of course pimped up with modern know how – could well be a much better way. I am not naive enough to believe in quick fixes, I am also not ideological in any way, but I do think that human dignity should not be left to the chance forces of that god-like invisible thing called “the market”.
We also see a new tendency in “the market” here in the first world. Germany needs engineers. And scientists. We need fewer and fewer artisans, even fewer and fewer technicians. We also need fewer and fewer clerical workers and secretaries – in our company all the development engineers are their own secretaries. That is a profession largely replaced by Outlook & Co. So – what you need in this growing economy, this ever more demanding economy, are brain workers. Now let’s face it: engineers are math savvy folks with IQs of 120 and beyond. There will be some 20% or less of the population who are capable of becoming an engineer, a medical doctor, a jet pilot etc. and the jobs for ordinary “average” citizens are becoming sparser and sparser. As a most extreme scifi type scenario expanding on this tendency I can imagine that almost no people save for a few Quants are required to run a global economy entirely trading in virtual certificates. Meanwhile, of course, a parallel economy of “black work” will form (already forms, always formed). A black market, with black currencies. People will continue doing “real things” like building houses, healing people, harvesting vegetable etc. anyway. And that could well be Jeremy’s “Cooperative Economy”. Not communist, but perhaps communal. Not socialist, but perhaps social. Big difference. No isms. Just harmless adjectives. And when we are there, happily working along, we load up the entire virtual economy into a little hand-held sized quantum computer – and shoot it into the sun…:-)
Quick:
Just for the US, although it hardly represents the world:
Median income: At best the Median income (standardized here to 2002 Dollars) flattened out since about 1970, Males total lost some ten percent, young men in their early 20s even 30 percent of their income. In the same period GDP/capita more than doubled, pretty much disproving the idea that somehow economic growth automatically trickles down to anyone. It certainly is worse if we look at isolated lower income groups vs. top income groups, but this alone should prove the principle. http://nces.ed.gov/programs/youthindicators/indicators.asp?pubpagenumber=32
Poverty: similar picture, and I use the US, because the numbers are readily available and it usually they are sold as a role model. 1985 to 2002: poverty levels remained the same. The cold war was over, the computer revolution really took off, the economy boomed in the Clinton era. Still: no trickle down visible in the statistics: http://nces.ed.gov/programs/youthindicators/Indicators.asp?PubPageNumber=33
You were partly right that the absolute poverty threshold (currently US$ 1.25) is chained (to 2005 ppp levels). But that says very little about regional price developments. Here in Germany a liter of milk currently costs 0.70 €. In the Philippines it costs 1.3 Euro (1.68 US$). So again I maintain that a person earning no money whatsoever but living with his family on 2 ha land on the country where they produce their own food is better off – far better off – than a family living in a slum but earn 2 Dollars per person which they already have to pay for things they used to get for free from their farmland (cooking fuel, drinking water – possibly rent for a shabby shack).
The point is, again: the indicator is useless in its entirety without looking at the individual situation. It means nothing. Like the full professor or medical doctor in Honolulu who, despite an impressive regular income, cannot afford a normal house in the town where he works. I also remember a case of a secretary in Stanford who earned 70 thousand Dollars but could not afford even a small apartment. She lived in a car with her son.
I don’t believe in numbers alone… they have to be matched by reality.
“Here in Germany a liter of milk currently costs 0.70 €. In the Philippines it costs 1.3 Euro (1.68 US$). “. The Philippines milk production is much closer to the smallholder model you idealize than Germany’s. It can only produce 3% of the national consumption, the rest is imported which massively ramps up the price.
Also milk is a terrible example to choose given that cows milk consumption is not a cultural norm in Asia. The Philippines consumes 17.83 kg milk per person per year. Germany consumes 247.24 kg per person per year. Given that demand is low in the Philippines and it is imported its is hardly surprising that milk is dearer. It is a luxury product that the urban poor would not drink in the first place. It in no way proves your argument. Its not surprising you don’t believe in numbers if that is how you use them.
