{"id":237274,"date":"2023-06-12T12:00:56","date_gmt":"2023-06-12T11:00:56","guid":{"rendered":"https:\/\/www.transcend.org\/tms\/?p=237274"},"modified":"2023-06-12T09:31:00","modified_gmt":"2023-06-12T08:31:00","slug":"achieving-growth-as-a-constraint","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2023\/06\/achieving-growth-as-a-constraint\/","title":{"rendered":"Achieving Growth as a Constraint"},"content":{"rendered":"

Let us take a closer look at the systemic imperative to do whatever must be done to achieve growth.[i]<\/a><\/p>\n

Dani Rodrik, Ricardo Hausmann, and Andres Velasco co-authored a chapter on \u2018Growth Diagnostics\u2019 in the previously mentioned book cited by the commissioners who wrote South Africa\u2019s National Development Plan<\/em>.[ii]<\/a> We cite their views as typical and emblematic.\u00a0 The three authors start by asserting that while \u2018development\u2019 is a broad concept, its heart is economic growth.\u00a0 They claim that growth is the most direct route to raising a country\u2019s scores on social and human indicators.[iii]<\/a><\/p>\n

\u2018Reform strategies should be principally targeted at raising rates of growth – that is, they should be growth strategies.\u2019<\/p>\n

Development requires<\/em> growth and growth requires<\/em> getting entrepreneurs excited about doing what needs to be done to increase the level of economic activity (i.e. increase sales). Here we meet again the dependence of economic activity on profit, and the dependence of profit on sales, analysed in chapter two above. To keep this discussion in perspective, remember that UO advocates both complying with the requirements of regimes of accumulation to the extent that it is necessary to do so to cope with economic reality as it now is, and also freeing humanity from the constraints of regimes of accumulation by building a plural economy. \u00a0\u00a0Number One on anybody\u2019s list of reasons why attempts to transform social structures do not work is that the dominant (highly unsatisfactory) set of incentives to undertake production is undermined before it is possible to pick up the slack with other motives and other institutions.<\/p>\n

RHV continue: \u00a0To design public policies that will get entrepreneurs excited they propose a decision tree. The purpose of the decision tree is to identify the \u2018binding constraints\u2019 that are holding growth back, and then step by step, to create public policies to loosen those constraints.\u00a0 The decision tree begins by stating that generically there are three constraints to growth: \u2018We start by asking what keeps growth low. Is it inadequate returns to investment, inadequate private appropriability of the returns, or inadequate access to finance?\u2019[iv]<\/a><\/p>\n

These are the three basic questions.\u00a0 Once it is decided which of these three constraints is most binding, the next step is to analyse how to loosen it.\u00a0 If, for example, the binding constraint is the second (the difficulty of achieving what Marx called \u2018the private appropriation of the social product\u2019), then the decision tree goes on to ask why, in a given nation at a given time, is it hard to pocket the profits from the investment:\u00a0 \u2018If it is a case of poor appropriability, is it a case of high taxation, poor property rights and contract enforcement, labour-capital conflicts, or learning and coordination externalities?\u2019\u00a0 If, on the other hand, it is the first constraint (low profits) that is the binding constraint, then the problem may be inadequate public investment in complementary factors of production such as human capital or infrastructure.\u00a0 Or it may be a case of poor access to imported technologies.<\/p>\n

Let us consider what the mainstream RHV diagnostic of what growth requires follows from<\/strong> and what it leads to<\/strong>.<\/p>\n

RHV follows from<\/strong> accepting what we called in chapter two the dependence of the economy on the confidence of investors and entrepreneurs SF1<\/strong>.\u00a0\u00a0 If SF1<\/strong> is treated as a given of the problem (rather than as UO treats it – as a problem to be solved), then RHV follows. SF 1, <\/strong>in turn, is a consequence of the basic social structure.\u00a0\u00a0 It is a consequence of the cultural rules that define material relations (as Porpora puts it).\u00a0\u00a0 In other words RHV does not, as we do, seek a solution to excessive dependence on private capital accumulation as the<\/em> motor to drive the economy by (1) recognizing and encouraging other ways to mobilize resources to meet needs, such as for examples (but only for examples, since on an unbounded approach the number of ways to solve a problem is infinite, not finite)\u00a0 the people\u2019s economy, the public sector, \u00a0the social or cooperative economy, or as in CWP using public employment as a catalyst to mobilize community resources; and (2) deliberately building a plural economy, as is now being attempted in Bolivia[v]<\/a> and Ecuador[vi]<\/a> and (3) Etc. (to be continued).<\/p>\n

