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Growth Euphoria and Distribution Reality
by Norbert Reuter
Thursday Apr 4th, 2013 6:48 AM
The chasm between poor and rich opens even more. The uncoupling of growth and quality of life on one side and productivity and work volumes on the other side make clear that "business-as-usual" leads to growing problems, not to a solution. Deregulation, flexibility and corporate tax evasion inflate the profits of a few.. The German GDP rose 300% between 1960 and 2005 with 20% fewer workers. Reuter pleas for reorienting economic policy with distribution justice instead of the illusion of permanent growth.
GROWTH EUPHORIA AND DISTRIBUTION REALITY


Economic Models between Yesterday and Tomorrow


by Norbert Reuter


[Norbert Reuter's book “Growth Euphoria and Distribution Reality” includes texts from John Maynard Keynes and Wassily W. Leontief. The following excerpt from the publisher is translated from the German on the Internet, http://www.metropolis-verlag.de/Wachstumseuphorie-und-Verteilungsrfealitaet/595/book.de.]


“Economic Essays” - volume 9

Description


In the past, economic growth helped deactivate potential social conflicts – above all the problem of unemployment and income- and assets-polarization.


Despite weakened growth over decades, returning to permanently high growth rates as both possible and the central key for overcoming the present economic and social crisis is still a dominant conviction.


In the essay, the premises are on trial alongside a detailed summary of the social consequences of the “neo” liberal supply system that only backs growth. High growth rates in developed industrial societies cannot be produced at pleasure and in the long run – least of all through a forced supply policy.


Therefore alternative economic policies are gaining plausibility. A sustainable mastery of the crisis is impossible without a further reduction of working hours, measures to reduce concentration of incomes and assets and without strengthening mass purchasing power.


Recognized economists reached this conclusion long before the current problems. The texts from J. M. Keynes and W. W. Leontief are impressive examples.


TEXT APPENDIX


John Maynard Keynes


Am I a Liberal? (1925)


Economic Possibilities for our Grandchildren (1930)


Several Economic Consequences of a Declining Population (1937)


The Long-term Problem of Full Employment (1943)


Wassily W. Leontief


The Distribution of Work and Income (1982)


REVIEWS – PRO ZUKUNFT 2008, vol. 2


In view of supposedly too low growth rates (whether in the EU or the US), traditional economic policy emphasizes higher growth rates. Increasing supply and purchasing power is generally regarded as the royal way to growth and prosperity and yet does not lead to its goal. No wonder (not only the economic) programs of the parties resemble each other more and more. Flexibility, deregulation and dismantling the state are indispensable, it is said almost in unison. Discussions critical of growth (in the circle of the establishment) hardly occur any more. Reuter sees to contribute to a new problem consciousness and to stimulate a change of economic paradigms with this essay that surveys Germany's economic development from the end of the Second World War to the present and corroborates his arguments with an abundance of graphs and data. The question about the meaning of further growth in highly industrialized countries with increasing material surplus must be faced. A “constantly expanding marketing industry can no longer close the gap between rising productivity and falling consumer readiness.” (p.12)


First of all, Reuter presents central hardly refutable facts that show the malaise of the “neo” liberal course. The analysis of the historically unique situation of the postwar time explains the high growth rates of the 1950s (average 8 percent) and the time of “full employment” 1960-1967.However the following phase of continuous weakening makes an expectation of comparable rates of increase into an illusion. Even in the time of reconstruction, there was only linear growth, not exponential growth. On the labor market, growth cannot be expected with an “employment-threshold” of two percent. Economic growth in highly developed countries reduces the chances of catch-up development in threshold countries.


The chasm between poor and rich opens even more. The uncoupling of growth and quality of life on one side and productivity and work volumes on the other makes clear that a “business-as-usual” leads to growing problems, not to a solution. At most deregulation, flexibility and “innovative” possibilities for reducing taxes inflate the profits (of a few) at the expense of an altogether negative aggregate economic development – despite (or even on account of) an historically unique rise of productivity. “While 56.1 billion work hours were needed in 1960 to gain a German GDP of 570 billion euros, a GDP of 1.77 trillion euros was attained in 2005 in the old Germany with 45 billion work hours. With only 80 percent of the work hours, a GDP three times as high was produced” (p.40). Finally, the high standard of provision with material goods increases the “flop-rate” for new products, raises the entrepreneurial risk (with increased ecological strain) and represents another hurdle for economic growth. (p.45ff)


