In his book The Moral Consequences of Economic Growth, Benjamin M. Friedman posits that steady economic growth: “fosters greater opportunity, tolerance of diversity, social mobility, commitment to fairness and dedication to democracy.” Friedman’s hypothesis is defended with an impressive range of evidence from disciplines including economic and political history and other relevant sources. He also highlights our understanding of the relationship between economic growth and our willingness to cooperate by drawing on literature in psychology and especially behavioral economics and he emphasizes that economic growth transforms society into a “cooperative venture for mutual advantage.”
But when economic growth stagnates society has less tolerance and social unrest coupled with people less willing to cooperate and more focused on satisfying their own basic needs – a me, myself and I world. Some authors have predicted we are already in a Great Stagnation, others indicate that economic growth, in ‘advanced economies’ will continue at a nominal rate of growth of circa 1 to 2 per cent for many years, possibly decades.
The big question is – are we likely to see the growth rates of the 20th and early 21st century again? Even though much of it was built on a house of debt!
The economic boom after the Second World War was predominately built on two sectors: housing and automobiles – which collectively accounted for 40 percent of the high growth rates. In more recent years we can see the same sectors responsible for the high growth rates in emerging markets such as Dubai, Abu-Dhabi and other Emirates and in Europe countries such as Poland which emerged from Communism some 25 years ago, a housing boom and flourishing car market quickly followed. The same is happening today in China.
Flourishing housing and automobile markets have many spin-offs: fuel, highways, transportation, associated household equipment, mechanical parts, banking, finance, etc. As history shows, housing and automobile markets do slow and the consequences are now being felt across the developed world.
Without such markets how will we get the levels of employment near to 95 or 100 percent?
The facts are; new flat screen TV’s, smartphones, tablet computers, laptops, mobile Apps, etc. will not generate anywhere near the level of economic activity that is required to grow the economy and put people back to work.
Historically, technological innovation has provided the momentum for long-term economic expansion. The area with the greatest potential for technological innovation today is advanced Robotics and the associated technology of Artificial Intelligence. But let’s not kid ourselves, there is no point in developing these technologies unless they serve a significant purpose – and the overall purpose for robots and A.I., especially within the workplace, is greater efficiencies and reduced costs. Much of these reduced costs will, in the long run, come from reduced headcount – people.
I am a strong proponent of the advances in robotics. Our lives can be greatly enhanced by exoskeletons, driverless cars, artificial assistants and so on. In the short term these sectors will create more jobs, but over the next two decades the full economic benefits of investing in robots will mean one thing – less people working.
Government investment in infrastructures, green energy and other advanced technologies will of course help spur the economy. But these will have to be paid for from somewhere and with Government debts at record levels few countries can sustain the levels of investment required to make meaningful long-term investments.
This is where I believe a new welfare state is increasingly becoming one of the only sensible options. Many are calling for a ‘living wage’ or Basic income Guarantee. Seattle in the United States and Switzerland, where approximately 45% supported such a motion in a recent referendum, could prove to be very informative test cases. The former US Secretary of Labor Robert Reich has said:
We’ve got to seriously think about how we widen the circle of prosperity, how we get shared prosperity. Otherwise, who’s going to be the customer? And a minimal guarantee with regard to income, it seems to me as almost inevitable in terms the direction that the structural changes of our economy are taking us in.
With excessive household debt, low savings, wage stagnation, almost 2 in 5 on the poverty line in advanced economies it will take something of the order of a basic income guarantee to spur economic growth or we can be sure to witness Gartner’s prediction of mass social unrest in the coming decade.