To avoid misunderstanding, let it be noted now that recognizing that SF 1<\/strong> follows from the social structure, and therefore changing it requires changing the social structure, does not imply violence and extreme solutions.\u00a0\u00a0 Social structures (examples will be given below) can be tweaked and adjusted by consensus, by education and by an in principle unlimited number of peaceful decision-making processes<\/p>\n

RHV follows from<\/strong> treating SF1<\/strong> as a given.\u00a0 If it is postulated that only <\/em>profit-driven entrepreneurial decisions generate the activities that produce everybody\u2019s daily bread, beer, and meat then the next question must<\/em> be how to excite the entrepreneurs.\u00a0 The answer to the question does not have to be precisely the three items on the RHV short list (high returns, keeping the returns, access to capital to invest to get the returns) but it has to be something similar.<\/p>\n

RHV leads to<\/strong> constraining the welfare state.\u00a0 It leads to what four decades ago, James O\u2019Connor called \u2018the fiscal crisis of the state.\u2019[vii]<\/a>\u00a0 On the one hand R, H and V observe that high taxes on profits discourage growth. On the other hand, they also observe that growth is discouraged when states fail to provide adequate complementary factors of production in the forms of infrastructure and an educated work force. O\u2019Connor (and also J\u00fcrgen Habermas, citing O\u2019Connor, in The Legitimation Crisis<\/em>) points out that the state loses income, because it dares not impose high taxes on the investing classes. Over time, as (in Schumpeter\u2019s phrase) facts hammer logic into men,[viii]<\/a> the state shifts its tax base to consumption taxes like VAT.\u00a0 At the same time, state expenses go up, because public money must be spent to create the conditions that attract private money.<\/p>\n

Further, one who reads between the lines when RHV observe that labour-capital conflict is in some cases a binding constraint on growth, will discern that maximizing growth means tilting the dividing of the revenues of firms to increase the capital shares and decrease the wage shares.\u00a0 And so on.<\/p>\n

Let us compress the two phases of our argument.\u00a0 (Phase I:\u00a0 SF1 leads to RHV.\u00a0 Phase II:\u00a0 RHV leads to fiscal crisis of the state, favouring capital over labour, and so on.) We conclude:\u00a0 Excessive dependence on private capital accumulation to drive the economy leads to the fiscal crisis of the state, favouring capital over labour, and so on.\u00a0\u00a0\u00a0 The RHV growth diagnostic drops out as an unnecessary middle term. Structural un-governability follows directly from the constitutive rules of the system, from the constitution of what Charles Taylor has called a bargaining society[ix]<\/a>, i.e. from the basic social structure.\u00a0 We will see this melancholy logic work itself out over time in post-war Sweden.<\/p>\n

Further, we read in the NDP and elsewhere that the word \u2018growth\u2019 is commonly used to sing a song of la vie<\/em> en rose<\/em> about why all South Africans should voluntarily work together to grow a larger pie, so there will be more pie for all South Africans to share.\u00a0 In grim reality, systemic imperatives strengthen the already strong stranglehold of capital over government and over labour.<\/p>\n

Similar points could be made about counting on exports to fund a welfare state. \u00a0\u00a0\u00a0Living by exports requires living by the rules of the global economy, not by local rules.\u00a0 Democracy only makes local rules. Competitiveness means bringing costs, including wage costs, down to the levels of the costs of competitors, which means Swedish wages descend toward the level of Chinese wages \u2013 but which does not mean that Chinese wages rise toward the level of Swedish wages.<\/p>\n

Arthur Okun gave the world an example of bounded in-the-box thinking regarding inflation, another key issue in Sweden after World War II, with his concept of trade-offs.[x]<\/a> \u00a0Among the features of the then (1975)prevailing common-sense that Okun reflected, was the common idea that right-of-centre political leaders are willing to trade off more unemployment to get less inflation, while left-of-centre political leaders are willing to trade off more inflation to get less unemployment. Milton Friedman later eclipsed Okun with his view that increasing the money supply beyond what is needed to keep pace with a steadily growing economy only temporarily appears to create employment.\u00a0 In the last analysis, Friedman showed, a so called \u2018Keynesian stimulus\u2019 where the government steps in to loosen wallets by filling them with money, only increases inflation while failing to decrease unemployment. In his Nobel Lecture, Friedman argued that governments create inflation not because they want inflation, but because they want full employment and a welfare state.\u00a0 For Friedman the solution was the one he favoured anyway on other grounds:\u00a0 abandon full employment and a welfare state as goals.<\/p>\n

