“You don’t know what you’ve got ‘til it’s gone” sang Joni Mitchell in ‘Big Yellow Taxi’, so does that apply to economic growth, a staple of the 1990s and earlier 2000s, significantly absent from the UK economy in the past 4 years? I will return to Joni in due course (she is a music legend, younger readers).

The CBI tells us that the UK economy will contract by 0.3% in 2012, having undergone three consecutive quarters of shrinkage, one more than is needed for an official recession. The Treasury response to Labour criticism of government economic performance is interesting:

“Growth in the year to date has been disappointing, but despite the difficult current conditions employment is rising, and inflation has halved since its peak last year.”

Now apart from the fact that one would damn well hope that inflation was falling in a recession, this would sound to a proponent of a high economic growth strategy a little like the apocryphal question:

“Apart from that, Mrs Lincoln, how did you enjoy the play?”

The British Chambers of Commerce come in at 0.4% with their shrinkage forecast, recommending cuts in benefits, the state pension and the civil service, and asking for a ”large and well thought-out infrastructure programme”  financed by government borrowing. This is something of a departure for the BCC, not usually renowned for its Rooseveltian characteristics, but here advocating something akin to Franklin Delano’s 1930s New Deal, which dragged the US up by its bootstraps after the Great Depression.

The BCXC also expects that the structural budget deficit will only be eliminated by 2019-20, as opposed to the government’s target date of 2016-17. However, its most innovative suggestion was for the Bank of England to purchase the debts of small businesses, as well as supporting small business borrowing. The Bank of England as debt factor is not a suggestion I have seen before, I must say, but this would certainly be a different way of putting cash into the economy.

The main reason for the recession is a 3.9% slowdown in the construction sector. Despite news of a surprise hike in prices at the luxury end of the market, the housing market in general is still depressed, and government spending on infrastructure and social housing has declined dramatically. And obviously the big Olympic building projects are now complete, which has not helped the sector either. It is for this reason that the BCC is so keen on a large infrastructure programme.

Manufacturing industry is also a problem, with paralysis in the Eurozone a major issue, along with general lack of confidence.

In a recent post I pointed out the alternative model of a zero-growth, sustainable economy, which is an alternative long-term objective put forward by the environmental lobby. So I thought it would be interesting to see what the proponents of the two alternative economic models have to say, by way of considering their respective merits in economic strategy terms.

Proponents of growth – arguments for economic growth

Jonathan Portes, director, National Institute of Economic and Social Research:

“In the long term, we grow because technology gets better and we get better at producing things. In the short term, growth is an indication that the economy is producing as much as it could be and resources are not being needlessly wasted. At the moment we are producing considerably less than we could be because the economy is being mismanaged”.

“Debt matters because it has to be paid. Growth would make it significantly easier to deal with. If we are growing slowly it gets worse and worse”.

So my concern with the fact that successive governments are institutionalising personal debt, by sending more teenagers to university and saddling them with large student loans, is therefore justified on this basis. Add in mortgage and credit card debt and this becomes a massive problem for society.

Professor John Van Reenen, London School of Economics:

“If the economy is growing at less than around 2% a year then unemployment rises because output is just not rising fast enough. With a growing population and rising wages, the economy has to grow to create jobs”.

“When gross domestic product (“GDP”)  grows, the size of the economic pie grows. That allows you to slice the pie to get what you want, be it higher wages, more leisure time  or increased government spending.”

Presumably this need for growth to sustain employment is also partly a factor of technological advance, which will typically reduce the requirement for labour in the production process.

Japan is the classic example of a zero growth economy, having achieved no real growth for almost 20 years; a dramatic contrast to the vibrant Japanese economy of earlier post-war decades. Janathan Portes says Japan finds it difficult to offer young people decent jobs, although he accepts that it is not a broken society, which may of course say more about Japanese social structures that the desirability of zero growth as an economic model in all cultures. It also has a 20% debt to GDP ratio, the highest in the developed world.


Proponent of zero growth – arguments for zero growth

Brian Czech, president of CASSE. The Center (yes I can spell, but it is American) for the Advancement of the Steady State Economy, says that the UK economy has already grown beyond its optimum size, and that further growth would create social and environmental problems that would outweigh its benefits:

“There are too many problems caused by increasing production and consumption of goods and services. Lots of sacrifices come with growing GDP, such as working too long hours, the depersonalising of workplaces and spending on advertising to persuade people to buy more and more junk they don’t need”.

And then of course there are the environmental costs associated with the constant drive for growth, and the consequences of using up more and more scarce resources, to the potential detriment of future generations.

The core of the argument for zero growth, however, is sustainability; the on-going achievement of a level of economic performance that does not threaten the earth’s environmental well-being or the levels of its scarce resources. That does require, however, the earth’s population to accept that certain things that have come to be regarded as necessities might have to be re-categorised as luxuries; I am thinking of air travel, and maybe ultimately even the internal combustion engine. And to accept that certain things may get much more expensive; apart from the above examples, the generation and consumption of energy springs to mind.

When the point is reached at which concern for the future of the planet outweighs concern for an individual way of life, decisions on environmental issues will start to look very different. But in the meantime it is an uphill struggle to argue for a zero growth model, which some might characterise, unfairly in my view, as turkeys voting for Christmas (I would argue that it is actually turkeys voting for the postponement of Christmas). Thus for the time being the drive for growth will continue, but if it continues to stall then serious questions may need to be asked about what are realistic economic objectives for the future.

To come back to Joni Mitchell, as promised, Big Yellow Taxi went on:

“They paved paradise. And put up a parking lot”. Is there a metaphor there about the drive for growth and the impact it has on our world?