OF SUBSTANCE AND SPIRIT
When the Royal Swedish Academy of Sciences announced the winners of the Nobel Prize for Economics in Stockholm last Oct. 14, the role of political institutions in economic development and long-term prosperity received some kind of a revival. It’s been 12 years since the initial release of the pioneering “Why Nations Fail.”
What is interesting here is that the three Nobel Laureates were careful not to be caught in institutional determinism. While acknowledging some limitation of their approach, one can get the impression that any subtle historical interplay between geography, culture and institutions, whether extractive or inclusive, may not be completely recognized. There is some scope for clarifying what time periods in economic history of nations are critical when building appropriate institutions.
Which brings us to King’s College London and Oxford University’s Daniel Susskind’s new book “Growth: A Reckoning,” which was released only this year. In five parts with a total of 11 chapters, the book in chapter 4 quoted Germany’s Angela Merkel who, in 2010, said, “We need three things above all. First: growth. Second: growth. And third: growth. Growth isn’t everything, that’s true. But without growth everything is nothing.”
If the Nobel Laureates stressed on the need for good institutions to generate prosperity, one that is sustainable, Susskind is quite sanguine about the role of new ideas in driving technological progress and economic growth even as innovation thrives only when inclusive institutions are in place.
Attaining economic growth is without question an existential issue at all times. Lack of growth breeds mass unemployment, poverty, hunger, and crime. Poverty and hunger foment mass discontent and ultimately, revolution. Susskind brought to mind the front page of The New York Times on V-J Day that says it all: “Five Million Expected to Lose Arms Job.” There was fear that after the war, millions of discharged soldiers would flood the United States from the front lines to look for civilian jobs. Without growth that was produced by World War II, unemployment was inevitable. The memory of the Great Depression was just too fresh. Full employment has become a universal priority. History shows that most of the civilized world succeeded in attaining economic growth even through two world wars.
And the list of growth benefits is almost endless. Extreme poverty dropped from eight out of 10 in 1820 to one in 10 today. Susskind even commented that growth “turned obesity, rather than famine, into the rich world’s main problem.”
“Growth: A Reckoning” observes that growth could pose a dilemma. While it’s associated with many of the world’s successes, growth is also linked with many of its failures. In his article in the IMF’s “Finance and Development” of September 2024, Susskind argued: “The promise of growth pulls us toward pursuing ever more of it, but its price pushes us powerfully away from that chase. It’s as if we cannot go on — and yet we must.”
In the Philippines, while we succeeded in attaining robust economic growth in the last 25 years, we also experienced inequality-creating type of economic growth. Some have become inordinately prosperous, but a greater many have sunk into abject poverty. Growth has also caused environmental degradation. The need for more growth in the Philippines is quite obvious because of the economic scarring of the pandemic and the continuing deficit in infrastructure and social services. A growth of six to seven percent is hardly enough when viewed against these challenges.
But Susskind takes exception of the “degrowthers” who propose that if growth abets so much social cost, then less growth could be desirable. He believes that “growth does not come from using more and more finite resources” but from “discovering more and more productive ways of using those resources.” The planet is not the limit of growth, but it is the ability to generate new ideas that would lead to technological progress, innovation, and multiple productivity.
As we wrote in a previous column in another broadsheet, we don’t have enough labor and capital at every instance to sustain economic growth, but higher productivity can ensure sustainability and with correct public policy, inclusivity. That should help transform the Philippine economy. If we wish to reduce poverty and mitigate income inequality, we need more quality growth.
More specifically, Susskind proposes a few steps to generate new ideas:
First, the intellectual property regime must be reformed. To him, the current regime protects the status quo, preserves the monopoly and influence of past ideas to the present, all at the cost of those who wish to use and re-use them in the future for public goods. The current copyright law across the world has not been reformed for the last 50 years.
Second, more attention and funding should be committed to research and development (R&D). In other countries, the British economist lamented the sharp decline in R&D in France, the Netherlands, and the UK since mid-20th century. US and Israel also showed some weakening in R&D but there has been a significant increase in private companies including Alphabet, Huawei and Meta which spend 15 percent of their revenues. With very little R&D activities, it is difficult to expect new ideas to be forthcoming.
Third, inequality should be reduced and people should be supported in their entry into idea-generating economic sectors. If racial minorities, women and children from low-income families are free and helped to invent new ideas at the same rate as their white counterparts, Susskind estimated that innovations could be quadrupled. Moral arguments have been posed but economics-wise, a society where a great portion do not do research and generate game-changing ideas is just inefficient.
And finally, technology should be used to discover new ideas. Susskind cited the case of DeepMind’s AlphaFold, which solved the “protein folding” problem in 2020. It can calculate the 3D shape of millions of proteins in minutes. With this capability, human understanding of various diseases and their corresponding treatment is now higher many times over.
With technological innovations, we could grow more and growth could be greener and less costly. Growing the economy this way would definitely make the world “fairer, greener, and less dependent on disruptive technologies, and more respectful of place.”
It’s time to be kind to ourselves.