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Just Say No to Slow Growthers

Why we should demand more from our economy, and government, not less.

Jim Stanford 28 Jul 2016TheTyee.ca

Jim Stanford is Harold Innis Industry Professor of Economics, McMaster University and economic advisor to Unifor. This piece is drawn from a version that originally ran in The Monitor, a publication of the Canadian Centre for Policy Alternatives.

The global economy cannot seem to regain any sustained momentum, even eight years after the financial crisis and worldwide recession that broke out in 2008.

Much of the blame for this year’s expected $30-billion federal deficit, for example, is due to the fact that, in the wake of last year’s recession, Canadian economic growth is so much weaker than predicted in previous forecasts. This in turn is invoked to justify a ratcheting down of expectations regarding job prospects, incomes, and public services.

Is slow growth, then, the new norm, as many economists argue, citing a range of supposedly rational causes including slower population growth, sluggish productivity, weak investor confidence, etc.?

Even some progressives seem to accept that slow growth is inevitable. Some with an environmentalist perspective may actually welcome it, since they associate economic growth with ecological destruction, and hence less growth must mean less destruction.

I believe that progressives could provide a relevant and effective alternative to the divisive and dangerous backlash against prolonged stagnation that we are seeing with the Brexit and Trump phenomena.

I disagree on all counts. I do not think that slow growth is natural, inevitable or desirable.

I do not think that stagnation and recession will fix environmental problems; more likely, they will make things worse.

I think we should expect, and indeed demand, more from our economy, from employers and from government – not less.

By advancing and winning concrete demands for more incomes, more services and more sustainability we can simultaneously fix the stagnation, unemployment and underemployment that are damaging communities across the country.

Growth: a definition

Part of the issue here is understanding what we mean by growth; what is it, and where does it come from? In my book, Economics for Everyone (a second edition was recently co-published by the CCPA), I actually try to dispense with the term “growth.” I prefer to discuss “work.” Because it is ultimately productive human activity (a.k.a. work, in all its varied forms) that determines the quantity and quality of the goods and services we collectively produce.

Conventionally, economic growth refers to an expansion in the value of real (or inflation-adjusted) GDP. In terms of its impact on the labour market, real GDP needs to grow by two per cent per year or more just to keep up with normal population and productivity growth. Any slower than that, and unemployment will grow, whether reflected explicitly in official data or unofficially in underemployment, precarious work and non-participation.

In terms of its impact on living standards, the effects of growth depend totally on how new GDP is produced and what it is used for. If higher GDP is associated with higher profit margins, which in turn are accumulated in undistributed corporate cash hoards or paid out in fat dividends to well-off investors, then growth may accomplish nothing. And if higher GDP is generated through extensive resource exploitation, sucking more value out of a non-renewable resource base and ignoring the need for conservation and amelioration, then it will certainly be associated with continued environmental degradation.

On the other hand, there are many other ways in which an economy can “grow,” and a country’s real GDP increase.

It could happen, for example, through a major expansion in human services delivery (e.g., child care, elder care, education and culture). Proper programs in these areas would create hundreds of thousands of new jobs, tens of billions of dollars in new incomes, and many billions in revenues for government – not to mention delivering services that are valuable and life-enhancing in their own regard. GDP might also grow because of huge investments in public capital and physical infrastructure – things like utilities, affordable housing, education and cultural facilities, and parks.

Properly managed, these types of growth are largely benign in their environmental impact. Even better, real GDP could also be increased through environmental enhancements such as energy-saving building retrofits, renewable energy supplies, cleaning up pollution and creating or expanding public transit. These activities generate “value-added,” employment, incomes and taxes as surely as any bitumen mine or smoke-belching factory would, yet they leave the environment in better shape, not worse.

There is no shortage of work to do in our society, a lot of it related to caring for each other and the environment. And there is no shortage of people who want – and need – to perform that work; people who are hungry for decent jobs and the economic security, self-worth and social connection that good work brings. So let’s imagine an ambitious economic recovery plan predicated simply on matching unmet needs with our capacity to work and produce. If we do that, the economy (measured by real GDP) will “grow,” but growth will be a side effect, not the motive, for the work we are doing.

Preserving jobs and nature

Ultimately, there are only two constraints stopping us from achieving that better future. One is the natural environment: we need access to natural resources as inputs for all the work we do, and we need a sustainable, healthy environment in which to live and work. So our economic recovery plan has to value the environment and its resources, and regulate both production and consumption decisions to reflect and preserve environmental wealth.