With statistics, Reuter refutes the claim that an increase “makes everything better.” As the “1st Poverty and Wealth report” showed, the poverty risk rate in Ger many rose continuously since 1983 and reached 13.5 percent in 2003. (In Austria, 420,000 persons are poor and a million are threatened with poverty). On the other hand, 10 percent of Germany's richest households share 47% of total net assets. Between 1991 and 2005, gross corporate profits rose 114 percent while gross wages and salaries only climbed 31 percent. (p.59) Hardly surprisingly, Reuter criticizes economic globalization in its present form. With Hans-Peter Durr, he says we are “cutting off the branch on which we sit...” (p.65).


In his analysis, Reuter appeals to John Maynard Keynes and Wassili W. Leontief whose insights on distributing work and income can be read in five articles.


In summary, Reuter makes a factual well-founded and engaged plea for reorienting (economic-) policy with distribution justice instead of the illusion of permanent growth.


WSI REPORTS 12/2007 (Heinz-J. Bontrup)


“In theory and politics, economic growth is still regarded as the means for solving all economic problems. Whether unemployment, globalization or demography, economic growth is always urged as the best answer to these challenges. The most recent discussion about the economic upswing confirms the growth euphoria on all sides. “The analysis of historical and contemporary growth-courses of developed industrial societies dampens every kind of growth euphoria – particularly regarding the labor market. The empirical review of the conditions and possibilities for removing mass unemployment through economic growth refers again to “limits of growth” (cf. Norbert Reuter, “Growth Euphoria and Distribution Reality,” p.13). A continuously declining trend of growth rates has been observed for at least 50 years. Economic growth alone is not enough to prevent an above-cyclical rise of unemployment. Productivity rates are higher than the real growth rates so the aggregate economic employment threshold in Germany is at 2%. This is all true completely independent of the existing ecological problems that do not become smaller through high growth rates or through a purely qualitative growth path. In addition, wealth development ix uncoupled from growth of the gross domestic product so the meaning of further economic growth is put in question.


Norbert Reuter shows all this in his book on only 94 pages of text supplemented by four treatises by John Maynard Keynes and an essay by Wassily W. Leontief. The contributions of these two outstanding economists are important for the growth- and distribution-theme. After a brief introduction on the theme, the author analyzes the "economic growth in developed industrial societies.” He refers to the “theory of a long-term growth weakening” formulated by John Maynard Keynes in 1943 that in the next chapter of the book confronts Germany's economic development after the Second World War. The result is far-reaching agreement with the long-term prognosis made by Keynes. Permanently advancing productivity development on the supply side leads to a decline of the aggregate economic work volume without high growth rates on the demand side. The demand side malaise is ultimately explained by satiated markets and a decreasing inclination to marginal consumption. “If 56.1 billion work hours were needed in 1960 to achieve a gross domestic product of 570 billion euros (in 1995 prices), a gross domestic product of 1.77 trillion euros was produced in 2005 in the old Germany with only 45 billion work hours” (p.40). Without negotiated reduced working hours, Reuter argues following Keynes, there will not be a return to full employment in Germany in view of a demographically conditioned decline of work possibilities. The productivity advance will continue further and also in the service sector. This will be so massive that an ecological collapse will be inescapable.


In chapters six and seven, Reuter grapples with the “false premises of neoliberal economic policy” and the consequences of this policy in an affluent society. Neoliberal doctrine aims at strengthening supply through redistribution from work income to profit- and property-income. The growth weakness should be repaired and existing mass unemployment initiated. Reuter contradicts this through a well-founded theoretical counter-argumentation. With the help of empirical data, he shows (p.95-110) that the executed neoliberal redistribution to profits and investment earnings is false in two ways. “High investments do not follow from high profits and investments when they occur do not have an appreciable effect on the labor market. The rise of rationalization investments is even connected with a further reduction of jobs” (p.62).


