Mismeasuring progress: A critique of the growth paradigm

  • December 23, 2021

Capitalism & Crisis

Historian Stephen J. Macekura traces the origins of the growth paradigm and explains why we are still in the grips of his powerful-but-flawed economic idea today.

Cityscape of Johannesburg, South Africa in 2013. Photo: Nataly Reinch / Shutterstock.com

In recent years, more and more people have begun to question the received wisdom of “economic growth” — the idea that government policies can be measured a success or failure based on an increase in national income. Many, that is, except most economists. For them, growth is still the sacred benchmark on the road to development — for those countries deemed “undeveloped” — and something to be maintained and if possible expanded in all the OECD countries.

Governments follow suit and design their policies around growth markers. But, if sustained economic growth is synonymous with economic success, why do increases in Gross Domestic Product (GDP) regularly fail to produce the promised outcome of general prosperity? Why are other indicators such as inequality or well-being not given the same centrality in state policy?

In his new book, The Mismeasure of Progress, Stephen Macekura shows that these debates are not all new, although they have come roaring back with a vengeance amidst today’s climate catastrophes, economic crises and widening inequality. Macekura tells the story of how the idea of economic growth began in Europe in the first decades of the 20th century, as new statistical tools and national accounting systems made it possible to both visualize something called “the national economy” and to think about ways to make that economy grow.

His account is not complete without recalling the numerous critics of growth. The most urgent critics of the idea came from state planners from the Third World who saw with their own eyes that “growth” and “development” can be very different things. These were later joined by environmentalists in the 1970s who raised concerns over the “limits to growth” and its unintended side-effects.

The contemporary degrowth movement, Macekura notes, is just the most recent — and explicit — expression of an ongoing history of critique of the growth paradigm. The movement’s call to reduce global consumption and production to meet non-growth related benchmarks, like social and environmental justice, is the latest and perhaps most encouraging sign that growth critique is maturing politically.

Pablo Pryluka and Bianca Centrone spoke to Macekura to better understand how, even with such a rich history of growth criticism, we still remain in the grips of the 20th century’s most powerful economic idea.

Economic growth is taken for granted today as the main policy objective of almost every government in the world. In The Mismeasure of Progress, you not only study how “growth” became such a central policy concern, you also show that growth-centered policies have received a lot of criticism throughout history. When and why did the idea of economic growth became the fundamental goal of economics?

As I argue in the book, the use of the phrase “economic growth” assumes that there is a specific, calculable entity called “the economy” that could be made to grow. This idea — which we now take for granted — really only dates to the 1930s and ’40s. Of course, there are earlier precedents for similar ideas. Notions like “progress” and “improvement” go all the way back to the 16th and 17th centuries, and many of the classical economic thinkers like Smith, Ricardo and Mill did in fact engage in conversations around those concepts. But I argue that the way that we talk about economic growth today really only dates to the 20th century.

There are a couple of reasons for this. One is that it is only in the 20th century that we see the emergence of a social space called “the national economy.” And second, there is a new desire for that thing, the national economy, to grow as a kind of political and social imperative.

In terms of calculating the national economy, there were a few interesting but ultimately scattershot attempts to quantify national wealth over the last four hundred years. But it was really only in the 1910s, ’20s and ’30s that economists began to develop sophisticated sampling techniques to gather data from different sources and advanced modeling techniques to take all that data and use it to come up with an aggregate figure of what in a general sense is called “national income” and “national product.”

In both capitalist and non-capitalist societies, that trend came to a head across the world in the 1920s and ’30s. But the imperative of national growth — for which metrics like GNP were invented — only properly emerges in the 1940s, and I argue that that is because of three really important intertwined global crises.

The first is the global Great Depression of the 1930s. The second is the crisis that overseas European empires faced in the 1930s and ’40s. And the third is World War II. Those three events lead policymakers and elites all across the world to begin to think really differently about their economic realities and their economic world.

For instance, for capitalist elites in the United States and Western Europe, the key question in the 1930s and ‘40s was how to stave off labor radicalism and social strife domestically, as well as unrest in the colonies — at least long enough to maintain basic social stability. In the case of the imperial officials, their key concern was to forestall the independence of the colonies, and they saw growth as a way to control that process so that it would only happen on a time frame that suited them.

