Jean Gadrey, "Is the Concept of Economic Growth Autistic?"

Post-Autistic Economics Network

www.paecon.net

from post-autistic economics newsletter : issue no. 11, January 30, 2002

Is the Concept of Economic Growth Autistic?
Jean Gadrey (University of Lille, France)

Since Malthus, economists have been debating the "limits to growth" in an attempt to identify
those factors that might lead to an inexorable slow-down in growth, or even to a "steady state". At the beginning of the 1970s, the studies carried out by the "Club of Rome" brought the terms of the debate up to date again, drawing on analyses of the increasing scarcity of natural resources. We will not engage with this debate, which is undoubtedly worthy of interest, for two reasons. Firstly, history can be said to have decided the matter, at least up to now: capitalism has repeatedly pushed back the limits in question and given the lie to prophecies inspired by the Malthusian approach. Secondly, and more importantly, it seems to us that the main question raised by the virtually unanimous assertion that growth needs to be as strong as possible concerns not the rate of growth but rather the concept itself and the tools used to measure increasing wealth. The issues addressed in debates on the limits to growth seldom include the limits of the concept itself.

The invention of growth

The concept of economic growth, in the sense attributed to it today [1], is a relatively recent
invention, a by-product, as it were, of industrialisation. It came into its own with Fordism,
the three decades or so of growth and prosperity following the Second World War and the
national accounting systems of the 20th century, which were themselves developed in a
particular economic context, one that saw the expansion of heavy industry and the mass
consumption of standardised goods. What is economic growth? It is the rate of increase,
from one period to another, in the flows of goods produced and/or consumed within a given
institutional space, which may be a firm, an industry, a national or regional territory, etc.
However, if this statistical operation is to be carried out successfully from period to period,
there has to be agreement on the nature of the goods whose "volumes" are being measured,
and these goods should not be continually changing in nature or in quality. The ideal
situation is one in which, firstly, the transformations carried out during the production
process affect mainly the quantities of the goods produced rather than the nature and
qualities of those goods. In this way, product standards remain unchanged from period to
period. Secondly, there should be stable conventions governing the types of products to
be included in the accounts.

Broadly speaking, these conditions were met during the "Fordist " period, which saw the
expansion of the mass production and consumption of highly standardised goods and
services that benefited from economies of scale, the mechanisation of agriculture, the
heavy and inflexible automation of manufacturing industry (before the advent of the
computer), the establishment of large retail outlets and other "retail factories", the increased
take-up of banking services by households and their increasing connection to water, gas
and electricity suppliers and to telephone networks, or even the development of "Fordist"
tourism in the 1960s, the ideal type of which is of course the Spanish model. While it is
true that the quality of these goods and services improved over time, it was the increase
in their volume that was the major component of this mode of development, whose progress
could be followed as the annual product flows and year-on-year increases were entered into
the national accounts, providing a picture of economic growth. As far as households were
concerned, the corresponding indicator of progress was the "standard of living", which was
measured in the same way, on the basis of the annual flows consumed. Thus the criterion
used to assess economic "well-being" was the level of consumption: the more goods and
services were consumed, the higher economic well-being was judged to be. At the heart
of this economy based on growth in the flows of standardised goods and services lay gains
in labour productivity.

Contemporary economies, growth and productivity

Can the analysis of contemporary economies rely exclusively on the use of similar tools
(growth, productivity, standard of living) to measure and evaluate their own progress?
There must be considerable doubt about this.

As far as manufacturing industry is concerned, demassification (a term coined by Alvin
Toffler as early as 1970 [2]), increasing variety, product innovations that reduce product life
cycles and, in some cases, the introduction of individualised or "customised" products,
together with the sale of integrated packages (products/services/after sales), have all
served to weaken measurement conventions based on quality standards that were
comparable over time.

The difficulties and uncertainties of these measurements are further compounded in the
service sector. While some service industries are still at the "industrial" stage of providing
standardised services, many others do not readily lend themselves to the application of
the traditional industrial concepts. What do terms such as "growth" and "productivity
gains" mean when applied to services such as consultancy, education, health, social
welfare, research or insurance? Where are the standard product units that would make it
possible to compare the quantities produced over time? If the production and diffusion of
knowledge is playing an increasingly important role in the developed economies, what
are these units of knowledge whose increased volume is being followed?

