Business growth is not an end in itself

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The beginning of a new year should be a good time for business leaders to reflect on how they are seen by the educated but non-specialist public, for instance the arts community. A typical talk on BBC’s Radio Three might start by bemoaning the consumer society, with its passion for shopping and the rush to make pointless purchases. It might then bemoan the nervous strain in the quest for economic growth and the lack of time or energy for more worthwhile activities.

But then comes a more interesting twist. All this frenzy of pointless activity is required, it is said, to keep the economy going. Without it, the implication is, production would dry up and jobs disappear, and we would wallow in semi-permanent depression.

The contention is that the economy would collapse if we ceased to demand more and more, a belief sometimes called the saturation bogey. Many practical businessmen, who have no time or inclination for political economy, suppose that we must go on churning out more and more to survive, whether or not we enjoy the process. The US president Calvin Coolidge remarked in 1926: “The chief business of the American people is business.”UK politicians used to ask what would happen when every family in the country had two cars.

The clue to the whole matter is provided, as so often, by a dictum from Adam Smith: “Consumption is the sole end and purpose of production; and the interests of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.” To demonstrate the falsity of the belief that we must continue to feed the productive machine with ever more ridiculous demands, let me indulge in a brief thought experiment.

Let us take a medium-sized, western economy with no major population change and negligible net migration or other problems. What might then happen if a majority of people were to turn their backs on further improvements in their real spending? The basic answer is that, in this no-growth new world, people could enjoy the fruits of technological progress with a mixture of increased leisure and a more congenial and relaxed working life. The reduction in labour input would be voluntary and completely different from what happens in an economic slump.

Some political economists have looked forward to this state of affairs. John Stuart Mill regarded what he called the “stationary state” as a delight rather than a disaster. He could not believe that the perpetual struggle to get on and elbow other people out of the way was other than a temporary phase in humanity’s progress. Keynes also looked forward to such a world (in his essay “Economic Possibilities for our Grandchildren”) when “we shall honour the delightful people who are capable of taking direct enjoyment in things: the lilies of the field who toil not, neither do they spin.” He allowed for the persistence of a minority of people who would feel satisfaction only if their behaviour made them feel superior to their fellows, “but the rest of us would no longer feel under any obligation to applaud”.

There is another view, stated most eloquently by Joseph Schumpeter. As he put it: “Capitalism is by nature a form or method of economic change and not only never is, but never can be, stationary.”

Let us concede at once that the resulting system would not look much like capitalism as we know it. But even in such a society there would be great advantages in retaining competitive markets based on private ownership. Those who have now, belatedly, discovered Schumpeter and quote him out of context do not realise that, writing in the 1940s, he expected entrepreneurial capitalism to have died out long ago and be replaced by some variant of state socialism. He failed to see how unworkable the latter would be. Like many other seers he was an excellent analyst, but a poor prophet.

As soon as we add more realistic conditions, the saturation bogey becomes more and more remote. Even if demand for conventional consumer goods were to peak, there might still be demand for more public services and more expenditure to relieve poverty at home and abroad. Most western countries are likely to see net immigration for the foreseeable future, which would bring with it opportunities for new investment without any need for whipping up artificial needs and anxieties. This is not to speak of devoting a margin of extra production to dealing with environmental threats, whether or not of a global warming variety.

Above all – and this is what may unite the different visions – a postmodern economy will still need (that much over-used word) flexibility. It must be ready to switch resources to meet terrorist threats, outside aggression or all manner of dangers not as yet foreseen. Economic growth need not just consist of trinkets or lavish parties for billionaires.

The present danger for policymakers and opinion leaders is to confuse a straightforward economic slowdown with the saturation of wants. An economic slowdown, this year or next, would be due to now well-ventilated fears: of consumers and governments getting further into debt, and of credit risk by financial institutions. It would have almost nothing to do with a retreat from the consumer society. But it is worth examining what the latter would be like, if only to avoid misdiagnoses of our present situation.

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