From high-level policy debates and political manifestos to everyday news coverage, anxiety about economic growth is evident everywhere. In Germany, the government’s latest budget identifies stronger growth as a top priority. In India, national leaders are eager to reclaim their country’s title as the world’s fastest-growing economy. In China, where the prospect of deflation looms, the government is undoubtedly worried about hitting its 5 percent growth target for the year.
In the UK, Keir Starmer, the leader of the opposition Labour Party, has vowed to secure the highest sustained growth in the G7 if his party wins power at the next election. The ruling Conservatives expressed similar ambitions; you might recall former Prime Minister Liz Truss’s now-infamous mantra: “Growth, growth and growth.” But putting growth at the center of economic policymaking is a mistake. While important, growth in the abstract is not a coherent goal or mission. Before committing to particular targets – be it growth of gross domestic product, overall output, or so forth – governments should focus on the direction of the economy. After all, what good is a high growth rate if achieving it requires poor working conditions or an expanding fossil-fuel industry?
Moreover, governments have been most successful in catalyzing growth when they were pursuing other goals, not treating growth itself as the objective. For example, NASA’s original mission to land a man on the moon, and bring him back safely, yielded innovations in aerospace technologies, materials, electronics, nutrition and software that would later add significant economic and commercial value. But NASA did not set out to create these technologies only for that reason, and in fact it probably would not have developed them at all if its mission had been simply to boost output. Similarly, the internet emerged from the need for satellites to communicate with one another. But owing to its widespread adoption by the wider population, digital GDP has been growing 2.5 times faster than physical GDP for the past decade, and the digital economy is on track to be worth an estimated $20.8 trillion by 2025. Again, these growth figures are the result of active engagement with the opportunities that digitalization presented; growth itself was not the initial goal.
Rather than focusing on accelerating digital GDP growth, therefore, governments should instead aim to close the digital divide and ensure that current and future growth is not based on Big Tech’s abuse of market power. Given the rapid pace at which artificial intelligence is advancing, we urgently need governments that can shape the next technological revolution in the public’s best interests. More broadly, pushing growth in a more inclusive direction means departing from the financialization of economic activity and recommitting to investment in the real economy. As matters stand, far too many nonfinancial companies, including manufacturers, are spending more on share buybacks and dividend payouts than on human capital, machinery and research and development. While such activities can boost firms’ stock prices in the short term, they reduce the resources available for reinvesting in workers, widening the divide between those who control capital and those who do not.
Financialization is more often than not about value extraction and short-term profit maximization, rather than value creation for the benefit of society as a whole. To achieve inclusive growth, we must recognize that workers are the real value creators, and their interests should feature prominently in discussions about income and wealth distribution. In this sense, the UK Labour Party’s latest stance on workers’ rights is worrying. In a knee-jerk attempt to appeal to corporate leaders, and counter claims that it is “anti-business,” Labour has softened its previously stated commitment to stronger protections for gig workers. Yet investment-led growth and workers’ rights should not be regarded as competing priorities. Balancing corporate engagement with a commitment to workers is not only essential to achieving inclusive growth, it has been proven to boost productivity and growth over the long term.
The economy will not grow in a socially desirable direction on its own. As I stressed 10 years ago, the state has an important entrepreneurial role to play. After the recent attempts by governments to kick-start their economies following the COVID-19 pandemic, it is clear that we still need new ways of thinking about how to achieve growth that are not only “smart” but also green and inclusive. Governments need economic-policy road maps with clear goals, based on what matters most to people and the planet. Public support for businesses should be made conditional on new investments that will “build forward better” toward a greener, more inclusive real economy. Consider the 2022 US CHIPS and Science Act, which aims to boost the domestic semiconductor industry. This law prohibits funds from being used for share buybacks, and one could easily imagine additional provisions requiring that future profits be reinvested in workforce training.
But to help steer growth in the right direction, governments also must make goal-oriented investments in their own capabilities, tools and institutions. The outsourcing of core capacities has undermined their ability to respond to changing needs and demands, ultimately reducing their potential to create purposeful growth and public value over time. Worse, as the capabilities and expertise of the public sector have been hollowed out, it has become more susceptible to capture by vested interests. Only with the right capacities and competencies can governments successfully mobilize resources and coordinate efforts with businesses that are willing to work toward shared goals. A mission-oriented industrial strategy requires the public and private sectors to work together symbiotically. Done correctly, such an approach can maximize long-term public benefits and stakeholder value, so that innovation-led growth becomes synonymous with inclusive growth. The question we should be asking, then, is not how much growth we can achieve but what kind. To achieve greater economic output that is also inclusive and sustainable, governments will need to embrace their potential to be value creators and powerful forces shaping the economy. Reorienting public organizations around ambitious missions, instead of obsessing over narrow growth targets, will allow us to tackle the grand challenges of the 21st century and ensure that the economy grows in the right direction.