Golden Growth: For Whom?


Friday Feb. 24, Indermit Gill and Martin Raiser (both World Bank) gave a fascinating seminar on “Golden Growth: Restoring the Lustre of the European Economic Model”, World Bank 2012 (http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/ECAEXT/0,,contentMDK:23074045~pagePK:146736~piPK:146830~theSitePK:258599,00.html). It was fascinating for several reasons: One, they talk about a wide Europe,stretching from the Atlantic as far east as Georgia, in a unified sense, without disregarding inter-regional differences. Two, they see the European model as something positive, something to be preserved – quite unusual. Three, they use ingeneous and innovative methods of analysis and presentation, among them noticeably a graphic representation of Europe as the crown of a tree, from whose 6 roots the authors’ units of analysis flow: trade, finance – graded “excellent”, enterprise, innovation – graded “good”, and labor and government – graded “satisfactory”. They group these six drivers (two each) under three catchy slogans: “convergence machine” (trade and finance), “Europe – Global Brand” (enterprise and innovation), and “Europe – Lifestyle Superpower” (labor and government).

They analyze an incredible wealth of data and come to the conclusion that the “convergence machine”, integration has been an unmitigated success, even though real-secgtor integration lags financial integration; that productivity is high, but lags behind those of other global regions, mainly for lack of innovative enterprises (“yollies”) and weaknesses in Europe’s South, but still Europe trading more than ½ of the world’s commodities, and that Europe’s very high lifestyle is threatened because of immobile and early retiring labor and too large government, mainly for social protection (unemployment, pensions, family, disability benefits) expenditures, less for health and education.

So far so good. The recipes of the authors are clear-cut and not unexpected: make labor more mobile, let them work longer and cut social protection expenditures. So far, so disappointing. I would like to make very few points of criticism. I have not been able to read the whole study, I must rely on their presentation and their slides.

Gill/Raiser (GR) treat their 3 interesting categories on the same level, but: only “Lifestyle Superpower”, creating and maintaining the conditions for a “good life” for citizens, is an objective. Integration and global market penetration, the other two, are instruments to achieve the former. Thus they need to be treated differently.

But the major conceptual flaw seems to be to equate “golden growth” with “good life”. Europe, even with its poorer Eastern and Slouthern members, is one of the richest region in the world – as the authors show and say, a “Lifestyle Superpower”. Average per capita income of the 42 countries they consider Europe must be around 25.000 $. So do we really – as one unit – need even more economic growth? Of course, we need to bring our poorer Europeans closer to our Western levels of wellbeing, both poorer countries and poor citizens in rich countries. But Europe as whole does not need growth. We know from an increasing number of studies, that roughly around 25.000 $ p.c. income the social and environmental costs of growth begin to outweigh its benefits. The environmental segment has been discussed internationally at length climate change, environmental degradation, loss of species diversity, etc. are well known. But there is plenty of evidence that “growth as we know it”, as it has been practiced during the past 2 centuries, accumulates high costs when income distributions grow apart and large pockets of poverty appear, when stress-related diseases increase,  mental health problems and increasing drug use arise, violence and gangs abound, prison population increases –and societies become dysfunctional. None of these “costs of growth”, apart from an optimistic chapter on the “greening of growth” appear in this book. It celebrates growth for growth’s sake.

To me the book poses the wrong question. The policy question for Europe to be asked should be: given our demographic trends (which will lead to a loss of 1 million workers per year), how can we maintain our well-being, how can we bring the poorer segments of society towards a better life without further destroying our environment and disintegrating our societies.

Of course, it is true that Europeans are less mobile. But is that only bad? Staying where they are enables more cohesive communities, with less crime, violence, drug use, etc. It enables people to spend more time with their neighbours and friends, to spend less time commuting, to consume more non-material goods than intermediate material goods. I am certainly not calling for a new Biedermeier,a new idealized Spitzweg small-town society to be created, but rather to a weighing of the total costs and benefits of lifestyles conditioned by even higher per-capita incomes. We need policies which make income distributions narrower, which do not promote or allow high salaries (and bonuses) to reach obscene heights while the majority of incomes stagnates. We need a slowing of our frenetic lifestyles, in order to maintain mental and physical health – and not new medication that deals with the after-effects of the lifestyles we have now.

Gill and Raiser have produced a truly interesting book with lots of data, and much very interesting analysis. It deserves many readers. But it asks the wrong questions, idolizes economic growth and thus – in spite of its challenging and positive starting point – comes up with the same old answers: more labor mobility, more work and a smaller state. Too bad!

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Filed under European Union, Global Governance, Life, Socio-Economic Development

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