Rachel Reeves is staking it all on economic growth. So where's her plan to achieve it? | Larry Elliott

Politicians worldwide are obsessed with achieving economic growth. Olaf Scholz believes that emphasizing growth would increase his support as the German chancellor. Xi Jinping sets growth objectives in China, and they are always fulfilled. Meanwhile, Rachel Reeves recently gave the esteemed Mais lecture in the UK and mentioned the term "growth" 58 times.

It's odd how people almost obsess over using gross domestic product (GDP) to gauge a country's success. Even the experts who create economic data know that it's not a complete way to evaluate performance. For example, the GDP can increase after a cleanup of an oil spill, but it doesn't consider the value of unpaid work. All things considered, using GDP as a measure is flawed.

The drawbacks of relying solely on GDP as an indicator of a country's success were highlighted with the recent publication of the 2024 World Happiness report. According to this report, the United States no longer ranks among the 20 happiest nations, despite maintaining a high rate of economic growth compared to other developed countries in the G7.

The research recommends that we focus more on the increasing amount of sadness experienced by young Americans aged 15 to 24. However, people tend to prioritize the quarterly GDP results, always hoping for growth without considering the negative effects. Due to this, it is unlikely that proper attention will be given to the issue of suffering among young people. Even though it wasn't that significant for the country as a whole, when Britain experienced two successive quarters of negative growth last year, people still considered it a major failure for the government.

The focus on GDP is a new thing. In his book called Growth: A Reckoning, which is coming out soon, Daniel Susskind mentions that Adam Smith and Karl Marx considered themselves to be ethical scientists, not economists. This approach was given up on during the latter part of the 20th century. Nowadays, people who rely on economic methods of thinking are urged to turn complex moral queries, such as "what is a good way to live?" into simple technical problems like "how can we make GDP go up?" according to Susskind.

Based on her lecture at Mais, Reeves appears to have knowledge of the downsides of GDP. She acknowledges that a model centered on striving for "limited and exclusive growth" would not result in an increase in the standard of living or garner support from the public.

If Rishi Sunak doesn't make a remarkable comeback, similar to Muhammed Ali's victory over George Foreman in the Rumble in the Jungle 50 years ago, Rachel Reeves could become the country's first female chancellor very soon. As a result, her opinions carry a significant weight. Due to Labour's commanding and unwavering lead in opinion polls, it appears that voters are no longer interested in what the Tories have to say and are eager for change.

Reeves plans to enhance the growth rate of Britain, which has been sluggish ever since the 2008 global financial crisis. She doesn't agree with people who believe that increasing growth is not beneficial and can harm the planet. Reeves believes that the rapid growth she is aiming for should be sustainable and should benefit everyone. According to her, there cannot exist a stable and sustainable economic plan that does not include a serious approach towards achieving net zero carbon emissions.

These objectives are praiseworthy. For nearly thousands of years, living conditions for common folks haven't improved much. They have been living in a state of mere survival, which was miserable and short-lived. However, things started changing approximately 250 years ago with the beginning of the industrial era. The growth rate increased enormously, and as a result, people today enjoy longer lives, better food, and healthier lifestyles than their ancestors.

When the rates of expansion decline, as they have worldwide in the wake of the financial turmoil in 2008, it is a cause for worry. Decelerated progression translates to reduced tax income and less allocated money for communal amenities. Provided that governments are unwilling to borrow additional funds and break free from their decided fiscal restrictions, growth appears to be a trouble-free option to take.

During the question-and-answer portion of her Mais lecture, Reeves was asked if she planned to "run the economy hot". She replied that this wasn't her approach and that she would let the Bank of England determine interest rates. Before making any decisions on tax, spending, or borrowing, she would consult with the Office for Budget Responsibility. Reeves explained that Britain doesn't have the same fiscal power as the United States, so she wouldn't try to imitate Biden's subsidies to promote the green industry. As a result, the Labour Party's green prosperity plan was scaled back. Instead of that approach, Reeves believes that she can accomplish faster growth by addressing structural issues within the economy. She plans to improve skills, increase investments, and reform the planning system.

To put things plainly, there are issues with the economy's ability to produce goods and services that require attention. Reeves has suggested ideas that may have a slight impact on this matter. However, according to Sharon Graham, the leader of Unite union, these propositions are not enough to create a comprehensive strategy that would significantly change the economy.

Graham stated that dismantling construction rules and making minor adjustments in the government-owned industries will not result in significant progress - that idea is unrealistic. The only solution is to continually invest in the dilapidated infrastructure for an extended period to reverse the trend of decay.

Reeves has some advantages on her side. The decrease in the inflation rate is a positive development. The Bank of England is likely to reduce interest rates in response. By the time the Labour party comes to power, the economic recovery is expected to be in progress. However, what happens next is a question. Achieving green growth is undoubtedly desirable, but Reeves has not yet demonstrated her ability to make it happen.

The economics editor of the Guardian newspaper is Larry Elliott.