It is impossible for the 7 billion people of this planet to live the peasant agriculture you espouse. The ‘free’ cooking fuel (i.e. trees) will all be cut down and burnt, leading to erosion. Peasant agriculture just isn’t efficient enough to feed everyone unless we put all wilderness to the till. As your Ugandan friend said, one of the reasons people are moving to cities is that they are hungry and desperate. This is no advertisement for the small farming. If it can’t feed them now, it can’t when the World population is 9 billion.
Yet in the developed world we have a tiny percentage of the population working the land, produce much more food than we need and virtually no one starves. That terrible money economy at work.
@Devonchap: milk consumption IS a cultural norm in the Philippines. Whether it is reasonable or not is a different question. People think it is good, if not necessary, to give milk to children, and even the poor will spend the last Peso to buy milk powder for their genetically lactose intolerant children. Like you seem to believe that having the latest mobile phoney gadget is a great thing, they believe that milk powder is a great thing. And nobody forced them to buy it. As you correctly point out the vast majority of the milk is imported and not produced locally. Philippine milk production goes against zero. I used the milk example because a) people DO spend money they don’t have on milk and b) I simply had the price handy. But you can do the same with the rice price, which increases much faster than economic growth, mostly affecting the lower 30 percent of the population that does not benefit from growth anyway. They already spend more than 60% on average for food. Another issue connected to the situation: my brother in law recently needed heart surgery, which in the Philippines was three times as expensive as in Germany. Since there is no health insurance or other functioning national social insurance system the life of all families save the super rich remains precarious at any time. A single serious medical situation affecting the main earner of a family collapses the entire financial structure of even upper middle class families, throwing them into debt forever. A traditional village is also more resilient to such disasters.
Smallholder production CANNOT compete economically on the world market – ultimately scaled up for pretty much the same reasons why Uganda will never compete on the world market in anything. The forced-growth world economy is akin to a ponzi scheme, and countries like Uganda or Haiti dwell at the lowest level of the pyramid. But – it is a matter of fact that the apples I harvest in my garden do not cost me a cent. My point is not global competitiveness – that would be a futile endeavor. My point is that people can feed themselves and can live a more decent life in a functioning agricultural community than at the lowest level of a money society. Much of the land in Uganda is devoted to cash crops instead of local food and biofuel production. And much of the land is used very inefficiently since it is fragmented as a result of inheritance related land divisions, which in turn are the result of the introduction of the very concept of private land ownership by the former Western colonial power.
Don’t get me wrong – I would not want to forbid people to buy useless products like milk-powder for children with lactose intolerance. I cannot forbid people to cook with petroleum or charcoal in closed rooms, poisoning themselves in slums of hellish third world cities. I cannot – and would not want – to force people to anything. Ultimately it is their choice. I have no complete answers at this time, but I arrived at the conclusion that the development we have simply will run into dead ends. Uganda will no more be able to compete globally than a small drugstore will survive next to a Walmart superstore. And I nowhere say that everyone should return to agricultural village life. That would be nonsense. But it is not entirely clear whether small holding agriculture is necessarily less productive (in terms of harvest/land area) than modern high-tech agriculture. It is a fact, too, that huge land areas that had been used agriculturally and fed local populations often for millenia are not used anymore because they are not economical enough. It is not either or. We need both. And that’s all a matter of actual or perceived incentives.
@ Stefan Thiesen: Your point about health care could be taken in two ways. Are you suggesting that if someone can’t afford to be treated is better in a village setting? Do many Ugandan villages have heart units? Of course not. The fact is that the reason Uganda does not have a national healthcare or social insurance system is that it can not afford it. It can not afford it because its economy is too poor. However, in the Philippines, 85% of the population are now members of PhilHealth, the government-owned health insurer, compared with 62% in 2010. I don’t know the story of your brother in law, if he is local and not covered or if he’s an expatriate and has to pay his own bills. When you say his operation was 3 times more expensive than in Germany, a heart by pass operation in a private hospital is about USD 25,000 in the Philippines and USD 160,000 in Germany. So presumably the much lower cost to the patient is made up by the Germany government which can only afford it due to the taxes paid in its cash economy.
