The Moral Consequences of Economic Growth
Benjamin Friedman spent roughly a decade writing a book that most economists would have been embarrassed to attempt. The Moral Consequences of Economic Growth, published by Knopf last autumn, makes a historical argument that is either obvious or radical depending on where you sit: sustained per-capita income growth tends to produce more open, tolerant, and democratic societies, while prolonged stagnation — even without outright decline — reliably generates the opposite. Friedman is a Harvard economist of mainstream credentials, which makes the argument harder to dismiss as mere sociology.
The empirical meat of the book is historical rather than econometric. Friedman traces the American nativist movements of the 1880s and 1930s, the rise of European fascism through the lens of the interwar depression, and the expansion of U.S. civil rights legislation through the relatively prosperous 1960s. The pattern he finds is not that rich countries are liberal and poor ones are not. It is that countries — at whatever income level — become more closed and resentful when growth stalls. The relevant variable is the rate of change, not the level.
Japan is his cleanest contemporary case. Real wages in Japan were essentially flat through most of the 1990s and into this decade, and the political response has been textbook: a swing toward nationalism in school curricula, repeated controversies over Yasukuni Shrine, a revival of LDP factions that speak explicitly about restoring national pride, and a marked hardening of public attitudes toward Korean and Chinese immigrants. None of this is caused solely by economics. But the timing is striking, and Friedman is careful not to claim mono-causality; he claims correlation and mechanism, which is the more honest position.
Russia is a different animal. GDP grew by roughly 6.4% in 2005 on the back of oil at $60 a barrel, yet the political trajectory under Putin has been steadily more authoritarian, not less. Friedman’s framework stumbles here. His response, roughly, is that Russia’s growth is distributional dynamite: the gains have landed in a narrow oligarchic stratum while median living standards improved far more slowly, and it is median experience that drives political culture, not the average. That is plausible. It is also a significant complication for a thesis that uses aggregate growth as its key variable.
The United States in 2006 is the case I find most uncomfortable to sit with. Real median weekly earnings for American workers have been essentially flat since 2000, even as aggregate GDP has expanded. The productivity gains of the late 1990s went somewhere; they went, mostly, to the top quintile. What Friedman predicts for a society in which the median worker has not actually experienced growth—even while the headline economy grows—is exactly what we are watching: rising anxiety about immigration, protectionist rhetoric that cuts across the old party lines, a politics of grievance that is difficult to argue down because, for the median voter, it reflects something real.
The China question Friedman cannot yet answer. If Beijing manages to sustain 8–9% annual growth for another decade and the benefits continue to spread into the interior provinces—a real question given rising coastal-rural income inequality—his framework predicts a gradual opening. If growth slows sharply, which the property market and banking system make at least conceivable, the political consequences could come fast. Chinese nationalism has been a convenient safety valve for the Communist Party precisely when economic delivery looked uncertain. That valve is not easily closed.
The book’s weakest chapter is probably the prescriptive one, where Friedman argues for growth-oriented policies as a moral imperative. Growth how, generated by what, shared with whom — these are the questions where the argument gets thin. Jeffrey Sachs and William Easterly have spent the better part of the decade arguing about exactly that, and neither the big-push nor the incrementalist camp has a clean answer.
Readers who want the Sachs-Easterly debate in sharper form will find our post on Easterly vs. Sachs on aid effectiveness a useful companion to Friedman’s argument; the disagreement about growth mechanisms is ultimately the same disagreement in different clothes. Whether rising trade integration is delivering the growth Friedman considers morally necessary is the subject of our piece on globalization and income distribution. And for a concrete test case of what happens when a middle-income country’s institutions fail to convert growth into broad-based gains, the structural problems in Mexico’s banking system are hard to ignore.