The Growth Illusion: How Economic Growth Has Enriched the Few, Impoverished the Many and Endangered the Planet

by Richard Douthwaite

Overview

The idea that growth is beneficial underlies the economic strategies of all major political parties, but the reality of recent years is that the negative effects of growth have far outweighed any positive ones. In Ireland, growth has been the root cause of unemployment; in Britain it has led to an eightfold increase in crime, the breakdown of family life, and a deterioration in general levels of health and education; in the United States real incomes have fallen; in India people have been driven from the land into urban slums; and the natural world suffers increasing threat and inexorable erosion. The Growth Illusion exposes the real nature of undirected economic growth, and refutes Adam Smith’s belief in the “invisible hand” ensuring that self-interest would serve the common good. Rather than strive for constant expansion to stave off collapse, nations must learn to build stable economies. This new edition is updated with an analysis of recent developments in the UK and elsewhere.

Product Details

ISBN-13:	9781907448430
Publisher:	UIT Cambridge
Publication date:	10/01/1999
Sold by:	Barnes & Noble
Format:	eBook
Pages:	382
File size:	2 MB

About the Author

Richard Douthwaite is an economist and writer with a special interest in climate and energy issues and in local economic development. He is a cofounder of the Dublin-based international network Feasta, the Foundation for the Economics of Sustainability. His current projects include the design and introduction of novel financing arrangements for community energy projects and the management of the Carbon Cycles and Sinks Network which explores ways in which land-based greenhouse gas emissions can be reduced.

Read an Excerpt

The Growth Illu$ion

How Economic Growth has Enriched the Few, Impoverished the Many, and Endangered the Planet

---

By Richard Douthwaite

Green Books Ltd

Copyright © 2010 Richard Douthwaite
All rights reserved.
ISBN: 978-1-907448-43-0

---

CHAPTER 1

Quality or Quantity?

* * *

With the Dole plan for economic growth, our economy will achieve its full potential with 3.5 per cent — or higher — growth per year, putting our country back on the right track and giving every American family the chance to achieve the American Dream. — Bob Dole, the Republican candidate for the presidency of the United States in 1996, in the course of his election campaign

Our shared ambition is to make Ireland one of the most dynamic countries in the world with a quality of life which is second to none. ... The key to further growth and stability is continued partnership and mutual self-restraint. For every year that high growth continues, we can put more people to work, cut taxes and provide money for improved infrastructure and social services. — Bertie Ahem, the Irish Prime Minister, in his address to the Fianna Fáil party conference, November 1998

At the time the first edition of this book appeared, one would frequently hear politicians talk about raising the standard of living through sustainable economic growth, a formulation that almost everybody was happy to treat as just another meaningless platitude. Nobody, after all, would have expected them to promise to cut standards of living or to claim that the economic growth they were proposing to bring about would last a few years and then disappear, leaving us in a worse mess than before. Today, however, as I said in the Introduction, confident statements linking economic growth with improvements in the quality of life are comparatively rare, although the quotations above show that specimens can still be found. Quite obviously, Mr. Ahern does not see a conflict arising between a high level of dynamism and a high quality of life, and between further growth and stability, which makes him exceptional for a man of his age. Mr. Dole can be excused, though. He is older and his opinions are those of the period in which he was a young adult.

Despite the change in the past decade, many political statements on growth still exploit a confusion most of us share about the link between "the standard of living" and another phrase, "the quality of life." On the face of it these two expressions seem to mean exactly the same. In fact they do not. "Standard of living" is a technical term that means "the per capita rate of consumption of purchased goods and services," which in turn, given our economic system, inescapably means "the rate at which we will use up the earth's limited resources." But spelling things out in this way would make the politicians' proposals sound so profligate that it is never, ever done.

And what does "quality of life" mean? In the early 1970s researchers from the British Social Science Research Council (SSRC) asked carefully selected samples of 1,500 people exactly that question three times in the space of five years. "There has been a lot of discussion about the quality of life recently," they said to their interviewees each time. "What do you think are the important things which go to make it up?" The answers they got were fascinating. In a society that was regularly condemned for its materialism, non-material factors such as a good home life and a contented outlook were rated as important by more people than were such things as the quantity of consumer goods they had. Of the replies that can be put into one category or the other, 71 per cent were about things that have little or nothing to do with cash. The results of the most recent survey, that of 1975, are set out below. Because the respondents could give more than one answer if they wished, the total does not add up to 100 per cent.

The most interesting thing about these results is not that people said that consumption was only one factor in determining the quality of their lives, but that anybody should be surprised that they did so. At the beginning of the twentieth century a survey that produced such results would have seemed quite banal. In those days even economists accepted that economic factors were only one element in determining what they called "happiness" or "satisfaction." Later, wanting to make economics seem more scientific, the profession began to talk about "welfare" instead (a term introduced by a Cambridge University professor, Arthur Pigou, who used it in 1920 in the title of his book, The Economics of Welfare). Eighty years later, after doing little else but considering ways of improving welfare by increasing consumption, most economists find the interviewees' commonsense views somewhat shocking.