Chapters eight and nine are devoted to the “distribution question” that becomes the core problem of future development alongside the demand for reduced working hours. In the final tenth chapter, Norbert Reuter describes the “consequences” and formulates his economic demands. Here he refers to Keynes who already in 1937 established the connection between income distribution and demand for workers. However a greater equal distribution of incomes and assets will not be enough from Reuter's perspective. While an improved growth would be possible that way, this would not be sufficient to permanently remove the existing over-supply on the labor markets. Therefore greater public investments and additional permanent jobs must be compensations in a public jobs policy. “Increasingly capital intensive production requires stronger participation of capital income in financing the (social-) state” (p.90). In his book, Norbert Reuter argues in a scholarly way and nevertheless in a generally understandable language. He wants to rattle politically, reach a larger circle than “only” the academic “ivory tower” and guide attention to a different problem perception with corresponding consequences for economic policy. He succeeds unquestionably in this. A chapter on political feasibility or an explanation of the essential prerequisites of a different economic policy than the practiced neoliberal economic policy would have been helpful. This reviewer sees this in a democratized economy.


Z ZEITSCHRIFT OF MARXIST RENEWAL, September 2007 (Kai Eicker Wolf)


“This book is valuable even if one does not share Reuter's stagnation orientation and favors other heterodox perspectives on theoretical economics. The author emphasizes the consequences of neoliberal economic policy in Germany and the text is empirically illustrated with many graphs and tables with long time frames. The book is very readable and reflects the theoretical orientation of most of the economists who collaborate in the annual memorandums of the Alternative Economic policy study group. Reuter's translation of four Keynes' texts and an essay by Wassily Leontief in a 60-page appendix deserve commendation.


Norbert Reuter's book “Growth Euphoria and Distribution Reality” has appeared in its second edition and shows how one can be engaged with economic theory and policy beyond the economic mainstream.


WISO-INFO, DGB, 2/2007 (Kai Eicker-Wolf)


Books occupied with economic questions are not often published in a 2nd edition. Norbert Reuter, member of the Alternative Economic Policy study group (memorandum group) achieved this with his volume “Growth Euphoria and Distribution Reality.” The author completely revised the first 1998 edition and updated the empirical material.


Starting from Keynes' division of capitalism in three phases, Reuter sees Germany in a third stage of development characterized by a decreasing consumer dynamic as a result of satiation tendencies on important consumer goods markets (p.28). One important cause for these satiation tendencies is the increasing polarization of income- and assets-distribution in developed industrial societies.


From his analysis, Reuter concludes that the creation of jobs needs a correction of income- and assets distribution and a concrete reversal of the redistribution policy from bottom to top to increase purchasing power and consumer demand. The public authority should carry out a future investment program to reduce unemployment. More distantly, the trend to longer working hours must be broken so reduced working hours becomes a trend.


VDI NACHRICHTEN, May 18, 2007


“Norbert Reuter, professor of economics in Aachen and adviser of Verdi, scrutinizes one promise of economists: exponential growth. His thesis is that we have entered a new phase of economic history marked by surplus and declining growth potential. This caused lower costs of businesses and investments in financial ventures instead of the real economy. Neoliberal economists see state interventions and encrustations as the cause of weak growth. Reuter views this differently. Supply is greater than demand today through rising productivity and lower prices. So the distribution of work and income becomes the core problem.”


AACHENER ZEITUNG newspaper, 9/18/1998 (Peter Pappert)


“...Reuter has no answers to the question `why and how a trend of continuously declining growth rates observed for over 40 years will now suddenly return.' The Aachen economist probes deeper and questions the meaning of a growth ideology in countries with increasing material sur5plus and increasing environmental problems. Reuter, a recognized expert in the technical German discussion about economic- and social policy, wants to kick off the necessary discussion on growth chances and growth limits. This discussion seems either too late or too early. In any case, it is undesired at the moment...


In his book, Reuter impressively documents that acknowledged economists like John Maynard Keynes and Wassily W. Leontief shrewdly predicted the current development decades ago. Conventional German economic- and social decision-makers must sober up.”


SOZIALISMUS, 7-8/1999 (Mathias Bordkorb)


“There are few good books. Norbert Reuter has written one of them. On only 80 pages,he gives a well arranged, argumentatively convincing and empirically corroborated survey on Germany's economic state. The numerous graphs, the extensive table appendix and a 60-page appendix with texts from Keynes and Leontief make possible a critical reading of Keynes beyond the neoclassical synthesis. Whoever wishes to learn an enormous amount about the economic position of Germany and the theoretical background of the Alternative Economic Policy study group should read Reuter's book...


Reuter has the courage of introducing moral-philosophical questions about the economy. He asks about the ethical legitimation for the disparities of distribution and the meaning of a growth fetishism perverted to an end-in-itself. On the other hand, he understands the economy as the humus on which an emancipated society can thrive. People like that are laughed at by economic experts who openly pay homage to an economic totalitarianism. In truth, this is another strength of Reuter's book.


