The case foe economic prosperity

Things can only get better with economic growth

As a new book shows, human welfare has not improved over the past 200 years in spite of economic growth but because of it.

By Daniel Ben-Ami 

One of the most pervasive of contemporary myths is that the lot of humanity is worsening over the long term. Despite the mass of evidence to the contrary, it is still widely held that the world is becoming poorer, more miserable and facing environmental catastrophe.

Simply for opposing this miserabilist worldview, the new book by Charles Kenny, a senior fellow at the Center for Global Development in Washington DC would be welcome. He marshals a lot of evidence to show that even in relation to the developing world the trend is for the welfare of humanity to increase at an unprecedented rate.

The most dramatic evidence of this improvement is in relation to the human lifespan. Average global life expectancy increased from 31 in 1900 to 66 by 2000. This alone is a huge achievement achieved in a remarkably short space of time by historical standards. A large part of the story is related to the sharp decline in infant mortality: it has become mercifully less common for parents to have to mourn the loss of their children.

Of course, the improving trend in human welfare does not imply that there are no significant problems facing humanity. On the contrary. There are still enormous challenges in relation to poverty, inequality and human well-being. The challenge is to work out how best to tackle them.

Kenny follows the mainstream view in arguing that development should attempt to improve quality of life directly by such measures as basic healthcare and education. In contrast, the consensus until the 1970s was that development needed to focus on transforming the economic structure of society. It meant attempting to turn poor countries into rich ones.

There is room for different sides to debate which is the best path as there is a mass of seemingly contradictory evidence. At a global level, it is clear that the period of modern economic growth – the past two centuries or so – has coincided with huge increases in human welfare. On average we not only live longer, but are healthier, taller, better fed, more intelligent (at least as measured by IQ) and better educated than ever before.

The coincidence of these two sets of factors does not on its own prove that growth has bolstered human welfare. Contemporary critics of economic growth typically attempt to separate economic growth from improvements in human welfare. They often attribute such improvements to technological developments and basic health measures.

It is also fairly uncontentious to argue that the poorest section of humanity clearly benefits from rising incomes. For someone living on, for example, one dollar a day, a small additional rise in income can make a tremendous difference. It can even literally mean the difference between life and death if it allows someone to buy food or much needed medical treatment. In contrast, a small increase in income is highly unlikely to have nearly such a significant impact for a richer person.

The debate gets messier when it goes beyond the poorest of the poor. Above a certain subsistence level, there is often no simple one-to-one relationship between economic growth and indicators of human welfare. For instance, Kenny shows that Costa Rica spends five per cent of what America does on health per person but the average Costa Rican lives two years longer.

He also makes much of the fact that people can buy a lot more today with a given level of income than they could in the past. For instance, average incomes in Vietnam are currently about the same as Britain in the early 1800s. Yet Vietnamese people today can buy vaccines, refrigerated food, light bulbs or telephone calls.

From these premises it follows that simple measures can dramatically improve the lives of poor people. These can include such initiatives as vaccine programmes, oral rehydration therapy and building pit latrines. In contrast, building modern hospitals or water utilities is seen as an expensive waste of scarce resources.

However, there are several reasons to question the conventional wisdom, promoted by Kenny and others, that decouples welfare improvements from economic growth. For a start, as critics of prosperity are all too willing to note, conventional economic measures are deeply flawed. Take GDP as an example. Although it is fairly good at measuring the amount of ‘stuff’ produced in a year, it finds it much harder to measure the quality of that stuff. It systematically underestimates the benefits of growth and innovation.

Perhaps the most famous example is that of Nathan Rothschild, possibly the richest man in the world when he died in 1836. Rothschild died of what is believed to have been an infected abscess. Today it could be treated by antibiotics which are cheap and widely available; but back then they had not been invented.

From this perspective it is possible to reinterpret Kenny’s arguments about goods becoming cheaper over time. The fact that, say, mobile phones have become widely available to the poor reflects a global process of growth and innovation. A related point is that economic growth and technological innovation are closely linked. It is disingenuous to focus on improvements in technology as if they could have happened without rising prosperity. Economic growth, scientific advance and technological improvements are all bound together in the process of material progress.

Nor should the economic downturn that hit the world in 2008 be forgotten. Although developing countries have generally continued to grow, the developed world has suffered from economic dislocation and squeezed living standards. If anything, this experience should be taken as a negative vindication of the importance of growth. If economic expansion is beneficial, it should be no surprise that economic contraction is so painful.

It should also be noted that growth in the rich countries can benefit those living in poorer nations. Wealthier countries can provide markets for the goods of poorer ones while their innovations can help the poor. Of course, the matching of the two sets of needs is far from perfect; but that does not mean it is not worthwhile striving for growth.

Finally, everyone should in principle have access to the best that the world have to offer. Why should people in poor countries not aspire to be rich rather than making do with technology deemed ‘appropriate’ for them? Limiting the spread of technology and prosperity to the developing world is a form of Western elitism. The aspiration for popular prosperity should be encouraged rather than downplayed or even stigmatized as is so often the case today.