The fact is that because the Philippines has a growing cash based economy with most people not working on the land it can afford to start developing social protection. Uganda, being 3 times poorer per head can not yet. It seems to be that once the GDP per head of an economy has reached about USD 4-5,000 per year that governments can afford to start providing health and social protection.
If countries are to have healthcare with hospitals and heart surgery they need to earn the money to pay for the medicines and medical technology needed. Peasant agriculture just doesn’t create the surplus that can be exported to pay for it and requires the labour of many people who are therefore not available for paid work in industry. Now your point is that in a developing money society some people do very badly, worst than peasants. This is true, but is a temporary stage in the development of countries. Taiwan after the Chinese Civil War was very poor, comparable to countries in Africa at the time. It went through painful development. Yet today it is a wealthy developed country with a very low level of poverty. Like South Korea, Japan, Singapore, Hong Kong at the same time and Britain, Germany and America before them the ‘immiseration’ of these workers has proved, not as Marx thought to be permanent, but a temporary stage that leads to higher wages as economies move into higher levels of productivity. Or am I poorer than my cotton spinning forefathers?
Uganda, if it follows the right policies and maintains good governance has every chance of developing into a modern economy. The road is hard but others have done it. I see no reason why Uganda can not compete globally. Ultimately if you eschew force to hold people back their natural desire for advancement will allow them to flower, and for most people that flowering is away from the land. Nobody dreams of being a peasant.
@Devonchap: In Germany the “Fallpauschale” (case fee) for a bypass operation currently isnot , not 160,000 but 14,000 Euro. That is what one of the public health insurances will pay. The patient only has to pay 10 Euro per day of hospital stay.
But I was not talking about a bypass surgery – the issue were stents. Setting a stent costs 500 to 600 Euro in Germany (again: this is what the insurance pays! And there are no additional costs for the patient other than the 10 €/day of hospital stay). You can be lucky to find an offer in the Philippines at under 2000 €.
Philcare… well. You should look at what people who are in the program experienced when the going gets tough.
My point about the Uganda example is not that the a patient needing heart surgery would be better off either in the Kampala Slum or in a rural village: he would die in any case. My point is that a functioning family- and village structure is more resilient to incidents like the death or invalidity of the main earner.
My main point however is that growth alone is meaningless if it is not made sure that the growth benefits the people. I doubt that historical examples like Taiwan help much, because we are talking about entirely different contexts. After WWII the playing field was leveled. The culture and history of Taiwan also is quite different from that of Uganda, to stay with the example.
To be honest I don’t think that the discussion is very fruitful, since in fact we would make really detailed geographical and historical country comparisons to get to any really meaningful result here. The question is related to growth. I maintain that neither growth nor an indicator like the Gini coefficient alone say much about the life and well being of the population of any given country. Cuba has better overall access to medical care than the Philippines, but it also is a dictatorship, which is nothing anyone really desires. Neither do I desire a corporate dictatorship, and if I am concerned we are moving in that direction with continuing concentration and deregulation.
I also maintain that growth has negative effects beyond a certain level. I repeat the question: what grows? And why?
And regarding getting poorer: the latest “poverty report” of the German government shows with disturbing clarity that both, government and the 40 lower income percent of the population got poorer while the middle remained the same and the upper 20 percent of wealthy corporations excessively profited from the massive economic boom during the last years in Germany. There is an invisible hand at work, and it constantly re-distributes wealth from bottom to top – ever faster.
What grows? And why? And why does it HAVE to grow?
You seem to think there is something different about Africans that means that they can not do what Europeans, Americans and Asians with different cultures have done in many different situations. To me it is patronising to suggest that somehow they can’t develop.