At the same time, from the perspective of many emergent nationalist movements across the colonial and post-colonial world, there was a real urgency to achieve independence not only for political reasons, but also economic ones: to overcome the unequal terms of trade that existed within colonialism and also pursue political independence, overcoming centuries of economic exploitation while redressing the demands of their peoples.

These crises also impacted the communist world. The war was especially devastating for the Soviet Union, and the Soviets very much interpreted World War II — much like World War I — as being an intra-capitalist conflict that spilled out to directly affect them. And so the immediate goal of the Soviet Union in the 1940s became recovery from the war, but also rearmament to prepare for the next one that the capitalists would bring.

So, these very diverse groups, with very different concerns — from how to stave off radicalism or forestall colonial independence, to how to overcome exploitation or recover from and prepare for the next capitalist war — all found the same answer: to grow national economies as rapidly as possible. Growth was basically expected to solve all of these problems without making any difficult trade-offs — this was how the thinking went in the 1940s.

There is also an interesting and troubling irony to all of this, which is that the pursuit of growth by all of these different countries actually further reinforced the general growth imperative, because one country’s growth often seemed threatening to another’s. For instance, Soviet economic growth and Stalin’s calls for reconstruction in 1946-47 terrified officials in Paris, London and Washington, because they feared that the Soviet Union was trying to grow into a powerful empire.

Likewise, the push for economic growth in Western Europe and the United States triggered fears in the Soviet Union that the capitalists were in fact rearming. Furthermore, the rapid pursuit of economic growth in the colonial and post-colonial world raised alarms in both the capitalist and communist world, because it was unclear whether those countries would seek aid and support from one side over the other, generating a lot of uncertainty and fear as well.

You mentioned in passing that it was only with the development of modern sampling, modeling and accounting techniques that it became possible to quantify national wealth. Could you say more about the connection between the status of specialized economists in government and the rise of the idea of economic growth?

In the 1930s and early ’40s, economists — economic statisticians in particular — gained a lot of legitimacy and were enrolled to an unprecedented degree in state-building processes. Part of that stems from the sheer scale of the devastation of World War I and the Great Depression. In the 1920s, there was, for instance, a strong desire on the part of states to know the capacity of their rivals to mobilize for future wars. And so, it became important for economists to be able to forecast how quickly, say, the German state could rearm and mobilize national resources to the war effort.

Likewise, there was a strong social reform element in the Great Depression, where countries began to need better data regarding just how bad the crisis was at the national level. In the United States, for instance, the Roosevelt administration knew that banks were failing, that people were without jobs and so on. But they lacked good national metrics to get a sense of just how deep the crisis was and what was necessary to get out of it.

Economists became really important figures because, in many ways, national governments began to ask them to carry out this kind of quantification work. What is so striking is that, in many cases, the economists and statisticians of the 1930s and ’40s were hugely helpful for government-led recovery efforts.

As an example, in the UK, John Maynard Keynes himself was not much of a statistician, but he worked with many colleagues at Cambridge who were really advanced in their modeling and quantitative techniques. A couple bear mentioning: Sir Richard Stone and Colin Clark were both British figures who worked for the British government and came up with national income estimates that the UK government used quite successfully to help fund recovery in the late 1930s, and then, later, mobilized for the war effort.

In the United States, the most important economic statisticians in the country in the 1930s were a University of Pennsylvania professor named Simon Kuznets, who oversaw projects to construct the first GNP figures for the United States in the mid-1930s, and one of his former students, Robert Nathan, a deputy who worked with him at the Commerce Department.

What’s interesting about Kuznets and Nathan is that, by the early 1940s, they both were at work for the war effort at the War Production Board, and they performed a series of feasibility studies that suggested to the Roosevelt administration how much money could be spent on war rearmament without prompting another domestic recession. And their projections were largely accurate and helped guide wartime planning in the US.

The United States thus had a quasi-planned economy from about 1941 to ’44, in large part because of the work of these statisticians. That is all to say that the success of quantification techniques and their introduction to planning went a long way towards making the idea of economic growth more sacred.

And that trend continued into the post-war period in the 1940s, ’50s and ’60s. As economic historians like Branko Milanovic and others have noted, the economic growth rates from that period are really unprecedented, not just in terms of the 20th century but for much of human history. And it just so happened that, as so many leaders and politicians — and even regular citizens — were talking about economic growth, economic growth itself started to seem like something that was almost limitless, because economic growth was in fact transforming people’s lives in such fundamental, material ways around the world.

