The Costs of Economic Growth

DT : Please tell us about your early years.

 

EM : My father, who was a textile importer, and mother came from Cairo to this country in about 1915. They were from a Jewish background but they weren’t very religious and I wasn’t very religious particularly. I was born in 1917. I went to Manchester Grammar School , but left at the age of 15 and went to Central America to learn the family business. My father exported textiles to my Uncle Sam, who lived there. I learned the business and the language, and spent the years until 1937 going to various parts of Central America .

My father had opened a textile mill by then in Guatemala with his brother, so I went to learn textile technology at Salford Tech. I did two years and got a City and Guilds qualification. When the war broke out, I joined the RAE, because of my eyesight I was demoted to ground staff. I was demobbed out in 1943.

I realized that if I went into economics I’d know a lot more about business than my father! So I went to Manchester University and took my first degree there in economics, then to the London School of Economics for two years and then to Chicago for two years, where I took my doctorate, my supervisor being Milton Friedman. I got into the London School of Economics as assistant lecturer in 1956.   I gradually moved up the ladder to become professor in 1974, but resigned my chair in l977 to take up a position in a number of American universities until 1983 when I had to retire—although I felt sure I could have continued teaching for another 20 years.

 

DT : A belief in economic growth often goes hand in hand with ‘progress.’ What first made you doubt these parallel myths?

 

EM : I remember standing on a bridge over a busy road in Chicago . I said to my fiancée “Look at all these cars. Three lanes are going south, three lanes are going north and if you live in the south you go north and vice versa. Look at all the waste!”

In 1959, the editors of the two premier economic journals in Britain and America arranged for 12 surveys to be written on selected aspects of economics.

I was elected to write the one on welfare economics, which deals with the alloc­ation of scarce resources so as to advance the general welfare. It turned out to be quite a success and was translated into many languages, including Japanese. Yet I ended the survey expressing misgivings about any theoretical progress in the subject having any guidance to offer in promoting welfare, at least in the West. The more I thought about the matter, the more I began to suspect that continued economic growth in the West was, on balance, more 1ikely to diminish than lo enhance the welfare of society.

During seminars organized to discuss the issues I raised, my views were not well received. Nearly all my colleagues virtually pounced on me, occasionally suggesting that I was romanticizing about some golden age that had never existed, but it was nothing like that. I thought more and more about it and wrote other articles on the theme, and finally, in 1965, my book The Costs of Economic Growth one publisher after another dismissed it and called me a dreamer, so I pushed it into a drawer and forgot about it.

In 1966, a young man, Lionel Needleman, joined the economics staff at LSE and during a conversation I mentioned my ill—fated book. He said he knew of a publisher who would publish anything. I sent the MS to him, but even he was lukewarm, and in reply sent two pages of cynical comments by his reader. I promptly ‘phoned his secretary and said I would withdraw it unless he accepted it exactly as written. To my surprise, he agreed.

It turned out to be a tremendous success, and received ‘rave reviews’ even from academic economists. That was the beginning of my ‘fame’ or notoriety.   I received invitations to lunch or dine with a number of well-known editors and other important people, offers to give public lectures at which I enjoyed red-carpet treatment. In l97l, while in Washington DC , I was interviewed by a couple of reporters from the New York Times which took up the whole of their Sunday magazine supplement. I was represented as a creative economic theorist, though an eccentric one - really telling us that economic growth was bad for us. (Incidentally, Penguin bought the paperback rights, sold 50,000 copies, and then bid for my 21 Popular Economic Fallacies. I was proud to have it reviewed by the late Enoch Powell, who recommended the book to his fellow MPs.)

 

DT : Eminent though you are, you are in a small minority amongst economists and educated opinion in general. Why do people go along with the idea of endless economic growth?

 

EM : Other economists were too busy keeping up with the growth of the economic literature or seeking to advance their prospects—although, later on, about the 1970s—journals and books on environmental economics began to appear.

Then, many economists and business leaders were persuaded by a famous article written by Ronald Coase published in the Journal of Law and Economics in 1960. There he argued that, given a proper system of property rights in all resources, a competitive economy would of itself bring about an ideal allocation of goods and resources without any intervention of governments, In other words, we didn’t have to worry any more about the spillover effects of industry or any economic activity: Just leave it to the market!

Obviously such a theorem became very popular among Chicago School economists and business leaders, and was often quoted at conferences—even though, in an article published in l967, I pointed out that the theorem was valid only in very restricted circumstances. For all significant spillovers it was useless. (I also wrote a satire on it, “Pangloss on Pollution,” published in the Swedish Economic Journal in 1971.)

There was a recent television series on economic growth and happiness. Among others they also consulted Lord (Richard) Layard, who was one of my graduate students in the Sixties. He gave reasons why greater material growth may not be expected to increase happiness—all of which reasons can be found in my Costs of Economic Growth—although it is immodest in me to say so.

[ Editor’s Note: Lord Layard is founder-director of the LSE Centre for Economic Performance.]

DT : Isn’t cost-benefit analysis a fairly crude tool?

