Growth is not a plan. It’s an ideology (part 2 of 2)

Growth ideology is a constraint on growth. Its origins lie in conservative as well as neoliberal thought

Part 1 of this post questioned whether growth should be the primary goal of economic management – especially if it means that, ironically, many of the policy measures most likely to induce growth are deprioritised. In this second part, I explore the ideological implications of an ostensible focus on growth, especially the prescription to preserve key aspects of a stagnant economy. As such, I argue that growth ideology is a product of conservative thought, as much as, if not more so, of neoliberalism.

Growing to stand still

One of the strangest, but revealing, aspects of growth ideology is that it generally insists that the main industrial structures of the economy are inviolable – even when the economy is demonstrably failing to grow.

Capital does not make mistakes, only public authorities do.

It should be obvious to us that change is necessary to grow – the most sustained periods of economic growth tend to follow disruptions that create entirely new industries, favouring some fractions of capital over others. Yet the growth ideologues can be most often found arguing that change is a threat to growth.

A recent Financial Times report defined Britain as ‘consultation nation’ due to the fact that our services exports are dominated by ‘other business services’, principally management consultancy. Exports of other business services were valued at around £180 billion in 2023, compared to around £75 billion for financial services. In 2022, management consultancy constituted around a quarter of the value of other business services exports.

It is this kind of portrait that convinced the Economy 2030 Inquiry (led by the Resolution Foundation and LSE’s Centre for Economic Performance) to insist that ‘being serious’ about ending the UK’s economic stagnation means understanding ‘what Britain’s 21^st century economy actually looks like’. And this means an economic strategy focused on the existing strength of services exports:

‘Understanding your country is a prerequisite for making a success of it: we are a services superpower’

In defence of the inquiry, it has, firstly, produced an ambitious programme of reform in many ways. It wants the public sector, pension funds and corporations to step up to invest more in the British economy. It wants to maintain the pace of minimum wage increases, and to focus on creating strong pathways from education to good jobs for young people. It recommends a range of tweaks to tax and benefit systems to enable fairer outcomes and challenge endemic poverty. It believes that we can finally level up the economy by empowering local economies to nurture high-value services industries, alongside pockets of advanced manufacturing strength.

It has also, secondly, centred greater equality, and more quality jobs, as economic policy goals alongside growth – rejecting the notion that these outcomes will be achieved by default as the economy grows.

And thirdly, there is noting inherently wrong with a pragmatic commitment to starting from where we are. The means and ends of progressive politics must adapt to context.

However, pragmatism is not the opposite of radicalism. What the economy ‘actually looks like’ is the departure point; this does not mean being merely ‘a better version of Britain’ (contrasted with ‘a British version of Germany’) must be the final destination too, insofar as this dictates a moderation of more transformative objectives.

Growth to nowhere

There are, in fact, plenty of reasons for concern that Britain’s ‘services superpower’ status is illusory, and that a growth strategy centred on services exports involves long-term peril as well as short-term promise.

First, as is typical of ideologically-charged analysis, the superpower metaphor is based on a partial reading of the relevant data. Britain’s services exports have almost tripled as a proportion of GDP since 1990, in the context of goods exports declining. Yet this is not a UK-specific shift. The OECD average value for services exports has almost doubled over the same period, even as goods exports have also increased.

And note that services imports into the UK as a proportion of GDP have also risen sharply over this period – far more than the OECD average. Britain may be the ‘second largest’ services exporter in the world, after the United States, but it is not really very far ahead of the rest, according to OECD data. Germany – the country we must not try to emulate, remember – is a close third, and China, Ireland and France follow closely behind.

Second, while Britain can invest in its strength in high-value services, it cannot dictate the structural conditions in which this strength manifests. Britain’s exports of financial and management consultancy services have been driven in part by the financialisation of the Eurozone and East Asian economies, which is unlikely to continue at the same pace. It has been greatly assisted by the global role of the English language, which is due mostly to the United States’ economic and cultural hegemony – hardly a safe bet anymore.

Third, Brexit is clearly a significant barrier to Britain’s ability to export services within the European single market – most services exports are beyond Europe (with the United States the most important single destination), but nevertheless the EU represents an enormous chunk of our customer base. The inquiry’s recommendation that Britain should, in the context of Brexit, ‘pioneer new services trade agreements with the likes of Singapore, Australia, Canada, Switzerland and Japan’ is perfectly understandable. But without assessing how likely such agreements are, and whether the agreements that will be put in place are genuine opportunities, this position is not really that far away from the Brexiteers’ much-derided ‘Global Britain’ banality.

Fourth, the growth of management consultancy has of course benefited from public sector outsourcing, and public sector largesse. The latter has probably peaked, and the former definitely should have.

One of the secondary aspects of growth ideology is that, if something is growing, it must be virtuous. But a strength in one period of time can become a vulnerability in the next, when the structural drivers of extant growth shift. In fact, it is worth considering, fifthly, that strength in one part of the economy actually helps to cause weaknesses elsewhere. Think of all the STEM graduates being recruited by the City and management consultancies. Andrew Baker’s work on ‘the finance curse’ helps us to understand the wider, negative implications of hosting a very successful finance sector.

PwC in London. Image credit: BBC World Service (CC BY-NC 2.0 DEED)

It is obviously important for the British economy to be able to export, and beggars are rarely choosers when it comes to what other nations want to buy from us. But there are few reasons to believe that there is scope to grow this part of the economy substantially, while reducing dependence on services imports.

