- Growth, Consumption and Life Styles
Countries which have arrived at the VHHD condition are confronted with certain fundamental problems which they have not succeeded in solving. The most striking negative indicators are the following: high rates of youth unemployment; high levels of household indebtedness reflecting a long term imbalance between income and consumption; urban environmental problems of congestion and pollution; over consumption and over nutrition resulting in high levels of obesity; high prevalence of substance abuse and drug addiction; a heavy burden of psychiatric diseases arising from lifestyles and non-economic causes. The abundance of material goods is accompanied by various forms of psychological and spiritual deprivations which are not clearly recognized or adequately addressed. The state of VHHD that Sri Lanka eventually achieves should be as free as possible from these maladjustments. Immunity against these maladjustments would require an alternative style of development for Sri Lanka.
There are many lessons to be learnt from the experience of VHHD countries. On the one hand, the structure of demand in these countries has undergone a radical transformation with the ageing population. All the structural trends inherent to the process of ageing are driving these societies to a stabilized population, a declining or stationary workforce and near-zero economic growth. On the other hand, high youth unemployment is demanding the creation of new jobs, stimulation of demand and consumption and economic growth adequate to meet these objectives. These problems have not been overcome by the macro-economic policy prescriptions that the VHHD countries and the international agencies have prescribed up to now. In almost all these countries high levels of gross household debt often exceeding the gross disposable income have sustained levels of consumption and expenditure well above the levels of income and output. ( Table 8) The macro-economic adjustments that are prescribed which focus on public expenditures, public debt and fiscal imbalances have not been effective. The VHHD condition has simply failed to adapt on a long term basis to conditions of zero growth and ageing and seek a long term equilibrium at a reasonably high level of consumption with zero or near-zero growth. The excessive consumption that has been sustained in the VHHD countries have created endemic problems for their own economies, problems which are continuously spilling over to the rest of the global economy and impeding world development. Simultaneously these countries are producing the ecological outcomes that are damaging the environment on a planetary scale.
The VHHD condition has therefore raised fundamental issues concerning the sustainable equilibrium of consumption and output – issues which have been examined by a minority of economists such as Herman Daly and Robert Skidelsky. These have great relevance for Sri Lanka and the policy choices that it makes in its path to the condition of VHHD in the next two decades. To what extent should the rate of economic growth dictate these policies and shape the long term goals of the good society which Sri Lanka should seek to realize? Adam Smith predicted that the process of growth would come to an end in 200 years and John Stewart Mill in Principles of Political Economy had this observation to make,
The end of growth leads to a stationary state. The stationary state of capital and wealth would be a very considerable improvement on our present condition.
Keynes’s approach to economic growth is reflected in the following comments:
Avarice is a vice, and the exaction of usury is a misdemeanour, and the love of money is detestable. We shall once more value ends above means and prefer the good to the useful
The day is not far off when the economic problem will take the back seat where it belongs, and the arena of the heart and the head will be occupied or reoccupied, by our real problems – the problems of life and of human relations, of creation and behaviour and religion.
Skidelsky in his recent book on Keynes have some enlightening observations on the larger ethical and moral framework within which Keynes did his economic thinking;
“Keynes’ ethical approach offers considerations which have acquired a fresh importance in the context of the present ‘crisis of capitalism’ it keeps alive the importance of having an idea of the good life, it brings out the relevance of philosophy for economics. In advocating state sponsorship of the arts and the beautification of cities, he provided an ethically based argument for public action to influence the composition as well as the level of demand; he kept alive the idea of a just price, and finally, he raised the question whether morals can survive without religion. ”
The community of ecological economists led by Herman Daly argue that long-term sustainability requires the transition to what is described as a steady state in which economic growth is zero and total GDP remains more or less constant. They argue that most of the ills of the developed economies and the world economy are due to the inability to make an orderly transition to this state. They point out that increases of economic efficiency and technological innovation will keep on increasing aggregate consumption, whereas it is unrestrained consumption and lack of frugality that is at the root of the over-riding ecological problem that the human species faces, collectively.
