TheMoral Casefor GrowthMaterial progress and moral progress, which have always

embodied an optimism about the human enterprise, go

together. That's why growth is essential in any society.

BY BENJAMIN M. FRIEDMAN

B E N J A M I N M . F R I E D M A N

T H E M O R A L C O N S E Q U E N C E S

O F E C O N O M I C B R O W T H Are we right to eare so mueh about economicgrowth as we cleariy do?

For citizens of ali too many of the worid'seountries., where poverty is stili the norm, theanswer is immediate and obvious. But the tan-gibie improvements in the basics of life thatmake economic growth so important when-ever iiving standards are iow —greater life

expectancy, fewer diseases, iess infant mortaiity and mainutrition —have mostly played out iong before a country's per capita incomereaches the ieveis enjoyed in today's adviinced industriaiized economies.Americans are no healthier than Koreans or Portuguese, for example,and we iive no ionger despite an average income more than twice whatthey have. Yet whether our standard of living wili continue to improve,and how fast, remain matters of acute concern for us nonetheiess.

At the same time, perhaps because we are never ciear abtiut justwhy we attach so much importance to economic growth in the first

Benjamin M. Friedman is the William Joseph Maier Professor ofPolitical Economy, and former Chairman of the Department ofEconomics, at Harvard University. This article is based on a chapterfrom his most recent hook. The Morai Consequences of EconomicGrowth (Alfred A. Knopf. September 2005).

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place, we are often at cross-purposes—at times weseem to be almost embarrassed — about what we want.We not only acknowledge other values: as a matter ofprinciple we place them on a higher plane than ourmaterial well-being. Even in parts ot the world wherethe need to imprt)ve nutrition and literacy and humanlife expectancy is urgent, there is often a grudgingaspect to the recognition that achieving superior growthis a top priority. As a result, especially when fastergrowth would rcLjuire sacrifice from entrenched con-stituencies with well-established interests, the politicalprocess often fails to muster the determination to pressforward. The all-too-frequent outcome, in low- andhigh-income countries alike, is economic disappoint-ment, and in some eases outright stagnation.

The Tool of the problem, I believe, is that our con-ventional thinking about economic growth fails toreflect the breadth of what growth, or its absence, meansfor a six-iety. We recognize, of course, the advantages ofa higher material standard of living, and we appreciatethem. But moral thinking, in practically every knownculture, enjoins us not to place undue emphasis on ourmaterial concems. We are also increasingly aware thateconomic development—industrialization in particu-lar, and more recently gUibalization—often brings unde-sirable side effects, such as damage to the environmentor the homogenization of what used to be distinctivecultures, and we have come to regard these matters tooin moral terms. On both counts, we therefore think ofeconomic growth in terms of material considerationsversus moral ones: Do we have the right to burdenfuture generations, or even other species, for our ownmaterial advantage? Will the emphasis we place ongrowth, or the actions we take to achieve it. compro-mise our moral integrity? We weigh material positivesagainst moral negatives.

I believe this thinking is seriously, in some cir-cumstances dangerously, incomplete. The value of arising standard of living lies not just in the concreteimprovements it brings to how individuals live but inhow it shapes the social, political, and ultimately themoral character of a people.

Economic growth—meaning a rising standard ofliving for the clear majority of citizens—more oftenthan nt)t fosters greater opportunity, tolerance of diver-sity, social mobility, commitment to fairness, and ded-ication to democracy. Ever since the Enlightenment,western thinking has regarded each of these tendenciespositively, and in explicitly moral terms.

Even societies that have already made greatadvances in these very dimensions, for example mostof today's western democracies, are more likely to

Many countries with

highly developed economies,

inciuding America, have experienced

alternating eras of economic growth

and stagnation in which their

democratic values have strengthened

or weakened accordingly.

make still further progress when their living standardsrise. But when living standards stagnate or decline,most societies make little if any progress toward any ofthese goals, and in all too many instances they plainlyretrogress. Many countries with highly developedeconomies, including America, have experienced alter-nating eras of economic growth and stagnation inwhich their democratic values have strengthened orweakened accordingly.

How the citizens of any country think about eco-nomic growth, and what actions they take in conse-quence, is therefore a matter of far broader importancethan we conventionally assume. In many countries today,even the most basic qualities of any s(x:iety—demixracyor dictatorship, tolerance or ethnic hatred and violence,widespread opportunity or economic oligarchy—remainin flux. In some countries where there is now a democ-racy, it is still new and therefore fragile. Because of thelink between rising or falling living standards and justthese aspects of social and ptilitical development, theabsence of growth in so many of what we usually call"developing economies," even though many of them arenot actually developing, threatens their prospects in waysthat standard measures of national income do not evensuggest. But the same concem applies, albeit in a moresubtle way. to mature democracies as well.