At the same time, there are plenty of reasons to believe that, for the sake of long-term growth, a more transformative economic policy agenda should focus on helping the economy to diversify its export base as well as building manufacturing and engineering capacity to secure domestic energy security, and on gearing up the economy to expand and reimagine care services as the population ages. This is all easier said than done, of course. But the path of least resistance is not by definition always the best one to choose.

The growth oak

The imperative to amplify rather than alter the economy’s main features ironically means that growth ideology is compatible with interventions in markets by the state to protect key industries.

This has been an increasingly important aspect of economic statecraft in Britain since the 2008 financial crisis. The brief premiership of chief growth ideologue Liz Truss is remembered for drastic tax cuts, targeted on the wealthy, that led to fears about the country’s future solvency. Yet her most significant act was the Energy Price Guarantee, preventing potential economic collapse by writing a blank cheque for energy suppliers to prevent enormous rises in wholesale energy prices being passed on to consumers. At the time, the scheme was expected to cost £89 billion. Truss said ‘extraordinary challenges call for extraordinary measures’ but added that the scheme would ‘boost growth’.

This was growth extremism in action. Tax cuts for corporations and the highest earners. Substitutive state interventions when markets cease to function. Indeed, tax cuts even as public spending accelerates and fiscal risks intensify. Whatever it takes to clear the way for capital accumulation by existing elites in the here and now, and a hazy utopianism in place of a serious plan for long-term growth.

Truss is gone and has none of the political skills required to engineer a resurrection. But her economic policy agenda lives on. Rishi Sunak laid the groundwork for Trussism as Chancellor, so it is no surprise to see the government he now leads becoming increasingly Trussified. The next government will have different policies and ambitions but they will be constrained by a failure to challenge the flawed assumptions of growth dogma.

The problem with sensible centrism is that a determination to be unideological tends to blind you to the influence of ideology on the construction of the problems you are seeking to solve by technocratic means.

The idea of growth is associated with neoclassical economics, and as such forms part of the ideological vocabulary of liberalism and neoliberalism. There is a sizeable literature within British political economy on ‘the neoliberal state’ that attempts to explain the emergence of economic interventionism from the right. As Will Davies argues, despite neoliberalism’s vilification of public servants and collectivist politics:

‘[t]he state is a central instrument for the advancement of a neoliberal agenda. Commitment to a strong state, capable of rebuffing political and ideological challenges to capitalist competition, is a defining feature of neoliberalism, both as a system of thought and of applied political strategy. There is scant evidence of neoliberal reforms ever leading to a “smaller” or “weaker” state in any meaningful sense, even if certain functions have been removed from the state via policies of privatisation and outsourcing.’

But this is not the whole story. The underlying imaginary of the economy – or capitalism, if they’re being honest – as inherently fragile bears the hallmarks of conservatism. This is the economy as a delicate ecosystem, the metaphorical oak of Edmund Burke’s critique of revolutionary politics, which forms the foundational thinking of modern conservatism.

This fragility requires a strong state to protect the economy against the threat of transformation. It requires growth strategies that respect existing forms of capital accumulation, mainly offering more of the same. Nationhood is invoked in both regards, as justification for statism, and to valorise a uniquely British way of (economic) life. The biological connotations of the term ‘growth’ are ideologically useful in this regard, as the right can insist that growth must take a particular form – driven by a natural instinct to accumulate, characterised by inequality as only the fittest survive. Growth in this essentialised form must prevail even if it fails to deliver a meaningful increase in GDP as social scientists would understand it, and notwithstanding any evidence that progressive policies might be more successful at delivering economic expansion.

Growth ideology therefore is ultimately a product of the co-evolution of neoliberalism and conservatism. This helps us to understand the adoption of growth-destroying policies such as strict immigration controls and under-investment in education.

And it is the influence of conservatism, rather than the neoliberalism’s veneration of markets and competition, that convinces many social democrats to accommodate growth ideology, as their progressivism is tempered by commitment to a rather thin understanding of pragmatism.

The one true growth

We should do everything we can to improve lives and maintain a habitable planet: much of what we do will lead to conventional growth. Some of it will not show up in GDP statistics in any direct sense, but that’s okay too, as long as we are not actively seeking to disable capacities to produce and innovate.

And if we are going to centre growth in our economic strategies – which has a political as well as economic rationale – then it needs to be grounded in evidence about what drives (and hinders) genuine growth. Disrupting current accumulation processes is a good thing, when it helps to carve out more durable paths to shared prosperity.

We would find that purposeful public sector institutions – and public-private partnerships such as universities – are essential to growth. Some will say that public and private sectors growing in tandem historically is a case of correlation rather than causation; either way, there is little evidence that well-designed public services and welfare provision are a threat to growth. For the sake of growth, we need to get the growth zealots out of these collective spaces, and replace them with public service fanatics. We need to stop trying to measure public sector productivity and output in the way we measure the value of commodified goods and services.

We might also consider being a little kinder to the business community too. Many small businesses are not seeking to grow. They are not the growth economy’s lagging ‘long tail’; rather they are the providers of vital, local services in the foundational economy, allowing the rest of the economy to function. The firms holding growth back tend to be larger firms with the potential to invest in innovation but whose preferred modus operandi is rent-seeking.

Growth matters. It is too important to be left to the growth ideologues. Progressives need their own account of how production expands and prosperity happens.