The Moral Consequences of Economic Growth Read online

  Praise for Benjamin M. Friedman’s

  The Moral Consequences of Economic Growth

  “Fascinating.… A compelling [case], backed up impressively by historical evidence.… Belongs on the required-reading list of anyone hoping to improve the world.”

  —The Philadelphia Inquirer

  “Persuasive.… Friedman urgently and convincingly describes a society that is failing in many respects but is strangely unable to understand why.… His analysis should be heeded.… His book makes clear the moral consequences of economic growth in developed and developing nations.”

  —The New York Review of Books

  “A powerful rebuttal to some of the conventional assumptions of this country’s governing elite.… Friedman is a true scholar, and he scrupulously presents all sides of an argument and all the available evidence.… His is wise counsel and a sober warning. Let’s hope someone is listening.”

  —American Prospect

  “Impressive.… Sophisticated.… A subtle, wide-ranging argument.… A compelling case for why societies at all stages of development should strive to realize or sustain increases in living standards.”

  —The New Leader

  FIRST VINTAGE BOOKS EDITION, SEPTEMBER 2006

  Copyright © 2005 by Benjamin M. Friedman

  All rights reserved. Published in the United States by Vintage Books, a division of Random House, Inc., New York, and in Canada by Random House of Canada Limited, Toronto. Originally published in hardcover in the United States by Alfred A. Knopf, a division of Random House, Inc., New York, in 2005.

  Vintage and colophon are registered trademarks of Random House, Inc.

  A portion of this work previously appeared in The Atlantic Monthly.

  The Library of Congress has cataloged the Knopf edition as follows: Friedman, Benjamin M.

  The moral consequences of economic growth / Benjamin M. Friedman.—1st ed.

  p. cm.

  1. Economic development—Moral and ethical aspects.

  2. Income distribution. 3. Political participation.

  4. Democracy. I. Title

  HD82F7168 2005

  174—dc22 20045040792

  eISBN: 978-0-307-77345-6

  Author photograph © J. D. Sloan

  www.vintagebooks.com

  v3.1

  For B.A.C.

  Contents

  Cover

  Title Page

  Copyright

  Dedication

  Preface

  PART I

  IDEAS, THEIR ORIGINS, AND THEIR IMPLICATIONS Chapter 1 - What Growth Is, What Growth Does

  Chapter 2 - Perspectives from the Enlightenment and Its Roots

  Chapter 3 - Crosscurrents: The Age of Improvement and Beyond

  Chapter 4 - Rising Incomes, Individual Attitudes, and the Politics of Social Change

  PART II

  DEMOCRACY IN AMERICA Chapter 5 - From Horatio Alger to William Jennings Bryan

  Chapter 6 - From TR to FDR

  Chapter 7 - Great Depression, Great Exception

  Chapter 8 - America in the Postwar Era

  PART III

  OTHER TIMES, OTHER PLACES: THE EUROPEAN DEMOCRACIES Chapter 9 - Britain

  Chapter 10 - France

  Chapter 11 - Germany

  PART IV

  DEVELOPMENT, EQUALITY, GLOBALIZATION, AND THE ENVIRONMENT Chapter 12 - Economics and Politics in the Developing World

  Chapter 13 - Virtuous Circles, Vicious Circles

  Chapter 14 - Growth and Equality

  Chapter 15 - Growth and the Environment

  PART V

  LOOKING FORWARD Chapter 16 - Economic Policy and Economic Growth in America

  Notes

  Acknowledgments

  About the Author

  Other Books by This Author

  Preface

  Morality has many dimensions. In some contexts, the actions and attitudes we recognize as moral are mostly a matter of individual behavior. Personal honesty, fair dealing, family bonds, and loyalty to friends and co-workers would be on almost everyone’s list. Religious belief and practice would be on many people’s. Many would also add, now in a negative sense, aspects of sexual behavior, or use and abuse of drugs and alcohol.

  This book is about how economic growth—or stagnation—affects the moral character of a society. But here as well, what constitutes a moral society is a matter of many dimensions, and a question to which different people bring different conceptions.

  The concept of a moral society that I take as the benchmark for examining what difference economic growth makes is the image held out by the Enlightenment thinkers whose ideas were key to the creation of America as an independent nation and have remained central to Western thinking ever since. Its crucial elements include openness of opportunity, tolerance, economic and social mobility, fairness, and democracy. Surely there are other valid conceptions of the moral society as well; but these are the characteristics that I keep in mind throughout, and against which I measure the progress or retreat that economic developments help bring about. I make no attempt here to argue why these characteristics of a society are desirable, much less moral. I take them to be so for the reasons Locke and Montesquieu, Adams and Jefferson, and political thinkers both theoretical and practical ever since, have recognized.

