In an 18th century recipe book by Hannah Glasse, the recipe for jugged hare supposedly began with the words “first catch your hare.” The quotation is apocryphal, but it says so much about the food culture of the time – or rather the food culture of our time, in which we simply assume the availability of basic ingredients.
Much the same can be said for contemporary economics. The partisans of stimulus and austerity may disagree as to the best recipe for growth, but both assume that the basic ingredients will be available.
But what are the ingredients?
In a must-read report on innovation, the Economist makes an immensely useful distinction between two kinds of growth – extensive and intensive:
Immediately, these concepts help us to understand the long-term growth challenges that face us in this country and across the western world. Most fundamentally, the potential for extensive growth is substantially exhausted. For instance, most women in Britain have already joined the (paid) workforce. As for population growth, we are doing quite well to avoid the demographic slumps that are on the way for countries like Japan and Germany. And on the issue of capital, the last few years have shown what happens when governments allow the availability of credit to exceed reasonable limits.
Therefore, more than ever, our future economic prospects depend upon intensive growth:
An increasing number of economists believe that the rate of technological progress is slowing down – and it is this that provides the ultimate explanation for the economic troubles of our age. Other economists, however, are more optimistic. We are making progress in some areas, they say – especially information technology – it’s just that we’ve yet to apply it properly:
Compared to manufacturing, the service sector appears to be particularly slow on the uptake. Given that many services are, in fact, public services, there is great deal more that governments could be doing, both directly and indirectly, to unleash the power of innovation.
Certainly, this would be more productive than the sterile economic debate that assumes that economic growth can be conjured out of thin air – which is no more true of GDP than it is of jugged hare.