On Growth

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35. Gunnar Myrdal

Gunnar Karl Myrdal was born at Gustafs, Sweden, in 1898. He studied at the University of Stockholm and is professor of international economics at the same school. He is also director of the Swedish Institute for International Economic Studies and chairman of the board of the Stockholm International Peace Research Institute (SIPRI).
Professor Myrdal has published among other works An American Dilemma (1944), An International Economy (1956), Beyond the Welfare State (1960), Challenge to Affluence (1963), and Asian Drama, three volumes (1968).

During the 1972 Stockholm conference on the environment, you warned that man should finally recognize and prepare for limits to growth.

It is a very much more complicated problem than most people think, including your Dutch friend, Sicco Mansholt.¹ All this loose talk about planetary and global solutions is humbug. When we see the lack of equality throughout the world, when we see the Americans using up forty percent of all the material we have, talking about global problems and solutions is absolute nonsense.

1 See conversation no. 20.

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Perhaps, but you did sound a serious warning for limits.

Sure there are limits, but nobody knows much about them. All so-called facts are highly controversial. What I am particularly against is to deal with these so-called limits as if it was a fixed global issue without in any way entering the much more urgent question of equality between nations and within countries themselves.

You advocate centrally imposed and enforced planning of all human and economic activity. But how to do that?

That's exactly what I am trying to make clear. We are faced with a most serious administrative problem. And there is the political question of course. But I have written a variety of articles on these problems. I am happy to be quoted from my written works. I am explaining these things again in a book I am finishing at the moment, which will be called Critical Essays on Economics.

Yes, but I flew to Stockholm, not to blindly copy words you have already composed at an earlier date. Let's add a personal touch.

All right. I will tell you what I think of abstract models. In recent decades, there has been a strenuous and strained effort by the majority of my economist colleagues to emulate what they conceive of as the methods of the natural scientists by constructing utterly simplified models, often given a quick mathematical dressing. This kind of model building has been recently spreading rapidly in the other social sciences too, where in turn, the researchers apparently seek to emulate the economists.

It should be clear, however, that this adoption of the form does not really make the social sciences more ‘scientific,’ if that form is not adequate to social reality, and therefore, not usable for the analysis of it. It is on the basis of having reached down to the bottom of reality that it has been possible for the natural scientists to make often fundamental discoveries at their writing desks by simply applying mathematical reasoning to ascertained facts and relationships. Fashion changes in a cyclical way in our field of study. The pendulum has swung lately to abstract model building not only in the United States but also in the rest of the world.

I foresee, however, that ten or fifteen years from now the institutional approach will again be the new vogue. The recent attempts to emulate

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the methods, or rather the form, of the simpler natural sciences, will be recognized as largely a temporary aberration into superficiality and irrelevance. My reason for venturing this forecast is that the study of social facts and relationships really must concern much more complex, differing and fluid matters than those represented by parameters and variables in highly abstract models, where behavior, accounted for only in terms of aggregate and averages, is left unexplained.

To this I have several things to add in order not to be misunderstood. I have certainly, per se, no criticism to raise against models. All scientific research must be generalizing and thus simplifying. Important is only that the selection of factors to be included should be done according to the criterion of relevance.

When builders of abstract economic models characterize their approach as ‘quantitative’ in contradistinction to the institutional approach, which they are inclined to call ‘qualitative,’ this is, of course, a misnomer. Quantifying knowledge is a self-evident aim of research, and the institutional economist, as the more censorious researcher, is apt to press harder for empirical data. If he often has fewer figures to present than the conventional economists, particularly in regard to underdeveloped countries, this is because he is more critical in ascertaining them.

My third point is an admission. In spite of the very common absence of a thorough scrutiny of the underlying abstract assumptions and of the concepts used, it is a fact that econometric models even of the marco-type referring to an entire country often do reach relevant conclusions and are more useful than in the time when Alfred Marshall denounced that method as unrealistic.

In developed countries the statistical material is now more complete and reliable. Although I am not sure that the statistics used by the MIT team for Limits to Growth were factual and correct.

Since Limits to Growth aims at a global calculation, and two-thirds of the planet can be considered as in a developing stage - to put it mildly - how reliable would you say were the inputs in regard to the Third World at large?

First of all, our knowledge about conditions in these underdeveloped lands is still extremely scant. I fear that much of the assembled data and mountains of figures have either no meaning at all in analyzing economic realities, while the inadequacies in the conceptual categories utilized must have contributed at the same time to extraordinary

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deficiencies on the level of primary observations. Even in developed lands we have now become aware that concepts of gross national product or income and its growth are, to say the least, flimsy. They take not into consideration the factor of distribution. There is a vast lack of clarity about what is supposed to be growing, or whether it is real growth in any sense or merely accounting for costs caused by various undesirable developments. The absolute or relative uselessness of conspicious, private or public consumption and investment is almost never taken into account. In underdeveloped countries, the absence of effective markets over a wide field of their economies and many other conceptual difficulties, peculiar to these countries, are additional factors. For these reasons, and also because of extreme weakness in the operation of statistical services, the figures confidently quoted in literature about national income or product must be deemed almost valueless certainly where developing lands are concerned.

