Eric Crampton says that economic growth can make us all a little safer

Eric Crampton says that economic growth can make us all a little safer

By Eric Crampton*

It’s easy to get reasonable people to agree that economic growth is a good thing, at least in principle.

The New Zealand Initiative hosted a panel discussion on its recent report, by Jenesa Jeram and me, outlining the case for economic growth and dispelling a few myths around growth.

With me were MPs Chris Bishop (National), Dr David Clark (Labour) and James Shaw (Greens).  And since they’re all reasonable people, they all agreed that economic growth is a good thing.

Chris Bishop highlighted the role growth has played in bringing billions of people out of abject poverty, emphasising the National Government’s commitment to growth.

He reminded us that those stopping growth in the developing world means stopping the rollout of proper sewerage systems and flush toilets.

The move to indoor plumbing is within my parents’ lifetime in Canada, but is in my generation’s memory in Christchurch, where the last long-drop man retired only a few decades ago. We too quickly forget all the things we take for granted.

David Clark also lauded growth but warned that, if technological innovation is too fast, we need mechanisms for retraining displaced workers.

It is an important point, and I wonder whether we have the appropriate balance between trades training and universities. But, I still worry a lot more about too little technological progress than too much.

Tyler Cowen’s recent book, The Great Stagnation, warned of the slowdown in productivity growth and technological advancement – especially in health care, education, and sectors primarily serviced by government.

One consequent bottom-line for me is that we need to be more careful that we not put too strong of barriers ahead of those who would want to innovate here, like the government seems to have done in pushing a joint Google-REANNZ research project to Australia because of TICSAA telecommunications regulation here.

For all of the complaining we hear about a lack of economic diversification, New Zealand is hardly a friendly place for foreign companies wishing here to invest and actually engage in world-leading research and development.

James Shaw proved the most optimistic, in an important big-picture sense, about the potential for technological innovation and the decoupling of economic growth from reliance on scarce resources and energy.

3-D printing in particular has great potential to let more manufacturing be done close to point of consumption.

He also warned, entirely correctly, that it is very hard for a green-minded consumer to know what to purchase when components for electric cars can involve unseen toxic tailings pools in China. In a world without comprehensive pricing of the external environmental costs of production, it’s not easy being green.

It’s when the rubber hits the road that maintaining support for economic growth gets harder.

Every time that government passes a policy or implements regulation that fails cost-benefit assessment, or without adequate consideration of costs and benefits, it is effectively saying that economic growth does not matter that much.

No party has covered itself in glory on this front.

While Minister English has been pushing towards better estimates of cost-effectiveness in government service provision, when there’s a by-election to be won, well, the Beehive can be worth a few bridges.

Labour recently has rightly criticised the government for the deadweight costs involved when ACC premiums are higher than they need to be, but too quickly forgets the deadweight costs associated with collecting the revenue needed for other large-scale spending projects.

And while biotech GMO approaches to nitrogen-fixing and reducing ruminant methane emissions hold promise, the Greens’ preferred regulatory approach prevents too much of this important work.

The country needs a more rigorous approach to the Regulatory Impact Statements that accompany new bits of regulation and ongoing reviews of existing spending programmes to ensure that they continue to be the most cost-effective way of delivering the desired services. Too much spending rolls over from year to year without substantial review. New spending programmes and new regulations draw at least some scrutiny; the mass of existing spending and rules do not.

And growth does matter.

Had New Zealand’s economic growth rate been only a percentage point higher since 1970, the country would today have higher per-capita GDP than Australia and be fourth in the OECD instead of languishing below the median.

Further, economic growth is the single best way we can prepare against the range of natural calamities to which New Zealand can be subject. In our report on the merits of economic growth, we found that wealthier countries are better protected against even earthquakes.

Richer places can afford safer buildings. Over the next twenty years, a 1% growth rate would reduce the number of deaths in a substantial Wellington earthquake by about twelve percent. But at a 4% growth rate, the number of fatalities could be cut by over 60%.

As Wellington and Christchurch continue their unwelcome wobbles, let’s not forget the role growth can play in making us all a little safer.