The roots of their surprise feed on Pigou's book. Whereas Jeremy Bentham, the social philosopher best known for a phrase he borrowed, "the greatest happiness of the greatest number," held that the welfare of society was the sum of all the satisfactions of all the individuals in that society, Pigou ignored those satisfactions that could not be measured in cash terms and confined his analysis to what he called "economic welfare." This he defined as "that part of social welfare that can be brought directly or indirectly into relation with the measuring rod of money." For Pigou, the amount of economic welfare was proportional to the size of the national income, although he put in the important condition that everything else had to remain the same, particularly the way in which national income was distributed. "Provided the dividend [his term for income] accruing to the poor is not diminished, increases in the size of the aggregate national dividend, if they occur in isolation without anything else whatever happening, must involve increases in economic welfare."

Pigou's careful caveats have, of course, been forgotten. Unless they make a conscious effort to do so, most people, like most economists, no longer recall that economic welfare is merely a part of total welfare and that we can only say unequivocally that a rise in national income has improved the national welfare if no one has been made worse off — even in comparison with their fellow citizens — and if the natural world and human society have not suffered. For almost all of us, a rise in national income means a rise in national welfare, full stop, and, as a result, the terms "standard of living" and "quality of life" are bound to be confused. Even when I was halfway through writing the first edition of this book and — on an intellectual level — certainly knew better, I found I had to make a deliberate effort to stop using the phrases interchangeably in conversation. So effective has our indoctrination been that it is hard to accept the notion that a higher standard of living might, in some circumstances, be a bad thing. With this in mind, I use "a higher level of production and consumption" rather than "a higher standard of living" wherever possible for the rest of this book.

If we think in terms of the factors identified by the SSRC surveys, it is easy to envisage circumstances in which a rise in the volume of production (in other words, economic growth) could diminish national welfare (in other words, the quality of life). For example, higher rates of production at work could affect relationships at home and cause far more unhappiness than could ever be cured by higher wages. The extra production could also increase pollution and cause sickness and misery for thousands of people who could never be compensated adequately from the proceeds of the additional output, even if a way could be found to do so. And just because a country is producing more goods does not necessarily mean that its people get to enjoy them. The new production (and an increased share of the old) might be exported to pay off financiers overseas or be used for investment in new factories and roads, things that bring scarcely anyone any pleasure.

With examples like these in mind, a Dutch economist, Roefie Hueting, has argued since the late 1960s that people in developed countries might be better off if they produced less. Hueting thinks that at least seven factors play a role in determining the quality of life, only the first of which is equivalent to Pigou's "economic welfare." These are:

1. The quantity of goods and services produced and consumed.

2. The quality of the environment people enjoy, including space, energy, natural resources and plant and animal species.

3. The fraction of their time available for leisure.

4. How fairly — or unfairly — the available income is distributed.

5. How good or bad working conditions are.

6. How easy it is to get a job. "Supporting oneself by one's own work is one of the essential aspects of existence and the absence of a possibility of doing so means in all probability a considerable loss of welfare."

7. The safety of our future. "Man derives part of the meaning of existence from the company of others. These include in any case his children and grandchildren. The prospect of a safer future is therefore a normal human need and the dimming of this prospect has a negative effect on welfare."

If we add to Hueting's list the additional factors suggested by the SSRC survey, we come up with at least twelve things that have a claim to be considered in any computation of whether people are better off because of economic growth or indeed any other changes in society. These additional factors might be summarized as:

8. How healthy we are.

9. The level of cultural activity, the standard of education and the ease of access to it.

10. The quality of the housing available.

11. The chance to develop a satisfactory religious or spiritual life.

12. The strength of one's family, home and community ties.

The immediate thing to notice about all twelve factors is that, with the exception of factor 1, they cannot be measured in cash terms. Indeed some of them cannot be measured scientifically at all. This has meant that they have been ignored by economists, who, in their efforts to turn their subject into a scientific discipline, have preferred to have nothing to do with those areas of life that might involve them in making "value judgements."

As a result, the profession has done almost no research on the overall effects of economic growth on non-monetary aspects of human welfare. Of the handful of recent studies it has produced, Life During Growth (1997) is perhaps the most important, not least because the author, William Easterly, is a senioreconomist at the World Bank. Easterly set out to investigate whether "life improves when a poor Togo becomes a richer Togo" by looking at how ninety-five indicators of human well-being in a wide range of countries had been affected by increases in national income over the past thirty to forty years. He found, much to his surprise, that only five indicators could be shown to have been improved by growth. The improvements were higher protein and calorie intakes, more telephones, more commercial vehicles (some of his measures of human welfare are rather odd) and governments that broke contracts less often. "The evidence that life gets better during growth is surprisingly uneven," he concludes grudgingly.

Work by researchers from other disciplines has shown that very few people feel that growth has improved the quality of their lives. Indeed the SSRC survey showed that people in Britain believed that their quality of life was declining. Interviewees were asked how their level of consumption had changed over the previous five years, and almost unanimously they said that it had gone up and they expected it to continue to do so in the next five years. Yet when they were asked to rate the quality of life at the time of the survey on a scale from 0 to 10 and to say what they thought it had been five years previously and what it would be in five years' time, their verdict was almost unanimous: the quality of life was going down. Britain, they said, rated 8 five years earlier, was 7.2 at that time (in 1975) and would be 6 by 1980 if things carried on as they were.

