The Diseconomics of Growth

H.V. Hodson

Chapter III.

The Cult of Growth

Despite the cloudiness of the theoretical concept of economic growth, and the obvious flaws in the method of measuring it (about which there will be more to say in the next chapter), it swiftly became the object of a world-wide cult. For this there were many reasons.

In the years immediately after World War II, the chief industrial countries of the world were all concerned first and foremost with recovering from the effects of the war and restabilising their economies; this had to be done on a new basis, to accord with the radical changes which the war had imposed both in industrial technology and in international trade. The defeated or devastated countries had to start from a low point in rebuilding their capital equipment and climbing back to their previous standards of life. At the other end of the scale, the United States, which had physically suffered very little, faced an equally immense task of remarshalling its gigantic resources, much of which it wisely put into mending the torn economic fabric of Europe; for it saw that a poor Europe could only impoverish America. In between, Britain struggled to recover its pre-war position, in face of painful shortages of food and materials, and at the same time to redress the wrongs or weaknesses of the pre-war economic system, an effort epitomised in the phrases “full employment” and “welfare state”. All these tasks were heavy. They left little room for larger or longer-term economic ambitions.

In fact they generally proved harder than the politicians had supposed, at least in the victorious nations, whose peoples expected a better reward for victory than more efforts and sacrifices. Expectations had to be damped down, and hopes deferred. Governments became unpopular and fell at the hands of disappointed electors. Politicians seized eagerly on a new miracle-word, a Ducdame, a charm to excuse present short-comings and revivify onward hope. What practice could not achieve now, “growth” would guarantee for the future. It was Mr. RA Butler (now Lord Butler of Saffron Walden), when he was Chancellor of the Exchequer in 1953 and was obliged to keep the clamps on relaxation of the economy, who told the British people that their standard of life, with a 3 per cent growth-rate, would double in twenty-five years. (Even the austere President de Gaulle, who scorned the values of the bourse and looked back into history rather than forward into space-fiction, told the French people, as he battled in the Presidential election of 1965 with widespread economic discontent, that their income would be doubled in ten years’ time: he must have been postulating a miraculous growth-rate of 7 per cent per annum.)

The arithmetic was as correct as the vision was tempting. Double the standard of life in twenty-five years! Every man twice as rich as his father was at his age! Every labourer with a craftsman’s pay, every craftsman becoming, in his working life, as rich as his boss had been at the start of it, every housewife looking forward to a double shopping basket by the time her children were grown up! It is no wonder that the miracle-word caught on. Growth Is Good For You. Put Growth in Your Tank and Go. What a change from the depressing economic slogans of the late 1940s—“We Work or Want!”

Unfortunately, the politicians had left out the small print in the prospectus. How do you get 3 per cent growth, or 5 per cent growth, or any economic growth? The answer was the same now as it had always been: by saving, capital accumulation, innovation, enterprise, skill and work. This was not, as a rule, what the public learnt, or at least what it heard and took in. The public soon came to believe that growth was an automatic by-product of the economic system of countries like the United States or Britain or Japan or Germany. If growth faltered or failed to materialise, you found someone to blame, usually the government. If there was unemployment or business recession, the growth-throttle must obviously be stuck too low. The prospect of growth became a travel brochure for a Promised Land.

The economists lectured the politicians about growth, just as Keynes and his followers had earlier lectured them about money management and the levelling of booms and depressions. They were the more eagerly listened to because of the apparent success of Keynes’s admonitions, deduced from the absence of any such violent fluctuations as had characterised the 1920s and 1930s. It almost seemed as if half the secret of national economic management had been found: the other half was the Philosopher’s Stone of endless growth. Professor Walter Heller, when he was Chairman of the President’s Council of Economic Advisers, wrote:

In 1961... nothing was more urgent than to raise the sights of economic policy and to shift its focus from the ups and downs of the cycle to the continuous rise in the economy’s potential. Policy emphasis had to be redirected from a corrective orientation geared to the dynamics of the cycle, to a propulsive orientation geared to the dynamics and promise of growth.

(From New Dimensions of Political Economy.)

We had come a long way from Keynes. His disciple Sir Roy Harrod was to go even further: “Economic growth,” he wrote in Reforming the World’s Money (1965), “is the grand objective. It is the aim of economic policy as a whole.”

