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Chapter 1What Growth Is, What Growth DoesEconomic growth has become the secular religion of advancing industrial societies.—DANIEL BELL The Cultural Contradictions of CapitalismAre we right to care so much about economic growth as we clearly do?For citizens of all too many of the world's countries, where poverty is still the norm, the answer is immediate and obvious. But the tangible improvements in the basics of life that make economic growth so important whenever living standards are low--greater life expectancy, fewer diseases, less infant mortality and malnutrition--have mostly played out long before a country's per capita income reaches the levels enjoyed in today's advanced industrialized economies. Americans are no healthier than Koreans or Portuguese, for example, and we live no longer, despite an average income more than twice what they have. Yet whether our standard of living will continue to improve, and how fast, remain matters of acute concern for us nonetheless.At the same time, perhaps because we are never clear about just why we attach so much importance to economic growth in the first place, we are often at cross-purposes--at times we seem to be almost embarrassed--about what we want. We not only acknowledge other values; as a matter of principle we place them on a higher plane than our material well-being. Even in parts of the world where the need to improve nutrition and literacy and human life expectancy is urgent, there is often a grudging aspect to the recognition that achieving superior growth is a top priority. As a result, especially when faster growth would require sacrifice from entrenched constituencies with well-established interests, the political process often fails to muster the determination to press forward. The all too frequent outcome, in low- and high-income countries alike, is economic disappointment, and in some cases outright stagnation.The root of the problem, I believe, is that our conventional thinking about economic growth fails to reflect the breadth of what growth, or its absence, means for a society. We recognize, of course, the advantages of a higher material standard of living, and we appreciate them. But moral thinking, in practically every known culture, enjoins us not to place undue emphasis on our material concerns. We are also increasingly aware that economic development--industrialization in particular, and more recently globalization--often brings undesirable side effects, like damage to the environment or the homogenization of what used to be distinctive cultures, and we have come to regard these matters too in moral terms. On both counts, we therefore think of economic growth in terms of material considerations versus moral ones: Do we have the right to burden future generations, or even other species, for our own material advantage? Will the emphasis we place on growth, or the actions we take to achieve it, compromise our moral integrity? We weigh material positives against moral negatives.I believe this thinking is seriously, in some circumstances dangerously, incomplete. The value of a rising standard of living lies not just in the concrete improvements it brings to how individuals live but in how it shapes the social, political, and ultimately the moral character of a people.Economic growth--meaning a rising standard of living for the clear majority of citizens--more often than not fosters greater opportunity, tolerance of diversity, social mobility, commitment to fairness, and dedication to democracy. Ever since the Enlightenment, Western thinking has regarded each of these tendencies positively, and in explicitly moral terms.Even societies that have already made great advances in these very dimensions, for example most of today's Western democracies, are more likely to make still further progress when their living standards rise. But when living standards stagnate or decline, most societies make little if any progress toward any of these goals, and in all too many instances they plainly retrogress. As we shall see, many countries with highly developed economies, including America, have experienced alternating eras of economic growth and stagnation in which their democratic values have strengthened or weakened accordingly.How the citizens of any country think about economic growth, and what actions they take in consequence, is therefore a matter of far broader importance than we conventionally assume. In many countries today, even the most basic qualities of any society--democracy or dictatorship, tolerance or ethnic hatred and violence, widespread opportunity or economic oligarchy--remain in flux. In some countries where there is now a democracy, it is still new and therefore fragile. Because of the link between rising or falling living standards and just these aspects of social and political development, the absence of growth in so many of what we usually call "developing economies," even though many of them are not actually developing, threatens their prospects in ways that standard measures of national income do not even suggest. But the same concern applies, albeit in a more subtle way, to mature democracies as well.Even in America, I believe, the quality of our democracy--more fundamentally, the moral character of American society--is similarly at risk. The central economic question for the United States at the outset of the twenty-first century is whether the nation in the generation ahead will again achieve increasing prosperity, as in the decades immediately following World War II, or lapse back into the stagnation of living standards for the majority of our citizens that persisted from the early 1970s until the early 1990s. And the more important question that then follows is how these different economic paths would affect our democratic political institutions and the broader character of our society. As the economic historian Alexander Gerschenkron once observed, "even a long democratic history does not necessarily immunize a country from becoming a ‘democracy without democrats.' "And as we shall see from our own experience as well as that of other countries, merely being rich is no bar to a society's retreat into rigidity and intolerance once enough of its citizens lose the sense that they are getting ahead.The familiar balancing of material positives against moral negatives when we discuss economic growth is therefore a false choice, and the parallel assumption, that how we value material versus moral concerns neatly maps into whether we should eagerly embrace economic growth or temper our enthusiasm for it, is wrong as well. Economic growth bears moral benefits as well, and when we debate the often hard decisions that inevitably arise--in choosing economic policies that either encourage growth or retard it, and even in our reactions to the growth that takes place apart from the push or pull of public policy--it is important that we take these moral positives into account.Especially in a work focused on the positive link between economic growth and social and political progress, it may seem strange to think that America, now so preeminent across the world in economic terms, faces any significant threat in this regard. One country after another--including even China and Singapore, which thus far have hesitated to liberalize politically--has adopted American approaches to the management of its economy, based on free enterprise, private initiative, and mobile capital. Why would ongoing economic growth not therefore herald an era of further social and political progress that would reinforce the openness of American society and otherwise strengthen and broaden American democracy?One concern is simply that the robust growth of the latter half of the 1990s may prove to have been only a temporary interlude, a "bubble" as many disappointed stock market investors now regard it, between the stagnation that dominated most of the final quarter of the twentieth century and further stagnation yet to come. But even the prosperity that America experienced in the late 1990s bypassed large parts, in some important