Even in America. I believe, the quality of ourdemocracy—more fundamentally, the moral character

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ERIEDMAN

of American society-is similarly at risk. The centraleconomic question for the United States at the outsetof the twenty-first century is whether the nation in thegeneration ahead will again achieve increasing pros-perity, as in the decades immediately following WorldWar II. or lapse back into the stagnation of living stan-dards for the majority of our citizens that persisted fromthe early 1970s until the early 1990s. And the moreimportant question that then follows is how these dif-ferent economic paths would affect our democraticpoiitical institutions and the broader character of oursociety. As the economic historian AlexanderGerschenkron once observed, "even a long democratichistory does not necessarily immunize a country frombecoming a 'democracy without democrats.'" Our ownexperience as well as that of other countries demon-strates that merely being rich is no bar to a society'sretreat into rigidity and intolerance once enough of itscitizens lose the sense that they are getting ahead.

In the 1960s, conventionat thinking

in the United States interpreted

the wave of student uprisings

a protest against the Vietnam War.

No doubt it was, in part.

That simple view failed, however, to

explain why other countries

not involved in Vietnam had

much the same experience

at just the same time.

The familiar balancing of material positives againstmoral negatives when we discuss economic growth istherefore a false choice, and the parallel assumptionthat how we value material versus moral concernsneatly maps into whether we should eagerly embraceeconomic growth or temper our enthusiasm for it iswrong as well. Economic growth bears moral benefitsas well, and when we debate the often hard decisionsthat inevitably arise—in choosing economic policiesthat either encourage growth or retard it. and even inour reactions to growth that takes place apart from thepush or pull of public policy—it is important that wetake these moral positives into account.

It may seem strange to think that America, now sopreeminent across the world in economic terms,faces any significant threat in this regard, One coun-

try after another—including even China and Singa|X)re,which thus far have hesitated to liberalize politically —has adopted American approaches to the managementof its economy, based on free enterprise, private initia-tive, and mobile capital. Why would ongoing economicgrowth not therefore herald an era of further social andpolitical progress that would reinforce the openness ofAmerican society and otherwise strengtheii and broadenAmerican democracy?

One concem is simply that the robust growth ofthe latter half of the 1990s may prove to have been onlya temporary interlude, a "bubble" as many disappointedstock market investors now regard it. between the stag-nation that dominated most of the fmal quarter of thetwentieth century and further stagnation yet to come.But even the prosperity that America experienced inthe late 1990s bypassed large parts, in some importantdimensions a clear majority, of the country's citizens.Jobs were plentiful, but too many provided ptx)r wages,little if any training, and no opportunity for advance-ment.

Economic progress needs to be broadly based if itis to foster social and political progress. That progressrequires the positive experience of a sufficiently broadcross-section of a country's population to shape thenational mood and direction. But except for a briefperiod in the late 1990s, most of the fruits of the lastthree decades of economic growth in the United Stateshave accrued to only a small slice of the American pop-ulation. Nor was that short period of more widespreadpnisperity sufficient to allow most American families tomake up for the economic stagnation or outright declinethey endured during previous years. After allowing forhigher prices, the average worker in American businessin 2004 made 16 percent less each week than thirty-

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FRIEDMAN

plus years earlier. For most Americans, the reward forwork today is well below what it used to be.

With more and more two-earner households, andmore individuals holding two jobs, most families'incomes have more than held their ground. But nearlyall of the gain realized over these last three decadeseame only in the burst of strong growth in the late1990s. Despite mostly low unemployment, and somemodest growth in the U.S. gross domestic product —and despite the increased prevalence of two-eamer fam-ilies and two-job workers—the median family's incomemade little gain beyond inflation from the early i970sto the early 1990s. For fully two decades mostAmericans were not getting ahead economically, andmany of those who did were increasingly hard pressedlo keep up even their meager progress.

And now the average family is falling behind oneeagain. The Census Bureau recently reported that in2(K)4—for the fifth year in a row—the income of themedian American household failed to keep pace withinllation. With most stock market indexes flat or downover this period, the assets in most people's 4()l(k) planshave not increased either. This is not the kind of broadlybased increase in living standards that we normally con-ceive as "economic growth."

The disappointment so many Americans feel atfailing to achieve greater advances is grounded in hardreality. So is the sense of many young Americans thattheir prospects are p<x)r even at times when the econ-omy is strong. Our citizens applaud the American econ-omy, especially in years when it prospers, yet even thenthey fear that the end of the American dream lies ahead.They do so because in the last generation so many havefailed to experience that dream in their own lives.