Meanwhile the cult of growth had spread, like some feverish infection of which economists were the carriers, from politicians and publicists to businessmen and Trade Unionists and back again. If the general public reacted gullibly to the promise of growth, more sophisticated reasons for the cult had affected the financial and business world.

All the industrialised nations needed great quantities of capital for post-war reconstruction. Not only countries which had been defeated or devastated but even those which had suffered comparatively little material damage had great arrears of capital maintenance and improvement to make up, and a great hunger for capital to finance new technologies and to fulfil rising expectations in housing, schools and other public provision. Apart from international loans or gifts, which, if they relieved the capital-formation problem of the recipients, correspondingly enhanced it for the lenders or donors, the money-capital needed could be found only by one or other of two methods: inflationary finance, or public and private saving induced by high interest rates and budget surpluses requiring high taxation. Both methods were followed—successively in Britain, with money-pumping under Chancellor of the Exchequer Hugh Dalton, abruptly ended by austerity and devaluation under his successor Stafford Cripps. Paradoxically, both the inflationary and the deflationary techniques or phases had in one respect the same result, a distrust of the permanence of money values. As to inflation, revealing itself in a rise in prices (that is, a fall in the value of money) the point is obvious. As to continuing high interest rates, their effect is to lower the value of all fixed-interest securities: thus if 5 per cent undated government bonds formerly stood at par, a rise in the going-rate on first-class security from 5 to 8 per cent could be expected to drive down their market value from 100 to little more than 60. When, moreover, the £60 or 60 dollars were found to be worth in purchasing power much less still, compared with pre-war or pre-inflation times, bond-holders felt themselves doubly deprived, even doubly cheated. Whether they were individuals, or trustees, or corporations, whether they controlled huge pension funds or small private portfolios, they looked for a defence, and they found it in equity shares, particularly in a variety of them dubbed growth shares or growth stocks.

Equities take their dividends from profits, and profits generally may be expected to rise, in money terms, at least in proportion to the rise in the general price-level. Here then was a built-in hedge against inflation. But more than that, the profits of successful firms could be expected to rise, through growing efficiency, expansion of sales and the fruitful use of undistributed margins of profit, more than in proportion with the price-level and cost of living. Additionally, some shares had “gearing”, that is to say, the capital of the business in question included a substantial slab of debentures, or other fixed-interest borrowing, so that, if the gross trading profit rose in step with rising price-levels, the net profit for distribution after paying the fixed interest would rise more than proportionately. Such conditions offered an opportunity not only to compensate for rising prices both in income and in market value, but indeed to do more, to provide a growth of real as well as monetary value of the holdings.

Of course this was no new post-war phenomenon. Wise investors had always spread their holdings among fixed-interest and equity securities. But it was given a fresh impetus, and a much more widespread effect, by experience of wartime and post-war inflation, and of harsh falls in bond markets, and also by high post-war taxation. For even where capital gains were taxed—and in Britain they were not taxed at all before 1964—the rate of tax was substantially lower than that on incomes above a modest level. Thus money gained from rises in capital value was worth considerably more to the medium or high-bracket taxpayer than money from interest or dividends.

The result was to diffuse through the nation a much more widespread, sophisticated and powerful interest in growth (in terms, that is, of corporate profits, dividends and equity prices) than had existed before, certainly in countries like Britain. It was sophisticated because it was deliberate and purposive, not mere gambling on stock-market inflation such as had predominated in the 1920s. One measure of its wide spread was the greatly expanded readership for financial newspapers and the financial pages of general newspapers and periodicals. It was powerful because it came to pervade many strata of society—middle-class people as well as the rich, trade-union and pension funds as well as business corporations and wealthy trusts. For so many, inflation (at any rate on a moderate scale) had been largely discounted, and “growth” had become more than a hope—a requirement, almost a financial idol.

There is, of course, an illusion in this conjuring trick. To put it bluntly, you cannot eat stock-market growth. You cannot turn capital growth into current income, and spend it, or you have lost its virtue. If an individual sells stocks in order to cash in on the growth he sees on paper, he has to that extent diminished his capital: if he uses the money to buy more stocks, he has to pay someone else for their past growth. It is like thinking that you are rich because along with all property values the price you could get for the house you live in has gone up steeply: if you cash in on this, where do you live? You have to buy another house, at equally inflated cost. Of course you may be clever, buying cheaply and selling dear in the current market for stocks or houses, but this depends on skill (or luck), not on some alchemy called growth. And if everyone, or the great bulk of investors, were to seek en masse to cash paper profits reflecting growth, what would happen to stock-market prices does not need description.