And as to what use growth is, you can give up central heating, modern medicine, low childhood mortality for backbreaking work for little to eat before you die in your forties, having buried most of your children when they were still young. That is what life is like without growth. That aid has addressed some of the mortality problems is all very well but it removes people’s dignity to make them live off our charity, since without growth African countries can not afford modern medicine. That the wealth of the West, unimaginable to those living a century before, is unevenly spread is no reason to suggest that those who are absolutely poor shouldn’t try to become richer. We can redistribute our wealth to address our problems, they can not, because they don’t have enough. The only way they will is by industrialising. But since you consider every historical example non-comparable then I guess I can’t convince you.
You think being stuck with an extended family who often you hate and oppress you is better than material wealth. Go to Africa and tell them to stay poor. See what kind of reception you get.
“You seem to think there is something different about Africans that means that they can not do what Europeans, Americans and Asians with different cultures have done in many different situations. To me it is patronising to suggest that somehow they can’t develop.”
Why would I think that? I am talking about different starting positions. The dice is heavily loaded against the poorest countries. My views about Uganda are partly based upon discussions with my colleague John Kuteesakwe from Uganda, who has been working on cooking energy solutions in the country. His projections are quite serious. Again: my reasons for doubt about the potential competitiveness of countries like Uganda are similar to those for predicting a short life for a small drugstore next to a walmart. No matter how able the owner. In many developing countries the capital is drastically concentrated in a few hands and mining and agricultural concessions as well as major infrastructure belong to those few wealthy parties or to foreign assets.
Am I saying that growth is always wrong? No! Am I saying that it is better to live in basically a bronze age rural village than working in decent settings with at least a minimum social safety? No! I am not saying any such thing. Rural vs. slum often is trading bad for worse. And working in a sweatshop is not really better than the social control of an extended family, I presume. There is only a chance for development through growth if it takes place gradually and under fair conditions, i.e. it must be assured that the growth arrives at those who worked for it and not only at those who own the financial assets. That requires, as a minimum, a functioning taxation system, a thought out legal framework and a reliable administration and law enforcement.
So – growth at a very low level can be a good and promising thing, if properly managed. If not, it can mean reduced prospects, reduced living standards, environmental degradation, debt for government and individuals and all in all quite the opposite of development. What I think actually is not so far away from what you suggest: The very poor countries should be allowed to grow and develop. But for that they need a functioning domestic economy instead of a cash crop economy based upon export of agricultural products grown on land they need for their own food and fuel production. Slow growth, home-grown intermediate technology are ingredients of such a development. And I am in now way against interspersing some high-tech aspects. Remote sensing. Mobile phones. Why not? But all that should be paid for in local currencies earned domestically.
Growth at a very high level becomes a burden. Limits to growth will be reached, demand for phoney products artificially created, the pressure on productivity increases ever more, the rat race gets ever faster, people get sick, the health system gets stretched out, re-distribution from lower to higher income groups largely resulting from taxation differences between capital and labour income occurs, and on the horizon debt crisis, social unrest etc. etc..
Growth can not be managed the way you want it. Countries that have tried have failed to achieve any sustainable growth. We have a model that has worked for pretty much every country in Europe, Japan, South Korea, Taiwan, Hong Kong, Singapore and now is working for China, Vietnam, Indonesia, the Philippines; and Cambodia is joining in. This is not slow home domestic growth but export led. Now African governance is improving and foreign investment is available Africa can follow similar models.
You can wish for another way but I don’t believe it exists. If one did, it would have been tried successfully by now. That absence, given the number of attempts, suggests there isn’t another way out there.
For example the manufactures of mobile phones won’t accept payment in local currencies, they want dollars which are earned from exports. No country is an island economically any more. Autarky doesn’t work. And what is stretching the health systems of the developed world isn’t stress, but increasing longevity. Hardly a bad thing and the result of growth. There is no perfect past we can go back to. Pessimism of the future and romance of the past is a poor idea and has been dangerous. Sturdy peasants have stirred the hearts of various nationalists and autocrats but when given the chance people choose jobs, even nasty ones. I for one do not want to go forward to the past for a better yesterday.
