It looks like Larry Summers' IMF speech on "secular stagnation" in November will remain central to economic debate for the foreseeable future. This is as much because of the political ramifications as the economic. To recap, Summers suggests that we (in the developed West) are in an era of low growth, which started well before the 2008 crash, marked by low interest rates and stubbornly high unemployment. As Paul Krugman noted, one implication of this is that we need financial bubbles to provide any sort of oomph to the economy.
In the New Yorker, John Cassidy summarises the former US Treasury Secretary's position as a combination of supply-side causes ("slower growth in the work force and a drop in productivity growth") and demand-side solutions ("ending the disastrous trend towards ever less government spending and employment each year and taking advantage of the current period of economic slack to renew and build out our infrastructure", in Summers' own words). Cassidy characterises this as a "centrist" position, in contrast to the wilder shores of the left where you will find advocacy of "tougher labor laws to spur higher wages, more income distribution, and centrally-directed investment" (yay, the 60s!) In American political geography, as in the UK, the centre is pro-big capital and "relaxed" about finance capital (Summers was a prime mover behind financial deregulation during the Clinton administration).
Cassidy is still drawn to the idea that low productivity growth is the result of a lack of innovation: "The online revolution, after a promising start, has so far proved disappointing. The green-energy revolution hasn’t really got going" (kids today, attention span of a gnat - as the slow-burn impact of online shopping on supermarkets shows, disruption can take a decade or more). As I've previously noted, there are good reasons to believe that productivity growth has been increasingly decoupled from technological innovation since the 80s, and that our current problems are actually the result of transformative technology, not the lack of it. Rather than rehash the arguments about the awesomeness of ICT, I think it worth looking at the other chief culprit in Summers' analysis, namely the slow growth of the work force. This has a particular relevance in the UK because of the current debate about immigration, which is increasingly presented as a trade-off for growth.
Moving the discussion beyond emotion to pragmatic calculation has long been the aim of pro-immigration advocates on both the political left and right, from macroeconomists like Jonathan Portes to the CBI and the City. Not everyone has moved onto the new terrain. Says Nigel Farage: "I'd rather we weren't slightly richer and I'd rather we had communities that
felt more united and I'd rather have a situation where young, unemployed British
people had a realistic chance of getting a job". Of course, as Portes would point out, lower immigration means fewer jobs for natives, due to lower demand. The inevitable consequence of "less richer with the same number of jobs (now filled by natives)" is lower wages, which might satisfy the small capitalists of UKIP but is unlikely to entice the wider population.
Economic growth over the second half of the twentieth century was heavily dependent on a growing workforce. This was a combination of three things: the high birth rate during the postwar "baby boom"; the increased level of female participation in the workforce (from roughly 1/3rd to 2/3rds of working-age women over the last 60 years); and immigration. The problem faced by the UK (and most other developed nations) is that the baby boom and the move of women into the workforce were one-off events that are unlikely to be repeated. From now on, immigration is going to have to do the heavy lifting.
This might seem a daunting prospect, but in fact the "terms of trade" have never been better. As the developing economies grow, they are producing millions of skilled workers that can be attracted to the developed economies by relatively higher wages. Labour migration then is simply a matter of comparative advantage: we have the money and they have the workers. At a certain point, the wage gap will narrow and the flow of immigrant workers will shrink, however that is probably many decades away. There are plenty of countries still at the back of the development queue with high birth rates and under-employed women (the global population is not expected to top out until early next century). Even when the labour market tightens in emigrant countries, it is likely that this will be eased by further immigration there from less developed countries (similarly, the feared "flood" of Bulgarian and Romanian migrants this year will probably divert towards Greece and Spain, while more Greeks and Spaniards will in turn head for London).
The argument of Farage and others is that we can and should eschew growth in the working population, either settling for a steady-state economy (which finds some support on the eco-friendly left) or using our native intelligence to boost productivity growth instead. Unfortunately, both of these strategies assume a very different economy to the one that we've actually got. A steady-state or zero growth economy sounds nice in theory, all recycling and bucolic contentment, but the reality would probably be increasing repression as the powerful sought to preserve their privileges. The great attraction of growth for the right is that it offers the poor and powerless hope: the possibility of getting on, a larger pie that we can all have a slice of. Despite the continuing attempts of China to prove otherwise, growth and democracy tend to go hand in hand (the neoliberal con is to insist that only markets deliver reliable growth, despite the evidence to the contrary). Stagnation tends to breed authoritarian "stability", like Portugal under Salazar, or Russia under Putin.
A high-productivity economy (the "innovation nation" no less) depends on the free flow of ideas and the stimulation of new thinking, which means new people (like the Russians who developed Graphene in Manchester). There is an obvious correlation between high value-added economies and immigration - just look at London. The idea that the UK could be an exception to this rule is improbable. The bottom line is that the advanced economies need immigration to fuel growth, specifically by stimulating demand. Counter-cyclical government spending and infrastructure investment can certainly help boost aggregate demand, but by its very nature this has to be temporary. Low immigration and persistently high government debt gives you Japan, a stagnation early adopter.
At this point you might wonder why we need more workers, even highly innovative ones, when the robots are going to take over. The point is that workers (unlike robots) are also consumers, and that means they create both demand and product. A growth in the workforce tends to be relatively progressive in terms of wealth distribution as the increase in aggregate demand is widely spread through lots of individual purchasing decisions. Productivity growth is less progressive because it is selective - typically it delivers greater returns to capital. Optimal growth (in mainstream economic thinking) is a mix of the two. Many of our current problems stem from the shift of income from labour to capital, which is the result of productivity (better technology and increased automation) amplified by policy (the privileging of finance through lower CGT etc).
Both automation and the declining birth rate (i.e. the ageing of society) are serving to shrink the share of the population with a healthy disposable income (that they largely spend), at the very time that policy is further consolidating wealth among the elite (who save proportionately more). This has been routinely dressed up as a conflict between the generations in a bid to obscure its class basis. Similarly, immigration has been dressed up as an "issue" for the working class (foreigners taking our low-wage jobs and swamping our state schools), with pro-immigration advocates dismissed as a "metropolitan liberal elite". This serves to distract from the real challenge to the well-off. The choice is not between immigration and growth, because growth is the outcome, not the option. Rather the choice is between immigration and repression. The news that Boris Johnson wants to see water cannon on Tottenham High Road is an agenda-setting victory for UKIP.