An odd phenomenon is the special “growth stock”. On the face of things, any equity stock or share with a prospect of rising profits and dividends is a growth stock. Every investor buying any share hopes that its yield may grow and its market price appreciate: this expectation is the natural and necessary counterpart of the risk he takes that the opposite may happen. The expectation, coupled with the risk, does not automatically raise the price of the share above the level that gives a reasonable dividend yield. That reasonable current yield might be, say, 7 per cent, or a price-earnings (p-e) ratio of perhaps 10, allowing for undistributed profits. But now suppose the share is widely adopted and bought as a “growth stock”, with expectation that profits after tax will grow by an average of, say, 4 per cent of their total per annum. This “growth return” can be deducted from the income yield, to give an acceptable yield of only 3 per cent instead of 7, even before allowing for differential taxation on dividends and capital gains. For the investor expects to get 3 per cent on his money in dividends and 4 per cent in capital accumulation. This would correspond to a p-e ratio of perhaps 25, again after taking in undistributed profits. The corporation can raise new money comparatively cheaply, by “rights issues” or on the open market, and everyone seems to be happy—so long, of course, as the expectations hold up.

What, then, makes a stock a chosen “growth stock”? It may be the reputation and historical experience of the company or corporation concerned; or its policy of retaining a large fraction of profits for investment and expansion; or the diversity of its operations or holdings, which spread its risks and some of which, it is thought, are bound to be above-average profitable; or its early participation in a newly developing industry or market or technology; or the reputation of its managers for prudent and successful finance. All these are good reasons. But any of them could turn sour.

Suppose that the expectations are falsified, that actual profits do not expand by 4 per cent per annum but remain stagnant, that the dividends are unchanged and the hope of their increasing recedes into the future. The growth calculation vanishes, the market consequently values the shares on a normal 7-per-cent dividend basis, the p-e ratio goes down to 10, the investor, so far from seeing his capital grow in market price, sees it fall by 60 per cent, and he is stuck with an income of 3 per cent or less on his invested money. If it were not for the writing-off provisions of Capital Gains taxation he would be really in a hole. Yet the company is still, by hypothesis, doing well, just as well as when he bought the shares: it is only its expectation of continuous growth that has been falsified.

The supposititious figures are invented and arbitrary. But experiences of the sort that they illustrate do happen. A growth stock becomes a non-growth stock, and a lot of people are nastily hurt, or feel nastily hurt anyway. However, the bad may be reckoned with the good, growth considerations or none, and the rest of the bandwagon rolls on. New investors come in and buy the old stock at the new cheap price—for eventual growth.

But now suppose that the expectations of growth of profits are generally falsified, or are falsified over a wide area of industry and commerce. Some other important country’s boom bursts, maybe, or the terms of international trade turn adversely, or at home the balance-of-payments position enforces a deflationary regime for a longish period in place of the underlying expectation of steady inflation and rise of prices. The prospect of profits-growth for a big range of companies whose shares were previously bought on the strength of it is darkened to obscurity. What then? The growth market stops in its tracks. A stock-exchange recession goes further proportionately than any actual fall in individual profits—indeed these may still be rising, though more slowly than before.

All this is very painful to a great many people—investors, stock-brokers, managers, bankers, businesses that need to raise capital, euphoric economists and financial journalists, government treasuries and plenty of others. Which is one reason why it does not happen as often or as severely as a cool look at the risks and fluctuations of the trade cycle and world commerce would suggest it might. For the great vested interest in growth makes sure, as best it can, that if the reality of growth is not present the myth of it is kept alive. If God is dead, the priesthood are the last to admit it, and whom but the priests will the faithful believe about God?

The cult of growth infected business operations as well as financial investment. To succeed in business nowadays it is not enough to be successful: that is, to go on making a good product, or rendering a good service, with a satisfied and satisfactory work-force, at a cost which keeps the sales steady and yields a regular profit. To succeed, you must grow, either by producing and selling more and more of the same sort of thing or by producing and selling of lot of different things besides.