Devonchap, you’re very much mistaken if you think that all the countries that you’ve listed there are pursuing the same economic model. China has combined free market thinking with communism, Singapore has run a planned economy and makes good use of government-owned companies, as does South Korea. Vietnam has pursued land reform alongside economic liberalisation. It’s simplistic to say that there is one model – there is huge variety within development models. There can be good, fair and balanced growth, and there can be hasty, poorly shared growth.
Besides, in order to grow under the export-led model, you need to have a trade surplus. If every country is aiming to export more than it imports, where are all those exports going? You need some countries (currently the US, Europe, etc) willing to run a trade deficit for those others to grow in that way. So it’s futile to suggest that export led growth is the only model. It can’t be, since we can’t and don’t all do it at once.
The way I see it, countries grow and then mature. Growth is rapid at first as skills improve, life expectancy rises, population grows, industry develops, trade network are built and infrastructure. Growth slows as the economy matures, which is why developed countries in Europe can only dream of the growth rates in emerging economies. The whole point of this post is that in a mature economy growth can slow to the point of being flat, for years at a time, with no loss in quality of life, employment, etc.
But the nub is CAN developed economies have flat growth with no loss in living standards? Given that Europe, Japan and the United States have seen an explosion in their national debts without growth that will bring down living standards. The post second world war debt was reduced by strong growth, inflation, and financial repression. Growth can’t be magicked up, inflation is a short term fix and financial repression isn’t acceptable given that those who vote are the oldies who lose out. With the greying and shrinking of the workforce in Japan and most of Europe, the long term trend is down, unless spending can be brought into alignment, either by cuts or growth. Its no fun being Italian whose income per head is about the same it was 10 years ago.
@DevonChap: The question is not at all whether it would be desirable to have endless growth – the question is whether it is possible, or not, and hence whether it will happen, or not. It is quite likely that the living standard will go down when the growth machine begins to sputter – and here we have to look closely at the mechanisms that cause the constant increase of debt – which also is an as yet undiscussed problem in this thread when it comes to developing countries. In many cases debt service gobbles up much – if not all – of growth growth.
As to the management of growth: Jeremy already mentioned that there are vast differences among the approaches to economic policy of even the countries you mentioned. I say again: growth can be good for a developing country to lift it from poverty, but growth alone by no means is the cure. Some of the most successful countries do have considerable economic planning, and the social market countries of northwestern Europe so far are faring somewhat better than the more “laissez faire” US. No tent cities in Holland or Denmark as yet.
Your development model seems to suggest something different: that all thats required is sending in a few multi national companies, say a big mobile phone producer and a few large agro industrial companies, have them set up shop there and do there business, and magic! Everyone will get a job and over time life will be improved and things in general get better and better. No regulations required, no policy, no taxation, no social security network. Just laissez faire “free” economy and export oriented production.
And in the long run – another naive question: what happens, in the beautiful distant future when everyone was developed beyond even our wildest contemporary imaginations by sheer growth, where do we export to, then? The bountyful future where everyone has a car, a house, a fridge, an aircon, produced from raw material hauled in from outer space and powered by as yet to be discovered power generators that violate all currently known laws of physics? Aside from the fact that I consider this future an impossibility on the grounds of hard natural limits to growth, I also see that economics itself doesn’t allow it. Saturated economies in Europe that do grow are export oriented and managed to drastically increase their productivity over the last decades (note: this is largely “native” export, where the profit remains within the country – not exactly the same as export of cash crops). Export will seize, when the target markets become developed – and saturated – themselves. Domestic markets will also slump, amplified by a stagnating and aging population. The reason why it is a crisis is a money system based upon compounded interest. 30% of every Euro spent in Western Europe is interest on capital, cumulated up the value chain. Debt service is becoming the main national task of more and more governments. The answer to that are growth rhetorics. But that growth simply will not continue forever, and my assumption is that, whether we like that or not, we need to seek fundamentally new financial concepts. A new form of money. That might not happen. There also might be no such workable solution. In that case my prediction for the global economy – and indeed human civilization – is an unpleasant one. I would hope, believe me, that I am totally mistaken. But I think I am not. At least what we see in Japan seems to be that the country’s poor at least are faring better than in the US, despite debt, lack of growth, Tsunami and nuclear disaster. Despite lack of growth the situation looks relatively stable. My best guess: that has something to do with the almost complete absence of interest in capital in the country. It seems that the near absence of interest also reduces the pressure to grow. It is not that Japan earns nothing – it still is a filthy rich country. Only it does not earn ever more. Why should it?