Growth in the 1940s and ’50s was matched by increases in state investment in things like research and development, infrastructure and really unprecedented spending on social welfare. It was thus understandable that many people would come to view economic growth as this sacred good, because it seemed that economic growth had in many ways not only helped draw the world out of depression and wartime sacrifice, but was also enabling them to live better and envision a different sort of future than what was previously imaginable.

As you said, economic growth eventually became a kind of cure-all for the problems that societies faced in the postwar period. But, as you show in your book, the very same idea of economic growth could also worsen the illness it was meant to treat. This seemed to be especially evident as economic growth and the notion of “development” gained a lot of traction among so-called modernity theory economists in the First World, who began to address what they understood to be problems of the Third World.

It is a really interesting topic because, where the question of economic growth is concerned, the field of development studies changed so much from 1940 to 1970. In the 1940s and ’50s you find experts claiming to understand how to generate development in the so-called underdeveloped world, and there was a frequent conflation of development and economic growth — that development was economic growth and economic growth was development.

By the late 1950s, while many experts still believed that development and economic growth were largely coterminous, they also held that, to use an anachronism, what the Global South needed was a different set of economic ideas in order to generate growth. Very quickly there emerged a sense of frustration with trying to directly import models of national income accounting from the North. I actually write about how difficult it was for many economists to try to quantify national economic activity in places where that activity was not always monetized in the same way as it was in the North.

Not only was there a sense that growth models could not be imported, there was also a general feeling that Keynesian models just do not apply well for much of the rest of the world. And so, it was felt that the Global South or post-colonial world needed a new, different form of economic knowledge. And that new form is ultimately what became development economics.

That same period also saw the emergence of really interesting theories — like the Big Push Theory, or Arthur Lewis’ Dual Sector Theory — which attempted to generate rapid growth in order that the so-called Third World could rapidly develop. What’s striking to me is, almost as quickly as the terms “development” and “growth” become kind of conflated in the 1950s, by the late ’60s and ’70s, they once again had separated. Many development economists began to argue that growth and development are in fact not the same thing at all, and that countries could potentially obtain high rapid economic growth rates without achieving any sort of meaningful social development.

One of the growth critics I write about is a British development economist named Dudley Seers. He puts the matter bluntly in his 1969 essay: “Why do we confuse development with economic growth?” Likewise, the Yale-educated Pakistani planner Mahbub ul Haq, who had experience in developing five-year plans in Pakistan in the 1960s, was astonished to find that his country had generated pretty high economic growth rates — in many ways exceeding what he had anticipated — but there was still widespread poverty. In fact, what shocked him most was how much inequality had increased.

In the late 1960s, Haq began to rethink the way in which development was being discussed, measured and defined, and he tried to come up with alternative paradigms for development that are totally separate from growth. In the 1970s, he talked about the need for poverty alleviation and the focus on basic human needs above all else. By the 1980s, along with the Indian economist Amartya Sen, he became really focused on writing about “human development”, and it was actually Haq who developed the UN’s Human Development Index as a kind of competitor to GNP and GDP.

So, by the 1970s, there was a real sense among many development experts in the Global North and South that development and growth are in fact not synonymous, and that growth does not necessarily lead to good development outcomes. What many came to believe is that if you are really concerned about lessening inequality and alleviating poverty, you need to put your focus on doing just that. You cannot just expect that growth will naturally resolve poverty or inequality. You need to make targeted policies to tackle those priorities.

During the same period you are describing, there were major changes taking place in the international economic order. Only one year after the coup in Chile, the Global South really began on a downward trend, and the 1970s ended with a huge financial crisis. What I am wondering is, since this period was marked both by the rise of international organizations associated with the so-called New International Economic Order (such as the UNCTAD and the Non-Aligned Movement) and a major economic downturn and debt crisis in the Third World, was there a growing disconnect between economic theory and practice?

It is striking how much uncertainty so many people, particularly elites, felt about the future of the world between 1972 and ’75. That period saw a number of important things occur: the rise of a concerted effort by developing economies to establish a common economic agenda, known as the New International Economic Order (NIEO); the overthrow of the Allende government; the oil embargo, and a growing awareness about the seriousness of environmental crises. There was basically a brief moment in history where a fundamental structural change of the global economy seemed in many eyes to be very likely.