There is of course some sense in this. In business, as in many other human affairs, to stay still is to risk going downhill. Amid ceaseless change, there must be movement, and if movement is not forward it must be back. Fresh competitors, new inventions and techniques, rival products, variable tastes, shifting markets, relative changes of costs and prices, all such chances have to be met and encompassed. The choice in action may be, overall, between advance and retreat. There is nothing inherently wrong with corporate growth or with the wish to achieve it. But when it becomes a fetish, its pursuit carries many dangers, both for the pursuers and for others.

In a confined economic area, the growth of one firm is liable to be at the expense of others, which will have to turn in other directions for growth: the trend is therefore towards monopoly, or quasi-monopoly, that is to say, a dominating market position. As businesses grow in size, they encounter the well-known diseconomies of scale: detachment of the higher management from the productive process, scarcity of top managers able to comprehend and control a vast complex, financial laxity leading to over-trading and crisis, discontent of workpeople too remote from management, and high labour turnover, especially in middle grades. These penalties of too big a size, reached perhaps through growing too much too fast, may be further compounded if the growth takes the form of diversification.

Again, there is a great deal of good, both for a business and for the economy, in a firm’s wish to diversify. By not having all its eggs in one basket, by hedging against changing markets and technologies in its original field, it can not only help stabilise its finances but also give more stability to its employees, suppliers and others. But when growth through diversification becomes an end in itself, then the diseconomies multiply: businesses bought for their cash or their undistributed profits, not from any desire or ability to use their assets better; ignorance among higher management of some of the varied trades and products that they are supposed to control; central management conducted for financial, not productive, reasons; lack of identity and coherence in the company or corporation; still greater divorce between the labour force and those who determine their working conditions. There is plenty of factual evidence of the diseconomies of “conglomerates” in the staff report (September 1971) of the Anti-Trust Sub-Committee of the US House of Representatives Judiciary Committee. It found that management difficulties with newly acquired companies often had injurious effects upon efficiency, productivity and corporate values.

The take-over bid has been the most striking instrument of growth for individual businesses. Take-overs come in various forms: straight offers of cash, offers of cash plus shares, or of shares alone, purchases of key blocks of stock in the market, reverse take-overs in which the bosses of company A acquire company B by selling A to B in return for a controlling interest, and many variants of these methods. It is doubtful whether any take-over by itself ever added anything to the economy of the nation. Some may well have subtracted from it. Their economic merit depends on their consequence for the total efficiency, not only of the combination compared with its previous parts, but also of the whole industry or sector in which those parts operated. (For instance, a take-over for the purpose of eliminating or substantially reducing competition is unlikely to result in higher efficiency, from the national point of view, of the sector brought nearer to monopoly.) Higher efficiency can come in several ways: through better management by the successful than by the displaced firm, through management economies effected by concentration, through rationalisation of production units, through better use of reserves or cash resources, through economies of larger scale. The proof of the pudding is in the eating.

A further word, however, must be said about economies of scale. This has been another catchword. Economy of scale arises essentially from the more complete or continuous utilisation of capital equipment (including ad hoc equipment for production lines, like jigs and tools, as well as permanent machinery, buildings, transport and so on). Whether or not it follows from increasing the size of business is therefore a technical question. It is far from automatic. If existing equipment and management resources are occupied to their fullest continuous capacity, larger scale may add problems rather than multiply efficiency. Businesses can be too big as well as too small. Some of the most profitable, go-ahead and efficient businesses are comparatively small.

These reflections are far from being proof that growth of businesses is bad. They are only a warning that the cult of growth in business carries no more guarantee of its value to the total economic welfare of the nation than does the cult of growth in other respects.

Broadly speaking, the world of business and finance has acquired an all-pervading interest in growth, or at least in the appearance of growth. A sham growth, even a temporary spurt of actual growth, may be induced by inflationary expansion. The cult of growth has a side-chapel for reverence of “controlled inflation”. Inflation, however, is hard to control, and both Britain and the United States, as this is written in the winter of 1971, are struggling to gain a grip on inflation through spiralling wages, which is one of the pernicious fruits of the political cult of growth.

