"Business growth is not an end in itself"

A refreshing article in the Financial Times by Samuel Brittan reminds us that some celebrated economists envisioned continuing progress as leading not to ever-escalating levels of consumption, but to a society where improving productivity and technology would provide higher quality goods and more leisure. The French hew to that ideal (as Paul Krugman has pointed out, the French prefer to consume more vacation and less housing), although Sarkozy is doing his best to push them in the Anglo-Saxon direction.

Americans have a curious lack of perspective about our attitude towards growth, failing to recognize that our view that it is virtuous, nay, necessary, is a cultural construct rather than an economic precept. And we also place a very high priority on personal rather than collective consumption.

Let me tell a wee story to give a frame of reference. When I lived in Sydney, I chose to attend some community meetings (I couldn’t vote, but wanted to get a sense of how things worked). I lived in what was then the Bligh district, before it was absorbed into Sydney; our little meetings, held in Kings Cross, pulled in people mainly from Potts Point (where I lived), Elizabeth Bay, the Cross, Rushcutters Bay, and to a lesser degree. Woolloomooloo. For non-Aussies, that area is very much like Greenwich Village: formerly bohemian, now gentrified, high literacy rate, and with its own sex district. The turnout at these sessions was impressive, with well over 100 people, sometimes close to 200 in attendance.

At one gathering, the natives complained bitterly about a redevelopment plan that was going to put in new sidewalks, new lighting, change the trees around a bit, and put restrictions on signage. They thought too much was being spent on beautification, and not enough on community services, particularly the library and programs for the aged (mind you, Australia has a higher rate of home ownership than the US).

But what was most intriguing was the discussion of the needle exchange program in the Cross (note that the Cross, which is frankly tame compared to Times Square before it was cleaned up, nevertheless has a fair bit of drug dealing yet is a five to ten minute walk from some very fancy real estate) .

A well dressed woman got up and said the needle exchange program should be in a medical facility (code for NIMBY). A heated debate ensued. Others pointed out that the nearest hospital had wanted to take it on but its parent had refused. One person claimed that that the program drew in addicts from other areas, but someone involved in the program said they had done a survey and over 70% lived nearby (and the others would presumably have come in to score regardless).

When it finally came for a vote, 45% said they wanted to keep the needle exchange where it was.

Now could you ever imagine in America, 45% of a local population voting to keep a social program in place, say a soup kitchen, that would attract undesirables and therefore lower real estate values? Yet a large minority of the Australians accepted that the needle exchange was a good program and the Cross was the logical place to have it, regardless of how it affected them personally.

That is a long winded way of saying some societies do not place as high a priority as ours on maximizing the personal bottom line.

From the Financial Times:

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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  1. minka

    I grok your point about the Australians (Anglo-Saxon no less) but I think you are giving short shrift to the harsh nature of American economic life. If you fall, you’re out. You have to be destitute to get help from the govt which means you and your family lose everything first. That, in turn, makes people nastier and meaner when it comes to protecting things like ‘property values’.

  2. Anonymous

    What religio-capitalism has degenerated into is mindless growth-to-ruin, what I call
    Growthism. More than ever, Balance is needed but remains taboo due to control of society by capital.

    Kent Welton,

  3. CrocodileChuck


    The Needle Exchange is still there. Clover Moore (State Rep. for Bligh)is my ‘back alley neighbor’. Now you know why I live here (born a Yank)


  4. don

    A capitalist economic system is rooted in GOD (grow or die). Its very locomotive, profit, is imperative, and thus to . . . is capital expansion.

    As the BBC ‘Century of Self’ for which you linked to demonstrates, the very survival of capitalism – post WWII – necessitated the production of false needs and the marketing of desire as a means to accommodate excess capacity; the classic dilemma with capitalism: the capital accumulation crisis, and subsequent boom and bust cycles.

    It seems there exists no alternative to capitalism, but perhaps the day will come when that alternative is something for which we have no alternative . . . but to create.

  5. Juan

    Very true Don, and just as truly lost within beliefs and theories which imagine the capital system’s primary imperative to be the satisfaction of needs, which are in fact secondary to profit and further accumulation of capital. This system’s social relations have been so internalized and reinforced that we fail to see it as a self-alienating process, or, as Bertell Ollman put it:

    For it to function, this mode of production requires a range of conditions, institutions and behavior in every area of social life that facilitates, stabilizes and promotes these processes [of commodification and accumulation]. Similarly, these developments in the economy and throughout the rest of society give rise to and require a set of beliefs and a way of thinking that make the production of commodities, the accumulation of capital, and the sale of labor power both possible and necessary.

    For example, people cannot give up what they produce unless they consider that its relation to them is contingent, that it is not an essential part of their identity. However, seeing their product acquire forms independent of them and taking on roles over which they have no control reproduces in them just this belief. Likewise, people would not offer to buy the products of human labor with money unless they saw at least a formal equality between all such goods; but it is the fact that these goods do exchange for money that reproduces in them the idea that there is such a formal equality. Also, capital could not produce a profit unless the people it employed accepted that capital has a right to a profit, but it is just its extraction of a profit, in the form of surplus value, that gives rise to such a belief. And there are many other examples. So much applies throughout the entire capitalist era.

  6. Kien

    Perhaps the problem has to do with measurement, or rather, lack thereof. It’s easy to measure consumption of goods or services (since this usually takes place through a transaction) but not leisure. Since leisure is not captured in GDP, it is easy for opinion leaders to underestimate its value.

    The bias in favour of measurable consumption can be illustrated at an individual level. For example, I readily assume that a lavish $100 dinner delivers at least $100 of value (if not more) to the diner. On the other hand, if I go for a walk in the park (assuming entry is free), I’m less sure what the value of that activity is.

    If I laze around in bed for another hour in the morning before getting up, is that (productive) leisure or simply (unproductive) laziness? If this takes place at a wonderful beach resort, I’m more inclined to think of it as productive leisure.

    Since consumption (of the measurable variety) itself is often pathological, the bias in favour of measurable consumption becomes even more problematic.

    Perhaps governments can try to correct the bias by attempting to measure leisure and report two GDP results – “narrow GDP” (limited to transaction based activities) and “broad GDP” (include non-transaction based activities).

    Anyway, I congratulate Samuel Brittan and Yves Smith for reminding us to think carefully about what worthwhile lives really mean. (Or at least not assume that an abundant life means abundance in material possessions.)

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