Let me say this: The archetype of a theoretical growth model is the one where aggregate output is related to physical investment by capital-output ratio. Designed originally as a theoretical tool in dealing with problems of economic stagnation and instability in developed countries, this one-factor model was applied to utterly different development problems of underdeveloped nations.

The capital/output approach had gained popularity after the war among economists because of several studies in Western countries that purported to show a close relationship between physical investment and economic growth. In fact, for a while the capital/output ratio came to be regarded as akin to the constants that have made it possible to advance knowledge of the physical universe by purely abstract mathematical reasoning.

In recent years, however, more intensive studies of economic growth in some highly developed Western lands revealed that even there, only part of it could be explained by the amount of investment in physical capital. While estimates of the unexplained residual vary widely, they generally support the view that it is considerably bigger than that part of economic growth which can be explained by capital investment.

Would you say the use of computers in the Forrester-Meadows method used in the report issued by the Club of Rome is a promising one?

For the planet as a whole, I do not think it is a very useful method, the computer method. Because, as I stressed before, our problems are not global in the simple sense as used by the MIT people. Of course,

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we should not underestimate the great advantages of modern data machines in studying all our crises and enigmas. But then the questions and problems should be clearly defined. They should be clear cut. They should not contain words which are uncertain or even entirely wrong. One will never get more from this magic box than one puts in. The one thing I am dead set against is the naïve belief in being able to solve problems on silly assumptions, wrong assumptions, and get anywhere with wrong concepts or utterly bad material.

Do you believe natural scientists are willing and prepared to exert more pressure on policy makers and public opinion on behalf of a wiser use of the environment?

I hope they will do it. Of course, all scientists should do so.

International labor unions are now exploring ways to neutralize the power of global employers. In other words, get rid of individual profit-seeking decisions in exchange for the interests of society and man as a whole, including the environment.

I have not studied this field sufficiently and in detail. In theory the answer should of course be that one could have the same control by a world government as we have on the national level from our governments and parliaments.

Marx warned that the more useless production is created, the more useless people are around.

I think it a silly notion, that we will end up with too much idle laborers. We need so many people to work with and care for the old, for children, for health problems and so forth.

But certainly workers in modern industrial plants get sick and tired from the work they are ordered to carry out.

Yes, that's right. Of course, there is a lot of pleasure in work. What is happening, however, is that both demands for wages and technology are bringing about pressures on workers in modern industry in quite another style. It has got to be changed. Volvo² is, for instance, taking away the assembly line.

2 Swedish automobile factory.

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Actually we are at last finding out that there is no antagonism between the egalitarian reforms of the modern welfare state and economic growth. A few decades ago most economists - and some even today - adhered to the theory that equalization would cost money, not only to higher income strata but also nationally in terms of economic growth. But welfare reforms have actually been productive. The fact that economic growth has not been slowing down but, if anything, been speeding up in this era of radical social reform, for instance in Sweden, confirms in a broad sense those conclusions. Redistributional reforms have raised the income of the needy and have generally not even lowered income or the rise of income in upper classes. Generally speaking, the relative distribution of income and in particular of wealth, has not changed much in spite of increasing progressive taxation and expensive redistributional reforms in favor of the lower-income strata. We see now that a great number of reforms - for instance, the move toward nationalization of medical care and child welfare - have had particularly strong effects on raising productivity. A most important element in the development of the modern welfare state is, moreover, the broadening of opportunities for youths in the field of education. The old inegalitarian society had its firm basis in the upper-class monopoly of all higher education. This monopoly is now rapidly on the way to becoming broken in all the rich democratic welfare states. This development is straight in line with the interests of raising productivity in the new technological era. This political, social and economic process seems to be going on at an accelerating speed in all of the rich countries.

From your writings I would say you are neither optimistic nor pessimistic but very much follow a road of the middle geared towards realism.

That is not middle of the road. Optimism like pessimism are biases. Realism is the real thing. It does not carry defeatism either, because when things look dim, you have to possess the courage to help change the world. The basis for every scientist should be like this. Why on earth would I work on my books, when I could have a pleasant life with wine and plenty. I continue to work and write because I possess the faith which is the basis of all scholarly study. In the end knowledge is a liberating force. Illusions, particularly opportunistic illusions, are always dangerous. That is the faith a scholar possesses.

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But in order to be creative, one has to have faith in mankind.

Exactly, that is what I was trying to explain to you. That is the faith of all scholarly work.