More About Growth

A couple of days ago I argued that economic growth was an ethical good because at a certain level growth was equivalent to an increase in human security. Grinding poverty is not decorous, it is desperate, degrading and above all dangerous. Getting out of that poverty is a Good Thing.

It's a powerful argument, because it doesn't just apply when it's about Chinese peasants escaping subsistence agriculture. It applies in Britain too: when the Corus steel plan at Redcar was mothballed earlier this month, 1,700 people, plus all who depend on them, discovered themselves more vulnerable than they'd ever expected. My guess is they'd understand the link between growth and security.

But we can't just say "as long as there's one person for whom economic growth can provide security, then it's justified". The are different types of growth, and different types of security, which matter, and which contradict such a simple conclusion. Not all growth promotes security.

Britain's recent economic experience illustrates this all too well. We are told we've gone through a period of 'debt-fuelled growth', and for the sake of argument, let's say this is true. If so, then it's obvious that a pattern of behaviour which involves taking on more and more debt simply in order to keep buying things isn't going to end in a net gain in 'security.' Rather the reverse. And similarly now, if we're going into a period when debts are repaid, albeit at the cost of reduced consumption (recession), then we can surely say that there are gains in personal 'security' as the debts are paid down. If that's the case, then on a net basis, the argument for security would have argued against at least some part of the 'growth' of the last decade. And I think it would be right, Redcar workers notwithstanding.

But not all economic growth is fundamentally 'debt-fuelled' - and what's more, I've got much less against credit as a concept than you might assume. So, strip away the excess of debt argument, and can we reassert that growth always will increase personal security and, more widely, wellbeing?

We cannot. I'll start with an observation: once the initial excitement is past, bull markets are horrid experiences for all concerned, even for its chief beneficiaries. By the end of most major bull markets, its participants (an ever-widening breed) breath their self-disgust with every breath. I once resigned from a Wall Street investment bank at the top of a bull market because of the ridiculous amount of money they proposed to pay me (ah! happy, younger, days). And I remember visiting Indonesia in 1996 at the very peak and apogee of Suharto's boom, and being bewildered and alarmed by just how angry everyone was. 'If that's how they're feeling now, when they're getting rich, what are they going to feel like when things get tough' I asked.

And on the contrary, the nicest times and places are those which are deep, deep, into bear markets and recessions. Ever since the Bubble burst in Japan in 1990, it's been a truly beautiful place to be. Even Hong Kong became an almost tolerable place after the financial crises of 1997/98.

Dickens had it right: it's the best of times, and the worst of times. . .

I think there's something systematic about this, and it's not just that things get 'irrational', or that the distribution of rewards during sharp business cycle upswings and/or bull markets is 'unfair' - though both these may be true. Rather, it is something measurable, urban and specifically a-human. It is that at a certain time-density of transactions , a certain speed' of economic activity, then the "rewards to agglomeration" become the driving factor. Why? Because when put under a certain economic and monetary pressure, a certain agglomeration of different talents itself becomes a decisive factor in the innovation and creativity which drives the cycle. And as a consequence, economic benefits are distributed not just to labour and capital, but also to the physical agglomeration itself - the city.

This sounds complicated, but what it means is that you end up living in a smaller flat, because even though the business cycle means you're getting rich, the value of the city itself is getting rich faster. The beauty of this theory is that you can actually see it, and measure it, as it happens.

But then parlay it back to the people involved: what it means that for almost everyone,their ability to stay in the city, or the terms on which they stay in the city, deteriorates just as the rewards to staying in the city are at their greatest.
In a word, they watch their security disappear in direct proportion to the strength of the bull market or economic upswing. For the 'winners' its an enervating experience. For the 'losers' - well, they simply get driven out of the city, like peasants driven off the commons. No, a severe bull market, or extremely rapid growth, is no contributor to human security.