----------------------------

*Eric Crampton is head of research at The New Zealand Initiative.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

17 Comments

Comment Filter

Highlight new comments in the last hr(s).

Hope I not the only one find this article full of non-sense and light talks.

I thought it all quite sensible. Please give an example of nonsense?

Depends on the audience

First you need to define growth - not all growth is good - eg cancer

Crampton omits that one essential ingredient - without that definition the article runs the risk of being a misleading puff-piece. eg GDP versus GDP per capita

Dr Eric Crampton Position. Senior Lecturer. Qualifications. B.A. (Double Honours, Economics and Political Studies) (University of Manitoba) M.A.

Yes, a very shallow, yet hopeful analysis, does at first glance appear to be "sensible" but at closer inspection flaws become apparent.

His discussion doesn't address a good many caveats of economic growth.

There is the economic justice dimension. Economic growth doesn't guarantee a fair distribution of economic gains within society. This is fundamentally a political issue, which modern economists adroitly sidestep, since they dropped the political dimension of their discipline, which was of great interest to classical economist such as Adam Smith, John Stuart Mill, David Hume, and David Ricardo.

The First Industrial Revolution is just the first in a line of successive periods of economic expansions, which necessitated government intervention. The Second Industrial Age was ushered in with the introduction of the development of the railroad, the telegraph and electricity, which required the intervention of governments in the form of outright land grants to railroads in the New World and application of eminent domain in the Old.

Another issue is that the process of economic growth historically has been largely driven by government influence and one can observe than the direction of economic and technological change follows bureaucratic imperatives which seeks territorial consolidation and expansion, improved methods of social control and is closely associated with the preparations for and conduct of war.

The European wars of the 18th Century were key drivers of the Industrial Revolution. Economic expansion generally followed the start of hostilities between rival European powers because the warfare state of the period had an insatiable appetite for the products of industry. One of the largest customers of Watt and Boulton was John Wilkinson, and ironmonger who had contracts to build armaments for the British Navy. The truth of this proposition can be observed when one sees that the end of the Napoleonic Wars. Its not widely recognized that Malthus himself came up with the theory of insufficient demand in the economy, though his explanation left alot to be desire in an ethical sense.

http://delong.typepad.com/sdj/2010/03/the-general-glut-of-thomas-robert-...

Certainly, economic growth doesn't guarantee a fair distribution of economic gains. But surely the point is that there won't be anything to distribute if you prevent the economic growth from taking place at all. It is, as you say, a political issue whether economic gains should be fairly distributed and indeed what "fairly" actually means; I do not see why you blame economists for leaving political issues to politicians.

Not sure how the rest of your exposition argues against Crampton's case. He is talking about the results of economic growth whereas you are talking about the causes of it.

"Jensa Jeram and me" is just nonsense grammar.

Any growth that lasts for a while, leads to an exponential increase of economy and its resource needs, and this cannot be sustainable in the long run. A well known property of exponential growth is that each next doubling creates more needs than the sum of all needs before the doubling. For example, 1+2=3 is less than 2x2= 4, 1+2+4=7 is less than 2x4=8.

The whole growth agenda needs a very serious rethink in light of the well known fact that we live on a finite planet. Not rehashing an outdated mode of thinking that may have been relevant 100 years ago, but has clearly passed its best before date.

There is absolutely nothing grammatically wrong with "a report by Jenesa Jeram and me".

Your mathematical example proves nothing at all with relation to economic growth and its impact on resource needs. It's just not true that an increase in wealth can only come about from an exactly corresponding increase in resource input.

Certainly, economic growth on its own does not necessarily bring about the good things that Crampton mentions. That requires public policy decisions as well as economic growth.

But you will have a hard time demonstrating that good things can be brought about in the absence of economic growth.

Here is an example of nonsense MdM. Surprised you didn't see it yourself.
"And since they’re all reasonable people, they all agreed that economic growth is a good thing."
Meaning that is they did not agree with the author, they are not reasonable. !!!!!
What is it with this NZ Initiative ? They are consistently lightweight, to the extent I wish they would stop embarrasing us with the use of our country's name.

we only see what we want to.