The Human Development Report has been grappling with the problem of giving an appropriate value to per capita income in calculating the HDI. In the early reports, it drew attention to the diminishing utility of income as it increases and adjusted per capita income by using the logarithm of income and setting a maximum of 40,000 PPP dollars arguing that “ human development does not require unlimited growth” In the HDR 2014 it has raised the maximum to 75,000 PPP dollars. But nowhere has the human development report explored the full implications of this position and the policies it implies. The ecological economists on the other hand have developed a policy framework to guide the transition to the steady-state. A final word, however, needs to be said about the theoretical work on zero growth. Much of this work approaches the limits of growth through the supply end – the limits to the factors of production – land labour and capital. Not sufficient attention is paid to the demand end and the impact of collective ageing of society on aggregate demand. Will the ageing of society act independently on collective human behaviour to reduce aggregate demand and temper the avarice and greed that drove unbridled consumption in capitalist societies?
There are important lessons that Sri Lanka must learn from the maladjustments that have occurred in the VHHD countries. If Sri Lanka is to avoid these maladjustments, it would have to make choices that address their root causes; this means that Sri Lanka would have to move on a path that enables it to adjust better to the ageing of the population, the decline of the workforce and low or near-zero growth. In such an approach the rate of economic growth cannot become the overriding objective as it is now. Individual self-interest directed at maximization of profit must not become the driving principle of society. Sri Lanka must guard against outcomes that push the country in the direction of a consumerist model leading to immoderate consumption. The growth objective must be tempered by the concern for the distribution of growth and its benefits, concern for equity in growth outcomes. The states of subjective well –being psychological and spiritual must have a central place in VHHD as much as physical and material well being.
There are many features of Sri Lanka’s development as it has evolved that may enable it to find such a path. One set of indicators that have been discussed demonstrate that there are major gaps that have to be filled – strengthening government capacity for provision of public goods and services, raising the educational attainment of the population and workforce and processes that reduce inequalities and produce a much more equitable income distribution. Ongoing policies may have to be tested against these needs. On the other hand, Sri Lanka has some unusual indicators in regard to urbanization and participation in the workforce and structure of employment. These initially appear as shortfalls but in fact, they may provide alternatives that can ensure a higher quality of life, a better balance of work and personal life, of material and spiritual needs and a more people-centred pattern of economic activity and governance The dominant Buddhist value system supported by the other major religious and spiritual traditions may have an important part to play in shaping such a lifestyle.
This paper provides only a rough sketch of Sri Lanka’s path to very high human development. An exercise in much greater detail and depth is needed to test some of the underlying assumptions as well as the conclusions, What is presented contains some of the skeletal elements of a Sri Lankan model of development that have to be further defined and given flesh and body. As stated earlier, the estimates of sustained high economic growth of per capita incomes would have to be verified in relation to the potential of the Sri Lankan economy and the sources of growth. In the VHHD condition, the services sector based on knowledge and high technology accounts for over 70% of GDP. The ongoing processes indicate that Sri Lanka could move in the direction of an economy with a strong service sector that might be capable of such growth. We can imagine a Sri Lanka with a service sector in the region of 70% of the economy, a soft economy with low levels of pollution.
An economy of this type has implications for other facets of Sri Lanka’s development. The prevailing structures of employment could be strengthened to build a modern small- scale and micro-scale enterprise sector of considerable size- a sector which is knowledge-based, operating at a high technological level and globally competitive. The character of urbanization is also linked to the solution of other socio-political problems in Sri Lanka. It can be the economic infrastructure of a system of government in which the tier of government closest to the people is given prime importance in the devolution and decentralization of power.
The paper also argues that to address the root causes of the present maladjustments of VHHD countries, the VHHD model has to be non-consumerist and better adjusted to the structural characteristics of ageing societies leading to near-zero growth. Such an approach calls for lifestyle changes of a far-reaching character it calls for an approach fully sensitive to the life cycle and the needs at every major stage of life. These changes must help to achieve the equilibrium which contains consumption and growth within sustainable limits. Above all these changes require an overarching value system which defines “the good life” and directs growth and consumption to that end, the intrinsic working of the system must be such that in Keynes words society and its members “value ends more than the means and the good more than the useful”. We have to see whether the intellectual moral and spiritual resources that Sri Lanka can draw upon can enable it to develop such an overarching value system that can guide it to the VHHD condition.