Mia Amalie Holstein // 16 August 2024

If you truly sympathise with your fellow human beings and want a good society, you should ensure more economic growth.

An often-used dichotomy in the political debate is this: Do you want more money or a good society?

This dichotomy is false. A well-known caricature of the bourgeois man portrays him as a greedy and selfish creature of the Gordon Gekko variety, motivated solely by narrow economic self-interest. In fact, one of Karl Marx’s greatest tricks was to confuse the bourgeois’ means (money and profit) with their end (the good society).

But the truth is, as Franz Oppenheimer pointed out, most people on either side of the political spectrum want the same thing: To build a better society for everyone. They just disagree on how to get there. Should we use market mechanisms (exchange one’s own labour for that of others in the marketplace) or political means (appropriate others’ values through taxation and redistribution)?

As a classical liberal, I am in favour of the market approach and especially fond of the economic growth that follows. There are several reasons for this, the chief among them being that it is growth – and not redistribution – that raises people’s standards of living. Let me give you an example: Look at the disposable income of the poorest 40 per cent of Danes between 1919 and 2019. Economic growth accounted for 91 per cent of the increase in their income over the 100-year period – either directly or because there was more to redistribute. Redistribution only accounted for 9 per cent. In my view, it makes far more sense to expand our wealth than to rearrange and redistribute the wealth we already have.

‘But why do we need all that wealth?’ you might be thinking. ‘Don’t we have enough?’ It can be challenging to see the value of day-to-day growth. But if we take a bird’s eye view, the importance of growth becomes abundantly clear. Say, for example, that all growth stopped in 1870, and we instead chose to radically redistribute our resources. In that case, the average Dane today would have only 20,000 Danish Kroner a year to live on – in today’s currency. And we would have to live with the same healthcare and social safety net as in 1870 as well. (In comparison, the average yearly income per Dane is about 300,000 kroner). While what we have may seem enough now, in light of the promise of the future, it is far from adequate.

As pointed out by economist Tyler Cowen, wealth is the most effective way to alleviate misery, improve happiness, enhance opportunity, and lengthen life. It provides the sick with better healthcare, grants vulnerable groups greater institutional justice, and offers the poor a higher standard of living. Wealth is such a powerful motivator that people from far corners of the world are willing to give up their lives and move to more wealthy countries simply to partake of it.

But then, what exactly is growth? Actually, it is a product of us – of you and me. As pointed out by Professor Deirdre McCloskey, growth occurs because a person has a good and persuasive idea and then acts on it. Growth is not just a big idea like the CRISPR gene editor, the Danish dairy cooperative, or a Messi football turn.

It is also the small, local idea, which when implemented on a large scale, can be very powerful. It is the millions of daily mutinies against traditional and routine thinking that create growth. Growth occurs because we humans are creative, resourceful, risk-taking, optimising, and self-interested, and we should be proud. Because under the right conditions, this is both resource-saving and efficiency-enhancing.

A recent criticism of growth is that it harms nature. Fortunately, even when this is true, it is possible to take the externalities of economic activity into account. This can be done, for example, through property rights that safeguard against overexploitation. And we need to do that. Because we don’t want high economic growth for just one year or for a short period. We want high economic growth well into the future. We even want to pass on a better world to our children. When you are in favour of growth, you have to also be in favour of sustainable growth.

Another contemporary Danish criticism of wealth made by feminists such as Emma Holten is that GDP is a poor indicator of human prosperity. A measure such as GDP does not capture quality of life, which includes other aspects such as leisure time, human health, the quality of the natural environment, and informal in-home child care.

GDP is indeed a measure of total income generation. And since income is linked to transactions, GDP measures the formal sector – not what happens within the home.

However, several organisations have tried to create an alternative to GDP to capture quality of life. One of the more well-known attempts is the UN Human Development Index (HDI), which measures life expectancy, years of schooling, and standard of living. What’s interesting here is that there is a robust correlation between GDP and HDI. If you do well on one measure, you will likely do well on the other. The same is true when measuring happiness – that is, self-reported life satisfaction. Rich countries are happy countries.

So, when the economy grows, generating more fiscal room in governmental budgets, we shouldn’t spend this on even greater redistribution. If you truly sympathise with your fellow human beings and want what’s good for society, you should ensure more economic growth.

This blog was originally published by CEPOS in Danish.