Shake off dependence on economic growth, report says

Politicians should stop using economic growth as a ‘blunt’ measure of success and instead focus on tackling inequality, poverty and the environment, according to a new report.

Called Escaping Growth Dependency, the report will be launched at the House of Commons later today by the Positive Money campaign group.

It argues that governments are often judged on their ability to deliver economic growth, but that it is becoming clear since the 2008 financial crash that such growth has been harder to produce.

‘Despite governments’ determination to pursue growth at all costs, low growth and low productivity persist, suggesting that deeper structural issues are at play,’ the report states.

It also warns that continued economic growth is ‘ecologically unsustainable’ and that the current monetary system is one of the key barriers to creating an economy that ‘fits within the limits of nature’.

Speaking to New Start, the report’s co-author, Fran Boait, said using gross domestic product (GDP) as a measurement ‘does not really give us any insight into what is happening in the economy’.

‘Since the 2007/8 crash, we’ve had high levels of public and private debt,’ she tells New Start.

‘There is this mainstream thinking that we need to grow the economy to reduce the debt burden. But as we argue in the paper, we need to look at ways in which we can reform our banking and monetary system so we don’t end up with economies with such high levels of debt.’

The current monetary system creates unsustainable levels of private debt, which inevitably leads to financial instability, the report says.

‘Positive Money was set up as a think tank after the crash to look at how money is created and how that is serving, or not serving, society,’ explains Ms Boait. ‘Almost all of the money we use are “bank IOUs”.

‘Banks loan to markets where there are the biggest profits, like the housing market, which in turn leads to asset price bubbles and virtual crashes.

‘So, there is an inherent instability in the money and banking system we have at the moment. It often leads to a build-up of private debt, which further destabilises the system. After a crash, you get a recession. You get a lot of people becoming unemployed and need to receive social security. This in turn increases public debt, so there’s an in-built instability, which results in high levels and public and private debt.’

The report calls for the monetary system to be reformed, so that the Bank of England would create ‘sovereign money’, which could be made available to private and public sector without any corresponding increase in the level of debt.

It also recommends removing the banking sector’s ability to create money as debt.

‘It would result in us being able to pay our debts and have a £50bn surplus a year for the next 20 years for the government to use for things that we need, including the green transition,’ explains Ms Boait.

‘We think governments should be focussing not on growth, but on reducing inequality, making sure we have high levels of wellbeing and employment that actually gives people a sense of purpose.

‘We can only do that if we re-imagine how the economic system works and the debt situation is a real barrier,’ she adds.

‘We will need growth if we think about the green transition, but we do not have to be focussed on it as a target or a goal, it can be a side product. There will be times when we will have high periods of growth and other times when there will be negative growth. The whole point is we will be focussing on different targets, and this also what Kate Raworth talks about in her book, Donut Economics.’

The report also argues that reforming the monetary system and reducing debt burdens would ‘open the door’ to a more sustainable economy.

‘As some of the largest global economies continue to falter, with low productivity and low growth, and mainstream economics continues to be challenged, there is an opportunity for more courageous thinking,’ it states.

‘Governments can be bold and shift their thinking from growth at all costs to encouraging an economy with greater equality, high levels of wellbeing, and drastic decarbonisation.’

• To find out more, visit the Positive Money website.