05 Dec 2005  What Do YOU Think?

Is Growth Good?

What are the moral consequences of economic growth? It’s a subject that political economist Benjamin M. Friedman tackles in a new book. Growth numbers may move markets, but do they also lull us into a false sense of satisfaction and security?

 

Summing Up

by Jim Heskett

A small but thoughtful set of responses to the question "Is Growth Good?" posed this month conveys the sense that the wrong questions were asked. According to the responses, growth is not only good—it is necessary. But we need to be selective in the kinds of growth targeted. In fact, many kinds of growth offer great returns while requiring little or none of the world’s resources, therefore having seemingly few limits.

Fran Henry makes the case for economic growth when she says, "According to the World Health Organization, one of the risk factors for violence of all sorts is poverty—not absolute poverty, but inequality between the classes. If growth brings more economic equality into a society, then yes, growth is good." Pruthul Patel writes, "Growth is life. Without growth there is no life—be it of an economy, entity, or individual. . . . Expecting rationality in growth just limits the prospects of growth. There are no boundaries to growth."

Others suggest that certain kinds of growth are particularly important. M. Ramji comments, ". . . we should also consider the implications of growth in education and knowledge, spiritual growth, growth in top-level sporting teams, and so on." Angelo Giovas goes even further in suggesting that "the key is not more outward growth (which, as was pointed out in the article, has its limits) but more inward renewal (which has no limits)." Charlie Cullinane recognizes an important distinction: "Granted, the ethics of growth can be two-sided, but growth should not be confused with greed. Agriculture, healthcare, and education . . . are areas of potential growth that can be positive if not tainted by greed."

All of this suggests that other kinds of growth actually enable the kind of economic growth that we generally measure and read about. It's reasonably obvious, for example, that growth in such things as the rule of law, so-called transparency, and ethical behavior foster trust in business that is essential to a growing economy. Growth in a chain of enablers, such as education, has the potential for leading directly to the development of ideas that actually expand the limits of even those kinds of growth that rely on physical resources with supposedly finite properties. If all this is true, why is so much more emphasis placed on measuring, reporting, and rewarding end and effect—economic growth—than the means and causes of economic growth? Is there too long a lag time between the two to interest managers (and in some cases even policymakers)? Is there too great a physical and psychological gap between those investing in the kinds of growth that eventually drive economic growth and those benefiting from the investment? If so, what does that portend for the real versus the ideal future described by our respondents? What do you think?

Original Article

How often have you heard a manager say, "If we don’t grow, we’ll invite decline"? Growth at the organizational level opens up opportunities for new customers, new hiring, acquisitions, increased profitability, and generally more liberal policies as a result of the removal of constraints associated with stagnation. This implies that the benefits of growth are more than just economic. But does this translate to the global economy? Benjamin Friedman, as the result of an examination of the economic and social histories of the United States, Britain, France, Germany, and a number of developing economies that he describes in his new book, The Moral Consequences of Economic Growth, believes that it does.

Friedman asserts that economic growth fosters "moral societies" characterized by openness of opportunity, tolerance, economic and social mobility, fairness, and democracy. Similarly, economies that fail to grow run the risk of encountering the reverse effects. His analysis suggests that major events occurring in response to periods of growth foster openness, tolerance, mobility, fairness, and democracy to support his thesis. The reverse is also true. He maintains that increasingly moral societies result from periods of time in which people are optimistic about the future, possibly as a result of recent improvements in their well-being. He cites this data to suggest that we should be particularly optimistic about the possible development of increasingly moral societies, including democratization, in China and India. At the same time, stagnant income levels for a period of several decades, broken only by the five-year period between 1995 and 2000, suggest a potential source of concern for the United States.

Of course, these views depend on how one views growth. Gross domestic product has been growing at a brisk pace in the U.S. for the past decade. These are the growth numbers that move markets. Is it possible that they could well lull one into a false sense of satisfaction and security? After all, GDP is an imperfect measure at best. For example, it goes up when a nation suffers a natural disaster and cleans up after it or fights a war, neither of which add to the net wealth of the world as a whole. And GDP remains unaffected when people volunteer to help those in need or simply carry on the daily voluntary activities needed to keep a family together. But that isn’t how Friedman measures growth. He defines it as "a rising standard of living for the clear majority of citizens. . . . Economic progress needs to be broadly based if it is to foster social and political progress." Further, Friedman maintains that moral societies foster economic growth. This all suggests that the growth statistic that should move markets is a measure of optimism about the present and future.

The general conclusion that is to be taken from this work is that growth, as defined by Friedman, should be sought by everyone. But of course, this raises some additional questions. If the benefits of growth are not equitably (versus equally) distributed, what effect will this have on such things as democratization? Further, can the planet sustain the kind of growth that would be needed to foster moral societies around the world? Already, the impact of economic development in China and India on the world’s resources and environment is an issue under debate. Who or what body decides all of this, or will it be the independent actions of government and business leaders acting in national interests? If that is the case, who worries about what has been known for years as the "tragedy of the commons," that is, the utilization and allocation of what some perceive as a somewhat fixed supply of resources? Or is the amount of these resources expanded by the very process of growth?

