Hamish McRae: This time let's not waste growth

We need to think not just about how to get richer but how to use wealth more wisely

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Phew! Some growth at last... but it is a measure of the dire state of the economy that even a minuscule 0.1 per cent rise in economic activity should be greeted with relief.

Even if the official figures understate what is actually happening, and most economists expect them to be revised upwards as more data comes through, it is clear that this recession will roughly equal what was until now the worst of the postwar recessions, that of the early 1980s. This recession is not unprecedented, but it has by any standards been grave. As anyone who can recall the early 1980s will know, recessions generate huge swathes of human misery, with many people's lives wrecked though no fault of their own.

This leads to two sorts of discussion. One is the practical one: what will happen next and how we might avoid getting ourselves into similar messes in the future. But there is another deeper set of issues that, as growth is resumed and sustained, is worth exploring. These concern the nature and purpose of economic growth: not just how to get richer but the nature of the wealth that is generated, how it is shared between people and between generations, and the benefits and costs it brings with it. We need to learn how, as far as we can, to avoid the slumps; but we also need to work out how to make the best of the booms.

We have I hope learnt some things over the past couple of years – and by "we" I mean the entire developed world, not just those of us who happen to be involved in the 3 per cent of the world economy that takes place on these islands. One lesson is that growth is better than decline. To most people that would seem pretty self-evident but one of the troubling aspects of an economic downturn is that the voices advocating a "zero-growth society" seem to chime louder. This comes in all sorts of guises, from people saying they can't see why others need more income or that people should not be allowed to work harder even if they want to, to those who believe family size should be limited – the latter group usually having had several children themselves.

Well, we are experiencing a zero-growth society in the sense that it will take another two or three years before we regain the level of GDP we reached at the peak, the early part of 2008. Four years of no net growth means not just fewer new cars or fewer foreign holidays. It will mean closing more hospitals, fewer places at universities, more people on the dole. There is a bit of the puritan in most of us and recession brings it to the forefront. Conspicuous consumption will look out of place for some time yet and maybe that is no bad thing. But as we draw up the balance sheet of this period of zero growth we will surely find that the list of minuses is much longer than the list of pluses. Pity we need the experience of recession to remind us of that.

There are, however, more positive lessons that we can draw, things we should keep at the front of our minds as growth resumes. One obvious one is that growth in economic activity has to be environmentally sustainable. We have had a scare in the surge in energy prices, in particular oil and gas, and though these have now fallen back a bit, we have come to appreciate that oil in particular is likely to be in short supply, probably for ever. The world will have to find other sources of energy. Meanwhile, we had better use what we've got as sensibly as we can.

A second thing we need to be more aware of is intergenerational equity. Here in the UK the government will have more than doubled the national debt. So we have loaded the costs of recession, and the costs of unfunded current public spending, on future generations of taxpayers: young workers, children and the unborn. There is a new book examining this out next month. It is called The Pinch – How the Baby Boomers Took Their Children's Future – And Why They Should Give It Back, and what gives it legs is that it is by David Willetts, shadow minister for universities and skills. His argument, that the generation born between 1945 and 1965 have behaved selfishly and need to make amends, will I hope help shape policy under the next government. But the government will only be able to rebalance fiscal policy if voters grasp that unfunded public spending is both unjust and indeed immoral, and will impoverish our children and our children's children.

The third issue is why the last boom led to rising inequality just about everywhere. As a crude rule of thumb, inequalities within counties rose, while inequalities between countries diminished. To some extent governments have been able to mitigate the worst effects of rising inequality by progressive tax policies and subsidised public services, but that is to put a patch on a social wound. Better far not to have the wounded society in the first place.

The reaction of people to rising inequality tends to become quite political, which is a shame because to see the issue through a political prism is to fail to delve into its underlying economic causes. So let's just observe that this is a phenomenon evident in places as diverse as China and the United States, India and Sweden, and it is something that needs open-minded examination during the upturn.

And finally there is that tantalising, difficult, will-o'-the-wisp notion of happiness. Insofar as it can be measured, we have become less happy as a result of recession, but even during the boom it was not clear that added wealth was bringing much of an increase in happiness.

Lord Layard, the economist and Labour peer, has argued that governments should seek to reduce wealth differentials as inequality increases unhappiness, but since one thing almost everyone is agreed on is that they dislike government interference in their lives, I am not sure that is a great idea. The Tories talk in terms of economic "wellbeing", a thought in the same broad area but again I am not sure that this is something governments can do much about. Maybe they should do fewer things and do them better and then we would all be happier.

The big point, though, is that growth is an opportunity. It is an opportunity to do better next time. The more growth, the greater the opportunity. So welcome it and hope it lasts.

h.mcrae@independent.co.uk

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