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Call for longer working life highlights dilemma of global competition through growth

March 9, 2012

An interview with Prime Minister Fredrik Reinfeldt has caused a stir in Swedish media and in the blogosphere. The suggestion that Swedes should prepare for working up to an age of 75 is met with indignation. The criticism mainly revolves around the bleak prospects for blue-collar workers to physically be able to extend their working life, as well as a notion of a setback to the welfare in terms of pensions that Swedes have enjoyed over the last decades. For the period of 2001-1010, life expectancy was 78,57 among Swedish men and 82,8 among women.

The reasoning of Mr Reinfeldt can be linked to the fact that western (and Japanese) welfare systems were developed under conditions different from those of today, in rather closed economies sheltered from fierce global wage competition. The terms of trade with the Global South allowed for a cheap imports of raw materials to be refined into higher-value goods. Following women’s large-scale entry into the work force and the post-war baby boom, the pension funds managed to cover for the relatively small share of the population that was retired.

These days, wealthy economies experience ageing populations. Unemployment is an increasing concern, in particular among youth.  Quickly growing economies in Asia and South America offer educated work forces and attractive investment opportunities to capital moving freely around the globe. The demand for both domestic and imported goods is partly inflated through interest-bearing credits that require continuously increasing incomes to be repaid.  

In the short term, it makes sense for western governments, including Mr Reinfeldt’s, to push for more labour work. In globalised markets, countries with a comparative disadvantage in terms of labour costs (relatively high wages, including the portion earmarked for the pension system) will experience decreasing competitiveness if the other factors of production (including the overall level of technology) are increasingly available to the same extent everywhere.  That is the logic of economics. In order to uphold material standards when faced with global competition, cutting down on labour costs attributed to pensions is a good idea, along with stronger incentives for unemployed to join the work force, increases in physical capital input to production and improved technology. In short, governments should spur economic growth.

The long-term drawbacks of growth in its current shape are highlighted by an increasing number of growth-sceptics. There is more and more pressure on ecosystems and natural resources. There is evidence of  increasingly prevalent “welfare diseases” related to stress at work, and of widening gaps between the work force and the unemployed. There is less room to use increases in productivity to get more free time. In Sweden, the standard work week was gradually shortened up til the 1970’s. Since then, it has been stuck at 40 hours. And now the working life might be prolonged.

Against this backdrop, the interview with Mr Reinfeldt touches upon an interesting dilemma:

In wealthy countries, the linkage between current growth and wellbeing is disputed – the costs may exceed the benefits. In the Global South, the linkage between growth and wellbeing is indisputable – the benefits exceed the costs. Growth in the Global South is intertwined with growth in wealthy countries through complex supply-demand relationships. If wealthy countries undertake measures that dampen growth directly or indirectly, perhaps accepting a somewhat lower material standard, they run the risk of falling far behind competitors. They might also affect much-needed growth in the Global South.

This is what you get when you start a game on a non-level playing field (uneven terms of trade) based on incomplete rules (market activities are allowed to carry external costs). 

So, what to do? The idea that dominates agendas of high-level meetings on sustainability, e.g. the Rio +20 summit, is naturally to change the rules of the game and thereby the content of growth. “Green growth” will be driven by “green jobs”  in the service sector or in the development and use of “green technology”  that requires only fractions of the physical capital and energy needed today. In theory, green growth is decoupled from environmental degradation in absolute terms.

As yet, genuine green growth has failed to materialise. Human ingenuity and adaptability may overcome the challenge, although there is concern that critical environmental tresholds are soon reached. However, the green growth discource is not really clear about the growth mechanism itself and the social aspects of it. At what social costs will countries continue to compete by increasing labour work in pursuit of growth, be it green or not?

To address this question in a sensible way is a delicate task that deserves more attention. Cooperation between politicians, labour-unions and employers’ associations across nation borders – not least in North-South coalitions – is crucial. ESD institutions should play an important role as facilitators.

Alexander Hellquist

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From → Green Economy

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