 

EM : CBA’s not crude, but it’s extremely slippery. Perhaps that’s why I was attracted to it. My book Cost-Benefit Analysis (1971) was the first book that ever came out on the subject. I’ve just finished the fifth edition.

You can get pretty far with CBA in the absence of uncertainty about the future. Uncertainty implies that you don’t even know the probabilities of the future movements of prices and other variables. It has become an increasingly popular technique, but the question of the wellbeing of’ individuals, whether they will get greater enjoyment of life or not, doesn’t come within its ambit.

 

DT : You have been accused of being anti-science and anti-technology, because you believe that scientific research is limited in its usefulness and has unquantifiable implications. Can you clarify your views?

 

EM : I’m neither anti-science nor anti-technology, but I do recognize their limitations. For example, the computer and the Internet have had all kinds of consequences which I would rather do without. Terrorists, sex offenders, and paedophiles can all communicate more easily, and it has been used to penetrate military secrets. You could possibly even use the internet to shut down whole industries. I even wish we hadn’t invented the automobile and air travel. Has technology made us feel better on the whole—has it made us a closer knit community? It hasn’t worked that way.

I just point these things out; I can’t give any  solutions to the problems. In fact, I don’t think there is any way of stopping it. The culmination of all this is that we are on a path of self-destruction. So much money is poured into research; so many people depend upon it. It has enormous corrupting power.

 

DT : There seems to have been a move away from market fundamentalism in recent years. David Cameron, for instance, now talks about well-being being more important than GNP. Is this just electioneering or a genuine change of heart?

 

EM : I don’t think it will go very far. Milton Friedman recommends competitive capitalism as the solution and I can understand that point of view. If you had to choose between central direction or resources or the market I would always prefer the market for the reasons he gives—most importantly, the dissemination of power rather than having it concentrated in one place.

I don’t think there is much else you can do about economic growth except to be aware of it. The power wielded today by conglomerates and monopolies is extraordinary. I can’t see how you can counter that unless you give more power to the state. We’ve got the Mergers and Monopolies Commission which occasionally acts, but when we are talking of globalization we are also talking of gigantic trans-planetary business concerns wielding great social and political power. I don’t think there is much hope of persuading them to expand more slowly, or to think of the effects on people’s welfare.

 

DT : Certainly not when the mainstream political Left has bought into market reductionism as well. People seem to depend more on the moral influence of non-governmental organizations than on the government—to hope groups like Greenpeace might make an impact in time.

EM : They do indeed make an impact, if only on the media. But I don’t think it is critical. I am very pessimistic about the influence they can exert on governments. Think of all the scientists engaged in research, practical research into innovations that will change our way of life. There’s no stopping it.

DT : Is nobody in British politics on the right track?  

 

EM : I can’t think of anyone, but even if they were on the right track they couldn’t do much about it. Cameron is not a bad lad. He will probably talk his way to Prime Minister but he hasn’t got a lot to offer. I don’t think any one has. You’d have to have supreme power, and not only over Britain . We in this country may all become conservat­ionists, but we won’t be able to persuade the Chinese government to slow its rate of development and think primarily about the growing pollution of its cities and its rivers. And then there’s Brazil where they’re still battling on against the odds to save what’s left of the Amazon forest.

I am a great admirer of determined environmental groups like Greenpeace, but their occasional successes can only delay environmental degradation of the planet.

 

DT : What do you think are the current forces driving immigration policy in the West? Is the present open-door policy driven solely by economics?

 

EM : I can only guess. What strikes me most is that governments in the West seem to be so ignorant of basic economics.

Soon after the last World War, the media kept on about a general shortage of labor in Britain —a popular fallacy if there ever was one. What was in fact happening at the time was incipient inflation. And that could only be aggravated by immigration. Soon we became worried about labour shortages in particular sectors of the economy, chiefly in transport and nursing. So, during the 1950s, Caribbean families were being encouraged to migrate into Britain in large numbers.

But the vacancies in question were spurious: for a rise in pay (and improvement in working conditions) would have attracted the necessary numbers—which would mean a distribution of real income to workers in these occupations from the rest of the working population.

Not only is there no economic justification for the continuing flow of immig­rants to our shores, but their presence here has created resentment among the indigenous population. Unavoidably they give rise to social problems, sometimes racial conflicts, that continue to place a burden on the police and strain our political ingenuity and our resources.

Yet among the members of the establishment and among academics, the tendency was to flaunt their enlightened credentials by welcoming the mass of colored immig­rants as a valuable contribution to our economy and our society. You could say that it was not so much woeful ignorance as determined ignorance, as purposeful ignorance. Academics and politicians just didn’t want to know: in any case Britain had a long tradition of supporting the free movement of goods and people.

I recall that when Needleman and I were invited to speak at an economics seminar at LSE about our recent article in one of the economic journals, one containing estimates of the excess aggregate demand for domestic goods and imports arising from mass immigration, we came under relentless attack. It felt like being the accused at a Moscow state trial. Yet our colleagues must have known that even quite elementary economics would show that the import of labor must add to aggregate demand and act to lower real wages.