If you tell people that their real income will surely double in a generation, or go up by 10 per cent every three years, or two years, or whatever the measure of the miracle-worker may be, many of them will not be content to wait until they see this happen. They are too sceptical of promises of jam tomorrow not to want to make sure of some jam today. And they are too competitive not to make sure of getting at least their due percentage by demanding their own share of the larger cake before others take it all. This attitude of anticipating benefits to come is daily encouraged by schemes to Buy Now Pay Later, which are ardently promoted all round us. A man is a great deal more cautious about pledging away his future income when he believes it is going to be much the same year after year than he is when he believes it is going to rise steadily under, some law of growth. The same philosophy is readily applied to incomes: More Pay Now, Better Work Later.

Trade Unionism naturally magnifies this philosophy, and gives it power; for it is the business of Trade Unions to get all they can for their members as quickly as they can. A union leader who fails to do that is in poor shape to be re-elected. This is one of the facts of economic life, which it is as pointless to bewail, or to regard as some sort of moral obliquity, as it is to regard in the same way the propensity of management leaders to make all the profits they can. In a bargaining process it is normal and natural to ask for more than in the last squeeze one is prepared to accept. But the asking price must have some reason behind it, or it will be a mere bubble as a negotiating counter.

So, in an era of whacking wage demands, we have to ask what is the rhyme or reason behind them. Union officials and the men they represent are not such innocents as to confuse real purchasing power with nominal money wages, or to imagine that a quart can be extracted from a pint pot. What, then, are they doing when in a situation in which keeping pace with the rise in the cost of living might justify a claim for, say, a 7 per cent increase, and direct industry-wide productivity improvements another 3 per cent, they demand rises not of 10 per cent but of 25 or 30 per cent or even more? Consciously or not, they are basing themselves on the article of faith in overall growth which has been written into the economic catechism, the belief in naturally, inevitably rising real incomes. Why not now? Why not for us, before the others snatch it all? Productivity is only the local weather: the climate is growth, and that is what matters.

Of course, demands are not achievement. There is another party to the negotiation. If the employers can’t or won’t pay more than 7 to 10 per cent, that is that. There is a showdown, perhaps a long strike, the outcome of which may be a long way from the original demand. But whether in fixing the limit at which negotiation must break down, or in yielding some further concession after a struggle, the employers are also motivated by thoughts not only of present but also of future capacity to pay, and thus by their own belief in growth. This is likely to be more optimistic than cautious; for it takes a self-confident character to become a top businessman, and the cost of a stoppage may be so great that there is a strong inclination to err on the hopeful side, especially in a period when costs and prices are being inflated all round. So wage settlements tend to be well over the real odds—say 15 per cent instead of a barely justified 10 per cent increase—and all that is left for the management to do, in order to recoup the cost, is to put up prices.

This is the all-too-familiar phenomenon of wage-inflation. Anticipating the promise of growth, though not the whole of its motive power, is a very important part, on both sides of the wage-bargain. There is always a strong psychological element in the process of inflation.

We can diagnose the psychology of the growth cult as the syndrome of rising expectations. Every economic decision, whether by businessmen or investors or Trade Unions or governments, comes to be coloured by reference to a growth-standard. Investment follows the star of growth. So does budgetary policy. So do wage-claims, price policies, marketing decisions, sales promotion. Business develops a novel psychological complex, oscillating from growth euphoria to growth depression. A new fantasy-world is created in public, private and business imaginations. As with other fantasy-worlds, experience of them may be heightened by drugs, which then become part of the fantasy existence. In the case of growth-fantasies, the popularly recommended drug is monetary inflation, under the cosy brand-name of reflation.

Inflation has its respectable defenders, even advocates. There are plenty of economists who would prescribe a continuous inflationary treatment, like a dose of salts night and morning, to keep business active, employment high and economic growth on the march. Of course it has to be mild inflation—as if one might talk about mild leukaemia. No slide down the inflationary path, only a steady shuffle. Say 3 per cent per annum. This, it is pretended, will hurt nobody very much, and frighten nobody into a panic flight from money, while it will stimulate investment, tempt enterprise, and keep business moving. And the reward will be growth.