GDP per capita may mean something to those on the top of the heap, but for everyone else median wages are far more important, and there is a lot of evidence out there proving that GDP and productivity growth don't automatically translate into better wages.

As to bringing 'Billions out of poverty.' Living in a barter economy does not equal poverty.

As a child, the driver lived in a small village surrounded by banana and other fruit tree groves. Twenty years ago, the villagers would have plots with vegetables and grain crops, and barter products at a local farmer's market. Today, when this driver goes home, there is nothing left of the trees and crops. Instead, there is a store that sells expensive Coca Cola and junk food.

Most people in Ghana are now completely dependent on a large-scale distribution system to buy expensive, often foreign food. In one generation, the driver's village went from a healthy barter economy and good food (i.e., poverty) to buying unhealthy food from unknown sources with cash (i.e., not poverty).

Mr. Progress has knocked on the driver village's door and stimulated the global economy. The driver had to emigrate to America to earn money so that his family could buy American food in Ghana. There you have it.
http://patzek-lifeitself.blogspot.co.nz/2015/01/prancing-in-davos.html

Skudiv... re Ghana... the plight u describe is , at least in part, the result of the economic dogma and self interest of the west....
Economics as a specialized field... can be a dismal science..... which makes it easy to be mis-used to justify the ends of self interested groups... like Multi Nationals and the financial sector... kinda ironic that economics is one of my favorite subjects...

"In the early 1980s conditions attached to loans given to Ghana by the IMF and the World Bank resulted in the country liberalising its markets and cheap imported rice flooding the market. "
http://www.theguardian.com/world/2005/apr/11/hearafrica05.development

a slight increase in wages, but an even higher increase in prices makes GDP look like it's growing. Yet the purchasing power is dropping - especially if GDP doesn't have the PAYE and GST removed.

The clear disconnect we are having is that increasing GDP is not working for the citizens of our country. Lots of GDP increase in the last few decades and people are less able to buy a house etc etc.

GDP growth , in itself, is a croc of shit.... A large amount of , so called, growth over the last 40 yrs has been largely a consequence of credit growth. ( and all the distortions that go with it ).
The only growth that really matters is productivity growth... which is a function of a work ethic + intelligence + innovation...+ Capital.
We could have these things without....hardly.... any GDP growth ...and we would be better off for it.
It would be an environment of benign deflation, in which the productivity gains would be appropriated by everyone as an improved standard of living and quality of life.
Words like "sustainability"...." simplicity".... "conservation"... would be congruent with this environment.
words like "GDP Growth" ...would be meaningless because it is a measure of something that can be stupid... eg.. If I a dig a big hole...and then fill it in ... I have contributed to GDP growth.... if I borrow money and spend it... I have contributed to GDP growth.... If I mine Gold and make $1billion...but yrs later the cleanup costs the country $3billion.... that adds to GDP growth....
In this regard... I find Erics' argument a little inane.... it comes from the past , without any of the lessons that might be learnt from the past..
Just my view... of course..

I think you all should watch this

Humans Need Not apply

https://www.youtube.com/watch?v=7Pq-S557XQU

This is all about privatising Health and Education - Nothing else but that

Putting aside what i said above "Humans need not apply" there is another big change coming and that is the TPP.

If you look closely at the TPP you will see that you must look at in conjunction with the TTIP.
If you look at a map of the area covered by the TPP and TTIP you will see that America is surounding China and Russia.

I do not have the space here but you also have to look at Russia's EEU and China's Silk road and more.

There is a race on to be the worlds next Emeror of the new world.

Will America Imperialism retain the Emperors crown or will China be the new Emperor?
Russia is not economically powerful enough to be in the race.

The TPP will not create a single job what will happen is this.

Under the British empire the military conquerd a country then the capitaists moved in and stripped the wealth leaving a poor country behind.

Under the TPP no military is needed we just hand it over. The big corporations will screw us. Pharmacuticals. GM foods, Copyright and much more. They will strip us of our wealth for the benefit of the Emperor, who will retain world dominance over Russia and China.

Well i will leave it at that and let you decide. But believe me not a single job will be created.