One of the greatest ambiguities in the desperate and generally fruitless search for new
"conventions" that would make such activities amenable to the application of the industrial
concepts of growth and productivity can be illustrated by considering the case of health
services. In such activities, is the product whose growth we are seeking to measure, and
whose definition subsequently determines the measurement of productivity gains and
standard of living, synonymous with the flows of actions, of medical and surgical treatments
and of patients treated? Or should we look beyond these flows and recognise that what
counts (the real "product) is the improvement in the health of the individuals and population
concerned? If the flows approach is adopted, successful preventive policies, for example,
will lead to reductions in the measurement of growth and standards of living! However, if
priority is given in evaluations to improvements of state, those same preventive policies
could be judged to be positive contributions to the individual and collective quality of life.
This would constitute a shift away from (economic) growth towards (social and human)
development. We would not, for all that, be abandoning the use of statistical indicators
of that development (the name of Amartya Sen, a Nobel prize-winner in economics, is
associated with important advances in this area linked to studies carried out under the
auspices of the United Nations Development Programme), and there would still be a need
for proper economic analyses of the effectiveness of the actions and services through
which these improvements in state are to be achieved. What is different is the favoured
indicator of progress (the others are not entirely dispensed with, however) and the
conventions on which evaluation is based.

This example of the health care sector and its output indicators is in no sense specific.
Similar dilemmas can be found in most activities based on the production and exchange
of knowledge (education, research, consultancy of all kinds), in "relational" neighbourhood
services (help for the elderly, childcare, etc.), social work, insurance, etc., that is in the
vast majority of activities that have seen the strongest growth in employment over the past
25 years. Notions such as the growth in processing flows and productivity gains are of
much less relevance in assessing progress in these sectors, which play a major role in
developed economies. The increase in wealth, in value created or value added or in productive
efficiency certainly seems to require mechanisms for assessing the effects or impacts of
those activities on the proper functioning or development of the realities they operate on,
whether they be individuals, organisations or technical or social systems. Does the wealth
or value produced by a service that helps to maintain technical, economic or social systems,
or even human beings, increase with the number of "trouble-shooting" interventions or repairs
(which is the solution usually adopted by growth indicators) or, conversely, with the ability
of that service to reduce the number and gravity of the dysfunctions? Is the wealth generating
capacity of an educational system measured by the number of hours teaching delivered or
the number of training sessions organised, or should we adopt different conventions for
assessing the contribution of the education system to the development of its users'
knowledge, personalities and socialisation?

The new growth of the "new economy", we are told, is based on the new information and
communication technologies, which constitute a new, universal technological paradigm.
This assessment is somewhat exaggerated, but let us accept for the moment that it is true.
Can such an economy based on information, communication and knowledge be conceptualised and managed in terms of growth? The answer is obviously no: the relative "dematerialisation" of wealth has gone hand-in-hand with the gradual disappearance of those stable reference units used to measure agricultural and industrial output. True, it is possible to count software programs (or the lines of programming in each package), computers, Internet connections or bank transactions, but it is well known that "what counts" is processing and problem-solving capacity, reliability or the useful information that can be easily obtained by means of "intelligent" and "user-friendly" procedures. Once again, the progress of this information economy lies less in the growth of units produced than in the impact of these ICTs on the functioning of other technical and human systems. This requires the services thus obtained to be evaluated from a development perspective that might include certain growth indicators but would not be reduced solely to such measures.

Financial criteria and the discourse on progress

Thus if the main pillars of contemporary developed economies are services, permanent
innovation, knowledge and the new information and communication technologies, we can
reasonably suppose that it requires us to move away from the economic growth paradigm
towards a new paradigm based on the evaluation of economic and social development.
In other words, we need to shift away from the economics of measuring flows and costs
towards the socio-economics of judging improvements in state, quality and individual and
collective well-being.

Now the advocates of the "new economy", namely some in the world of politics and the
media and a handful of economists, have not reached this point. They extol the merits of
their new model in the language of the old model, using the concepts that enabled
economics to portray itself as a "hard" science, laying down technical laws comparable
to the law of gravitation.