An unbounded approach, on the other hand, calls for moving parameters mainstream economics see as<\/em> unmoveable.\u00a0 UO steps out of the dilemmas. \u00a0Its la vie en rose<\/em> song sings aligning with the societal enterprise, enhancing livelihoods presently existing, and creating new ones in an unlimited number of ways. Among those unlimited ways, those that are inflationary can be ruled out, while still leaving an infinite number remaining. UO is all in favour of the rosy rhetoric of the NDP calling on all South Africans to align together for the common good.\u00a0 It calls for making the rhetoric sincere by backing it up with an ethic of care put into practice..<\/p>\n

The unfortunate conclusions following from this analysis of RHV\u2019s version of standard growth theory – which are tragic conclusion when translated from abstract terms into the flesh and blood suffering of human beings, and the heat and stench suffering of ecosystems – are conclusions that the Swedish Model appeared for a time to have successfully avoided.<\/p>\n

NOTES:<\/strong><\/p>\n

[i]<\/a> We adopt Ellen Meiksin Wood\u2019s phrase \u2018systemic imperative\u2019 to rephrase Keynes\u2019 demonstration that balancing the books of a capitalist economy requires<\/em> investments (and therefore growth) year after year to compensate for chronic insufficiencies of effective demand.<\/p>\n

[ii]<\/a> Chapter Two, \u2018Growth Diagnostics,\u2019 of Dani Rodrik, One Economics, Many Recipes<\/em><\/a>.\u00a0 <\/em>Princeton NJ: Princeton University Press, 2007.\u00a0 (While the book as a whole has one author, this chapter has three.) The word \u2018excited\u2019 comes from the previous chapter written by Rodrik alone.<\/p>\n

[iii]<\/a> There is a large literature disagreeing with Rodrik, Hausmann and Velasco on this point, holding either that there is no clear relationship between economic growth and social welfare or that if there is one it is the other way around: social welfare causes economic growth more than economic growth causes social welfare.\u00a0 See Richard Wilkinson and Kate Pickett, The Spirit Level<\/em><\/a>. <\/em>op. cit.;\u00a0\u00a0 Krishna Mazumdar, \u2018Causal Flow between Human Well-Being and Per Capita Real Gross Domestic Product<\/a>\u2019\u00a0 Social Indicators Research.\u00a0 <\/em>Volume 50 (2000) pp 297-313, and the sources cited by these authors.\u00a0 Amartya Sen takes the view that whatever the answers may be, the questions should be better framed.\u00a0 The Idea of Justice<\/em><\/a>.\u00a0 <\/em>op. cit.<\/p>\n

[iv]<\/a> RHV\u00b4s implicit premise that growth is achieved through investment-for-production-for-sale-for-profit is not idiosyncratic.\u00a0 In general, standard growth models do not consider other ways to mobilize resources to meet needs.\u00a0 That capital accumulation must happen for growth to happen is assumed in the concept of a balanced growth path where capital, labour, consumption, and output all grow at constant rates. See for example Roy Harrod\u00b4s seminal \u2018An Essay in Dynamic Theory<\/a>,\u2019 The Economic Journal\u2019<\/em>.\u00a0 Volume 49 (1939) pp. 14-33; Robert M. Solow, A Contribution to the Theory of Economic Growth<\/em><\/a>.\u00a0 op. cit. The necessity for capital accumulation, and consequently our first Staggering Fact, remains intact when human capital and endogenous change are considered.\u00a0 Charles Jones, Introduction to Economic Growth<\/em><\/a>.\u00a0 New York:\u00a0 Norton, 1998; Paul Romer, \u2018Endogenous Technological Change<\/a>.\u2019\u00a0 Journal of Political Economy<\/em>.\u00a0 Volume 98 (1990) pp. S71-S102.\u00a0 These last ways of thinking have the real-world consequence of leading to a crusade to protect the profitability of intellectual property rights rationalized as necessary to keep the growth engine going by making private investment in research and development profitable, which leads, for examples, to pricing needed medicines out of the reach of the poor and to farmers losing control of seeds.\u00a0 In some versions they also lead to a pro-natalist bias against stabilizing population growth.\u00a0 Julian Simon, The Ultimate Resource 2<\/em>.<\/a>\u00a0 Princeton: Princeton University Press, 1996.<\/p>\n