The other constraint is our willingness and availability to work. We are more educated and productive than ever before. But counting underemployment and hidden unemployment, there are at least 2.5 million people unemployed in Canada today. Giving them productive, useful jobs would power a 15 per cent increase in total employment, generate around $300 billion per year in extra value-added, and add around $100 billion per year to government revenues. We are miles away from a situation where our capacity to produce is truly constrained by a shortage of labour.

Our response to the resulting hardships and outrages should not be to reify “growth” or seek expansion for its own sake. Instead, we should simply demand our right to work for the things we need in life: the goods and services we need to consume, the services and facilities we need in our communities and public spaces, and the sustainability we need in our environment.

Government as economic engine

There is an apt historical precedent for the type of recovery plan I am imagining. The last time the whole world was engulfed by a breakdown of speculative finance, the global economy limped through what would have felt like an endless decade of painful recession. That was, of course, the 1929 stock market crash and subsequent Great Depression. Conventional policy responses repeatedly failed to rekindle economic momentum. A decade of hopelessness and hardship produced political polarization, intolerance, and ultimately war. (This is already sounding frighteningly familiar to anyone who has been following the U.S. primaries.)

Ironically, but tragically for the millions of soldiers and civilians killed, the outbreak of world war actually led to an improvement in incomes, living conditions and health for average people back on the western home front. How?

Government sidestepped the normal logic of economic decision-making under capitalism: namely, that something should be done only if it is profitable for a private company to do it. Instead, things were being done because they were considered to be essential. The overarching importance of defeating fascism created a political consensus that all possible resources had to be directed to the war effort. Need, not profit, guided production decisions. (Of course, the Second World War was profitable for many private businesses – in both the fighting and the subsequent reconstruction – but that is not ultimately why that war was fought.)

Government planners threw every resource available at the war effort. Unemployment disappeared within months. New sources of labour supply were identified and mobilized – women in particular, whose formal paid work now supplemented the unpaid work they were doing at home. Despite the taxes and rationing associated with the wartime economy, incomes grew, nutrition improved and life expectancy (again, for non-combatants) grew.

Money was never a constraint on what could be done. Innovative financing methods were developed to pay the bills. The only factor limiting production was the availability of labour. Far-reaching economic planning and regulations (encouraged by feisty trade unionists, women, workers of colour, and other traditionally exploited groups) helped to distribute incomes fairly, and to allocate both scarce resources and consumer goods.

Money is no constraint on what our economy could accomplish today, either. We have learned, in recent years, that private financial institutions create unconstrained amounts of credit money out of thin air, whenever it suits their profit-driven lending business to do so. Under quantitative easing, it was proven once and for all that public credit institutions can do the same thing. (As yet, that public credit-creating power has not been applied in truly democratic or productive ways, probably for fear of offending traditional sensibilities about private property rights and “hard budget constraints”.)

Reject the pessimists

New talk of “helicopter money” strategies (whereby a central bank would create new credit and directly inject it into the real economy, to support investment, government programs, or consumption) confirms that if we collectively decide we need it, and enforce our will on our political and monetary leaders, we could create all the money needed to finance real, productive work. So long as millions are languishing without a job, there does not appear to be a good argument against doing so. To the contrary, if it helps us put an end to pollution (including greenhouse gases) and poverty, an all-out war-like mobilization seems like a no-brainer. Living standards would grow, taxes would be paid, the environment would be protected, and real GDP would grow rapidly, though that’s not the point.

Of course, there are many problems and challenges associated with an all-out economic mobilization of the sort associated with World War II.  But the basic point that every economic resource, and every willing worker, can be put to work when society decided it is important enough to do so, is valid in every economic context. 

And short of a desperate national effort like the war, there are many incremental ways in which economic policy could be reformed to prioritize job creation and the mobilization of idle resources, thus giving unemployed and underemployed Canadians the opportunity to work and produce to their fullest possible extent. Many of them can be found in the Alternative Federal Budget.

All of these measures are motivated by our common goals of creating jobs, fostering work, generating incomes, and wisely using the wealth that we subsequently produce to improve human and environmental well-being.

In sum, demanding our right to work, to produce valuable goods and services, to generate incomes and pay our taxes, fundamentally challenges the failures of the current economy – and the current economic decision-making process – to mobilize resources and meet our human and environmental needs.

The prevailing pessimism of existing economic forecasts can and should be rejected.

We don’t need to accept a world in which unemployment, underemployment and stagnation are the norm. They certainly are not inevitable. And we can expect more from our economy, and the elites who are running it.  [Tyee]

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