This essay has won the Political Economy Club prize

Reports of the death of economic growth have been greatly exaggerated — thus far, at least. More than 200 years ago, Thomas Malthus predicted that the earth’s resources would soon fall short of human needs and mass starvation would result. Adam Smith and David Ricardo both shared Malthus’s premise, if not his dire conclusion: since the earth’s resources are finite, the economy would eventually reach what Smith called a steady state, when all available capital would be employed to its best use and further improvements in growth would become unlikely.

People failed to follow Malthus’s advice, which was to restrain their libidinal urges. The world’s population increased sevenfold over the following two centuries. Yet mass starvation did not result. Instead came a period of unprecedented bounty, fuelled by innovations such as nitrogen fertiliser and agricultural combines which multiplied yields, and new transportation technologies which allowed those crops, from corn to cassava, to be ferried worldwide.

In a recurrent pattern, the succession of modern-day Malthuses who have warned of “population bombs”, global resource peaks and civilisational decline have all been similarly proven wrong by human innovation. 

On the basis of this record, anticipating economic stagnation once more would seem unwise. Yet a number of clues suggest just that: post-industrial nations such as Britain may be headed for sub-1-per-cent rates of growth for the foreseeable future. This time, however, the reasons lie not on the supply, but on the demand side. As a result, and in further contrast to Malthus’s vision, such a slowdown need not spell doom.

It might be, instead, the expected byproduct of social progress: a plateau of high economic achievement where market actors can afford to increasingly devote themselves to activities not primarily designed to contribute to marginal productivity.

This sanguine take on stagnation echoes that of another political economist, JS Mill, who also foresaw an eventual slowdown in mature economies. Mill viewed such a “stationary state” in a far more favourable light than those earlier classical economists: he believed social and moral improvement would only become more likely “when minds ceased to be engrossed by the art of getting on”.

By 1848, with the effects of the industrial revolution in full swing in Britain, Mill claimed to be more concerned with the distribution of the pie than with its eventual size, advocating inheritance taxes which might strike us as progressive even today. In the same spirit, Mill looked forward to a stage of economic development at which further innovation would serve to alleviate people’s work rather than increase their output. 

Such cheerful musings about economic stagnation may seem out of step with our present moment. The global economy is still reeling from the Covid-19 pandemic. Our minds are all turned, sensibly enough, to what will be an arduous and prolonged recovery and one which will most probably exacerbate existing economic inequalities in the short term.

Yet hard times such as these also serve as catalysing events. Our annus horribilis could accelerate a reassessment of social priorities; it could precipitate a budding realisation that affluent economies such as Britain’s have already reached a point at which further advances in wellbeing are not likely to come from a single-minded focus on growth. Insofar as we may one day abet an economic slowdown, it will be because we will have the luxury of considering other social priorities — equality, biodiversity, a lowering of carbon emissions — as more pressing.

‘A consumer economy in a consumer society’

As societies become more affluent, market actors increasingly have the privilege of consigning economic growth to its original function: a formidable tool of human development, rather than an end unto itself. Far from a novel thought, this would constitute a return to the past, to the view of commercial society espoused by its earliest theorists. Behind this collective rejigging sits an unexpected agent of social change: the western consumer.

Ours is a consumer economy operating within a consumer society. It is fuelled, as in most developed economies today, by private domestic consumption, which represents about 65 per cent of the British economy, and a greater portion still of the American economy. The greater part of this spending is directed not at procuring the basics of life, such as food and shelter and physical comforts, but at carrying out a range of social functions.

This is why people yearn to redo their kitchen or get the latest smartphone: material accumulation today serves mostly to satisfy non-material wants, be it the esteem and consideration of others or the expression of personal identity. Shiny watches are worn not to tell the time, but to tell others about one’s social standing. Christian Louboutin heels are purchased not because they make walking easy but because their red soles telegraph the intended message of knowingness. Even the organic watercress bought at the farmers’ market serves as signal more than salad.

Modern growth is largely driven by these individual efforts to manage the impression we make on one another. Yet the way in which people accomplish this is changing. That is because consumption is prone to a recurrent paradox: the more things there are to buy, and the greater the material means people have to acquire them, the less socially useful consumption becomes. As the availability of consumer goods increases, they become less potent as means of social distinction. 