Nordic countries are actually quite classically liberal economies, not state planned anymore. They need that to generate the growth to fund their high levels of redistribution. They tax consumption more than capital and companies, and have flexible labour markets. Not to mention profit making provision of fire services (Denmark) and schools (Sweden).
You caricature my development policy. The example I chose (excepting Britain which was the first so never had to catch up) have had a large element of state intervention in their development in policies and priorities. They were not laissez faire. Businesses may have been guided by the state but were not state owned, Communism or similar has been a dead end. It is when they make the transition from middle income to more developed that state planning is no longer useful and becomes a hindrance. When you are catching up you can follow the example of others. When you are at the technological frontier no one knows what is productive to invest in, least of all bureaucrats
You are going to carry on with fantasy new money and new ideas of the future, I’ll just stick to what works and we shall see what happens. The market will ultimately decide!
Talking about communism isn’t helpful. It’s not the only alternative, and you will search this blog in vain for a single post where communism is recommended or championed.
You’ll also search in vain for any suggestion that poor countries shouldn’t grow. I grew up in Africa and am passionate about growth and development in the places where it is needed.
That’s completely different from talking about growth in rich countries. Putting on weight is healthy if your underfed, and a bad idea when you’re obese.
But if there was a pill that meant you could eat what you wanted and not get fat, you’d take it, wouldn’t you? I bloody would.
If there was a magic source of free energy, and a place where we could magically put all our waste, then sure – let’s grow forever. But there isn’t, so that’s no argument.
The Romans had a method for eating far more than they needed, I seem to remember. History doesn’t seem to hold it in high regard.
I worked In Japan in the 1980s and saved a lot of yen but changed them to US dollars and Pound sterling after I left. I so do wish I still had most of those yen now since 20 years which would have made me far richer than now.
Those yen may crash in value soon and I would exchange them some time – perhaps to Euros? getting stronger against the Pound?
Why the yen is so strong I haven’t come across any explanation so far in the past few years!
It’s interesting, isn’t it? Japan is supposed to be a basket case of an economy, and yet the currency remains strong. I think it reinforces my point that you can have a very successful economy without delivering growth every year. By the normal logic of things the market should have turned against then Yen years ago, but presumably it’s strong because the underlying activity of the Japanese economy is consistent and exports remain healthy.
To that we need to add geographical convenience, as Japan picks up financial trading as US markets close, before handing over to Europe, so it’s the third hub in global trading. And of course the crisis in the Eurozone is likely to have nudged investors towards the Yen. I imagine there’s something of a balancing act going on in the Japanese government – a strong currency has benefits, but if it goes too high it would impact the affordability of their exports and do more harm than good.
Thank you Jeremy, Stephan, Devonchap et al for an interesting article and a refreshingly civilised and informative exchange of posts. The evidence seems clear that markets alone will not provide a smooth path for the development of those parts of the world where real poverty is still rife. But equally baffling, and the real crux of this article, is what now for the developed world as growth hits the buffers? Japan is in no way a role-model but may be, in part, a bell whether.
Yes, where Japan goes, much of the developed world may also follow. Britain certainly looks like it’s on a growth plateau. Japan is as much as example of what not to do as anything else.
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