The consequence of the stagnation that lastedfrom (he mid-1970s until the mid-1990s was. innumerous dimensions, a fraying of America's

social fabric. It was no coincidence that during thisperiod popular antipathy to immigrants resurfaced toan extent not known in the United States since beforeWorld War II. and in some respects not since the I88()swhen intense nativism spread in response to huge immi-gration at a time of protracted economic distress. It wasnot an accident that after three decades of progresstoward bringing the country's African-American minor-ity into the country's mainstream, public oppositionforced a rolling retreat from affirmative action pro-grams. It was not mere happenstance that, for a while,white supremacist groups were more active and visiblethan at any time since the 1930s, anti-government pri-vate "militias" flourished as never before, and all the

Economic growth more often than not

fosters greater opportunity, tolerance

of diversity, social mobility,

commitment to fairness, and

dedication to democracy.

while many of our elected political leaders were reluc-tant to criticize such groups publicly even as churchburnings, domestic terrorist attacks, and armed stand-offs with law enforcement authorities regularly madeheadlines. Nor was it coincidental that the ettort to "endwelfare as we know it"—a widely shared goal, albeitfor different reasons among different constituencies—often displayed a vindictive spirit that was highlyuncharacteristic of America in the postwar era.

With the return of economic advancement for themajority of Americans in the mid-199()s. many of thesedeplorable tendencies began to abate, ln the 2000 and2004 presidential campaigns, for example, neither anti-immigrant rhetoric nor resistance to affirmative actionplayed anything tike the role seen in the elections in1996 and especially 1992. While hate groups and anti-government militias have not disappeared, they haveagain retieated toward the periphery of the nation's con-sciousness. Even so. much of the legacy of those twodecades of stagnation remains. It has become com-monplace to talk of the importance of "civil society."but thoughtful observers like Robert Putnam (author ofthe much-discussed Bowlinfj Alone) increasingly ques-tion the vitality in today's America of the attitudes andinstitutions that comprise it. Even our public politicaldiscourse has lately lost much of its admittedly sparsecivility, foundering on personal charges, inve.stigations,and reverberating recrimination.

It would be foolish to pretend that all these dis-turbing developments were merely the product of eco-nomic forces. Social and political phenomena arecomplex, and most have many causes, in the 1960s, forexample, conventional thinking in the United Statesinterpreted the wave of student uprisings on college

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FRIEDMAN

Economic growth, or its absence,

often plays a significant role in

spawning not only progress from

dictatorship to democracy but also

the overthrow of democracies

by new dictatorships.

campuses across the country as a protest against theVietnam War. No doubt it was. in part. That simple viewfailed, however, to explain why other countries notinvolved in Vietnam had much the same experience (insome cases, for example France, even more so) at justthe same time. The political and social changes thathave been under way in America in our era have mul-tiple roots as well.

But it would be equally foolish to ignore the effectsof two decades of economic stagnation for a majority ofthe nation's citizens in bringing these changes about.And it would be complacent not to be concemed nowthat the economy's prospects are in question once again.The history of each of the large western democracies—America. Britain. France. Germany —is replete withinstances in which just this kind of turn away fromopenness and tolerance, and often the weakening ofdemocratic political institutions, followed in the wakeof economic stagnation that diminished people's confi-dence in a better future. In many parts of Europe, thesociai and political consequences of the transition fromthe postwar economic miracle to today's nagging"Eurosclerosis" are all too evident.

In some eras, both in our own history and in tliat ofthese other countries, episodes of rigidity and intoler-ance have been much more intense and have borne farmore serious consequences than anything we have seenrecently. But then some past eras of stagnation or retreatin living standards have been much more pronounced aswell. At the same time, periods of economic expansionin America and elsewhere, during whieh most citizens

had reason to be optimistic, have also witnessed greateropenness, tolerance, and democracy. To repeat: suchadvances occur for many reasons. But the effect of eco-nomic growth versus stagnation is an important andoften central part of the story,

I believe that the rising intolerance and incivilityand the eroding generosity and openness that havemarked important aspects of American society in therecent past have been, in significant part, a consequenceof the stagnation of American middlc-chiss living stan-dards during much of the last quarter of the twentiethcentury, If the United States can retum to the rapid andmore broadly based growth that the country experi-enced during the first few decades after World War II or,more recently, the latter half of the 199{)s—over timethese unfortunate political and sociai trends will con-tinue to abate. If our growth falters, however, or if wemerely continue with slower growth that benefits onlya minority of our citizens, the deterioration of Americansociety will, I fear, worsen once more.