But the magic of compound interest, which has been such a wonderful advertising gambit for growth, works in reverse with inflation. If 3 per cent growth doubles national real income in 25 years, 3 per cent inflation halves personal real income in exactly the same period, for those whose money income is fixed. A cynic would say, “Well, they are mostly old people, and they will be dead before they feel the worst pinch.” Any person over, say, 60 will see the stupidity as well as the cruelty of such a statement. Others might say “It is open to anyone to hedge against inflation: don’t buy government bonds or annuities for retirement income, buy equities, linked to inflationary boosting.” That is good advice, of course, to anyone with the chance to set up a balanced investment portfolio, but of limited value to the great mass of people living on pensions or small savings, or handicapped people with a disability allowance.

Nor is it only the man or woman whose income is fixed absolutely in money terms who suffers by inflation. It chisels anyone whose income does not keep in step with it—which, for security’s sake, means a step ahead. Many professional people, and unorganised wage-earners, and middle-rank salaried workers, find their real incomes falling, even while service and seniority justify a rise. Progressive taxation of incomes makes matters worse for them: a man may get a 25 per cent increase in salary, say from £2000 to £2500 per annum, to match a 25 per cent rise in prices over several years, yet his net income after tax will be less in real value than before the inflation. Specially vulnerable victims are those whose work serves the public rather than private interest: civil servants, school teachers, nurses, welfare workers, postmen, employees of charitable organisations. Inflation gives to the Haves and takes away from the Have-nots.

Another wound which inflation inflicts concerns wage-differentials. In some industries, trades and working places, differentials are traditionally so much in money: so many pence or cents per hour, so many pounds or dollars per week. When there is a general pay-rise to cope with the swelling cost of living, these money-differentials are often left intact. But of course they are eroded, in real value, by the percentage of the inflation. The effect is not serious if this is, say, 5 per cent, but it does become serious if, after two or three such operations, 20 per cent or more of value is lost from the differentials for skill, training and responsibility. This is one of many ways in which inflation twists and distorts the structure of prices and pay.

Inflation, even modest inflation, is bad in itself. It warps the economic fabric. It penalises the weak and those least able to defend themselves: this goes not only for individuals but also for government units (like inner cities in America) which cannot raise revenue as fast as inflation boosts their liabilities. It encourages grab and envy. It quickens the pace of the competitive rat-race. It discourages thrift and undermines security. It strains the international monetary system on which world trade depends. Compared with unemployment, it makes more people suffer, not so acutely as the few, but with less hope of escape.

Yet we see the absurd spectacle nowadays of politicians boasting that inflation has been “brought under control,” in that the current rise in prices has been reduced from around 10 per cent per annum to some slightly lower figure—as if one should say that a gang of robbers had been brought under control when they robbed only on Mondays to Fridays and desisted at the weekends. One feels that if the rate of inflation came down to 3 per cent per annum those political leaders would claim there was no inflation left; that they have come to believe some such figure to be an irreducible minimum, like residual unemployment of 1 to 2 per cent of the work-force, forgetting that even nil price-inflation is not absolute zero, and that an actual fall in average price-levels is not contrary to the laws of nature or economics.

A stable value of money ought to be as constant and over-riding an objective of public policy as full employment or business prosperity. They are far from incompatible. A stable price-level is a good foundation for real growth. But this is not the credo of the growth cult, which pays more heed to appearance than reality.

The cult has become world-wide. Its beliefs have universal attraction. International comparison plays a significant part in the religion and literature of growth. Countries with high economic growth are everywhere envied, those with low are pitied.

Interest in the economic growth of poorer countries was one reason, but only one, for the emergence of a world-wide apparatus of growth statistics. The United Nations and its agencies set up statistical systems. So did the World Bank (Bank for International Reconstruction and Development). It was part of the function of these bodies to monitor the economic progress and problems of the countries with which they were concerned. National statistics, often very deficient in themselves, are notoriously difficult to collate internationally. To avoid complications which would obscure the figures for the politicians and other practical operators, simplifications and short cuts have to be imposed. Gross National Product figures, however unreliably made up, are set alongside each other. Changes in them become records of comparative economic growth.

