Will we ever have enough wealth?

Robert Skidelsky, Straits Times 26 Nov 09;

THE economic downturn has produced an explosion of popular anger against bankers' 'greed'. This has accompanied a wider critique of 'growthmanship' - the pursuit of economic growth at all costs, regardless of the damage it may do to the earth's environment or to shared values.

John Maynard Keynes addressed this issue in 1930, in his little essay Economic Possibilities For Our Grandchildren.

Keynes predicted that in 100 years - that is, by 2030 - growth in the developed world would, in effect, have stopped because people would 'have enough' to lead the 'good life'. Hours of paid work would fall to three a day - a 15-hour week. Human beings would be more like the 'lilies of the field, who toil not, neither do they spin'.

Keynes' prediction rested on the assumption that, with a 2 per cent annual increase in capital, a 1 per cent increase in productivity, and a stable population, average standards of living would rise eight times on average. This enables us to work out how much Keynes thought was 'enough'.

Gross domestic product (GDP) per head in Britain in the late 1920s was roughly £5,200 (S$12,000) in today's value. Accordingly, he estimated that a GDP per capita of roughly £40,000 - or US$66,000 ($91,600) - would be 'enough' for humans to turn their attention to more agreeable things.

It is not clear why Keynes thought eight times the average British national income per head in the 1920s would be 'enough'. Most likely he took as his standard of sufficiency the bourgeois rentier income of his day, which was about 10 times that of the average worker.

Eighty years on, the developed world has approached Keynes' goal. In 2007, the International Monetary Fund reported that average GDP per head in the United States stood at US$47,000, and at US$46,000 in Britain. In other words, Britain has had a five-fold increase in living standards since 1930 - despite the falsification of two of Keynes' assumptions: 'no major wars' and 'no population growth' (Britain's population is now 33 per cent higher than it was in 1930).

The reason we have done so well is that annual productivity growth has been higher than Keynes projected: about 1.6 per cent in Britain, and a bit higher for the US. Countries like Germany and Japan have done even better, despite the hugely disruptive effects of war. It is likely that Keynes' 'target' of US$66,000 will be achieved for most Western countries by 2030.

But it is equally unlikely that this achievement will end the insatiable hunt for more money. Let's assume that we are two-thirds of the way towards Keynes' target. We might therefore have expected hours of work to have fallen by about two-thirds. In fact, they have fallen by only one-third - and have stopped falling since the 1980s.

This makes it highly improbable that we will reach the three-hour working day by 2030. It is also unlikely that growth will stop - unless nature itself calls a halt. People will continue to trade leisure for higher incomes.

Keynes minimised the obstacles to his goal. He recognised that there are two kinds of needs, absolute and relative, and that the latter may be insatiable. But he underestimated the weight of relative needs and, of course, the power of advertising to create new wants. As long as consumption is conspicuous and competitive, there will continue to be fresh reasons to work.

Keynes did not entirely ignore the social character of work. The wealthy had a duty to help the poor. The goal of global poverty reduction has imposed a burden of extra work on people in rich countries, both through foreign aid and, more importantly, through globalisation, which increases job insecurity and holds down wages of the less skilled in the developed world.

Moreover, Keynes did not really confront the problem of what most people would do when they no longer needed to work. He writes: 'It is a fearful problem for the ordinary person, with no special talents, to occupy himself, especially if he no longer has roots in the soil or in custom or in the beloved conventions of a traditional economy.' But since most of the rich have 'failed disastrously' to live the 'good life', why should those who are currently poor do any better?

Here I think Keynes comes closest to answering the question of why his 'enough' will not, in fact, be enough. The accumulation of wealth, which should be a means to the 'good life', becomes an end in itself because it destroys many of the things that make life worth living. Beyond a certain point - which most of the world is still far from having reached - the accumulation of wealth offers only substitute pleasures for the real losses to human relations that it exacts.

Finding the means to nourish the fading 'associations or duties or ties' that are so essential for individuals to flourish is the unsolved problem of the developed world, and it is looming for the billions who have just stepped onto the growth ladder.

George Orwell put it well: 'All progress is seen to be a frantic struggle towards an objective which you hope and pray will never be reached.'

The writer, a member of Britain's House of Lords, is Professor Emeritus of Political Economy at Warwick University.

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