DEEPENED DIVISION OF SOCIETY DESPITE GROWTH


Ulrich Brand and Norbert Reuter


[The Enquete commission “Growth, Prosperity and Quality of life” of the German Bundestag was established on January 17, 2011. Two renowned experts Professor Ulrich Brand and Dr. Norbert Reuter work for the Left party (Die Linke) in the commission.]


Professor Brand, you teach International Politics at the University of Vienna and are a member of the academic advisory of Attac Germany. What motivates you to collaborate as an expert witness in this Enquete commission?


Ulrich Brand: The mandate of the Enquete commission to analyze the role of economic growth as an unquestioned dogma and the gross domestic product as the main indicator and draft alternatives seems very important in the current multiple crises. In my own research on the social-ecological crisis, I criticized this limited perspective again and again. Bringing this knowledge into the Enquete commission and simultaneously learning is very alluring.


Dr. Reuter, you work as an economist with the service union ver.di and wrote a book titled “Growth Euphoria and Distribution Reality.” Growth creates jobs and ensures prosperity, it is said in newspapers and in economics. How can one criticize growth as a unionist?


Norbert Reuter: With the term growth euphoria, I criticize the attitude that the economy only needs to be sufficiently deregulated to return to a high natural growth path. Given the global environmental crisis, the economy must be oriented today in qualitative growth. In education, nursing and health care, for example, more must be done to do justice to future demands. Therefore we need indicators that show the respective qualitative changes.


Many critical voices seek to solve the ecological question by taxing the consumption of nature more vigorously. The environment should have its price. This is true above all for low-income sectors but not for the rich. How can we escape this trap?


Norbert Reuter: A stronger taxation of nature consumption is not enough to solve the ecological problems. Low-income sectors must be relieved and high incomes, profits and assets taxed more intensely. The state should spend the greater revenues for investments in ecological reorganization and building public necessities. Structural change should be driven toward a service society marked by a declining consumption of nature.


The SPD and the Greens emphasize a Green New Deal. They want a so-called green growth, the promotion and export of environmentally-friendly technologies. Can all global environmental problems be solved that way and simultaneously ensure industrial jobs in Germany?


Ulrich Brand: In my view the Green New Deal will not solve problems since it does not thematicize questions of social and economic power. The basic idea is to create sound framing conditions so producers and consumers act differently. Even an ecological capitalism that relies on the profit principle as a driving force for a social-ecological reconstruction does not recognize the core of the problem, the capitalist way of production and life that reaches into human need structures.


What for both of you is the most urgent question for the Enquete commission to answer?


Norbert Reuter: Public and private poverty in Germany has increased as in many other countries and the division of society has deepened despite positive though declining growth rates of the gross domestic product. How can future economic development be formed and organized democratically so the whole population experiences improved living conditions even if the GDP growth decreases again or stagnates?


Ulrich Brand: With viable proposals like a conversion of those structures – in industrial, agricultural and service areas -, the social needs of food and housing, mobility, communication and others can be satisfied in a productive, just and ecologically sustainable way domestically and internationally. The roles played by state policy and other actors would be identified. The immediate interests of wage-earners must be considered. We need concrete projects and a comprehensive horizon of a new lifestyle.


ECONOMIC GROWTH IN DEVELOPED INDUSTRIAL SOCIETIES


by Norbert Reuter (from “Growth Euphoria and Distribution Reality,” 1998)


Economic and social developments in industrial countries give little reason for optimism. The continuing and intensifying mass unemployment going along with a social polarization of society is important. The increasing financing problems of the social security systems , expanding state indebtedness and stagnating or even falling mass income reflect this development on the distribution side. In the past, economic growth was a tried and tested means that contributed to mastering economic and social crises. However no significant contribution to problem solutions can be realistically expected from conventional economic growth. Five arguments deserve close attention:


1.An analysis of the historically unique causes of the high growth rates of the gross domestic product in the postwar era and its subsequent continuous weakening shows it is unrealistic to hope for returning high growth rates that could contribute to solving problems on the labor market.


2.This conclusion is supported by a closer analysis of the long-term development of the German gross domestic product. The real gross domestic product “only” follows a linear course contrary to all predictions of an exponential course.