In 1971 and ’72, there were a series of major environmental crises, such as the big oil spill off the coast of Santa Barbara, California. The first major UN environmental conference happened in June, 1972, and then, in June that same year, the “Limits to Growth Report” came out suggesting that the world is basically going to run out of major resources in the next 30 years. And this of course came after decades of thinking of natural resources as limitless.

In 1973, the conflict in the Middle East led the Organization of Petroleum Exporting Countries (OPEC) to embargo oil, which ended a fundamental period in the history of economic growth — the era of very low oil prices that sustained the growth of so many countries, be they capitalist, communist, rich or poor.

By the early 1970s, coming off the heels of various environmental crises and the “Limits to Growth” report, the oil embargo suddenly made growth seem not only no longer limitless, but fundamentally limited. People in the Global North had to wait in line for gas; the cost of electricity skyrocketed; people’s everyday lives were upended in various ways. This was also the absolute peak of global concern over population growth, when there was a big UN conference in 1974 on the future of population.

Paul Ehrlich’s big book, The Population Bomb, had come out in the late 1960s, but it was only in the early ‘70s that Ehrlich became a major celebrity. He was on the Johnny Carson Show — at the time, the most popular talk show in the US — twenty times in the early 1970s, talking about how basically there are too many people on the globe and that there were going to be acute food crises everywhere, which were going to fuel conflict, and so on. Again, coming after the environmental crises and the oil crises, people were getting really worried.

While all that was taking place in the North, in the Global South, leaders and governments saw a moment of opportunity — and rightly so. It was the oil embargo that inspired the timing of the NIEO, because what the embargo suggested was that, though they existed in a fundamentally unequal world economy structured by the legacies of colonialism, the countries of the Global South exported raw materials that were in fact completely vital. Thus, by forming a price-setting cartel and taking power away from the market, countries in the Global South could make their concerns heard internationally.

The thinking was that what had been done for oil could conceivably be done for copper, bauxite, magnesium and anything that was vital to production processes in the rich world. Many in the Global South thought in 1974 — and with valid reason — that there was an opportunity to restructure the global economy. I think they recognized that there was going to be pushback, although in many ways they underestimated the extent to which the Global North would try to redress that.

In a sense, while the coup in Chile is not obviously the result of the NIEO, I do think it symbolizes the extent to which, even in a period of relaxed Cold War tensions, the countries in the Global North — and the United States in particular — could still view leftist governments with redistributive politics as a serious threat.

By 1975, there were high level negotiations between the G6 countries and the White House about how to destroy the NIEO. They worked out how to challenge the countries of the Global South so that by the mid-1970s there was a pretty concerted strategy to block the NIEO, breaking it apart by working with those countries individually.

Coupled with that, by the late 1970s and early ’80s, there was a series of broader economic transformations taking place that undercut this moment of possibility. There was obviously a grand historical irony in that all the oil exporting countries got profits from higher oil prices. They parked all of that money in commercial banks which were happier to lend that out to other countries in the Global South, which in turn increased the sovereign debt load that those countries faced in the ensuing years.

We know that, rather than responding to that high debt load with forgiveness, the United States, the IMF and other countries pressed for structural adjustment. There was a lot of instability and fluctuations in commodity markets in the 1970s and 80s that undermined the negotiating position of the Global South. And then ultimately there was a real push by the Global North for energy independence and ultimately a successful exploration for new sources of oil. That undercut OPEC’s price setting abilities and generated more oil on the global market, limiting the capacity of any country to control the market as the oil-producing countries had in the early 1970s.

That was a long-winded way of saying that there was this really brief window, from 1972 to 1975, when the future of growth, global power and the international order all seemed uncertain. By 1982, that window had shut and there was suddenly a renewed faith in growth — reflected in a rebound in growth rates across much of the capitalist world.

As a result of a series of policy decisions, there was a dramatic increase in capital flows back into the Global North, which is an important part of this story as well. The G6 countries had experienced a net outflow of capital in the 1970s, but by the 1980s they saw a net inflow, as capital followed higher interest rates and financial deregulation. So, already by that time it was a radically different world than the one that had seemed possible just a decade earlier.

In The Mismeasure of Progress, you trace how growth went from an idea to an actual concrete practice for measuring the economy. What are the connections between the economic narratives told by economists and the way the economy actually functions?

