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The unloved upsides of growth

I really love the life expectancy chart below. It shows humans are living much, much longer, an astonishing triumph that we celebrate not nearly enough. It also can be seen as an explanation of why economic growth is important.

"We are not always effusive enough about the long-run upside of growth."
Jason Murphy, Publisher, Thomas the Think Engine

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Source: MaxRoser.com

Two-hundred years ago, there was nowhere an average citizen could expect to live beyond 40. Now, the average person can expect almost double that.

The simple thing to do is thank better hygiene, improved diets and the scientists that made the big advances. But there's a more complicated, more interesting story here - one involving economics.

Strong economic growth explains strong improvement in the chart (eg South Korea), while weak economic growth is associated with more meagre improvements (eg USSR/Russia).

There is no shortage of people decrying economic growth. Economic growth brings costs and downsides and there's no point ignoring them. But economists should push back against those criticising growth in general - we are not always effusive enough about the long-run upside of growth.

Economic growth is poorly understood. I've seen people trying to do analysis of why some countries are rich and others poor at a single point in time (eg America is rich because Africa is poor).

In fact the only way to explain why some countries are rich and others poor is to look at economic growth across a long period. Those with three per cent economic growth over the last 100 years (or 10 per cent for 30 years) are rich countries. Those without such a history are poor.

Living standards depend on growth. If economists seem obsessed with it, this is why.

SCIENCE

The important corollary to the growth story is that economics depends on science.

One of the best models of long-run growth assumes economic output depends on only three things: capital, labour and technology. Technology is the most important of these in the long run.

Health sciences make for more productive people that live longer. Engineering has given us productivity multiplying devices from the plow to the spreadsheet. Chemistry and agricultural science have multiplied exponentially the bounty of our farmlands.

History doesn't guarantee our progress. Progress requires brilliant minds pushing forward into the darkness, with no guarantee of reward. We owe our scientists an enormous amount and still pay most of them comparatively little.

Science depends on economics. It rarely funds itself. It may pay itself off later, but at the time, not so much. Science typically requires a rich country in order to proceed.

The enlightenment and the origins of formal science were principally in Europe, when it was the richest part of the globe. Now America is at the forefront of discovery.

Wealth begets discovery. The number of scientists in the world keeps increasing as we grow richer.

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Source: US National Science Foundation. NOTES: Data are not available for all countries/regions for all years. Researchers are full-time equivalents. Before 2009, counts for China were not consistent with Organisation for Economic Co-operation and Development (OECD) standards.

We're in a virtuous circle. Wealth drives science which drives wealth. But this can reverse. Russia's research ranks are thinning, for example. A commitment to science – at a national level is crucial.

PICKING OUT THE GOOD PARTS

The life expectancy chart shows a clear difference in longevity between the richest and poorest countries. Japanese can expect to live ten years longer than Chinese.

But over time all countries' life expectancies have risen - even those who have not seen such dramatic economic growth. Even Somalia has nearly doubled its life expectancy in just 60 years.

This is likely the result of technological spillover. Better medical care and agricultural practices have arrived in even the poorest nations. These technologies are imported by a mix of private enterprises, national governments (however wobbly) and international bodies like the World Health Organisation.

That raises an interesting question about the nature of growth. Do we have to take the good with the bad? The chart whispers a hint that maybe the answer is no.

Everyone understands that economic growth has an opportunity cost. Work crowds out family time, production causes pollution, economic activities crowd out free ones, etc. Putting a price tag on everything has an ugly aspect.

We accept the rise of markets in our lives because they deliver such great benefits. We feel pressure to buy a more expensive car, for example, but we also experience tumbling cancer mortality rates. The trade-off seems very much worthwhile.

But if poorer countries are able to grasp some of the most important benefits of growth without actually growing very rich, it raises interesting questions about whether we can do more to shape growth in ways we might want.

Would we want a society that grows rich on doctors, not luxury hand-bag designers? It may not be possible. But it is certainly worth discussing.

Jason Murphy blogs at Thomas the Think Engine

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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