3.This growth is not enough for success on the labor market at an “employment threshold” of two percent. [In the 1980s the employment-threshold was 1.3 percent after being 3.0 percent in the 1970s.] A growth above this threshold would have positive effects on the labor market.


4.Economic growth intensifies ecological problems that increasingly endanger the human species. A threatening global “eco-catastrophe” and insight in the necessity that today's low-income countries be granted development- and growth possibilities underscores the significance of economic measures without growth as the primary goal for mastering economic problems in highly developed industrial countries.


5.An uncoupling of wealth development from growth of the gross domestic product can be seen for over 20 years. Declining quality of life in industrial countries – manifest in an “Index of Sustainable Economic Welfare” falling since the 1970s – with a rising gross national product puts in question the meaning of more economic growth. A renunciation on more growth in rich industrial countries is not necessarily connected with decreasing prosperity. The opposite may be true.


On this background, trust in the old industrial society that was always a growth society fades. The greatest readiness for individual performance is not a guarantee for social ascent today and is not a guarantee for a dignified income and livelihood in times of mass unemployment. The individual increasingly feels handed over to anonymous powers they cannot influence. “Globalization” of national economic activities seemingly forces changes that cannot be politically controlled any more according to the standard of social or even individual needs. This adds to the uncertainty in this situation. The feeling that fundamental changes are unavoidable stirring in the recent past in industrial societies grows into a certainty. While a consensus on the basic direction of these changes is not manifest, the most different ideas about the causes of the crisis and the derived therapies are marked out.


THE PROMISE AND CHANGE OF INDUSTRIAL SOCIETY


by Norbert Reuter (from “Growth Euphoria and Distribution Reality,” 1998)


Although the term crisis can no longer be removed from discussion about the present and future of industrial society, the promise of industrial society was very different. The process of industrialization since the end of the 18th century led to a historically unique growth and wealth push. Within a few generations, the all-pervasive scarcity that for centuries marked the existence of the broad population was reversed ad not only overcome. The solution of economic problems seems only a question of time so John Maynard Keynes' prediction written in 1930 proves true:


“For the first time since his creation man will be faced with his real permanent problem – how to use his freedom from pressing economic cares, how to occupy the leisure which science and compound interest will have won for him, to live wisely, agreeably and well.”


To refer to the qualitative changes that represented the newness of this time, John Kenneth Galbraith coined the term “affluent society” for this development state at the beginning of the 1970s. This was not without undertones of culture criticism. A continuously rising living standard, disappearance of poverty and maintenance of full employment, in short, a life in abundance and prosperity, seemed to be the promise of democratic industrial societies of the western model organized in a free enterprise way. Even if the reality already looked different, this optimism revived again when the thesis of the “end of history,” the historical victory of the western economic system, first found a wide echo after the collapse of the socialist systems in eastern Europe and the disappearance of the system alternative [cf. Fukuyama 1989 and 1992].


The basis of these nearly paradisaical prognoses about the future of industrial systems was the long-term effect of technical progress or – formulated in a value-neutral way today – technical development. As a prerequisite of industrial society, technical progress made possible the mastery of the all-pervasive scarcity for the broad majority of the population by a continuous succession of significant and incidental process- and product-innovations. The “secret of success” of industrial society lies in the combination of these two main elements of technical development.


Product innovations make possible productivity increases by enlarging the relation of output to input. {“In the first decades of the 19th century, the average worker increased his/her annual productivity 0.3 percent. By the end of the century, this rate rose nearly six-fold” Reich 1993]. The relative savings of capital and labor was the condition sine qua non for product innovations since production factors were then first available for new applications. This so-called “release effect” of technical development was welcomed under the conditions of a scarcity-economy, even if it was never entirely problem-free as the introduction of looms in England demonstrated. Under the conditions of a scarcity-economy, this effect of technical development was compensated again and again since workers are needed for carrying out product innovations (“compensation effect”). For a long time the history of industrial society agreed with the Earl of Lauderdale who defended the 1812 bill to introduce the death penalty for sabotaging machines in the British Upper House that nothing was more certain than the fact


“that every improvement of machines helps improve the conditions of those who work with these machines. A greater demand for labor than ever arises right after such improvements” [quoted according to Leontief 1982].


