Japan is not the only Country Caught in the GNP Growth Trap, August 2001

Forthcoming in NIKKEI ECOLOGY

©  Hazel Henderson, August 2001
(word count 1,220)

Japan is not the only Country
Caught in the GNP-Growth Trap

Hazel Henderson

Over the past decade, Japan has averaged 1% annual GDP-growth, or as London-based The Economist, on June 2, 2001, chided “the worst performance of any big economy in the last, half-century… industrial production plummeted 20%, unemployment has risen to a near record 4.8%, and deflation is likely to persist into 2002.”

Yet visitors to Japan point out that quality of life is superior in many ways to that in the USA, The European Union and other “rich” economies! Unemployment is half of the average in the European Union while the US unemployment rate of 4.5% is based on “part-timing” (slashing 40 hour week jobs with full benefits in favor of millions more 20-hour week temporary jobs, with no benefits). Japan’s high per-capita savings rate, huge trade surplus and currency reserves contrast with the USA’s zero per-capita savings rate, mountains of consumer and corporate debt and ever widening trade deficits. Both the USA and the European Union are also teetering on recession.

Could it be that all these “advanced” economies are caught in the same GDP-growth trap? Have they grown along the material, money-dominated path to “riches” as far as they can? Talk of “re-structuring” is in the air everywhere. But what kind of restructuring? In these “advanced” economies (Japan, the USA, the European Union and the others in the “rich” country club, the OECD) which sectors should retrench, which should be maintained and which parts should grow? And why?

To examine these questions requires resurrecting an important debate of the 1960s and 1970s about the role of increasingly efficient automated production – which requires more capital, energy and natural resources, and fewer workers per unit of production. This is how productivity per worker is calculated. When companies shed workers, their productivity goes up – but the productivity of those laid off falls to zero. This increases government outlays in unemployment insurance and welfare payments, since every economy is a circular system.

Labor-saving was the stated goal of industrialization as I, Louis Kelso, Robert Theobald and others pointed out. We therefore called for a national debate about how to share the fruits of all this mechanized productivity. If more workers became structurally-unemployed – as so many are today in industrial societies – they could not consume all these goods cascading from automated factories. Food stamps and welfare checks are not enough. Today, we see worldwide gluts in production of many goods, from cars to computer chips.

Unless enough consumers have the purchasing power to clear these goods from markets, we get recessions, and the familiar boom and bust cycles. As John Maynard Keynes pointed out in 1934 after the Great Depression, if too many people saved, or didn’t need to spend all their incomes or capital gains – the purchasing power “pump” would need priming – even by cities, states and national governments building roads, hospitals, ports or sports stadiums. As Louis Kelso warned, we would need workfare, welfare and warfare to sop up unemployment.

Advertising and easy credit kept the mountains of goods moving. Today, marketers dream up thousands of new ever-more-trivial products – pushing them on TV to ever-younger consumers. All this was studied in the 1950s, as the USA became the first advertising-driven mass-consumption economy. Marshall McLuhan’s Understanding Media, Stuart Ewen’s Captains of Consciousness and Vance Packard’s The Hidden Persuaders and The Waste Makers became bestsellers. Inevitably Rachel Carson’s Silent Spring and Barry Commoner’s The Closing Circle followed in the 1960s focusing on how mass-production and consumption was wasting resources and despoiling the environment. Today in the USA we talk of “affluenza,” a disease of hyper-consumerism and how 28 million US adults are “downshifting” to less-stressful jobs, lower salaries and moving to small rural towns with intact communities and clean environments – to increase their quality-of-life.

We see all this with today’s hindsight. This issue of increasingly automated productivity gains spread from farms and factories to today’s offices and government agencies. In the 1960s, economists told us not to worry, that farm workers would find jobs in factories. When factories automated, people could move into offices and the services sector, including government agencies helping the unemployed. We have seen all this happen in the past 30 years. But today, the computer and the Internet continue to downsize the services sectors, as well as run oil refineries and power plants. Stubborn poverty gaps remain while affluent consumers are urged to keep buying more.

Why do rich countries continue to avoid fixing these structural problems in their economies’ plumbing? When will they devise additional pipes to allow purchasing power to flow to those who need to spend it and thereby keep our factories humming? US stockbrokers urged their clients to save their Bush tax cut and invest it in the stock market. The poor who really need the money don’t get tax cuts – because they don’t make enough to pay taxes, and our current ill-designed economy needs the middle class to spend it to prevent a recession. Is The Economist right that Japan should just start printing money to avoid deflation?

Poverty gaps in the USA still remain little changed after the unprecedented decade of GNP-growth in the 1990s as the Calvert-Henderson Quality of Life Indicators show (see www.calvert-henderson.com). It is time to redesign our super-efficient production economies so that they can save scarce energy, capital and natural resources and fully utilize the abundant skills of all citizens. Yet education funds are cut to pay for Star Wars II, partly because GDP classifies education as “expenditure” rather than an “investment” in human capital – to be carried as an “asset”. Military hardware is counted in GDP as production and Congress members fight for the jobs it creates.

Thus, in a nutshell, we can see how these conventional economic textbook recipes for endless GDP-growth are leading to stagnation, waste, pollution and structural unemployment. Yet the World Bank and the IMF still push the same old GDP-growth recipes, including more exports, deregulation, opening to global capital markets, “flexible” labor markets. All these policies, now summed up as the “Washington Consensus” are now obsolete and counter-productive. As emerging economies are told to build export markets, in coffee, bananas, copper or other commodities, worldwide, this leads to over-capacity and prices keep falling. This bad economic formula is now leading up the vaunted value-added chain as countries try to export computer chips – with the some result: glutted global markets, chip plant closings and falling prices..

Economics is still a linear, not a systemic discipline, so economists give individuals, firms and countries advice – often without bothering to track the global systems feedback loops. Too many players can’t all play the same game in a competitive, win-lose market economy or in the financial markets. There will be winners and losers. The firewalls were taken down between the world’s national economies in the 1980s and 1990s deregulations and privatizations. Today, “contagion” and “hot money” flows destabilize countries at the click of currency trader’s mouse.

Many viable solutions were well researched, and some almost made law in the USA in the 1970s, from the Negative Income Tax, and Guaranteed Minimum Incomes for all to Employees Stock Ownership Plans, which did become law. We need to revive these ideas, along with others, including Citizen Dividends, Citizen Services and the Basic Income Guarantees promoted in the USA and Europe. The next article explores the great transition from GDP to Quality-of-Life.

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HAZEL HENDERSON, author, futurist and consultant on sustainable development.  Her latest book is Beyond Globalization: Shaping a Sustainable Global Economy. www.hazelhenderson.com.  Henderson’s Quality of Life Indicators, partnered with the US based Calvert Group of socially-responsible mutual funds are at www.calvert-henderson.com.