In an iconic moment, back in 2008, Queen Elizabeth 2nd visited the London School of Economics and asked the assembled economists why no one had seen the financial crisis coming. Taken somewhat by surprise, the economists solemnly went away and considered the matter. Some months later they put their names to a carefully written three-page letter to her. ‘In summary, Your Majesty,’ they concluded solemnly, ‘the failure to foresee the timing, extent and severity of the crisis… was principally a failure of the collective imagination of many bright people… to understand the risks to the system as a whole.’
It was a parsimonious, almost humble letter. But it was also misleading. Of course, there was (and is) a collective failure of the economic imagination. But that doesn’t really answer the question. How did this oversight happen? Why didn’t economists understand system risk? And why on earth would we leave it to ‘collective imagination’ to protect ourselves from financial disaster? Could it be, perhaps, that we had nothing left to imagine with once we’d sacrificed everything to the god of economic growth?
Economic growth is not synonymous with rising prosperity
Here’s the truth of it. An economy reliant for its stability on the endless stimulation of consumer demand resorts inevitably to monetary expansion to keep growth going. The burgeoning of credit creates fragile balance sheets. Complex financial instruments are used to disguise unsavoury debts. All of this is sanctioned at the highest level by governments and their regulators in the name of growth. But when the debts become toxic, the system crashes. The truth, Your Majesty, the economists should have said, is that growth was undone by growth itself.
One of the most striking aspects of the Brexit vote in my country was the profound disregard for economic growth displayed by the Brexiteers. People didn’t much care about the economic risk – even when Barack Obama or Christine Lagarde or Mark Carney warned us of it. This tainted economy and its fickle ambassadors clearly weren’t to be trusted. But there was also something more at stake. Economic growth is not synonymous with rising prosperity.
Prosperity itself transcends material concerns. It isn’t just about earning more and having more. It has vital social and psychological dimensions. To do well is in part about our ability to give and receive love, to enjoy the respect of our peers, to contribute useful work, to feel secure, to have a sense of belonging and trust in our community. All the things, in short, that had gone missing for ordinary people over recent decades.
Work and labour productivity
Let’s just take one of those factors. Work is more than just the means to a livelihood. It’s a vital ingredient in our connection to each other – part of the ‘glue’ of society. Good work offers respect, motivation, fulfilment, participation in the life of the community, a sense of meaning and purpose in life. In principle.
In practice, of course, it’s different. Too many people are trapped in low-quality jobs with insecure wages. Two thirds of European countries now have youth unemployment rates higher than 20 percent. In Greece and Spain, youth unemployment is over 50 percent. This enormous waste of human energy and talent is a recipe for civil and social unrest. It undermines the creativity of the work force and threatens social stability. The long-term implications are nothing short of disastrous.
The heart of the problem is that conventional economics sees work as a sacrifice of our time, leisure and comfort; and wages purely as a ‘compensation’ for that sacrifice. As Fritz Schumacher pointed out, ‘the ideal from the point of view of the employer is to have output without employees, and the ideal from the point of view of the employee is to have income without employment’.
This perverse dynamic is cashed out through the pursuit of labour productivity: a relentless increase in the output delivered in each hour of our working time. Rising productivity is viewed as the engine of progress. But it also imposes a penalty on us. If our economies fail to expand, unemployment rises and welfare costs increase. Higher welfare costs lead to unwieldy levels of government debt. More sovereign debt limits public spending, depressing demand yet again. In other words, the dynamic of rising labour productivity is a harsh and unforgiving mistress.
The ‘productivity trap’
The default wisdom is to get growth back as fast as possible. But there are other more interesting ways out of this ‘productivity trap’. One of them is to question our obsession with ‘productivity’. It’s true, of course, that our ability to generate more output with fewer people has lifted our lives out of drudgery. Who nowadays would prefer to keep their accounts in longhand, wash hotel sheets by hand, or mix concrete with a spade?
But there are places where chasing labour productivity growth makes much less sense. The care and concern of one human being for another, for instance, is a peculiar ‘commodity’. Persuading people to do it faster is counter-productive. Its quality rests in the time and attention we offer each other. But compassion fatigue is a rising scourge in a health sector hounded by meaningless productivity targets.
Think too, of craft. It’s the accuracy and detail inherent in crafted goods that endows them with lasting value. It’s the attention of the carpenter, the tailor and the designer that makes this detail possible. It’s the time spent rehearsing and performing that gives creative art its enduring appeal. What – aside from meaningless noise – is to be gained by asking the London Philharmonic to play Beethoven’s 9th Symphony faster and faster each year?
Clearly our fixation with productivity is part and parcel of our obsession with growth. But there is a different kind of economy waiting to be built around a broader sense of prosperity, in which the most important economic activities have nothing to do with chasing abstract growth. Instead, they depend on care, craft, and creativity: the very things that make our lives worthwhile. It’s a vision even the Queen might approve of.
- To the book Wohlstand ohne Wachstum – das Update
- To the Event on 19th July: Book presentation and discussion