However the experience of the last decades shows that a universal “law” is not in effect. The reasons are varied and interdependent. With increasing development,. The free enterprise need for workers in the old industries declines as a result of advances in productivity on one side and increasing satiation tendencies in private demand on the other side. Technical-economic limits on development that basically exist for every branch impel the transition into the stagnative phase of developed markets. As long as enough new products arise, the stagnation in individual sectors can be cushioned by expansion of new sectors so an aggregate economic growth can be recorded despite shriveling partial markets.


Problems arise when awakening new or latent individual needs and opening new markets are thwarted more and more despite greater spending on research and development on one hand and marketing (advertising) on the other. In the short-term the markets can hold out with product variations and pseudo-innovations. In the long-term, declining profitability and shriveling of these markets cannot be prevented. In particular areas “released” employees cannot be absorbed
by new sectors as in the past. Structural change comes to a standstill. From an economic problem, unemployment becomes a permanent structural phenomenon.


Diminishing possibilities for maintaining or expanding profit margins through expansive strategies lead to disadvantageous macro-economic reorientation of entrepreneurial conduct. Cost reduction through intensified rationalization and simultaneously lower labor costs per time unit (enforcement of lower wages, internal and external flexibility of labor, deregulation, “outsourcing” of working conditions, carrying out “innovative” tax reduction possibilities etc) replace economic expansion. At the same time export orientation opening new sales regions compensates for the coincidence of domestic satiation tendencies above all in the upper income brackets and decreasing demand dynamic owing to stagnating mass income. In a farsighted way, Keynes had this problematic in mind in 1936 when he described a forced export orientation as a “desperate expedient”


“(...) to maintain employment at home by forcing sales in foreign markets. Austerity is only successful when it shifts unemployment on the neighbor who succumbs in the battle (...)” [Keynes]


With the orientation in exports, the question of production costs is given a new dimension since now there is competition with the production-, wage- and social conditions of the world market (cf. Reuter 1996).


Globalization is also an objective consequence of the system-endogenous search for exploitation possibilities of surplus capital in developed industrial countries and is not only a consequence of falling transportation costs and growing worldwide media linkage.


We obviously cannot speak in a generalizing way of “the” industrial society but must distinguish between an early and a late phase. Accordingly different economic policies are needed for the respective phases of industrial society.


THE PREMISES OF “NEO” LIBERAL ECONOMIC POLICY

by Norbert Reuter (from “Growth Euphoria and Distribution Reality,” 1998)


The fact that the growth of the gross domestic product was closely connected with a continuous increase in prosperity over wide stretches in the past was projected unreflectively into the future by dominant economic theory and politics. For this reason, the notion predominates that the mountain of goods and services could and must grow constantly for all eternity to get a grip on unemployment and other economic and financial problems [Economic growth was firstly a mere means for overcoming fundamental scarcities. The end-means reversal consists in that growth lost its means character and became an end-in-itself. A discussion about the meaning and substance of growth does not take place although growth is less and less appropriate to the original goal and is even counter-productive in many areas.] On this background, trifling or absent growth of the gross domestic product cannot be understood as a success and indicator of overcoming scarcities and increasing satisfaction of needs. Rather this appears as an actual evil, as many economists in the past recognized. The low-income sectors, the unemployed and social security recipients are made into supporters of the growth ideology with the insistence that their precarious situation refers back to low growth.


Non-existing or trifling growth cannot be regarded as the central problem in Germany or in other western industrial countries. Instead the specific distribution of the record gross domesticc product should be thematicized in a country that is among the richest countries of the world in average per-capita income. Before the Second World War, Keynes warned the continuance of our economic form depends on a successful correction of income distribution:


“If capitalist society refuses an even income distribution and banking- and financial powers are successful in their efforts to keep the interest rate where it prevailed in the nineteenth century, then a tendency toward underemployment of resources will weaken and destroy this form of society at the end” [Keynes 1937].


A de-stigmatized debate on distribution must be moved to the center of social discourse instead of the religious-sounding invocation of growth and innovation.


The predominant economic ideology that asserted the possibility for ever more and higher intensive growth – growth of the gross national product even with stagnating population – as the key to solving pressing social problems rests on two fundamental assumptions:


1.The possibilities for inventions and their conversion into marketable products (innovations) exist at all times and are basically unlimited.


2.Needs are unlimited and can only be satisfied materially.


