Growth vs. Redistribution: The New Fault Line in U.S. Politics of Economic Policy

A few years ago, the Information Technology and Innovation Foundation (ITIF, the tech policy think tank I lead) surveyed several hundred DC policy folks to find out, among other things, what they thought ITIF’s political orientation was. About 40 percent said we were moderate, a third said we were conservative, and a quarter said we were liberal. Assuming the latter two groups weren’t clueless, it reinforced to me that on economic policy, the old conservative-liberal lines are anachronistic.

From the New Deal to the Obama administration, the major political split on economics was between free marketeers and statists. Most Republicans were in the former camp, favoring smaller government, prioritizing freedom, and believing in the wisdom of the market. Most Democrats were in the latter camp, embracing big government not just because they believed it was required to address societal ills, but because they thought it was key to economic growth. John Kenneth Galbraith postulated that the modern capitalist economy needed both big firms and big government. The latter was needed to maximize growth, which Democrats believed was crucial to helping all.  After all, it was John Kennedy who said, “a rising tide lifts all boats.”

This Janus view of economic policy explains why some thought ITIF was conservative and others thought we were liberal. Our support for increased government funding for key inputs (e.g., R&D, infrastructure and skills), a higher minimum wage, and higher taxes on individuals, is seen by most as liberal. Our support for limited or light-touch regulation, lower effective taxes on businesses, and size neutrality when it comes to favoring big or small firms is seen by most as conservative. But what unites these seemingly disparate policy ideas is that they are all in the service of supporting growth and innovation.

Today, the relevant dividing line in U.S. economic policy is no longer between markets vs. government; it is between growth vs. redistribution. Since the Great Recession, the left has all but given up on growth, advocating almost exclusively for redistribution, or as many now argue, “predistribution” (such as breaking up big companies to supposedly make them less profitable). Some of this comes from the false but now widely held belief that productivity growth no longer benefits average workers. Some comes from the legitimate but overstated belief that income inequality has grown out of control. And some comes from the harm that globalization has caused to workers; although, rather than blame the real culprit, China, the left blames globalization writ large. And now the overriding centrality of racial justice leads many on the left to see a wide range of issues, including economic ones, solely through that lens.

The result is an embrace of a policy agenda that will do little or nothing to boost U.S. per-capita GDP growth. Case in point: the “Report of the Commission on Inclusive Prosperity,” which the Center for American Progress released in 2015. A more accurate title would have been “Report of the Commission on Inclusion,” for the report is heavy on proposals to redistribute wealth and income (e.g., spending on housing, protecting “gig workers,” subsidizing day care, raising taxes on companies, and addressing climate change), but light on growth policies. In fact, it actively decries technology-driven productivity, since that might lead a worker to lose her job.

Most on the left, however, continue to at least give lip service to growth because they know most voters still desire growth. So the Center for Equitable Growth ensures “growth” is in their title, rather than adopting the more accurate name “Center for Equity”. But their and others’ agenda is still equity and redistribution.

Today, much of the left despises big companies and celebrates small ones (even though the former pay higher wages and are more productive, as well as employing a higher share of racial minorities and are more unionized) and sees most economic issues through the lens of standing up to the Man (usually the white man), dismissing the economic costs of regulatory, spending, and tax policies focused on redistribution and “consumer protection.”

But redistributionists have a more ambitious agenda: overthrowing growth as a legitimate economic policy goal. If they can do this, they get open field running room for their redistributionist agenda. That’s why the are so focused on modifying or even eliminating the GDP as a the central measure of economic wellbeing. This is why “slowthers” are gaining ground (the idea that slow growth is a good thing), and spinning dangerous yarns about “prosperity without growth.” And its why so many environmentalists say it is growth that is killing the planet and that we must embrace de-growth, in part to wean the proletariat off their mindless consumerism.

To be sure, growth without some kind of equity is a problem. And there are plenty of areas where government should act to address inequities, such as increased expenditures on worker training, a better unemployment insurance system, universal health care, a higher minimum wage, and higher taxes on high income Americans, to name just a few.

But equity without growth is an even bigger problem. Slow productivity and wage growth, a demographic crisis from the baby boom retirement, huge government budget deficits, climate change, and China’s competitive threat demand a robust growth and innovation agenda.

For growth policy to have any chance in this increasingly politically hostile environment, free-marketers and libertarians will need to end their knee-jerk opposition to any government involvement. As hard as it might be for them to recognize, the choice is not between a free market and a restrictive, regulatory state.  Its the 2020s, not the 1950s.  Today, China poses the main threat, not Soviet infiltration of the American way of life. Besides, real growth advocate recognize that over-regulation and over-taxation hurts the cause.

Rather, the real choice in a growth agenda is between a purely free market and a developmental state—a state that helps enterprises, industries and the economy thrive with policies such as investing in research, infrastructure, skills and other key building blocks.

As such, if growthers are to prevail, we need a united front.  Surely most growth advocates can agree to a fusionist agenda that embraces light-touch regulation, limited government in some areas, and active government in areas that boost promote innovation and growth. If we can’t, the vastly better organized and more unified redistributionists will prevail.

This means an end to libertarian attacks on Republican apostates who have the audacity to argue for a stronger government role to ensure we don’t lose to China technologically. It means that policymakers, especially Republicans, need to stop listening to libertarian mossbacks like Deirdre McCloskey who defend the sacred tablets of Ayn Rand against heretics who dare to think government might play a more active role. No growth advocate is plotting a state takeover; they are natural allies against a redistributionist state takeover.

The United States is a crucial turning point. We can choose stability, comfort, slow growth and much more equal income distribution (sounds like Europe); or we can embrace technological disruption, innovation, much faster growth, and particularly faster income growth for the bottom half of the income distribution. Growth advocates of the world unite! You have nothing to lose but your journal articles and blogs.