Why so gloomy?

A narrative is increasingly taking hold that we are condemned to live in a world of slow growth for the foreseeable future. The argument for this began with international bond guru Bill Gross, who saw slow growth as the new normal in the aftermath of the 2008–09 crisis. It then mutated into Larry Summers’ more sinister and persistent notion of secular stagnation, which focused on the effect of an aging population. In 2016, the pessimism was extended by Robert Gordon’s popular book, The Rise and Fall of American Growth. Gordon argued that growth is hamstrung by the inevitable exhaustion of innovations that transformed American life in the past century, such as electricity, autos and urbanization. Governments in Canada and the U.S. have latched onto the despondency about the supply-side potential for growth to justify another round of Keynesian pump-priming of demand. However, if Gordon is right about the limits to growth, adopting massive monetary and fiscal stimulus programs is a vain attempt to raise growth beyond its new limits.

If we are constrained to annual growth of about one per cent, it is worth remembering that per capita growth averaged one per cent for most of the 19th century. After eons of no growth whatsoever, this was so unprecedented that it was called the Industrial Revolution. Before 1800, technological change at best raised income only as fast as population growth. Perhaps it will be hard to repeat the acceleration to two-per-cent growth in the early 20th century, spurred by the diffusion of electricity and autos, and the burst of growth exceeding three per cent after World War Two resulting from unprecedented technological innovations necessitated by war and two decades of pent-up demand after the Great Depression and the war.

It is more likely, however, that the pessimists underestimate the possibilities for innovative technologies from processes such as additive (or 3D) manufacturing and the Internet. Just as 20th-century inventions changed the way we lived, new technologies are changing the way we think and use information. Sharing knowledge on the Internet is every bit as transformative as the networking of homes for electricity, water and telephones that Gordon documents for the 20th century. Cognitive computing allows machines to assume tasks previously done by knowledge workers.

A useful antidote to the prevailing pessimism is The Great Disruption by Rick Smith and Mitch Free. The potential innovation from additive manufacturing is enormous; until now, all manufacturing was either subtractive (taking raw material and removing parts until you had what you wanted, turning a rock into a knife or a tree trunk into a canoe) or formative (moulding molten metal into a sword). Additive manufacturing works by building up shapes layer by razor-thin layer, allowing enormous advances in both product design and economies in their production. For example, goods made from lattice designs save a considerable amount of weight, eliminating waste in the production process and making transportation and distance obsolete for production.

Pessimists underestimate the potential of new technologies. Additive manufacturing extends the mass production of the assembly line to mass customization of products to individual tastes and specifications. As Gordon himself notes, people always want to personalize their consumption; that is why motor vehicles, which allow the individual to determine when and where they are going, supplanted the fixed schedule and destination of the railroad. 3D manufacturing has moved beyond its plastic origins to multi-material manufacturing, opening the next frontier of 4D manufacturing where products are broken down into their constituent parts and then reassembled when and where needed (think: cubism meets manufacturing).

One important conclusion from both Gordon’s documentation of the innovations that powered growth in the 20th century and The Great Disruption is how little innovation results from public policy, especially when transformative technologies like electricity and autos interact with each other. This bodes ill for the potential of exercises like the federal government’s advisory panel on growth, headed by Dominic Barton, which is focused on minutiae such as new ways to fund old-style infrastructure projects and tinkering with increases in immigration, trade and job retraining. As Nobel prize-winning economist Robert Lucas Jr. noted, growth is not about small increases in (Adam) Smithian efficiency, but dramatic Schumpeterian innovation.

The very concept of economic growth is so recent that we don’t fully understand its process. GDP statistics vastly understate economic progress over long periods because innovative goods and services are difficult to measure. Rich nations do not produce more goods and services; they produce a vast array of new goods and services. Institutions like government mostly serve to slow the process of creative destruction. Government actions at best can supplement private sector growth.

Ultimately, pessimists are a captive of what is called “presentism,” the inability to imagine the future except as an extension of present circumstances. Just as our bodies are programmed by the scarcity of food, which dominated human existence for ages, our minds have difficulty adjusting to the idea of steadily rising living standards. The western world has been stuck in a depressing quagmire of slow growth despite nearly a decade of unprecedented government stimulus. However, just as the 1930s’ Depression disappears as a hiccup when economic growth is studied over the course of centuries (it was a decade of surprisingly rapid technological change), our current slump likely will give way to the relentless waves of innovation that the west has proved uniquely capable of sustaining over long periods. There is no reason to think that impulse has been extinguished if given free rein to flourish. As Macaulay asked in 1830, “On what principle is it that, when we see nothing but betterment behind us, we are to expect nothing but deterioration before us?”