One objection can be raised here. Observation of the management practices adopted by
firms in high-tech sectors and the financial institutions that support them clearly shows
that these major players in the new economy have long understood that the realities they
are managing can no longer be conceptualised with the old concepts. They have successfully put the growth paradigm into context... Neither Bill Gates and his kind nor the pension funds that influence the management of an increasing number of companies need the old micro and macro-economic concepts to manage the performance of the firms in their
possession. Their tools are indicators of financial return or, to use the language of the
day, of the "creation of shareholder value". However, beyond the boundaries of their
companies and financial networks, what they need is a discourse that publicly legitimates
their outstanding contribution to the public good. This is where the majority of economists,
the economic media, Alan Greenspan and others play their part, making their statements in
the name of prosperity, growth and productivity.

There are other ways of putting the growth paradigm into context than by imputing a
monetary value to all the activities and all the products in competitive markets or the
financial markets. In policy terms, the first point at issue in the observable present
economy, is not the choice of strong growth rather than slow growth. Rather, it is the
choice of a mode of thinking distinct from both the industrialist mode of judging progress
inherited from the Fordist era (based on the notions of growth, productivity and standard
of living) and the financial mode of calculating the shareholder value of all activities. This
new mode would be one based on a pluralistic evaluation of social development, of quality
of life and of the improvement in various individual and collective states. Putting both the
growth and productivity paradigm and the financial magnitude paradigm into context
simultaneously obviously does not mean we are depriving ourselves of economic and
financial indicators, when relevant, as a means of quantifying increases in product flows
and the efficiency with which those flows are produced, particularly in activities that
produce relatively standardised goods and services. These indicators should be part
- with others - of the development evaluation paradigm, but their role should be a
subordinate one. What does the phrase "controlling health expenditure" mean, for
example, if not a policy based, over and above statistical observation of the volume of
medical and paramedical actions and their costs ("accounting control"), on assessments
of the relevance of these practices to individual and collective health objectives under
debate? Should home help services for the elderly be evaluated in terms of their ability
to reduce old people's dependency, to give them as much autonomy as possible by
cooperating with their relatives and with voluntary workers to that end, thereby reducing
the outside assistance required to the minimum? Or should they be measured on the
basis of the volume of visits, actions or hours of intervention, in accordance with the
argument that an increase in dependency encourages growth?

To conclude on a similar note, we will mention a modest but interesting attempt to suggest
a possible path out of this dilemma. American researchers [3] have developed a synthetic
national indicator of "social health" in the United States by aggregating nine existing social
indicators that it has been possible to monitor statistically since 1959: the index of inequality
between rich and poor, average weekly earnings, infant mortality, child poverty, the adolescent suicide rate, the murder rate, unemployment, old age poverty and the cost of care for the elderly that is not reimbursed. They then plotted the index of the growth of GDP and this national index of "social health" on the same graph. From 1959 until the early 1970s, the
two indexes evolved in parallel with each other. In the mid-1970s, however, they became
uncoupled from each other in spectacular fashion: GDP continued its remarkable growth,
while the social health indicator fell sharply, particularly during the lengthy period between
1978 and 1993. Moreover, this finding is relatively insensitive to the weighting coefficients
used to construct the synthetic social indicator. The main value of this type of research is
not that it provides a definitive new objective measure of social progress, even less of Gross
National Happiness, but that it feeds into debates on the development of more precise
pluralistic evaluations based on a limited number of indicators whose significance lies in
the fact they are the product of careful thought and discussion, rather than being chosen
unilaterally by researchers or experts. This, among other things, is what makes the work
of the UNDP (United Nations Development Program) on indicators of human development
so interesting.

Notes
1 Our contemporary concepts have more distant origins, since they date from the early days of the Industrial
Revolution, and in particular from the work of Malthus. However, it was not until the State took control of
"industrial policy" and planning (in Europe, just after the Second World War) that these ideas led to the
development of measuring tools, institutions and figures that could be fed into the public debate as indicators
of progress.
2 Future Shock, New York, Bantam Books, 1970.
3 See Marque-Luisa Miringoff and Marc Miringoff, The Growing Gap Between Standard economic Indicators
and the Nation's Social Health, Challenge, July 1996.

SUGGESTED CITATION:
Jean Gadrey (2002) “Is The Concept of Economics Growth Autistic”, post-autistic
economics review : issue no. 11, January, article 3. http://www.btinternet.com/~pae_news/review/no11.htm
_________________________
This essay's ideas are developed further in Jean Gadrey's book Nouvelle économie nouveau mythe? (2001). An
English translation, New Economy, New Myth? will be published later this year by Routledge