Economic Growth: New Doubts About an Old Ideal

III fares the land, to hastening ills a prey, Where wealth accumulates and men decay.

--Oliver Goldsmith (1770) I INTIL recently only dyspeptic phi-V-' losophers, conservationists and a handful of academics dared to question the proposition that economic expansion necessarily fosters human progress. Each jump of the national output of goods and services has been treated as a triumph, each fall as a setback. Like other affluent Western countries, the U.S. has avidly pursued prosperity, convinced that a rising standard of living would ameliorate if not dispel most economic and social ills.

Up to a point, the formula has succeeded. In the past decade, for exam-)le, the ranks of college students have more than doubled, and the number of Americans officially classified as "poor" nas declined substantially. But the elit ter of growth has begun to tarnish.

full employment and a burgeoning list 31 other advances have not been matched by an end to poverty, racism or urban decay. More and more critics argue that obsession with economic growth has tended to blind men to the dep redations that it leaves in its wake.

The litany runs through poisoned air and water to clotted highways, nerve-jangling noise, reeking dumps and an ugly bulldozed countryside. Improved technology and advancing production have made life increasingly complex, frantic and wearing. Complaints are rolling in -not only from youthful rebels but also from the supposedly silent majority Middle Americans, to say nothing of scientists and politicians. Urbanologists fret about cities swollen to dinosaur dimensions that defy efficient management and create immense social costs through crime, congestion and drug addiction. Ecologists raise the specter 'in a planet made uninhabitable by the pressures of a rising population. Some environmentalists go so far as to advocate a no-growth society; they call upon rich nations to welcome declines in their gross national products.

For all that, continued vigorous growth will help to alleviate the very social and environmental problems that have brought on the debate. Job training, better housing, reliable transit systems, clean air and water--all these will require financing that only a rich and expanding economy can well afford. Considerable growth will be needed merely to cope with a swelling urban population. City planners figure that between now and the year 2000, the U S will have to double the number of its homes, office buildings, schools, parking ots, airports, garbage dumps and--unless human nature changes--its bars and jails.

The New Selectivity. Last month in his State-of-the-Union message which contained remarkable echoes of ideas m John Kenneth Galbraith's The Affluent Society, President Nixon not only acknowledged the growing debate but suggested some solutions. "The argument is often made," said the President, "that there is a fundamental contradiction between economic growth and the quality of life, so that to have one we must forsake the other. The answer is not to abandon growth, but to redirect it." To do that he called for "a national growth policy" designed to create "balanced growth." "The time has come for a new quest," said the President, "a quest not for a greater quantity of what we have but for a new quality of life in America."

Growth policies of one sort or another have long been a fashionable federal concern, but a "balanced growth" policy is something new. To achieve it, the President can turn to taxes, money policy, federal spending, subsidies or other incentives for businessmen. For example, he said, "Government decisions as to where to build highways, locate airports, acquire land or sell land should be made with a clear objective of aiding balanced growth."

The Administration has already set its target for growth in the gross national product for the first half of the 1970s: an average 4.3% a year, compared with 4.8% during the past six years. The nation's G.N.P. is now approaching $1 trillion a year, and even a 4.3% rate of expansion (calculated without allowing for inflation) would be considerable. By the end of the decade, it would raise the nation's annual output by $500 billion. That figure may be difficult to reach. Having slowed the U.S. economy and probably tripped it into at least a mild recession to combat the rising cost of living, the Administration expects only a 1.3% growth this year, along with a 4.4% inflation.

The slowdown involves the three basic factors of economic growth: expansion of the labor force, workers' productivity and businessmen's investment All show signs of tapering off in the early 1970s. The labor force is expected to grow at a declining rate because it has been swollen to abnormal size during the past few years by the economy's overexuberant pace. In addition, FORTUNE estimates that productivity growth will be hampered by the continuing shift of workers out of manufacturing and into service industries, where gains in output per man-hour are harder to achieve. U.S. productivity has been increasing by about 3.2% a year since World War II, but FORTUNE expects the annual rise to be only 2.8% by 1980. As for businessmen's fixed investment, it climbed fairly steadily from 9% of the G.N.P. in 1959 to 11% last year. Although the rise was a major reason for the fast economic growth of the past decade, many economists doubt that the 11% figure will be sustained in the future.

Away from Golconda. In his austerity budget for fiscal 1971, the President made a start toward reordering national priorities. He called for reductions in defense spending, space, and outmoded domestic programs, along with an increase in such "quality of life" expenditures as housing, welfare and job training. Modest though they are in size, the changes are significant portents for the future.