I think about it this way: economic growth is itself a narrative of the past. It becomes a powerful narrative for elites, economists and others who want to simply make a chart of GDP per capita for 1800, 1820, 1850 and so on, up to the present day. This lets them present a very simplistic story of progress in GDP based on an idea of universal improvement and progress.

I think that narrative also has a really powerful, performative function to play. Leaders will use this kind of rhetoric and say, “look at our past economic growth,” all in order to displace or deflect concerns about contemporary inequality, poverty or redistribution, under the belief that economic growth has generated all of these great past outcomes. The logic that follows from this claims that there is no reason to think that such growth will not continue into the future, and that as long as GDP continues to grow we can avoid having to make difficult tradeoffs.

You can watch a lecture online of Peter Thiel visiting Roberto Unger and Cornel West’s class at Harvard, where Thiel neatly encapsulates this whole ideology. He says: “If we have economic growth, we can do everything. We can do whatever we want.” That kind of sentiment rests on the assumption that growth has basically freed us from past constraints.

Of course, although that growth narrative did momentarily contain a kernel of very generalized truth, it is certainly not the only story we can tell about the 20th century. What is striking about recent attempts to redirect policy attention and even public discourse away from just growth is that they are also equally historical narratives.

Take the recent concern for inequality, especially since the global financial crisis of 2008: a lot of that stems from the work of economists and economic historians like Thomas Piketty and others who show a different narrative of the last 150 years. There, the dominant story does not come down to aggregate GDP growth and its gradual progress; instead, it focuses on a period of dramatically high inequality at the turn of the 20th century, a decrease in inequality by the mid-20th century and then a steep ascent back to ever greater inequality.

Another way to think about this today is the increasing focus on tax havens and tax avoidance. There is great historical work being done by people like Vanessa Ogle, and great economic studies being done by the French economist Gabriel Zucman, both showing another important economic narrative of the last hundred years. Both of these scholars call attention to how many of the wealthiest individuals and largest corporations have actively sought to influence policy making to shield their wealth from national taxation. In some cases this has entailed redirecting and reforming the tax policies of entire countries.

One of the real striking stories, again, is not just GDP growth, but the extent to which a significant portion of personal wealth in the world is not actually subject to any national taxation. That is a historical narrative that very much bears upon contemporary practice. Many growth critics today recognize the power of these kinds of narratives we tell about the past — especially about our economic history — and how important they are to galvanize public attention and action around contemporary concerns.

In a sense, the growth-idea has met its most direct opponent in the contemporary degrowth movement.

There’s a big debate today about whether growth can remain a foremost goal, but just be directed towards more equitable ends, which I think is ultimately the belief of the Green New Deal. The GND promises high economic growth through new investments in environmentally friendly technologies, massive jobs programs and the like. It’s a different type of growth — green growth.

Then, as you say, there is the degrowth movement. What was striking about so many growth critics in the ‘70s — who foreshadowed the degrowth movement — is that they had very little to say in response to the concerns of the Global South around equity and justice. The more radical critics from the Global North, who would say we need to stop growth altogether, basically ended up acknowledging that it was a hard thing for the Global South to do.

The ecological economist Herman Daly, argued that the Global South could continue to grow up to a point and then eventually they’d need to stop growth as well. But that opens all sorts of hard questions about who gets to decide what that stopping point is, who gets to say how much growth is too much or too little at any given time.

A lot of those problems come from the reality that there is no political will in the rich countries to offer the kind of aid and things that degrowth advocates say is necessary. I think in many ways it is a welcome addition to the history of growth criticism that so many degrowth advocates will acknowledge that in order to ensure that people have their needs met and have the capacity to flourish, the Global South would need a dramatic increase in aid.

We have now reached a point, though, where there needs to be more than just new ideas and new rhetoric; we need real political mobilization as well. What is interesting about the degrowth movement today, compared to the 1970s, is that back then there was an immense focus on new metrics and new measures of social progress besides just GDP. There was a real faith that if governments just had new, better numbers, that the new numbers would sort of direct everyone to have new priorities and new values.

Now, there is a less technocratic focus on coming up with new, better metrics and a broader recognition of the politics in play. I think what remains to be seen is what form and what kind of coalitions are built to generate the type of political action necessary to do the work of generating better outcomes.

Bianca Centrone is a PhD candidate in the Department of History at Princeton University.

Pablo Pryluka is a PhD candidate in the Department of History at Princeton University.

Source URL — https://roarmag.org/essays/mismeasure-progress-macekura-interview/

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