The Moral Consequences of Economic Growth by Benjamin M. Friedman

From the Publisher

From the author of Day of Reckoning, the acclaimed critique of Ronald Reagan’s economic policy (“Every citizen should read it,” said The New York Times): a persuasive, wide-ranging argument that economic growth provides far more than material benefits.

In clear-cut prose, Benjamin M. Friedman examines the political and social histories of the large Western democracies–particularly of the United States since the Civil War–to demonstrate the fact that incomes on the rise lead to more open and democratic societies. He explains that growth, rather than simply a high standard of living, is key to effecting political and social liberalization in the third world, and shows that even the wealthiest of nations puts its democratic values at risk when income levels stand still. Merely being rich is no protection against a turn toward rigidity and intolerance when a country’s citizens lose the sense that they are getting ahead.

With concrete policy suggestions for pursuing growth at home and promoting worldwide economic expansion, this volume is a major contribution to the ongoing debate about the effects of economic growth and globalization.

The New York Times - Greg Easterbrook

Friedman doesn't worry that we will run out of petroleum, trees or living space. What he does worry about is that we will run out of growth.

Publishers Weekly

This probing study argues that, far from fostering rapacious materialism, economic growth is a prerequisite for the creation of a liberal, open society. Harvard economist Friedman, author of Day of Reckoning: The Consequences of American Economic Policy in the 1980s, contends that periods of robust economic growth, in which most people see their circumstances palpably improving, foster tolerance, democracy and generous public support for the disadvantaged. Economic stagnation and insecurity, by contrast, usher in distrust, retrenchment and reaction, as well as a tightfisted callousness toward the poor and-from the nativism of 19th-century Populists to the white supremacist movement of the 1980s-a scapegoating of immigrants and minorities. Exploring two centuries of historical evidence, from income and unemployment data to period novels, Friedman elucidates connections between economic conditions, social attitudes and public policy throughout the world. He offers a nuanced defense of globalization against claims that it promotes inequality and, less convincingly, remains optimistic that technology will resolve the conflicts between continual growth and environmental degradation. Friedman's progressive attitude doesn't extend to his cautious approach to promoting growth in America; a critic of Bush's tax cuts and deficits, he advocates fiscal discipline to free savings for investment, along with educational initiatives, including "school choice," to boost worker productivity. Its muted conclusion aside, Friedman's is a lucid, judiciously reasoned call for renewed attention to broad-based economic advancement. (Oct. 25) Copyright 2005 Reed Business Information.

Library Journal

Friedman (political economy, Harvard; Day of Reckoning) looks at the historical impact of economics on the evolution of nations. His main thesis is that sustained economic growth promotes national openness, tolerance, and democracy, while economic stagnation brings about societal rigidity and an erosion of democratic institutions. Thus, he attributes the rise of Nazism to Germany's economic collapse in the 1930s and claims that movements in the United States such as populism, progressivism, and the Ku Klux Klan all had their roots in the economic conditions of the times. Friedman examines the ramifications of his theory for globalization, the environment, and developing countries and concludes by explaining how to promote sustainable, broad-based economic growth in the United States. Though he writes clearly and has amassed convincing evidence for his thesis, this wide-ranging work requires readers to have some background in economics to appreciate his ideas fully. It is therefore recommended for academic and larger public libraries.-Lawrence R. Maxted, Gannon Univ., Erie, PA Copyright 2005 Reed Business Information.

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• ISBN: 1400095719
• Publisher: Knopf Doubleday Publishing Group
• Pub. Date: September 2006
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The Moral Consequences of Economic Growth

Knopf

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ISBN: 0-679-44891-8

Chapter One

Economic growth has become the secular religion of advancing industrial
societies.
-DANIEL BELL The Cultural Contradictions of Capitalism

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 ofprinciple 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.'" 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. 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 increased 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. 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.

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.

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.

The consequence of the stagnation that lasted from the mid-1970s until the
mid-1990s was, in numerous dimensions, a fraying of America's social fabric. It
was no coincidence that during this period popular antipathy to immigrants
resurfaced to an extent not known in the United States since before World War
II, and in some respects not since the 1880s when intense nativism spread in
response to huge immigration at a time of protracted economic distress. It was
not an accident that after three decades of progress toward bringing the
country's African-American minority into the mainstream, public opposition
forced a rolling retreat from affirmative action programs. It was not mere
happenstance that, for a while, white supremacist groups were more active and
visible than at any time since the 1930s, antigovernment private "militias"
flourished as never before, and all the while many of our elected political
leaders were reluctant to criticize such groups publicly even as church
burnings, domestic terrorist attacks, and armed standoffs with law enforcement
authorities regularly made headlines. Nor was it coincidental that the effort to
"end welfare as we know it"-a widely shared goal, albeit for different reasons
among different constituencies-often displayed a vindictive spirit that was
highly uncharacteristic of America in the postwar era.

With the return of economic advance for the majority of Americans in the
mid-1990s, many of these deplorable tendencies began to abate. In the 2000 and
2004 presidential campaigns, for example, neither anti-immigrant rhetoric nor
resistance to affirmative action played anything like the role seen in the
elections in 1996 and especially 1992. While hate groups and anti-government
militias have not disappeared, they have again retreated toward the periphery of
the nation's consciousness. Even so, much of the legacy of those two decades of
stagnation remains. While it has become commonplace to talk of the importance of
"civil society," many thoughtful observers increasingly question the vitality in
today's America of the attitudes and institutions that compose it. Even our
public political discourse has lately lost much of its admittedly sparse
civility, foundering on personal charges, investigations, and reverberating
recrimination.

It would be foolish to pretend that all these disturbing developments were
merely the product of economic forces. Social and political phenomena are
complex, and most have many causes. In the 1960s, for example, conventional
thinking in the United States interpreted the wave of student uprisings on
college campuses across the country as a protest against the Vietnam War. No
doubt it was, in part. That simple view failed, however, to explain why other
countries not involved in Vietnam had much the same experience (in some cases,
for example France, even more so) at just the same time. The political and
social changes that have been underway in America in our era have multiple roots
as well.

But it would be equally foolish to ignore the effects of two decades of economic
stagnation for a majority of the nation's citizens in bringing these changes
about. And it would be complacent not to be concerned now that the economy's
prospects are in question once again. As we shall see, the history of each of
the large Western democracies-America, Britain, France, and Germany-is replete
with instances in which just this kind of turn away from openness and tolerance,
and often the weakening of democratic political institutions, followed in the
wake of economic stagnation that diminished people's confidence in a better
future. In many parts of Europe, the social and political consequences of the
transition from the postwar economic miracle to today's nagging "Eurosclerosis"
are all too evident.

In some eras, both in our own history and in that of these other countries,
episodes of rigidity and intolerance have been much more intense and have borne
far more serious consequences than anything we have seen recently. But then some
past eras of stagnation or retreat in living standards have been much more
pronounced as well. At the same time, periods of economic expansion in America
and elsewhere, during which most citizens had reason to be optimistic, have also
witnessed greater openness, tolerance, and democracy. To repeat: such advances
occur for many reasons. But the effect of economic growth versus stagnation is
an important and often central part of the story.

(Continues...)

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Excerpted from The Moral Consequences of Economic Growth
by Benjamin M. Friedman
Copyright © 2006 by Benjamin M. Friedman.
Excerpted by permission.
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