The importance of the connection between eco-nomic growth and social and political progress,and the consequent concern for what will happen

if living standards fail to improve, are not limited toAmerica and other countries that already have highincomes and established democracies. The main storyof the last two decades throughout the developingworld, including many countries that used to be eithermember states of the Soviet Union or close Sovietdependencies, has been the parallel advance of eco-nomic growth and political democracy. As recently asthe 1970s, fewer than fifty countries had the kind ofcivil liberties and political institutions that we normallyassociate with freedom and democracy. By the close ofthe twentieth century there were nearly ninety.

Not surprisingly, the countries where this move-ment toward freedom and democracy has been mostsuccessful have, more often than not, been countrieswhere average incomes have risen during these years.The specific context of developing economies createsseveral reasons for this to be so. To be sure, there archighly visible exceptions—China, Singapore, and SaudiArabia, to name just a few—and discrete transitions incountries' political systems usually exhibit other com-plexities as well. But taken as a whole, the experienceof the developing world during the last two decades,indeed since World War II. is clearly more consistentwith a positive connection between economic growthand democratization than with the opposite.

For just this reason, concem that the robust expan-sion many developing countries have enjoyed for some

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years may abate is likewise not a matter of economicsalone. We know that new democracies are fragiledemocracies. They have neither the appeal of historicaltradition nor much record of concrete accomplishmentsto give them legitimacy in the eyes of what may stillbe a skeptical citizenry. Economic growth, or itsabsence, often plays a significant role in spawning notonly progress from dictatorship to demwracy but alsothe overthrow of democracies by new dictatorships.

It is too soon to judge whether the financial crisisthat beset some of the most successful developingeconomies in Asia and Latin America at the end of the1990s marked the beginning of a new era of slowergrowth—due. for example, to global excess capacityin many of the industries in which these economicscompete—or merely a warning to avoid risky financingstructures and eliminate wasteful corruption. Eitherway, what should be clear is that the risks these coun-tries face, if their growth in the early decades of thiscentury is disappointing, are as much political andsocial as they are economic. The brutal violence sud-denly inflicted on Indonesia's Chinese minority whenthat couEitry's economy stumbled was only one demon-stration t)f the dangers inherent in falling incomes. Forthe same rea.son. the frequently expressed fears of whatan economic collapse would mean for ihc still tenuousand highly imperfect democracy in Russia also deserveto be taken seriously.

Concems of a graver nature surround those "devel-oping countries" where there is little actual economicdevelopment. In much of Africa, but elsewhere as well,living standards are stagnant or declining. In many suchcountries the familiar claim is that pmpcr institutions—-rule of law. transparency, stable government that is notcorrupt—must be in place before economic advance isfeasible. But if it takes economic growth to make theseinstitutions viable {they go along with a democraticsociety although they arc not identical to it), then seek-ing to implant them artificially in a stagnant economyis likely to prove fruitless.

The link between economic growth and social andpolitical progress in the developing world has yet otherpractical implications as well. For example, the contin-uing absence of political demtKracy and basic personalfreedoms in China has deeply troubled many observersIn the west. Until China gained admission to the WorldTrade Organization, in 2(X)2, these concems regularlygave rise in the United States to debate on whether totrade with China on a "most favored nation" basis. They.still cause questions about whether to give Chinesefirms advanced American technology, or let them buyan American oil company. Both sides in this debate

The consequence of the stagnation

that lasted from the mid-1970s until

the mid-1990s was a fraying of

America's social fabric.

share the same objective: to foster China's political lib-eralization. How to do so, however, remains tbe focusof intense disagreement.

But if a rising standard of living leads a society'spolitical and sociai institutions to gravitate toward open-ness and democracy—as the evidence mostly shows—then as long as China continues its recent economicexpansion. Chinese citizens will eventually enjoygreater political democracy together with the personalfreedoms that democracy brings. Since 1978, whenDeng Xao-Ping's economic reforms began, the Chinesehave seen a five-fold increase in their material standardof living. The improvement in nutrition, housing, san-itation, and transportation has been dramatic, while thefreedom of Chinese citizens to make economicchoices—where to work, what to buy, whether to starta business —is already far broader than it was. Withcontinued economic advance (the average Chinese stan-dard of living is still only one-eighth that in the UnitedStates), broader freedom to make political choices toowill probably follow. Indeed, an important implicationof the idea that it is in significant part the growth ratherthan Just the ievel of people's living standards that mat-ters for this purpose is that the countries in the devel-oping world whose economies are actually developing,like China, will not have to wait until they achieveWestern-level incomes before they experience signifi-cant political and social liberalization.

If this conclusion seems optimistic, that is becauseit is. Traditional lines of western thinking that haveemphasized a connection between material progressand moral progress (as the philosophers of theEnlightenment conceived it) have always embodied apowerful optimism about the human enterprise. It isthat optimism that warrants our commitment to eco-nomic growth. And it is that commitment that shouidguide our economic policies. •

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