By Chang Yee KWAN, member of the St. Gallen Symposium's global Leaders of Tomorrow community
Economic growth is measured by the change in the value of goods and services in a one period vis-à-vis the previous, i.e. 'a growth rate'. A period-on-period increase in the total value of production, or a positive growth, implies that individuals have a correspondingly greater income and consumption opportunities. Discreetly applied, growth rates also offer information on society's levels of productive knowledge and technical progress.
Objectively, there is nothing inherently inappropriate for policymakers to emphasize a want for economic growth. Similarly, critics are valid in concerns of potentially detrimental tradeoffs in a singular focus on growth. And there is no lack of consistent arguments to why each should be supported or refuted.
Contemporary economic policy draws its basis from Adam Smith's 'invisible hand'. This is typically read to mean that self-interested market exchange elicits socially beneficial outcomes. Yet, many scholars, e.g. Amartya Sen, have often highlighted Smith's warnings that self-serving behavior is itself insufficient to engender economic progress. Instead, increases in economic activity need to be tempered with greater awareness and concern of the external environment to ensure there is some corresponding increase in access and equity of distribution.
Accompanying the growth debate is a plethora of discourse on the (lack of) relevance of national statistics, especially GDP, as a basis for policy decisions. Yet, such discussions also hint of a lack of understanding the limits of relative period-on-period changes in GDP. As it depends on its immediate past, growth rates are, primarily, a statistical artifact. Thus, despite its potential to convey useful information, the susceptibility for growth rates to misinterpretation is likely to be high.
Policymakers emphasizing economic growth often evoke criticism for ignoring the negative impacts of growth on the environment, inequality, etc. These concerns merit attention, but why they were not highlighted more thoroughly in the initial policy agenda has been largely absent.
My perception is that debates about the current enamor with economic growth are misaligned. A progression to more constructive discourse has been restricted by a lack of understanding the basic principles which prescribe growth to be a desirable objective. Two aspects are better first addressed: a more thorough understanding of the limits of self-interest and in the informative content of national income statistics.
Growth - The good, the bad, and the ugly will be debated in the light of the 46th St. Gallen Symposium (11-13 May 2016).