Affluent consumers in affluent societies are increasingly coming to grips with this paradox. Whereas conspicuous consumption was once the most effective means of signalling status, now it risks conveying only showiness. It is an age-old game of social learning: if the aim to impress is overly transparent, over time it comes to be seen as vulgar. Just as the bourgeois was once dismissed as an arriviste by the old money, the conspicuous consumer is now looked down upon by a rising entrepreneurial class that cuts across traditional income divides.

In its place, we are witnessing the rise of what marketing scholars refer to as “inconspicuous consumption”: a spurning of loud labels or transparent attempts to impress, matched by an embrace of “sustainability”, “purpose” and “wellness” as the new markers of distinction. As the bioethicist Peter Singer has foretold, “This could be the last generation that flaunts their wealth.” 

If so, growth rates will be affected. That’s because throughout the postwar period, the western consumer has served as the engine of global growth. Emerging economies such as China devised their development strategies around catering to western markets. This trend is already reversing as those same countries are now cultivating their own domestic consumer base instead. Meanwhile, on both sides of the Atlantic, consumer spending as a share of the economy has yet to recover from the Great Recession; it may not do so for a long time yet. 

Consumer tastes among the youngest generation closely track these different stages of development. Chinese millennials are nearly three times more interested in having “the latest products” than their British counterparts. They value brand names more highly, which explains why the growth markets of luxury goods manufacturers are all found in emerging economies. Young British cohorts also value “experiences” over goods at twice the rate of their Chinese counterparts.

This shift in spending towards services is a common marker of developed economies, and has well-known effects on growth. As opposed to goods manufacturing, things such as hospitality, entertainment or childcare are less susceptible to productivity improvements. In the classic example, it takes as many musicians to play a string quartet today as it did in 1800.

The implication is twofold: a reallocation of spending to services slows growth and, as JS Mill intuited, this slowdown may represent an improvement in wellbeing. It means more people listening to string quartets and fewer buying an additional television. 

‘Less appetite for trade-offs’

None of this is to say that affluent western consumers will suddenly turn into anti-materialist advocates of the simple life. Rather, as the social function of material accumulation is eroded, individuals have less appetite for the trade-offs entailed by maximising consumption. Nor is this a recent development: it inscribes itself in a longstanding shift in values and aspirations that social scientists such as Ronald Inglehart have been tracking for more than two generations. Using worldwide values surveys, Inglehart showed that in more secure societies, people place increasing weight on postmaterialist values such as self-expression and aesthetic goals and less emphasis on material accumulation. A collective shift in attitudes is not only possible; it is already discernible in the data. 

Lest these seem like superficial matters of consumer taste, they constitute one part of a package of preferences affecting all realms of life. Attitudes towards consumption are thus likely to evolve the way that attitudes towards childbearing already have. Birth rates in advanced economies are now below the replacement rate.

Malthus would be pleased, though he might be surprised by the cause, which is social progress. It isn’t that people value children less; it’s that the increased opportunities afforded to women thanks to greater gender equality are affecting family size. The resulting demographic change by itself acts as a drag on economic growth by reducing available human capital. But once again, this is merely a side effect of desirable developments. 

We see a parallel shift in the preferences of workers. It has become a trope to say that millennials (who already account for a third of the workforce) value “purpose over pay cheque” when choosing careers. They also seem to be willing to act on it: a 2017 Deloitte survey found that 38 per cent of millennials planned to quit their job in the next two years. In 2019, the number was up to 49 per cent.

In explaining this attitude, Deloitte has found that “companies that are perceived to be fixated on profits?.?.?.?do not engender [employee] loyalty” — a trend I observe among my own undergraduate students. If companies pick up on the cue, that may affect per-worker productivity but also improve employees’ welfare. 

Political attitudes are evolving in tandem. In the latest American primaries, the centrist Joe Biden trailed the socialist Bernie Sanders by 35 points among 18 to 29-year-olds. Eurobarometer data suggest an analogous leftward shift in the youngest cohorts in Europe.