I recently heard Frances Cairncross, a contributor to the Economist, speaking on the radio about the pensioner problem. According to Miss Cairncross, since the ratio of workers to pensioners was declining, owing to the decline in the indig­enous birth rate, the required ratio could be restored by immigrant workers. Moreover, we may not have to continue this immigration indefinitely as the immigrants could be expected to have larger families. I have to admit I almost exploded while listening to her. Of all the conceivable ways of tackling the pension problem, this was, far and away, the daftest criminal lunacy.

The obvious and simple way to maintain standards for pensioners is to have workers save and invest more from their incomes—though not much more if workers agree to retire later in life than 65 or so.

 

DT : What are the chief diseconomies of mass immigration?

 

EM : The main disadvantage is that it acts over time to lower real income. The more capital to labour the higher living standards are.

There is also a strong relationship, especially in this country, between total income and total imports; the more people come in, the more goods we import. Thus mass immigration acts to turn the terms of trade against us. And this takes the form of a rise in the costs of imported goods and materials, so reducing average real income. What is more, if the rise in the costs of goods is significant, it is almost certain to lead to claims for higher wages and, possibly, a wage-price spiral.

Of course, life would be easier if all of us resigned ourselves to the unavoidable fluctuations in the costs of imports—that is, without making wage claims whenever the costs moved against us. But given what Daniel Bell called “the revolution of rising expectations,” characteristic of Western societies today, we can be sure that wage claims will continue over the foreseeable future whatever the pretexts.

The third element is the limited supply of land, especially important in a relatively small country like ours. Over the inter-war period about four million new houses were built in Britain . Today, chiefly because of the increase in our population, arising from the growth of immigrant families that have settled here since the war, we are planning ever more housing developments, particul­arly around London and the South Last. But, of course, as land—building land—becomes scarcer, its price continues to rise and so therefore do house prices. This increases the cost of living and so acts to lower real incomes in the count­ry.

 

DT : What are the chief effects of the global population growth we have seen in recent decades?

 

EM : If I recall correctly, in the mid l940s, world population was estimated to be about 2.5 billion. Today, it is between 7 and 8 billion, the greater part in Asia , Africa , and South America . The ecological effects on the planet are profound. And in many areas the pressure of populations is causing deforestation, desertification: it can also lead to conflict over scarce res­ources and limited fresh water supplies.

The Chinese government is conscious of population growth and is trying to prevent it in its own country. But there is no attempt to control population growth in Africa , South America , or other parts of Asia . In general, the white population on this earth is gradually declining.

Life on this earth would be a lot easier and more comfortable if the population were only a fraction of what it is. An ideal population for Britain would be between 10 and 15 million, what it was about the end of the eighteenth century.

Thinking of population controls, I’m not anti-contraceptive. But allowing schoolgirls access to the pill or giving out condoms to schoolchildren can only make them feel that if they are not having regular sexual activity they are not behaving normally. However, I am anti-abortion. As a means for reducing popul­ation growth, it is immoral. Once you have created a potential human life, an embryo, you have a moral responsibility toward it.

 

DT : What can be done to spread the gospel of sustainable economics?

 

EM : I have never offered a solution. All over the world people are now fixated on economic growth. But we should be able, in this country, to make modern life less abrasive for sensitive people. In my Costs of Economic Growth I put for­ward the idea of setting aside large “amenity areas” for those who wanted to opt out of certain wearisome aspects of modem life—areas over which aircraft would not be allowed to venture, where there was no motorized traffic (only electric-powered public transport), no motorized garden implements, no loud stereophonics, and so on. Such areas would differ in size, location, and composition of amenities offered. But they would require legislation. Yet immersed as we are in a seeming struggle to “maintain our competitive edge” and somehow to “keep our position in the growth league tables,” such opportunities of creating for ourselves, or at least for some of us, a more leisurely, quieter way of life—technically quite possible—are dismissed as the stuff of dreams.

In the meantime, I cannot escape the feeling that some great catastrophe is drawing nearer. Among the growing dangers, one must include the massive growth of cities of over 15 or 20 million in Asia or Latin America , many sur­rounded by shanty towns filled with desperate families. A failure in the electricity or water supply, a severe drought or flood, over a few days, could easily precipitate uncontrollable rioting as angry hordes of people invade the city centers and create havoc.

 

DT : Your worldview encompasses ethical as well ü economical considerations. Do you have any religious faith?

 

EM : I would rather have a world in which every one believed in God. Religion can be an immense source of comfort and solace to people. Of course, it cannot be doubted that religion has lent itself to all sorts of abuses. But then any institution disposing of enormous power is bound to lend itself to corruption. Yet, at least among the countries of the West, religion has been fading from our lives. It is no longer a real force in our lives. Lost innocence cannot be restored. Once we are aware that over hundreds of millions of years creatures, large and small, have evolved that survive only by preying on each other, either as parasites or tearing and clawing others to death to devour them, it is hardly possible to believe in God. It may be possible to believe in some omnipotent source of power, but certainly not a caring or benevolent one.

 

DT : What is your guiding philosophy?

 

EM : My guiding philosophy is simply to resign myself to the inevitable: To “eat, drink, and be merry,” for tomorrow I will cease to be.