Growth in whose interest?
Gordon Morgan reviews Why the West is Failing – Failed Economics and the Rise of the East, by John Mills (Cambridge: Polity Press, 2022)
This book makes two major points. First, UK GDP growth is 1.4% compared to a world average of 3.5% and China’s rate of 9.1%. This low rate of growth is shared by most of the EU and the US. Second, that should this trend continue until 2050, China will be the richest state in the planet with the highest living standards, and will dominate the world both economically and militarily.
The main explanations given for this are the failure of both Keynesian and monetarist policies like neoliberalism to treat exchange rates as something that governments and central banks can alter to adjust the attractiveness of domestic investment. By way of example, the UK invests 14% of GDP, China invests 37%, and the world invests 26%. A high exchange rate makes it cheaper to import manufactured goods and food and reduces the incentive to invest in domestic manufacturing or high productivity farming. Over time, it also inevitably makes the domestic economy weaker and the population poorer.
When I first picked up the book, I thought that its ‘Growth, Growth’ strategy was consistent with a right wing perspective. John Mills is however a lifelong Labour member, a leader of Labour for Leave, the largest doner to Labour, and the founder of retail company JML. Having read the book it clearly is an important contribution to left policy.
The book starts with economic theory and shows how economists have consistently failed to compare economic performance between nations, and has also ignored the connection between productivity and growth. This has been particularly true in recent years with the dominance of neoliberalism and the increased role of a background in finance rather than manufacturing in the circles of influence and political power. If those who are in a position to influence investment decisions are not set to benefit, they will not make the decisions.
Mills analyses different forms of investment to see which has the greatest impact on growth. Mechanisation, the application of technology and the use of power rather than infrastructure have the greatest effect. Moreover, these investments tend to be more readily exportable as goods. Mills’s final chapter is less conclusive. It argues that vested interests and power elites have little inclination to promote growth. It then argues that devaluation should not be avoided on the grounds that it may increase inflation. The public has been trained to ignore exchange rates or to welcome strong exchange rates for allowing cheaper holidays and more imported goods. But Mills makes the point that for a devaluation strategy to be successful, academics, the public, and policy makers must agree on it, and we are far from that. What is conclusive is that more academic discussion is needed around exchange rates and their economic, social and indeed military consequences. The alternative is a continuation of the present trajectory and the dominance of China.
Gordon Morgan is a member of the Scottish Left Review editorial board.