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Home Opinion The case for pro-growth progressivism
Growth • Innovation • Progress

The case for pro-growth progressivism

Michael Mandel - 18 June 2014

We don’t have the resources to deal with unexpected crisis or challenges. That’s why restoring economic dynamism must be progressives’ top priority.  Putting the cart of redistribution before the horse of economic growth turns politics into a zero-sum fight over a shrinking pie

The many unanticipated events seen over the past 20 years should leave us with some humility about our ability to identify coming political and economic challenges. Will the next two decades be marked by surplus labour due to job-eroding technological change, or by labour shortages in countries with stagnant and ageing populations? Will wealth be concentrated in fewer and fewer hands, or will economic success become dispersed as smart people around the world take advantage of the Internet to create new businesses?  Will the global economy stay volatile or return to the moderation that predated the financial crisis?

Here is what we do know: the developed, richer countries are undergoing a collective crisis of faith, rooted around slow growth.  The major advanced countries have seen their real per-capita GDP rise at a depressingly low 0.8% rate over the past ten years. By comparison, the annual rate of growth was 1.8% in the ten years ending 2007 and 2.6% in the 1980s. A slow, halting recovery has left many citizens pessimistic about their country’s economic prospects and their government’s ability to be effective. And that pessimism, in turn, has helped nurture an ugly bestiary of political and policy dysfunction, from Washington to Brussels to Tokyo. The result is a loss of political flexibility and adaptability, a painful ossification that emphasises protecting the status quo rather than embracing innovation.  This painful ossification leaves us more vulnerable to the next crisis or challenge, whether political, technological, or biological.

1. Pro-growth progressivism
Economics and politics are intertwined in a mutually reinforcing crisis of confidence. Tackling this deficit of trust is job one for the world’s political leaders. Rather than just hope the global economy picks up, progressives should coalesce behind an ambitious plan to accelerate growth, boost innovation and revive upward mobility. The goal is to produce a flexible, dynamic economy that can deal with whatever challenges arise.  We deserve better than a choice between the right’s anti-government populism and the left’s anti-business populism.  That’s why we need “pro-growth progressivism.” Pro-growth progressivism will take on varied forms in different countries, but it typically has these features:

2. Focus on growth, rather than redistribution
The slow-growth figure cited above was for GDP, which includes not just wages but returns to capital as well. That means even before we get to the question of distribution, the whole economic pie is growing at an extremely slow rate. Absent more robust growth, the politics of redistribution becomes an empty exercise in moral posturing. Moreover, a narrow focus on “fairness” may misdirect resources that otherwise could be used to enlarge the nation’s productive base.  It also fosters an “us versus them” mentality that, by reinforcing polarisation, can only make it harder to build consensus around economic initiatives that benefit everyone.

Without growth, the developed countries can’t generate sufficient national income to simultaneously finance public investment in world-class infrastructure, science and skills; and, meet the soaring health and retirement costs of an ageing society. What’s more, we don’t have the resources to deal with unexpected crisis or challenges. That’s why restoring economic dynamism must be progressives’ top priority.  Putting the cart of redistribution before the horse of economic growth turns politics into a zero-sum fight over a shrinking pie.  This approach might win an election here or there, but it is not a durable foundation on which to build and sustain progressive majorities.

3. Put a priority on investment, rather than consumption
An essential ingredient for encouraging growth is investment in physical, human, and knowledge capital. Investment is spending on the future. By contrast, consumption, almost by definition, is about the resources devoted to today’s needs and pleasures. But these are just the economic definitions  ̶ investment and consumption also represent different attitudes towards the future and towards the next generation. Right now the developed countries are ageing in a way that has more and more older citizens being supported by a slow-growing or even shrinking working-age population.  To make that work, the younger generation needs updated infrastructure, the newest equipment, the best education and training, and the most innovative technologies  ̶ and all these require resources.  

4. Encourage innovation and entrepreneurship, rather than business as usual
In addition to investment, true growth needs innovative ideas and technology and the entrepreneurs to put them into practice.  And it needs government to encourage innovation, or at least not get in the way with excessive regulations.

One good example: The Internet of Things – the idea that in the future, all objects will be interconnected and have the ability to automatically transfer data without requiring human-to-human or human-to-computer interaction. The Internet transformed digital industries, which represent about 20% of the economy. But the Internet of Things has the potential to transform physical industries, such as manufacturing, transportation, public service and healthcare, which represent the other 80% of the economy. The Internet of Things could make an enormous difference in growth and job creation  ̶  but only if excess government regulations don’t make it too expensive or time-consuming to put into place.

5.    Mobility flows from innovation and growth
One of the great advantages of growth and innovation is that they create more opportunities for true mobility.  That’s certainly true in the United States, where growth in the tech/info sector has drawn more minorities into well-paying jobs. From 2006 to 2013, the number of Hispanics in computer and mathematical occupations rose by 58% and the number of blacks rose by 41%.  

6. Foster innovation in government
Government has an essential role to play in pro-growth progressivism, providing the necessary safety net and the regulatory structure that makes the economy work.  At the same time, progressives must focus on making government work better, so that it’s felt as a positive force in people’s lives. One aspect of innovation in government is an emphasis on flexibility, rather than strict rules. In the United States, PPI has proposed a Regulatory Improvement Commission, which would focus on making regulations better and more flexible, rather than doing away with them altogether.

Michael Mandel is chief economic strategist at Progressive Policy Institute

This is a contribution to Policy Network's work on Progressive Capitalism.

Tags: Michael Mandel , Opinion , Growth , Social stability , Living standards , EU , European Union , Euro , Eurozone , EZ , , Productivity , Production , Jobs , Wages , Employment , Unemployment , Growth , Investment , Austerity , Precariat , Productivity , Production , Centre-left , Centre left , Progressive , Progressives , Jobs , Manufacturing , Services , Trade Unions , Trades Unions , Crisis , Financial , Economic , Sovereign Debt , Financial Crisis , Economic Crisis , Sovereign Debt Crisis , Debt , Deficit , Innovation ,

Comments

Victor Anderson
19 June 2014 10:30

How can anyone still talk about economic growth without even mentioning climate change and environmental sustainability?

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The Policy Network Observatory promotes critical debate and reflection on progressive politics. It is centre-left orientated but determinedly challenges social democracy. It is pro-European but restlessly questions EU institutions and practices.

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