Is growth good? If so, what kind and for how long? What do you think?

To learn more:

Benjamin M. Friedman, The Moral Consequences of Economic Growth (New York: Alfred A. Knopf, 2005)

Comments

    • M. Ramji
    • Assistant Manager, Cams Pvt Ltd, Chennai

    As of now, the demarcation between developed and developing countries is based on economic indicators such as gross domestic product and per capita income, not on the number of university graduates or IT engineers or English-speaking people.

    As you rightly said, we should consider economic growth, but I think we should also consider the implications of growth in education and knowledge, spiritual growth, growth in top-level sporting teams, and so on.

     
     
     
    • Pruthul S. Patel
    • Financial Consultant

    Growth is life. Without growth there is no life—be it of an economy, entity, or an individual. The opposite of growth is contraction or slowdown. While both growth and slowdowns are natural, growth has a tendency to bounce back at a higher rate since it offers opportunities and opens up the frontiers of capabilities. Despite its excesses, its benefit to mankind is enormous. A slowdown and its consequences are more painful than those of growth. Expecting rationality in growth just limits the prospects of growth. There are no boundaries to growth.

     
     
     
    • Fran Henry
    • Project Coordinator, Global Violence Prevention Advocacy Project

    According to the World Health Organization, one of the risk factors for violence of all sorts is poverty—not absolute poverty, but inequality between the classes. If growth brings more economic equality into a society, then yes, growth is good. Businesses and government need to encourage growth not only in the aggregate measure of GDP, but at every level of society.

     
     
     
    • Anonymous

    "Is growth good?" is a question that everybody would answer in the affirmative. As rightly said by the author, it fosters more positive thinking and sharing and democratization of process. While this appears to happen fairly well in most societies, there are pockets in societies where growth does not work at the grassroots level to bring in an overall sense of well-being and distributed social justice.

    Given the current globalization and liberalization initiatives set in motion, it is hoped that the future of growth in most of society would be equitable.

     
     
     
    • Angelo Giovas
    • Pastor, North Shore Baptist Church, Queensland, Australia

    As presented in Jim Heskett's article, Friedman's theory displays some shortsightedness. Can we really call genuine morality that which only stands up in good times? Real morality is that which enables me to do the right thing even if I am hungry; the rest is convenience or expedience. . . . All over the world the most affluent are often the most immoral. . . . Morality is not a function of a standard of living but of core values, and core values are neither tested nor often obvious when things are going well.

    The key is not more outward growth (which, as was pointed out in the article, has its limits), but more inward renewal (which has no limits).

     
     
     
    • Charlie Cullinane

    When growth stops, decay begins; there is no such thing as the status quo. Growth does not have to be defined as "more." It can be defined as "better."

    Granted, the ethics of growth can be two-sided, but growth should not be confused with greed. Agriculture, healthcare, and education (education is a business) are areas of potential growth that can be positive if not tainted by greed.

    The refineries are another good example. There have been no new refineries built in the past thirty years in the United States, so: zero growth. One hurricane devastates the country's refining capacity and the price of gas impacts the cost of living. The average worker suffers due to the increased cost of commuting.

    Growth is good; greed is bad.

     
     
     
    • Anonymous

    Is growth good? What kind and for how long?

    First we must ask what business we are in. Based on the business we are in, I can identify the kind of growth that is good for us as a company. And we are not in the business of growth just for growth’s sake.

    In more specific terms for my company, growth means more sales for more profit, provided we can keep delivering trust and accuracy to our clients, which is what they are really buying from us.

    Now to relate to Friedman’s point about growth being "a rising standard of living" for a lot of people, democratization, moral societies, and a fair distribution of growth benefits. I think that this rising standard of living for a clear majority of citizens is based on well-paying jobs, on equal opportunity employers, on a good education system, and on a fair legal system, and if economic progress needs to be broadly based to foster social and political progress, then our way of life should favor the development and growth of well-managed, profitable businesses as a solid foundation for a sound employment industry based on fairness and opportunities for all.

    This is why I believe the definition of growth that benefits a lot of people in a society is linked to the definition of growth at the company level. Indeed, good management does contribute to this rising standard of living for a clear majority of citizens.

    What about resources? I don’t think we create resources. The best we can do as human beings is to manage them properly in order to make the most of what is there.

    What about companies or countries competing for resources in order to meet their respective definition of growth and in some cases of a rising standard of living? These definitions may vary from country to country; however, no matter what these definitions might be, competition for resources across borders has to do with how free the international trade is. Will globalization contribute to fair international trade, to growth for all? Possibly.