These premises can hardly claim supra-historical validity. The fact that an ever greater financial, institutional and organizational effort must be expended on the supply side to bring new additional products to market suggests that technical development follows a productive course. This means the same growth rates require an ever-higher volume of real investments, an ever greater expense in research and development so the growth potential of technical development successively declines. The rise both of capital co-efficients (quotient from capital commitment and production result) and capital intensity (quotient from capital and labor commitment) in rich economies undergirds this thesis from the eempirical side.


In addition economists in the pastsupported by historical, sociological and ethnological studies – called into question the thesis of unlimited human needs and the resulting foregone conclusion of continuous growth [e.g. representatives of the historical school, American institutionalism (Thorstein B. Veblen), Marx and Keynes]. Since a series of needs as for example the need for leisure or savings cannot be satisfied by (new) products but only by more services, these needs are relevant in developed industrial societies in which basic needs are largely satiated, the thesis that nothing can stand in the way of a constant expansion of the palette of consumer goods and services from the side of needs lacks universal authority. Thus the satisfaction of primary needs for housing, clothing and food depend on more material production and complementary services than the satisfaction of secondary needs for education, peace and quiet, culture, relaxation and future pans through savings. These needs rise to the surface in progressive industrial countries.


With the increasing satiation of essential basic needs, the possibility for genuine optional acts results for the large majority of the population for the first time. The more differentiated consumer decisions can be made according to individual usefulness, the more the possibility arises of a conscious decision against additional consumption. Uncertainties about the extent and direction of future consumption that were unknown in the past necessarily result for individual producers. While qualities and quantities were known from experience in early stationary scarcity societies, the concrete contents and the concrete extent of consumer desires gradually developed into an uncertainty factor that makes the production decision considerably harder in pr axis. The question whether this or that should (still) be consumed is much harder to answer in progressive affluent societies. The rising expenditures in selling products and the problems in buiolding a service sector with constantly expanding marketing efforts can be cited as proof that specific needs and demand and no longer supply as in the past are the limiting factors in developed industrial systems.


In the scope of the dominant economic policy and the theoretical supply-side economics backing up that policy, such objectives are either not noticed or written off completely as irrelevant and outside the discipline of economics. Its perception of problems is determinative here. When the conviction prevails that the invention- and innovation potential is unlimited and no consumption limits exist on the side of demand or needs, this must have consequences for political-economic decisions. On this background, the crisis of industrial society necessarily does not appear primarily as a problem of insufficient (profit-) incentives for entrepreneurial conductor simply deficient innovation-readiness, unemployment as ultimately voluntarily chosen and/or an expression of deficient private initiative.


On this backdrop the criticism of political-economic concepts as practiced since 1982 by the liberal-conservative German government is too simplistic when it is assumed the redistribution from bottom to top initiated by this government is exclusively a clientele-oriented end-in-itself. The specific problem perception actually suggests supply-oriented political-economic measures from which other governments were not immune as long as naïve ideas of growth dominate. Therefore the center of gravity of the discussion about a “right” or “wrong” economic policy must be shifted to a discussion about the underlying premises. Another economic policy can only be expected on the basis of a changed problem consciousness. As long as the problem consciousness does not change, political-economic concepts of different parties and social forces will hardly be distinguished from one another.


THE CONSEQUENCES OF “NEO” LIBERAL ECONOMIC POLICY IN AFFLUENT SOCIETY


by Norbert Reuter (from “Growth Euphoria and Distribution Reality,” 1998)


In Germany growth rates have declined for nearly 16 years and unemployment has risen to record levels. The German government attempted to react to spreading poverty with a bundle of supply-side measures. After a weak economic period understood as temporary, the economy should be given new impulses that lead back to old growth paths [The “theorem of long waves of economic development” that describes a recurring long-term upswing process every 40 to 60 years can be cited as a theoretical background of this conception. This theory experienced a “spectacular comeback” in the economic crisis around 1980. Cf. Eklund 1980].


However this policy has not succeeded [Private work agents and flexible store opening times urged again and again as indispensable measures to reduce unemployment have failed. All supply-side measures could not prevent a further rise of unemployment.]. The considerable redistribution from work income recipients to profit- and asset-income recipients neither prevented the fall of the growth rates of the gross domestic product nor the further rise of unemployment. At the same time tax revenues fell absolutely and state indebtedness continuously climbed. That the indebtedness of the Federal Government, states and communities has increased almost five-fold is not an event comparable to a natural phenomenon.


Carrying out a relief of profits was a core interest of the conservative-liberal German government in the hope of activating growth potentials...