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New Zealand’s ‘well-being budget’ and the unnecessary evil of economic growth


New Zealand’s Prime Minister Jacinda Ardern has presented a pioneering national budget where spending is dictated by the “well-being” of citizens, rather than productivity and economic growth. But as long as other major economies continue to prioritise growth, New Zealand may become a lone wolf trapped in an increasingly hungry bear pit, writes Jack Peat.

Jack Peat

Long revered as a stalwart of a capitalist society the need to grow has come to overshadow everything else. We prioritise it over our personal health, we prioritise it over the health of the planet and we prioritise it over our happiness.

But given that the function of any economy is to provide an environment of subsistence, that could be little short-sighted.

Economist Kenneth Boulding once said that we eat in order to achieve the state of being well-fed, and moving our jaws is simply the ‘cost’ of getting there. We would therefore be mistaken to focus our attention on the act of chewing as the desired end-state when it is simply the price we pay to become fed.

But as long as growth is the target of our economic systems people will continue to focus on chewing, which is neither a sustainable nor desirable trait of an economy.

Which is why I welcomed news that New Zealand’s Prime Minister Jacinda Ardern has put out a national budget where spending is dictated by what best encourages the “well-being” of citizens, rather than focussing on traditional bottom-line measures like productivity and economic growth.

The government will put an emphasis on goals like community and cultural connection and equity in well-being across generations in what has been described as a “game-changing event” by LSE professor Richard Layard.

As part of the framework Ardern has set aside more than $200 million to bolster services for victims of domestic and sexual violence and included a promise to provide housing for the homeless population.

New guidance on policy suggests all new spending must advance one of five government priorities: improving mental health, reducing child poverty, addressing the inequalities faced by indigenous Maori and Pacific islands people, thriving in a digital age, and transitioning to a low-emission, sustainable economy.

Take a look at the biggest problems faced world-wide and you would be hard pushed to find examples that are more grave than the ones set out in Ardern’s provisional proposals. Rising inequality, a mental health crisis and climate change are all significant threats, but as long as other major economies prioritise economic growth over wellbeing New Zealand may become a lone wolf trapped in an increasingly hungry bear pit.

Economic growth : an unnecessary evil

The function of any given economy is to provide an environment of subsistence. Economist Kenneth Boulding said we eat in order to achieve the state of being well-fed, and moving our jaws is simply the ‘cost’ of getting there.

“We would be mistaken to focus our attention on the act of chewing as the desired end-state when it is simply the price we pay to become fed.”

Capitalists systems are deemed to be healthy, or successful, when economic activity – in the form of the flow of materials and energy through the system (GDP) – grows. All economic activity, whether good or bad, is lumped together into one bottom line, and this is what we use to determine the health of any given system.

When people talk about replacing capitalist systems they are fundamentally confronting the ideals of economic growth – the elements that appeal to innate human conditions of greed and wanting more. As long as growth is the target of our economic systems people will continue to focus on chewing, rather than eating to achieve the state of being well-fed, which is neither a sustainable nor desirable trait of an economy.

Desirability 

City AM’s Allister Heath recently made the observation that global GDP per person in western economies grew by 0.04 per cent a year between the years 1000 and 1820. He described this period as eight centuries of “stagnation”, but in reality that is a narrow-minded misinterpretation of a past economic system.

Growth hasn’t always governed our society and eight centuries of so-called ‘stagnation’ proves that it is not a requisite. So why has it come to govern society now, and is the state in which we live now more equitable and more desirable than it was over the course of the 800 years in focus?

The argument over economic growth is one fought between advocates of production and advocates of distribution. Although some may argue that economic growth serves both, I think it has become quite clear that it doesn’t.

Paul Stevenson’s paper on capitalism and inequality concluded that inequality exists among nations, among regions of nations, among classes, and among various sexual, racial, and ethnic groups for themost part as the direct and inevitable result of the ‘normal’ operations of the capitalist mode-of-production.

So, does an increase in output mean an increase in shared wealth? In some ways it does. Expanding businesses create jobs, and growth in some aspects leads to progression which can build a channel for equitable distribution. However, in many aspects increased output favours the minority.

A classic example is the American Pie. According to the Centre for Budget and Policy Priorities the top one per cent of Americans control 43 per cent of the financial wealth, while the bottom 80 per cent control only seven per cent of the wealth. For a country home to multi-billionaires such as Bill Gates ($66 billion, or $66,000,000,000), Warren Buffet ($46 billion) and Larry Ellison ($41 billion), it still has an unusually high amount of people living in poverty (17.3 per cent, compared to the OECD average of 11.3 per cent). Huge chunks of the American Pie are distributed to a minority slice of society, with the poorest left grappling for the crumbs.

But high production doesn’t really favour anyone, wealthy or poor. Economic growth means more houses being built on green lands. It means more CO2, more factories, more energy consumption, inflation etc… The desirability of production over distribution really evades me, but we seem more chained to it today than we ever have been.

Sustainability 

Karl Marx believed that capitalism was radically unstable. Boom and bust cycles have created confrontation between the proletariat (working class) and bourgeoisie (upper class) for the past century. But bust cycles are becoming more severe.

Recessions after 1945 have been more frequent and steeper. In the US (largely replicated in the UK), there were recessions in 1945, 1949, 1953, 1957, and 1960, with double-dip recessions in 1969-70, 1973-75, and 1980-82. We currently face one of the gravest recessions of all time, and recovery since 2009 has been worse than the recoveries from every one of the various recessions listed above.

The first thing that comes to mind when we talk about sustainability is resources. Many of the world’s most valuable finite resources are being extracted at increasingly rapid rates which questions the long-term sustainability of growth. But human capital and the third tertiary economy are also been strangled by unsustainable growth.

The Venn diagram of sustainable development has been used to outline pillars of sustainable development. Stavins et al, define these pillars as interlinkages, intergenerational equity, and dynamic efficiency, but other economists such as Asheim and Pezzey have advocated other criterion for sustainable development. They believe human capital, knowledge capital and natural capital (as well as produced capital) can not decline over time in order to remain sustainable.

I believe the most un-sustainable aspect of capitalism is growth itself. David Korowitz explained that economic growth as a model of unlimited personal and GDP development may be over. Sustainable development of the future will involve improvements in the quality of life for many but, for now, it will necessitate a decrease in resource consumption.


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