Friday, October 28, 2005

Links Between Growth and Moral Behaviour

Michael Mandel of Business Week Online, 7 November 2005 (they always print ahead of the publication month), reviews Benjamin M. Friedman’s new book, The Moral Consequences of Economic Growth, Knopf (592 pages for $35): “What’s So Good About Growth”.

Note this is a statement, not a question, which is remarkably mature for a subject that attracts a lot of silliness from people who a) either have plenty of material goods and benefits and want growth to stop, or b) do not realise to what lives of abject poverty they are condemning other people, towards whom they would normally exhibit some sympathy.

Michael Mandel writes:

“The title of Harvard University economist Benjamin M. Friedman's new book, The Moral Consequences of Economic Growth, might seem a bit off-key. After all, politicians and economists typically focus on the material benefits of growth -- more and better jobs, higher gross domestic product, larger incomes, and more money available for government programs. And companies such as Wal-Mart Stores Inc., typically point to economic benefits, such as low prices for consumers and jobs for workers, when they want to justify their business policies.But the narrowness of the public discussion is exactly what Friedman wants to address. "Our conventional thinking about economic growth fails to reflect the breadth of what growth, or its absence, means for a society," he writes. "Growth is valuable not only for our material improvement but also for how it affects our social attitudes and our political institutions -- in other words, our society's moral character."

The real benefit of growth, Friedman argues, is that it encourages a wide range of social virtues, including dedication to democracy, tolerance of diversity, social mobility, and commitment to fairness. By contrast, he writes, "when living standards stagnate or decline, most societies make little if any progress toward any of these goals, and in all too many instances they plainly retrogress."

The lack of a direct link between personal satisfaction and the level of GDP per person seems to undercut the purely economic arguments in favour of growth. After all, why should we undergo all the turmoil of technological change and economic restructuring if more gadgets and bigger homes aren't going to make us happier in the end?Friedman argues that economic growth has a key additional benefit: As long as people see their own income rising, they worry less about doing better than others. And that in turn creates a more favourable environment for political and social advances. To demonstrate this point, he draws on economic studies and historical examples, both American and global. In the 1700s, he points out, it became accepted that the rise of commercial and trading activity was a force for positive legal and institutional change. Adam Smith, for one, believed that moral progress went hand in hand with economic progress, as voluntary exchange replaced the use of force.”

Friedman hits the nail on the head, as we say. For a change, it is an absolutely accurate use of Smith’s name on this topic. Smith, a moral philosopher, linked the growth of the commercial society, i.e., his Fourth Stage of History; see his Jurisprudence Lectures (a low cost copy can be obtained from in the Liberty Fund series) to his theory of moral sentiments behaviours in society.

People have always lived in societies like our primate cousins, and our forebears never ‘lived by bread alone’; neither did they live alone. The choice faced by humankind, from the primitive ages of society, when they made early contact with other human societies, was between plunder and trade. In many ways that remains our choice.

Hence, the significance of Smith’s opening chapters of “Wealth of Nations” on the division of labour and the propensity to ‘truck, barter and exchange’, a theme I covered in my talk this week to a public audience at the National Gallery in Edinburgh (read it on the Articles button on the left).


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