By Julian Slotman, member of the St. Gallen Symposium's global Leaders of Tomorrow community
Since the recent economic crisis European policy makers have fallen down a rabbit-hole into a place where no-one has ever been before. Suddenly they had to nationalise financial institutions and tackle the sharpest drop in productivity since the Second World War. Unemployment and public debt levels soared while people grew accustomed to the continuing flow of miserable news about the economy. After years of recession the economies of most European countries now seem to be expanding again, whether due to quantitative easing, cheap oil, or rebounding demand in developing markets. This finally allows us some time to think about the nature and desirability of growth.
When thinking about growth, one might wonder how it has become to be considered natural in the first place. Indeed, it is often argued that from an historic perspective growth is only a very recent phenomenon. One could also observe that too much growth, the kind that makes your head hit the ceiling, may have a lot of very unpleasant consequences. Many would subsequently suggest sharing the cake in some way or another to compensate the ones who did not get to enjoy the fruits of growth. Such observations do not, however, undermine the argument in support of economic growth.
Suppose the fruits will be shared fairly and we mind not hitting the ceiling, two important objectives for which we should always hold our policy makers accountable, economic growth is generally a very desirable thing. Rising real income not only allows us more consumption, but it also helps us to insure against future hardship and provide our children greater opportunities. A sustainable level of economic growth can eventually make everybody better off. Nevertheless, criticism of economic growth seems to have become fashionable.
Besides the frequently heard argument that a strong focus on growth can inspire only neoclassical policies, which is demonstrably untrue, most of the criticism is actually due to confusion over the roots of growth. It is indeed curious that policy makers can seemingly create (or destruct) wealth out of thin air. Policy makers should be aware of this confusion and try harder to explain the supposed mechanics of their policies. More importantly, they should always aim for a sustainable level of economic growth by spending counter cyclically and making sure no one is left behind. That way we can get out of this miserable rabbit-hole and into wonderland.
Growth will be debated in the light of the 46th St. Gallen Symposium (11-13 May 2016).