The SSRC research program was axed in 1976 in an effort to save £100,000. In 1977, however, two researchers in Dublin, Earl Davis and Margret Fine-Davis, got funds from the European Commission to ask 2,000 people in each of eight European Union (EU) countries (Britain, France, Germany, Italy, Ireland, Denmark, Belgium and the Netherlands) a barrage of questions about their lives. Perhaps the key question they asked was, "Taking everything into account, how satisfied are you with your life in general?" From the piles of answers they found that the best predictor of whether people would say they were content was whether or not they were happy with their health. They also found that there was a close correlation between the way people felt about their health and their actual health as determined by a doctor. Other factors had a bearing on life satisfaction too, of course. There were statistically significant links between how people felt about their housing and the neighbourhood in which they lived. Married people tended to be more satisfied than those who were single, widowed or divorced. But, surprisingly, income did not matter, at least not in France, the Netherlands and Britain, and it was only the seventh or eighth most important predictor in Italy, Ireland and Denmark. Only in Germany, where it was number three, and Belgium, number four, did it seem to have any direct bearing on how people felt about their lives.

Other surveys of whether people are feeling content or not have also failed to show any strong link between the level of contentment they reveal and rises in per capita national income in the country concerned. The Economist commented recently:

Up to now, studies have tended to find that the strongest influence on happiness is employment: people with jobs are very much happier than the unemployed. Low inflation also makes people happier. Income promotes happiness a bit, but the effect tends to be small and insignificant. In many countries incomes have risen sharply in recent years. This has not increased happiness overall: national surveys of "subjective well-being" have stayed flat. Within countries, comparing people across the income distribution, richer does mean happier, but the effect is not large.

The findings of well over a thousand "life-satisfaction" studies have also been summarized by Professor Ruut Veenhoven of Erasmus University, Rotterdam, in his World Database of Happiness. As a result, Veenhoven believes that the planned promotion of the general public happiness would be possible in principle. Despite this, governments have, until very recently, used the rate of growth rather than their citizens' happiness as their sole guide to how well, or badly, they were doing, even though respected economists have been pointing out for years that growth rates are a very poor guide to almost anything at all. Growth only measures changes in "gross national product" (GNP) — the total sale value of all the traded goods and services produced in a country during a year — and this is a very odd animal indeed. For example, since GNP only includes the value of things that are bought and sold, the vast array of activities outside the monetarized part of the economy is ignored entirely. The preparation value of meals eaten at home is excluded, while meals eaten at a restaurant are put in; do- it-yourself repairs to the car are out, garage repairs in; caring for Granny at home is out, nursing-home care is in.

In fact the more self-sufficient people are, the lower their GNP will appear to be at a given level of consumption. Before the boom in the late 1990s, British visitors to rural Ireland were often amazed at how well-off the locals seemed in spite of the lower wages, higher taxes and higher shop prices that applied at the time. The mystery was explained by the fact that many of the sparkling new bungalows had been built on family land by the owners and their friends; only the materials and specialist jobs cost money. Many of these people cut their own fuel and grew their own vegetables too, but the value of these and of the house construction was, quite properly, left off their income tax returns. Naturally the Irish national income statisticians adjusted their data in an attempt to correct for these non-monetary activities, but not by nearly enough, particularly as they had an extensive black economy to allow for as well. Michael Heaney, a community development worker on the Inishowen peninsula in Co. Donegal, told me in 1988 that official visitors were always surprised by how prosperous his area seemed. "If you just look at the figures in Dublin or Brussels you would certainly write Inishowen off as a hopeless case," he said. "We have 50 per cent unemployment, a high dependency ratio and a very peripheral location. But it's not like that at all. A fair bit of the income isn't declared. If you are a farmer and do a bit of fishing on the side you can make quite a good living."

(Continues...)

---

Excerpted from The Growth Illu$ion by Richard Douthwaite. Copyright © 2010 Richard Douthwaite. Excerpted by permission of Green Books Ltd.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

---

Table of Contents

Contents

Graphs and Illustrations,
Acknowledgments,
Foreword by David C. Korten,
Introduction,
1 Quality or Quantity?,
2 Why Capitalism Needs Growth,
3 Ill Fares the Land,
4 The Benefits of War and Depression,
5 Mrs Thatcher and the Struggle Against Inflation,
6 Ned Ludd Was Right,
7 Growth and the National Health,
8 How Growth Damaged Family and Community Life,
9 What Has All the Growth Done?,
10 Growth Must Have a Stop,
11 Growth in the Greenhouse,
12 The Dutch Dilemma,
13 The Mahatma's Message,
14 De Valera's Dream,
15 The Myth of Sustainable Growth,
16 Guiding the Invisible Hand,
Epilogue,
Notes,
Bibliography,
Index,