While the discussion about falling GDP and its impact on the Irish economy is important – especially in assessing the performance of our multi-national sector – we are in danger of missing a larger point. We are entering into a Great Slowdown, an extended period of low growth which will impact on a range of indicators; but most importantly, on incomes and living standards.
The Government is projecting that real economic growth (GNI*) will average 2 percent per year out to 2030. However, when we factor in population growth (GNI* per capita) this could fall to less than 1 percent per year for rest of the decade.
How does this compare with previous periods of growth?
- In the boom years from 1995 – 2007, the average annual growth rate per capita was nearly 4 percent. Of course, in the latter part of this period this growth, based on property-related activity, was unsustainable.
- In the recovery period after austerity, recession and stagnation average annual growth rates came in at a healthy 3.2 percent.
- However, out to 2030 average annual growth rates are projected fall to less than one percent.
This is not surprising. Analysts have been predicting this slowdown for some time - here and throughout Europe.
Cliff Taylor describes the current situation: higher interest rates dampening economic activity, cost-of-living crisis dampening consumer spending, weakening international markets with a jobs market topping out. Cliff describes these as ‘amber lights’.
It is tempting to think we can return to higher growth rates once we have turned the corner on these issues: when interest come down, when we exit the current cost-of-living crisis, when international trade picks up again. This might be a mistake.
The medium-term growth slowdown is structural. There are many explanations: ageing demographics, climate change, technological disruption (increasing use of AI and automation). Given that these and other factors could hit all at once – and in some respects, they already are - many commentators have used the term ‘polycrisis’. Whatever the reasons, it will have considerable implications for incomes and living standards, and set up fierce competition over a dwindling pool of resources.
We do not need to be resigned. A growth slowdown will put new emphasis on a number of appropriate policy responses.
- First, even a small increase in average annual growth, over the long-term, can help lift the economy, generate higher tax revenue and promote living standards. Increasing growth (i.e. productivity) will require higher investment in education, or human capital. It will also require more democratic practices at firm level and sectoral – collective bargaining, employee participation, enterprise councils, worker-directors, sectoral planning – which have all been shown to promote growth and reduce inefficiencies.
- Second, it will put more emphasis on redistribution. This is not just about cash transfers. Extending free public services will play a key role in reducing household and business costs. This needs to be accompanied by a drive to eliminate poverty, especially child poverty. The Society Vincent de Paul found that poverty imposes a high social, economic and fiscal cost. Raising income floors – whether wages or fixed incomes – can help reduce this cost.
- Third, John Fitzgerald reminds us that national income is not the only or even best way to measure life quality. Environment, stability, security, and climate all play a role in people’s preference, especially working hours. Therefore, in constructing a response to a growth slow-down, special attention will need to be paid to life quality issues, workers’ preference and their ability to exert more control over their working and work-free lives.
The growth slowdown demands an egalitarian and democratic response. Most of all, it requires a different kind of debate. There is a danger that the next general election (which looks sooner rather than later) will be fought on the assumptions of high growth. Not only will this disappoint down the line, it could risk over-looking those policies which can actually advance strong living standards, policies that are deliverable and necessary in a low-growth environment.
There is no iron-law that states that a low-growth economy means a low life-quality environment. But progressives and trade unionists first need to analyse what is likely to happen in the economy in the years ahead and prepare the appropriate policy responses. The last thing we need to do is promote policies that are out of step with a changing political economy.
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