  This book could have been written from any of a number of familiar viewpoints, and not just because different people might conceive the moral society differently. Beginning from the same benchmark, a historian, a philosopher, a psychologist—not to mention a theologian—could well treat this subject, and presumably would treat it differently. Although I have drawn on these disciplines along the way, I have nonetheless written from the perspective of an economist. After more than half a lifetime of study and research into policies designed to keep output and employment as close as possible to an economy’s existing potential, and to help that potential expand over time, I wanted to be able to say why this matters for countries (like my own) where the average income is already high and most people enjoy a comfortable standard of living. That is where this inquiry starts.

  And, of course, I have written also from the perspective of my time and place. One of my Harvard colleagues with whom I once discussed in some detail the hypothesis about economic growth and moral progress that I advance here, a distinguished European scholar a decade and a half older than I, commented that only an American—and at that, only an American of my generation—would write a book expressing such an optimistic perspective on economic growth from a moral point of view. If this is right, I gladly accept that identification as well.

  BENJAMIN M. FRIEDMAN

  Cambridge, Massachusetts

  July 2005

  PART I

  IDEAS, THEIR ORIGINS, AND THEIR IMPLICATIONS

  Chapter 1

  What Growth Is, What Growth Does

  Economic growth has become the secular religion of advancing industrial societies.

  —DANIEL BELL

  The Cultural Contradictions of Capitalism1

  Are we right to care so much about economic growth as we clearly do?

  For citizens of all too many of the world’s countries, where poverty is still the norm, the answer is immediate and obvious. But the tangible improvements in the basics of life that make economic growth so important whenever living standards are low—greater life expectancy, fewer diseases, less infant mortality and malnutrition—have mostly played out long before a country’s per capita income reaches the levels enjoyed in today’s advanced industrialized economies. Americans are no healthier than Koreans or Portuguese, for example, and we live no longer, despite an
average income more than twice what they have. Yet whether our standard of living will continue to improve, and how fast, remain matters of acute concern for us nonetheless.

  At the same time, perhaps because we are never clear about just why we attach so much importance to economic growth in the first place, we are often at cross-purposes—at times we seem to be almost embarrassed—about what we want. We not only acknowledge other values; as a matter of principle we place them on a higher plane than our material well-being. Even in parts of the world where the need to improve nutrition and literacy and human life expectancy is urgent, there is often a grudging aspect to the recognition that achieving superior growth is a top priority. As a result, especially when faster growth would require sacrifice from entrenched constituencies with well-established interests, the political process often fails to muster the determination to press forward. The all too frequent outcome, in low- and high-income countries alike, is economic disappointment, and in some cases outright stagnation.

  The root of the problem, I believe, is that our conventional thinking about economic growth fails to reflect the breadth of what growth, or its absence, means for a society. We recognize, of course, the advantages of a higher material standard of living, and we appreciate them. But moral thinking, in practically every known culture, enjoins us not to place undue emphasis on our material concerns. We are also increasingly aware that economic development—industrialization in particular, and more recently globalization—often brings undesirable side effects, like damage to the environment or the homogenization of what used to be distinctive cultures, and we have come to regard these matters too in moral terms. On both counts, we therefore think of economic growth in terms of material considerations versus moral ones: Do we have the right to burden future generations, or even other species, for our own material advantage? Will the emphasis we place on growth, or the actions we take to achieve it, compromise our moral integrity? We weigh material positives against moral negatives.

  I believe this thinking is seriously, in some circumstances dangerously, incomplete. The value of a rising standard of living lies not just in the concrete improvements it brings to how individuals live but in how it shapes the social, political, and ultimately the moral character of a people.

  Economic growth—meaning a rising standard of living for the clear majority of citizens—more often than not fosters greater opportunity, tolerance of diversity, social mobility, commitment to fairness, and dedication to democracy. Ever since the Enlightenment, Western thinking has regarded each of these tendencies positively, and in explicitly moral terms.

  Even societies that have already made great advances in these very dimensions, for example most of today’s Western democracies, are more likely to make still further progress when their living standards rise. But 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. As we shall see, many countries with highly developed economies, including America, have experienced alternating eras of economic growth and stagnation in which their democratic values have strengthened or weakened accordingly.

  How the citizens of any country think about economic growth, and what actions they take in consequence, is therefore a matter of far broader importance than we conventionally assume. In many countries today, even the most basic qualities of any society—democracy or dictatorship, tolerance or ethnic hatred and violence, widespread opportunity or economic oligarchy—remain in flux. In some countries where there is now a democracy, it is still new and therefore fragile. Because of the link between rising or falling living standards and just these aspects of social and political development, the absence of growth in so many of what we usually call “developing economies,” even though many of them are not actually developing, threatens their prospects in ways that standard measures of national income do not even suggest. But the same concern applies, albeit in a more subtle way, to mature democracies as well.

