The Immiserizing Growth Principle

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John Weeks posted a good article yesterday on Social Europe Journal, which challenges the idea, repeated by an SPD candidate for the German Chancellorship that Ireland is the ‘star pupil’ of the Eurozone. Weeks challenges what he refers to as the ideology of mercantilism and “immiserizing growth” which lays the emphasis on increasing exports while also increasing poverty.

In effect, these externally-imposed, government-generated surpluses take goods and services from residents and transfer them to foreign governments, banks and corporations. This type of trade surplus falls into the category of what Jagdish Bhagwati, the famous Indian economist (now at Columbia University), termed “immiserizing growth”, economic growth that generates poverty not improvement for a population. To put it simply, the country exports and the population grows poorer.

Today, data illustrating the effects of this policy has been published by the CSO.

  • In 2011 average annual equivalised disposable income was €21,440. This represented a decline of just over 3% on the 2010 value of €22,138. See table A.
  • The Gini coefficient in 2011 was 31.1%, not a statistically significant change on the 2010 value (31.6%). The Quintile Share Ratio remained at 4.9 in 2011. See table B.
  • In 2011, the at risk of poverty rate increased to 16.0% from 14.7% in 2010. See table A and figure 1.
  • Almost one quarter (24.5%) of the population experienced two or more types of enforced deprivation in 2011 up from 22.6% in 2010. See table A and figure 1.
  • The consistent poverty rate was 6.9% in 2011, not a statistically significant change on the 2010 figure of 6.3%.

So, as Weeks contends, if the objective of a return to growth is the attempt to improve the living standards of the population of a country then Ireland’s performance has been a miserable failure. This is not the action of the star pupil, but that of the school dunce. ‘Export-led’ recovery, if it was to be real, requires other countries to function as significant ‘importers’. This not a role being currently fulfilled by Europe’s exemplar mercantilist surplus country Germany or that other major European importer the UK, for example.

Even if by some miracle a mega-importer appeared on the world horizon (think China), the Irish path would still represent a road to misery. The chart below shows three economic trends since 2001. Unemployment rose continuously after 2007 in the land of the star pupil, with economic growth brining no reversal (measured in percentage of the labor force on the left). This rising unemployment rate went along with increasing exports per capita, from less than six thousand dollars per head in 2007 to over eleven thousand in 2011-2012 (measured on the right hand vertical axis).

While exports per head increased, domestic national income per person, total national income minus the trade surplus, declined, from $35,000 in 2007 to 25,000 in 2012, a drop of one-third. Domestic income per head declined in both the years of positive GDP growth. This appalling redistribution from the Irish to the European 1%, aka a trade surplus, was not the result of austerity reducing labor costs. For over twenty years Ireland ran a continuous annual trade surplus with no austerity to “lower costs” Under austerity imports contracted in Ireland because of falling incomes of the 99%.


One Response

  1. Gewerkschaftler

    February 15, 2013 3:20 pm

    I found that, along with Varoufakis and Weeks’ articles a useful summary of where we are.

    The second graph of Weeks, showing an inverse linear relationship between export surplus per capita and domestic income per capita is, for me, the most damning.

    Thank you Donagh.