They also represent a political sensitivity to shifts in public attitudes. As the President said: "Never has a nation seemed to have had more and enjoyed it less." The feeling is prevalent in the U.S. that citizens are lost in an increasingly impersonal society, surrounded by a thicket of machines and trapped in cities that have outgrown human needs. America's new Thoreauvian yearnings are reflected in the trickle of the discontented out of cities and back to small towns, even at a sacrifice of salary or job promotion. Many middle managers now balk at transfers from field offices to corporate headquarters, especially in Manhattan, which was once considered an executives' Golconda.

The new skepticism about material growth contains traces of Jefferson, who detested cities, and Gandhi, who was suspicious of much modern technology. Current attitudes also stem from what Historian Daniel Boorstin calls the nation's "tradition of self-liquidating ideals." In a paper presented to the House Committee on Science and Astronautics, Boorstin wrote: "Perhaps more and more Americans, surfeited by objects, many of which actually remove the pungency of experience, now begin to see the ideal --the ideal of everybody having the newest things--being liquidated before their very eyes. Perhaps the annual model has begun to lose its charm." Henry Ford II noted much the same phenomenon, and he conceded that the glamour of the auto, the quintessential product of the high-growth U.S. economy, may be decreasing in the public mind (TIME, Feb. 23).

Today's debate over growth has also revived interest in the gloomy theory of Parson Malthus. Because more people mean more consumption and more production, a fast-rising birth rate has been considered a major stimulus to economic growth. But if present birth rates continue, man may overpopulate large sections of the world during the next century. Or he may so completely foul the air and water with wastes that he will snap the delicate balance of ecology that makes his planet habitable. Theoretically, the U.S. has ample space and resources to feed and house a properly dispersed population many times larger than the current 203 million. But more and more Americans are concluding that life would be more pleasant if the population became stable.

Challenge to Boosterism. The need to balance population growth against its social cost will wrench the thinking of bankers, storekeepers and politicians. Slower growth for Houston, Akron or Miami? The idea violates all the tenets of local boosterism. A tremendous amount of entrepreneurial effort is harnessed to the expectation of an ever-expanding population, with more customers for business. Yet in some circumstances, the best way to keep localities attractive would be to restrain population growth. Another way would be to alter local tax policies. Since most communities depend chiefly on real estate taxes for their revenues, their leaders often woo development that tears up the landscape while producing congestion and other social ills. But attitudes are changing in some places. This month, for example, a special study council created by the California legislature called for "a population distribution policy." More important, the council warned that the profits must be taken out of land speculation--perhaps by changing tax policies--if the state is to prevent "dehumanized, sprawling megalopolis monsters."

Deceptive Index. Economic growth --the increase in total output of goods and services--is in many ways a misleading index. "Real" G.N.P., that is dollar growth minus price inflation, is a more meaningful indicator of prosperity. But no index takes into account many intangible gains: the benefits of wiping out a disease, for example, or the fact that U.S. workers have achieved an extra 22 hours a week of leisure time since the start of the century.

The debate over growth has exposed still another flaw in economic measurements. The G.N.P. indiscriminately includes social "bads" on the same basis as goods (or services). For example, the cost of bullets used in gangsters' guns goes into the national accounts with the same weight as the price of pencils or computers. Nothing is subtracted from the value of gasoline or autos because they befoul the atmosphere, or from farm output because fertilizer runoff helps choke rivers with green scum.

The National Bureau of Economic Research, which was once headed by Federal Reserve Chairman Arthur Burns, is trying to revise the system of economic accounting so that it will gauge the cost of noxious factories, landscape wreckers, noise and other "disproducts." The job will not be quick or easy. "I look forward to the day when statisticians add up the national accounts to take account of the depreciation of the environment," said Burns to the Congressional Joint Economic Committee last week. "When we learn to do this, we will discover that our gross national product has been deceiving us."

Dilemma for Businessmen. The demand for redirected growth presents a particular dilemma for businessmen. They must heed public pressure to stop activities that aggravate social or environmental ills even as they meet their responsibility to shareholders and employees to keep profits moving up. "A task of appalling difficulty lies ahead," says James L. Allen, chairman of the management consulting firm of Booz, Allen & Hamilton. "We must somehow encourage growth of the right kind--the kind that will alleviate our problems --while making sure we don't kill the golden goose."

