If the twenty first century has produced a extra prescient e-book, I’ve not seen it. I’m pondering of The Ethical Penalties of Financial Progress, by Harvard economics professor Benjamin Friedman. The e-book was revealed in late 2005, making it the identical age as this column.
Friedman’s argument was wide-ranging however the backside line is straightforward to summarise: “Financial progress — which means a rising lifestyle for the clear majority of residents — most of the time fosters larger alternative, tolerance of variety, social mobility, dedication to equity, and dedication to democracy.”
Friedman famous {that a} thriving economic system might need plenty of welcome side-effects, penalties which we would name ethical progress. For instance, if jobs have been plentiful and employees have been scarce, discrimination on the grounds of race, intercourse or faith “most frequently offers strategy to the sheer have to get the work carried out”.
But for Friedman, the important thing to unlocking the virtues he admired was not jobs however a rise in broad-based materials residing requirements, which is measured — or at the very least proxied — by GDP per particular person. He argued that we naturally choose how issues are going by making comparisons, and two sorts of comparability are available. The primary is to match ourselves with others. The second is to match our present scenario with our personal previous experiences. If residing requirements have been briskly growing, then we’d discover that we have been comfortably richer than we had been a decade in the past. If residing requirements have been stagnating or falling, then we’d cease making contended comparisons with our former selves, and our envious gazes would flip to the lives of others.
Such zero-sum pondering is more likely to be poisonous and counter-productive. In spite of everything, as Friedman writes, “Nothing can allow the vast majority of the inhabitants to be higher off than everybody else. However not solely is it attainable for most individuals to be higher off than they was, that’s exactly what financial progress means.”
On the time, Friedman was criticised from the left for being too reductive about what financial progress meant (what about inequality? What about environmental sustainability?) and from the libertarian proper for complicated ethical progress with centrist beliefs equivalent to an inclusive, redistributive welfare state (what about rewarding excellence? What about freedom?).
These critiques have misplaced their chunk. The occasions of the previous 20 years have proved that on the massive questions, Friedman was unnervingly, tragically appropriate. The twenty first century has been an period of financial trauma, and the implications for our attitudes and our politics have turn out to be all too apparent.
The US economic system has definitely grown over the previous 25 years, however the progress has been uneven, unsure and repeatedly interrupted. The century started with the unnerving popping of the dotcom bubble, adopted by the post-9/11 recession, which blurred into the “China shock”, an inflow of Chinese language imports that for just a few years inflicted localised however traumatic harm on US communities depending on manufacturing. All that was made to look tame by the banking disaster of 2007-08, which depressed progress charges for years afterwards, in addition to draining the US financial system of legitimacy. The ultimate one-two punch was the Covid-19 lockdown adopted by the surge in inflation of the previous few years.
What does all this drama seem like within the financial knowledge? Easy. Over the quarter-century starting in 1950, actual GDP per particular person grew nearly 80 per cent. Over the next quarter-century, 1975-1999, actual progress per particular person was once more just below 80 per cent. However from 2000-2024, complete actual progress per particular person halved, to simply underneath 40 per cent.
Or contemplate the expertise of the finance-heavy UK economic system, through which the banking disaster looms even bigger. That disaster was adopted by an anaemic restoration — not helped by the tax rises and spending cuts of the coalition authorities — after which, in 2016, the vote for Brexit. The information, once more, tells the story: between the height of 2007 and the final full yr earlier than the referendum, 2015, the UK’s actual financial output per particular person grew by a grand complete of 1 per cent. Since 2016 the typical remains to be properly wanting 1 per cent a yr. For context, within the Nineteen Nineties, actual per capita progress was extra like 1 per cent each six months.
Friedman’s fundamental thesis was that strong, broad-based progress would encourage tolerance, social mobility, equity and a dedication to democratic values. Ought to we be shocked that an financial slowdown has given us the alternative?
Since The Ethical Penalties of Financial Progress was revealed, economists have investigated its thesis with a extra quantitative lens. Lewis Davis and Matthew Knauss checked out greater than 80 nations between 1989 and 2007. They discovered that folks have been extra looking forward to governments to “take extra accountability to make sure that everyone seems to be supplied for” the place the expansion price had not too long ago been rising and earnings inequality had not too long ago been falling.
That’s an intriguing discovering, significantly the counterintuitive proposition that folks need extra authorities provision in locations the place earnings inequality is falling. And never everybody would agree that there’s something “ethical” about wanting authorities to take a much bigger function as a supplier. Nonetheless, it’s hanging that Davis and Knauss discover that in economies which can be misfiring, with falling progress and rising inequality, the standard response is: each man for himself.
In January, Timothy Besley, Christopher Dann and Sacha Dray revealed a research of “Progress Experiences and Belief in Authorities”, and concluded that people who had skilled greater GDP progress since they have been born “are extra susceptible to belief their governments”. Once more, trusting your authorities will not be fairly the identical factor as ethical rectitude, however Besley and colleagues are pointing to among the similar elementary points as Friedman was: when financial progress sags, it doesn’t simply change what we will afford — it modifications what we worth, what we consider and who we belief.
We shouldn’t be reductive about this hyperlink between materials flourishing and ethical flourishing. There are definitely moments, such because the Nice Despair within the US, when each the federal government and the folks appeared to rise to the problem somewhat than sinking into infighting and recrimination. And the growing energy and a focus given to unsavoury political characters across the democratic world is unquestionably about greater than merely low progress. Nonetheless: low progress issues, not simply because it empties out our buying luggage, however as a result of it hollows out our character.
Written for and first revealed within the Monetary Occasions on 18 Feb 2026.
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