dimensions a clear majority, of the country's citizens. Jobs were plentiful, but too many provided poor wages, little if any training, and no opportunity for advancement.Economic progress needs to be broadly based if it is to foster social and political progress. That progress requires the positive experience of a sufficiently broad cross section of a country's population to shape the national mood and direction. But except for a brief period in the late 1990s, most of the fruits of the last three decades of economic growth in the United States have accrued to only a small slice of the American population. Nor was that short period of more widespread prosperity sufficient to allow most American families to make up for the economic stagnation or outright decline they endured during previous years. After allowing for higher prices, the average worker in American business in 2004 made 16 percent less each week than thirty-plus years earlier.For most Americans, the reward for work today is well below what it used to be.With more and more two-earner households, and more individuals holding two jobs, most families' incomes have more than held their ground. But nearly all of the gain realized over these last three decades came only in the burst of strong growth in the late 1990s. Despite mostly low unemployment, and some modest growth in the U.S. gross domestic product--and despite the increased prevalence of two-earner families and two-job workers--the median family's income made little gain beyond inflation from the early 1970s to the early 1990s.For fully two decades most Americans were not getting ahead economically, and many of those who did were increasingly hard-pressed to keep up even their meager progress. This was not the kind of broadly based increase in living standards that we normally conceive as "economic growth."Even for many families in the country's large middle-class majority, economic prospects have become increasingly precarious in recent decades. Young men entering the American job force in the 1970s started off their working careers earning two-thirds more, on average, than what their fathers' generation had made starting out in the 1950s. By the early 1990s young workers were starting out at one-fourth less than what their parents' generation had earned.It is not surprising, therefore, that even as they expressed confidence that the U.S. economy would continue to expand, throughout this period Americans in record numbers also said they had no sense of getting ahead personally and that they feared for their children's financial future. Even in the late 1990s, with the surge in both the economy and the stock market in full bloom, more than half of all Americans surveyed said they agreed that "The American dream has become impossible for most people to achieve." More than two-thirds said they thought that goal would become still harder to attain over the next generation.The disappointment so many Americans felt at failing to achieve greater advances--and that many feel today--is grounded in hard reality. So is the sense of many young Americans that their prospects are poor even at times when the economy is strong. Our citizens applaud the American economy, especially in years when it prospers, yet even then they fear that the end of the American dream lies ahead. They do so because in the last generation so many have failed to experience that dream in their own lives.The consequence of the stagnation that lasted from the mid-1970s until the mid-1990s was, in numerous dimensions, a fraying of America's social fabric. It was no coincidence that during this period popular antipathy to immigrants resurfaced to an extent not known in the United States since before World War II, and in some respects not since the 1880s when intense nativism spread in response to huge immigration at a time of protracted economic distress. It was not an accident that after three decades of progress toward bringing the country's African-American minority into the mainstream, public opposition forced a rolling retreat from affirmative action programs. It was not mere happenstance that, for a while, white supremacist groups were more active and visible than at any time since the 1930s, antigovernment private "militias" flourished as never before, and all the while many of our elected political leaders were reluctant to criticize such groups publicly even as church burnings, domestic terrorist attacks, and armed standoffs with law enforcement authorities regularly made headlines. Nor was it coincidental that the effort to "end welfare as we know it"--a widely shared goal, albeit for different reasons among different constituencies--often displayed a vindictive spirit that was highly uncharacteristic of America in the postwar era.With the return of economic advance for the majority of Americans in the mid-1990s, many of these deplorable tendencies began to abate. In the 2000 and 2004 presidential campaigns, for example, neither anti-immigrant rhetoric nor resistance to affirmative action played anything like the role seen in the elections in 1996 and especially 1992. While hate groups and anti-government militias have not disappeared, they have again retreated toward the periphery of the nation's consciousness. Even so, much of the legacy of those two decades of stagnation remains. While it has become commonplace to talk of the importance of "civil society," many thoughtful observers increasingly question the vitality in today's America of the attitudes and institutions that compose it.Even our public political discourse has lately lost much of its admittedly sparse civility, foundering on personal charges, investigations, and reverberating recrimination.It would be foolish to pretend that all these disturbing developments were merely the product of economic forces. Social and political phenomena are complex, and most have many causes. In the 1960s, for example, conventional thinking in the United States interpreted the wave of student uprisings on college campuses across the country as a protest against the Vietnam War. No doubt it was, in part. That simple view failed, however, to explain why other countries not involved in Vietnam had much the same experience (in some cases, for example France, even more so) at just the same time. The political and social changes that have been underway in America in our era have multiple roots as well.But it would be equally foolish to ignore the effects of two decades of economic stagnation for a majority of the nation's citizens in bringing these changes about. And it would be complacent not to be concerned now that the economy's prospects are in question once again. As we shall see, the history of each of the large Western democracies--America, Britain, France, and Germany--is replete with instances in which just this kind of turn away from openness and tolerance, and often the weakening of democratic political institutions, followed in the wake of economic stagnation that diminished people's confidence in a better future. In many parts of Europe, the social and political consequences of the transition from the postwar economic miracle to today's nagging "Eurosclerosis" are all too evident.In some eras, both in our own history and in that of these other countries, episodes of rigidity and intolerance have been much more intense and have borne far more serious consequences than anything we have seen recently. But then some past eras of stagnation or retreat in living standards have been much more pronounced as well. At the same time, periods of economic expansion in America and elsewhere, during which most citizens had reason to be optimistic, have also witnessed greater openness, tolerance, and democracy. To repeat: such advances occur for many reasons. But the effect of economic growth versus stagnation is an important and often central part of the story.Excerpted from The Moral Consequences of Economic Growth by Benjamin M. Friedman Copyright © 2006 by Benjamin M. Friedman. Excerpted by permission of Vintage, a division of Random House, Inc. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.