[v]<\/a> On Bolivia see Gabriel Loza, Bolivia: El Modelo de Economia Plural<\/em><\/a>.\u00a0 <\/em>La Paz: Ediciones Vinculos, 2013.\u00a0 This book and many other books can be faulted for lumping very different things together in the omnibus category \u2018private sector.\u2019\u00a0\u00a0 It is available as an e-book.<\/p>\n

[vi]<\/a> On Ecuador see Jos\u00e9 Luis Corragio, Economia Popular Solidaria en Ecuador <\/em><\/a>\u00a02007 (http:\/\/coraggioeconomia.org\/jlc\/archivos%20para%20descargar\/La_economia_popular_solidaria_en_el_Ecuador.pdf<\/a> – )\u00a0 In both countries principles of plural economy have been written into new constitutions.<\/p>\n

[vii]<\/a> James O\u00b4Connor, The Fiscal Crisis of the State<\/em><\/a>.\u00a0 <\/em>New Brunswick NJ: Transaction Books, 1973.<\/p>\n

[viii]<\/a> Joseph Schumpeter, The Theory of Economic Development.\u00a0 <\/em>New Brunswick: Transaction Books, 2007 (1911) p.80.<\/p>\n

[ix]<\/a> Charles Taylor, Interpretation and the Sciences of Man, Review of Metaphysics.\u00a0 <\/em>Vol. 25 (1971) pp. 3-51. P. 48.<\/p>\n

[x]<\/a> Arthur Okun, Equality and Efficiency: The Big Tradeoff<\/em><\/a>.\u00a0 Washington: The Brookings Institution, 1975.<\/p>\n

_____________________________________________<\/em><\/p>\n

\"\"<\/a> <\/span><\/em>Prof. Howard Richards is a member of the\u00a0<\/i>TRANSCEND Network for Peace, Development and Environment<\/i><\/a><\/span>.<\/i> He\u00a0<\/i>is Research Professor of Philosophy at\u00a0<\/i><\/span>Earlham College and he also <\/i>currently teaches in the University of Cape Town`s EMBA programme.\u00a0He was educated at Redlands High School in California, Yale, Stanford, UC Santa Barbara, University of Toronto, Harvard and Oxford.\u00a0His books include:\u00a0<\/i><\/span>The<\/span>\u00a0Evaluation of Cultural Action,\u00a0a study of an application of Paulo Freire\u00b4s pedagogical\u00a0philosophy in rural Chile\u00a0(London Macmillan 1985);<\/i>\u00a0<\/i>Letters from Quebec;\u00a0U<\/span>nderstanding the Global Economy;\u00a0The<\/span>\u00a0Dilemmas of Social Democracies;\u00a0Gan<\/span>dhi and the Future of Economics; Rethinking Thinking;\u00a0Unbounded Organizing in Community<\/span>;<\/i>\u00a0<\/i><\/span>and<\/i><\/span>\u00a0<\/i><\/span>The Nurturing of Time Future<\/span>.<\/i><\/span>\u00a0His new book, written with the assistance of Gavin Andersson,\u00a0<\/i><\/span>Economic Theory and Community Development: Why Putting Community First Is Essential for our Survival<\/span>,<\/i>\u00a0is available from the publisher, Dignity Press, and from Amazon and other major booksellers, as a print book and as an eBook<\/i>. <\/i><\/span>Email: <\/em>howardrichards8@gmail.com <\/i><\/a><\/span>and<\/em> howardri@earlham.edu<\/i><\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Let us take a closer look at the systemic imperative to do whatever must be done to achieve growth.<\/p>\n","protected":false},"author":4,"featured_media":216953,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[40],"tags":[232,331,354,562,2653,329],"class_list":["post-237274","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-transcend-members","tag-capitalism","tag-development","tag-economics","tag-finance","tag-growth","tag-resources"],"_links":{"self":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/237274","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/comments?post=237274"}],"version-history":[{"count":1,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/237274\/revisions"}],"predecessor-version":[{"id":237275,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/237274\/revisions\/237275"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media\/216953"}],"wp:attachment":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media?parent=237274"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/categories?post=237274"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/tags?post=237274"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}