Let Them Eat Pie
Who gets seconds with economic growth?
BY Ellen Russell
Illustration by Evan Munday
Want to see an economist squirm? Ask us the big questions. If you keep economists busy with the minutiae of obscure calculations, we are quite content. But ask us those really deep questions, and, well, ummmm, is it hot in here, or is it just me?
Take this important question: is economic growth good? From 1991 to 2001, the Canadian economy has grown almost 40 percent in real terms (i.e. after adjusting for inflation)—and it has kept growing since then. Economists, not to mention politicians and CEOs, are constantly telling us that this economic growth is the bee’s knees. But is it?
Economists usually say that economic growth is good because it creates a bigger economic pie. But if there is a bigger pie, does that mean that everyone will get a bigger piece of that pie? Working hard to produce a bigger pie is not my idea of a good time if most of the extra pie is going to those that have quite a hefty slice already.
Beginning over 200 years ago with Adam Smith, economists have claimed that the benefits of economic growth are spread throughout society. (To be more precise, mainstream economic logic contends that everyone is rewarded in proportion to how much they contribute to producing economic growth.) Economic growth is not supposed to benefit only the wealthy elite—that’s why Smith called his book The Wealth of Nations and not The Wealth of the King and a Few Other Rich Guys.
The promise that economic growth helps everyone is the central justification for our economic system. This belief is so sacred that it is almost above discussion: the consequences of disputing it are just too radical. For if economic growth benefits only the privileged few, we might be tempted to consider alternative economic arrangements that do not put such overwhelming emphasis on growth.
Economic growth would help most of us if it enabled us all to get paid more. When our real wages increase (wages adjusted for the impact of inflation), we can buy more stuff. Critics of consumerism are uncomfortable equating well-being with buying more stuff, and their point is well-taken. But, at least for folks toward the lower end of the income spectrum, the ability to afford more and better basic necessities—housing, education and other advantages enjoyed by the more affluent—seems to me like a step in the right direction.
So how are the benefits of economic growth being spread around? In Canada between 1991 and 2001, per capita real economic growth (i.e. economic growth adjusted for inflation and population growth) has increased 25 percent. But your wages? After adjusting for inflation, hourly employees made an average of $14.22 per hour (including overtime) in 1991. But in 2003 this figure grew to $14.42, or about a 1.4 percent increase. So not much of the benefits of economic growth are showing up in workers’ paycheques.
But even if real wages aren’t rising, there is another way that economic growth might enhance well-being throughout society. Some of the wealth created by economic growth can be taxed by the government, and then government can use this money to make our lives better. This is sometimes called the “social wage”—referring to the fact that the government supplies us with goods and services that we would otherwise have to buy using our paycheques. Publicly funded health insurance is a great example of this—if the government didn’t provide it, you would have to pay for private insurance (that is, if you could afford it).
Despite recent economic growth, there is evidence to suggest that the social wage is not progressing. Since the early 1990s, many of the programs that provided a cushion for Canadians have been cut dramatically.
One way to assess the degree to which government spending is channelling the fruits of economic growth to Canadians is to assess per capita spending of the government. After adjusting for inflation, the federal government spent an average of about $3,800 on every Canadian in the 1990/1991 fiscal year. Real per capita spending by government dropped during the fight on the federal deficit, and by 2000/2001 it had inched back up to $3,879. It’s gone up a little since then, but still not much of the benefits of economic growth are filtering through via government spending.
Plus, there is a further wrinkle: per capita government spending includes everything the government spends money on (except interest payments), so we really should ask what the government is buying. If it cuts spending on, say, health care, by less than it increases spending on the military, this would increase per capita spending without increasing the “stuff” you get from social programs.
If neither wages nor social programs are doing a good job of spreading around the benefits of economic growth, why exactly is it legitimate to elevate economic growth ahead of all other priorities? Shouldn’t we at least debate whether or not the obsession with economic growth is serving us well?
Go ahead—find an economist or politician and force them to confront these questions. And while you’re at it, ask them what is happening to income distribution in Canada. I guarantee that they will try to smother any skepticism you have about the merits of economic growth with a telephone book full of justifications—for deep down they realize that if we begin doubting the mantra of economic growth then we might want to rethink what economic goals we should pursue. And that is a very provocative question that they’d really prefer you did not ask.