So we get a set of economic growth figures, country by country, a sort of league table, which are freely reproduced in the general press and even in learned papers, and are widely cited as evidence of good or bad economic behaviour on the part of various nations, although they are highly unreliable even in a limited economic respect, let alone as evidence of real improvements in the well-being of peoples. In the first place, the basic statistics are often defective. Secondly, the point of departure, whether high or low in the scale of economic advancement, is of considerable importance in comparisons: normal or expected economic growth-curves are not straight lines but tend to flatten out as economic life becomes more complex, until a fresh impetus starts a steeper phase. Thirdly, non-economic factors, like the social welfare connected with income distribution, are left out: so, too, are diseconomic factors like pollution or the using-up of limited resources. Yet large public policies come to be based on these dubious comparisons, and on their even more dubious projection forward into future years: not only internal policies, as for example in Britain because she appears low in the league table, but even external policies, as for example in relation to countries which appear specially high in it.

Japan is one such, and it is worthwhile considering her case, because it illustrates some of the many factors that have to be taken into account in comparing national growth-rates. Hers, on the face of it, is certainly phenomenal, much the highest of any industrialised country. If it were to continue at its present percentage level, she would soon outstrip the United States and become the richest country per-capita in the world long before AD 2000. But there are several reasons why we should discount any such calculation. One is that Japan’s extraordinarily high rate of investment, the grounding of growth, has been supported by a system of industrial paternalism, which may well be eroded as western ideas about individual rights and Trade Unionism seep into Japanese outlooks. Another is that a large part of the economic expansion is due to her having carried little load of defence costs, and much less than her share of aid to poorer countries: these things also may change. Still another is that much of the growth has been based on modernisation of agriculture (an area of production which in advanced countries has shown itself capable of well-above-average growth in efficiency during the past 25 years) and on the consequent release of thousands of workers from the land to form a relatively cheap “immigrant” population for industry and the cities: this is a process which has eventually to come to an end. Still a fourth reason, and perhaps the most telling of all, is that, if Japan has the developed world’s highest growth-rate in industrial output, she also probably has the developed world’s highest growth-rate in industrial and urban pollution, in the widest sense. In other words, her recorded capital investment has been offset by an unrecorded capital deterioration, in the form of polluted waters, foul city air and unmanageable growth of dense urbanisation. One day she must check and counter this process.

It is the biggest of all the illusions of the growth cult that the countries with the highest figures of economic growth per annum are the best off and the most enviable. Why this is an illusion will appear from an examination of how such figures are composed.

Yet another growth-point in the post-World War II ideology of growth has been its application to the economies of “less developed countries” and to questions of aid towards them. The war generated a widespread mood of idealism in the West. This helped to create the United Nations and its offspring, the World Health Organisation, the Food and Agriculture Organisation and Unesco. It was also given a rich field in which to bloom by the collapse of European imperialism. Vast areas and populations which had previously been regarded—critically or approvingly—as the responsibility of the colonial powers became, with their independence, a charge on the conscience of the whole western world. The United States, previously absorbed in her own internal expansion and reluctant to incur outside obligations (except when national defence required them, as in Hawaii and Puerto Rico), found herself a world power committed to a role in every continent, a role which her people took up with characteristic idealism, tempered by a main-chance view of the necessities of the Cold War. For these and other reasons, the immense contrast between the wealth of the industrially advanced countries and the poverty of the rest, especially in Asia, Africa and Latin America, which had previously been accepted as a fact of life, quickly became a by-word and a hissing.

It was quite obvious that if the contrast was to be subdued, or even if the poor countries were to become measurably less poor (whether or not the gap between them and the rich was narrowed), it could not be done by charitable redistribution of surplus wealth. Such acts could mitigate a natural disaster, but they could not permanently raise a whole nation. The answer, equally obviously, lay in the economic growth of the poor countries themselves. Aid, whether given or lent, was sought to be channelled into helping the development of the resources and man-power of the beneficiaries. Its degree of success could be measured by the progress of the recipients’ economic growth. The only thing wrong with all this was that factors of public well-being not entering into economic growth statistics tended to be neglected, a point of global force which will be elaborated in the next chapter.

The effect, then, was to build the concept of economic growth into another vast area of governmental policy and popular concern. Development equals growth, growth equals development, economic growth of the less developed countries is the sine qua non of solving a great world problem, by extension through international trade the economic growth of the less developed will aid the economic growth of the more developed, and through expanding markets for tropical and other products the economic growth of the more developed will aid the economic growth of the less developed. Worship of the god of growth thus acquires a missionary zeal and a moral sanction.

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