Thoughtful businessmen are just beginning to grasp the enormity of the change that confronts them. By contrast with the 1960s, predicts Arjay Miller, former president of Ford Motor Co. and now dean of Stanford's Graduate School of Business, the 1970s will bring "increasing emphasis--and rightly so--on public goods." By Miller's definition, "public goods" are those not subject to the private marketplace: education, welfare, subsidized housing, safety, parks, clean air and water. "The shift from private to public goods is a tribute to the private sector of the economy," he says. "It has done a good job in meeting the demand for autos, TV sets and household durables. The old problems are pretty well solved."

Many businessmen correctly sense that concentration on the new problems will involve painful adjustments, including slower gains in sales and profits for some industries. The main thrust of Nixon's antipollution proposals is to force industry to pay the full social cost that its production entails. Businessmen worry that Government may force them to spend so much so quickly that it might impair the financial health of some companies. For a while at least, a ton of steel or a kilowatt-hour of power will probably cost consumers more if the manufacturing process avoids pollution. On the other hand, makers of anti-pollution equipment may well enjoy a bonanza (see following story). There may be fewer autos in cities but more mass transit.

Microbiologist Barry Commoner (TIME cover, Feb. 2) pleads for a complete overhaul of the "progress through technology" ethic. He calculates that the U.S. must completely revamp as much as one-third of its productive system--farming, mining, papermaking and fossil-fuel power generation, for example --to repair damage already done to the ecological system. Commoner figures that not only would the cost be high, but that production itself would suffer in the process. Most economists, on the other hand, contend that total economic output would hardly be changed, and they scoff at the idea that growth itself is the real menace. They contend that the critics have picked the wrong villain, much as Britain's ax-wielding Luddite workers did when they deliberately destroyed new machinery during the early 19th century in the belief that machines swallowed jobs. "I cannot conceive of a successful economy without growth," says Walter Heller, former chairman of the President's Council of Economic Advisers, speaking for most economists. "We need expansion to fulfill our nation's aspirations. In a fully employed, high-growth economy you have a better chance to free public and private resources to fight the battle of land, air, water and noise pollution than in a low-growth economy."

Nixon's major messages this year carry hints of increased Government planning, though the President so far has remained vague about how it ought to be done and by whom. Even champions of laissez-faire are rethinking their traditional antipathy to federal intervention against enterprises that congest, pollute or destroy. What businessman ask above all is that the same prohibitions, penalties and incentives be applied throughout the nation, so that some firms cannot escape the cost of measures that their rivals must adopt. Says Chairman William F. May of American Can Co.: "We are going to have to accept centralized authority, much as we abhor the idea."

Though businessmen seem willing to accept uniform rules against social ills, they have usually bucked the kind of

Government authority that tries to tell them what positive actions to take. Public planning, except for the toothless variety, has until lately been regarded as outside the American credo. More than three decades ago, when Franklin Roosevelt set up the National Resources Planning Board, conservatives in Congress denounced the idea as subversive, slashed the board's budget and finally abolished the board altogether.

The idea may be more palatable now, especially if it comes from a Republican President. "Even in our highly productive and growing economy, resources are limited," noted President Nixon in his economic report to Congress. "Our problem, in short, will be to choose wisely what to do with our output and incomes. Large as they are, the claims upon them, what people expect of them, are even larger. There is no unclaimed pool of real resources from which we shall be able to satisfy new demands without sacrificing or modifying some existing claims."

The Ethical Choice. But businessmen argue with considerable merit that the apparatus of Government, as it is presently constituted, hardly provides wisdom enough to make all the right decisions about an economy as complex as that of the U.S. If the nation is serious about redirecting its growth, the biggest change of all may have to take place within Government, for only Government has enough power to carry out the task. A whole new set of personal incentives may have to be devised to overcome the tunnel vision and frozen attitudes that are endemic at most levels of local, state and federal bureaucracy. Congress presents a formidable barrier to any rational reallocation of national resources and growth. Revenue and expenditure committees rarely coordinate, and nobody has a responsibility for comprehensive planning. As a result most Government programs that promote economic expansion have amounted to piecemeal thrusts at laudable objectives. "I could not conceive of running a private business like this," says Illinois Senator Charles Percy, onetime head of Bell & Howell. "Just because the Russians invented the five-year plan does not mean that we cannot use the idea."

Reshaping economic growth to create a cleaner, better society involves a difficult choice: How does the nation want to distribute its income and physical resources? There is a price that must be paid for raising the quality of life, just as there is for increasing the horsepower of an auto or the yield of a tomato patch. If the growth of production slows, the consumer will have less in the way of goods. But he may also be able to live with less noise, smog, crowding and anxiety. In some cases and some places, slower development can be a positive benefit. The job for the nation's economic managers now is to resolve the conflict between the dividends and the damages of growth.

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