  Even in America, I believe, the quality of our democracy—more fundamentally, the moral character of American society—is similarly at risk. The central economic question for the United States at the outset of the twenty-first century is whether the nation in the generation ahead will again achieve increasing prosperity, as in the decades immediately following World War II, or lapse back into the stagnation of living standards for the majority of our citizens that persisted from the early 1970s until the early 1990s. And the more important question that then follows is how these different economic paths would affect our democratic political institutions and the broader character of our society. As the economic historian Alexander Gerschenkron once observed, “even a long democratic history does not necessarily immunize a country from becoming a ‘democracy without democrats.’ ”2 And as we shall see from our own experience as well as that of other countries, merely being rich is no bar to a society’s retreat into rigidity and intolerance once enough of its citizens lose the sense that they are getting ahead.

  The familiar balancing of material positives against moral negatives when we discuss economic growth is therefore a false choice, and the parallel assumption, that how we value material versus moral concerns neatly maps into whether we should eagerly embrace economic growth or temper our enthusiasm for it, is wrong as well. Economic growth bears moral benefits as well, and when we debate the often hard decisions that inevitably arise—in choosing economic policies that either encourage growth or retard it, and even in our reactions to the growth that takes place apart from the push or pull of public policy—it is important that we take these moral positives into account.

  Especially in a work focused on the positive link between economic growth and social and political progress, it may seem strange to think that America, now so preeminent across the world in economic terms, faces any significant threat in this regard. One country after another—including even China and Singapore, which thus far have hesitated to liberalize politically—has adopted American approaches to the management of its economy, based on free enterprise, private initiative, and mobile capital. Why would ongoing economic growth not therefore herald an era of further social and political progress that would reinforce the openness of American society and otherwise strengthen and broaden American democracy?

  One concern is simply that the robust growth of the latter half of the 1990s may prove to have been only a temporary interlude, a “bubble” as many disappointed stock market investors now regard it, between the stagnation that dominated most of the final quarter of the twentieth century and further stagnation yet to come. But even the prosperity that America experienced in the late 1990s bypassed large parts, in some important dimensions a clear majority, of the country’s citizens. Jobs were plentiful, but too many provided poor wages, little if any training, and no opportunity for advancement.

  Economic progress needs to be broadly based if it is to foster social and political progress. That progress requires the positive experience of a sufficiently broad cross section of a country’s population to shape the national mood and direction. But except for a brief period in the late 1990s, most of the fruits of the last three decades of economic growth in the United States have accrued to only a small slice of the American population. Nor was that short period of more widespread prosperity sufficient to allow most American families to make up for the economic stagnation or outright decline they endured during previous years. After allowing for higher prices, the average worker in American business in 2004 made 16 percent less each week than thirty-plus years earlier.3 For most Americans, the reward for work today is well below what it used to be.

  With more and more two-earner households, and more individuals holding two jobs, most families’ incomes have more than held their ground. But nearly all of the gain realized over these last three decades came only in the burst of strong growth in the late 1990s. Despite mostly low unemployment, and some modest growth in the U.S. gross domestic product—and despite the incr
eased prevalence of two-earner families and two-job workers—the median family’s income made little gain beyond inflation from the early 1970s to the early 1990s.4 For fully two decades most Americans were not getting ahead economically, and many of those who did were increasingly hard-pressed to keep up even their meager progress. This was not the kind of broadly based increase in living standards that we normally conceive as “economic growth.”

  Even for many families in the country’s large middle-class majority, economic prospects have become increasingly precarious in recent decades. Young men entering the American job force in the 1970s started off their working careers earning two-thirds more, on average, than what their fathers’ generation had made starting out in the 1950s. By the early 1990s young workers were starting out at one-fourth less than what their parents’ generation had earned.5

  It is not surprising, therefore, that even as they expressed confidence that the U.S. economy would continue to expand, throughout this period Americans in record numbers also said they had no sense of getting ahead personally and that they feared for their children’s financial future. Even in the late 1990s, with the surge in both the economy and the stock market in full bloom, more than half of all Americans surveyed said they agreed that “The American dream has become impossible for most people to achieve.” More than two-thirds said they thought that goal would become still harder to attain over the next generation.6

  The disappointment so many Americans felt at failing to achieve greater advances—and that many feel today—is grounded in hard reality. So is the sense of many young Americans that their prospects are poor even at times when the economy is strong. Our citizens applaud the American economy, especially in years when it prospers, yet even then they fear that the end of the American dream lies ahead. They do so because in the last generation so many have failed to experience that dream in their own lives.