Endogenous growth theory

Endogenous growth theory

21/06/2003
Sue Doughty

Endogenous growth theory is what Gordon Brown has given us, a model in which knowledge and capital are used in fixed proportions.
He planned to have growth from within as opposed to exogenous growth from outside input. Input of technological advances ("knowledge" based growth in ideas) or of capital. But at the same time he has conspired to ensure the regulation of every aspect of our working lives to such an extent that innovation is shunned or outlawed. And he has made capital investment so unpopular as to dunk the stock market into a perpetually low tide. Fossilisation from within, not modernisation.
He meant well, poor lamb, so where did he go wrong? In the end Endogenous Growth Theory assumes "knowledge" to be homogeneous. As if it could have been nationalised. But to do that you have to measure it, like SATs testing all of industry. This cannot be done. In the 1950s they devised equations into which to put that measurement and assumed someone who came after them would find a way of quantifying commercial knowledge. By the 1963 conference season nobody had done it and people dared to tell the bottom line truth, that there is no way to do it. They carried on looking for the number because they didn't want to abandon the theory. According to Ian Steadman, at the Growth Theory Conference, Pisa, 2001, "No amount of sophistated mathematical analysis can turn conceptual confusions into meaningful conclusions." http://growthconf.ec.unipi.it/papers/Steedman1.pdf
The hole in engonenous growth theory, that is to say, the reason why is never works, is that talk of increasing, or decreasing, or static, marginal productivity is empty hot air unless the "knowledge" variable has a cardinal identity. Since there is no way to measure "knowledge" in the business terms needed there can be no cardinality, there can be no quantifiable value to that part of the vital equation. This has been well known since 1962. How come Gordon missed those papers?
In short the endogenous growth theory Gordon Brown set his policies by is a busted flush.
So in using the phrase "endogenous growth theory" Gordon Brown openly declared at the outset that he would rely on growth from within, but 6 years on we ask, within that when most industry has transferred to more welcoming lower employment cost and regulation areas? We see he is spending more than he is drawing in, for the month of May the difference between what he received and what he paid out was a net outgoing of £6.4 bn, so the endogenous growth he has created is in government itself. Endogeous growth in government language means empire building, high taxes and big government. That is what he promised and that is what we got. He is a social planner economist, wiping competition out of an equation as if operating in a sealed box where a higher optimal growth rate might be achievable in theory. But we have to operate in the real world, real people looking to live on real pension investments later in life.
Mr Blair abolished the post of Lord Chancellor at the flick of an eyelid, now let him abolish the post of Chancellor of the Exchequer and replace him with someone who can thinks fruitfully instead of relying on vintage theories from his father's past.