A similar change in political attitudes has become apparent at the highest levels of the income distribution, giving way to a previously unthinkable phenomenon: wealthy people calling for higher taxes. Whether from fear of the proverbial pitchforks, or from a recognition that they are themselves negatively affected by inequality, wealthy people are shifting their views on redistribution. Wealthy individuals in the US are more supportive of higher taxes in unequal states than they are in more equal states.

A recent look by two political scientists at the preferences of the Forbes 400, a list of the richest Americans, shows a significant shift to the left since the 1980s, corresponding to a steady increase of donations to Democratic causes. These are all reflections of a global phenomenon dubbed the “Brahmin left” by the economist Thomas Piketty: rising support for redistribution among highly-educated and, increasingly, high-income individuals. 

Policymakers are now better placed than ever to answer the call. The global pandemic has functioned as a radical policy experiment in redistribution. Ideas that were once confined to the political margins — wage insurance, universal income, international fiscal co-ordination on tax havens — are now discussed by mainstream leaders as tangible solutions to pressing social issues. All these changes can be subsumed under one common phenomenon. As societies grow more affluent, they increasingly have the luxury of recalling what prosperity was meant to offer. 

Make no mistake. It is by buying into the notion of growth as our shared objective that we achieved today’s unprecedented levels of prosperity. Even in the midst of a devastating pandemic, ours remains the wealthiest, healthiest and safest society that has ever roamed the Earth. It is increasingly apparent, however, that further advances in wellbeing will not be made by focusing on growth alone.

‘The means to future growth’

Increasingly, advanced societies may come to see high growth once more as Mill did almost two centuries ago: a necessary stage of progress that entails “trampling?.?.?.?and treading on each other’s heels”, but only a stage — not to be confused with progress itself. The challenge is then to recognise when the moment has come for a shift in social purpose. Looking at the evolution of individual attitudes, it appears increasingly likely that such a shift will take place in countries such as the UK over the coming century. 

All of which leaves open a tantalising possibility. Mill argued that a stationary economic state would leave “as much scope as ever for all kinds of mental culture, and moral and social progress”. We might go further still. Leisure, understood as a state in which things are done for their own sake, has always been the most fruitful human condition. It has usually been the preserve of a thin sliver of the population. Bertrand Russell, who held that leisure “contributed nearly the whole of what we call civilisation”, also warned that it was tainted by injustice and inefficiency: for every Darwin revolutionising human knowledge by losing himself in a study of earthworms, there were a thousand other gentlemen of means who spent their days foxhunting. The result gave leisure a bad name, associating it more with the foxhunters than the scientists, and bunching it all together with idleness. 

Today, there are more people than at any point in history who can play at being Darwins. More people than ever who can devote a large portion of their lives to non-instrumental activities — whether it’s designing groundbreaking apps, writing radio-play podcasts or devising inventive menus for pop-up restaurants.

Paradoxically, a shift away from growth as the primary social objective could end up making an unforeseen contribution to growth: as a significant number of people are able to devote themselves to pursuits for their own sake, they may begin to generate more innovation than was ever possible when the same people were merely trying to earn a wage.

Governments can play a role here. They can ensure that citizens feel sufficiently secure to run risks, such as investing in their human capital or launching new ventures. Ceasing to focus doggedly on growth may well unlock the means to future growth. 

In the short term, the world has a crisis on its hands. As governments deal with the economic aftermath of the pandemic, inequality, in particular, will get worse before it improves. Yet the public debate of the past two decades has demonstrated that there is a limit to people’s tolerance of the social and environmental costs that are seen as the inevitable corollaries of maximising aggregate wealth. In a number of affluent economies such as the UK, this limit may have been reached. Past that point, increases in average income no longer produce corresponding increases in wellbeing.

What is new is that a growing number of people are realising it and adjusting their behaviour accordingly — as consumers, workers and voters. We may be at a breaking point in a two-century-long period of high growth. And we may come out the better for it.

Krzysztof Pelc is?an associate professor of political science at McGill University in Montreal, Canada. His book ‘Beyond Self-Interest: Why the Market Rewards Those Who Reject It’ will be published next spring by Bloomsbury and Oxford University Press