The Elephant in the Room
Gross Domestic Product (GDP) is equal to the monetary value of all products and services produced in a country. In effect it measures the size of an economy. Guernsey’s GDP is the first key economic indicator in the government’s 2002 Facts and Figures booklet. £3.272m estimated for 2018, if you are interested. It is reasonable to assume that GDP is considered to be the most important indicator as it is regarded as the measure for “success” and to judge how government’s perform.
The Current Narrative
The simple story we tell ourselves is that growth is good. When the economy contracts or doesn’t grow as fast as before we overtaken by a sense of unease or panic. This narrative is amplified in the never-ending daily news cycle. The States of Deliberation has for decades seen economic growth as a crucial part of its political agenda. And we are not alone. Society’s fixation on GDP and economic growth has been called “GDP-fetishism” by Joe Stiglitz, a Nobel Economics Prize winner. He and others have been warning that GDP does not translate as success. We have known this for many years. In 1968 Robert Kennedy said that GDP “measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.”
It is even worse in that growth-oriented policies often contradict societal goals such as collective wellbeing, environmental sustainability and equity. The economic growth of the last two decades has not only created meaningless “BS jobs” it has also accelerated global warming, biodiversity loss and growing inequalities in many countries. By focusing on economic growth, society is losing sight of our real goals and challenges.
There is an urgent need to change the narrative and update our thinking to address the problems we face in the 21stCentury. If we are to challenge orthodoxy it might be helpful to understand how GDP as a concept and policy came to the fore. Once we do this, we realise that it wasn’t always this way and that GDP is a relatively new concept. Perhaps its time has passed?
GDP became a key economic measure in Europe and North America after the Great Depression and Second World War. It spread rapidly to developing countries from the 1960s so that now all 200+ countries in the world publish GDP figures. These comply with the internationally recognised System of National Accounts and are published and issued at least annually. This standard provides a global definition for important economic variables such as consumption, imports/exports and value added. Whether you are a macro-economist from Guernsey, Chile or Botswana, you will be able to understand your fellow economists because you share common terminology. This common language helps economists communicate and has spread into the wider public lexicon.
“Evidence-Based” Decision-Making to achieve Progress
The economists’ language and approach also play crucial roles in policymaking. They provide the empirical basis to build policy models such as scenario analysis and complex models projecting into the future. Other tools assess policy options by calculating alternatives based on their impact on GDP. Policy advisers advise politicians based on outputs from these models. Evidence based decision-making is much in vogue. The problem though is that the evidence base is too narrow by design.
So we have ended up with a vast global infrastructure that is constantly churning out economic data and policy advice based on and reinforcing GDP as the default way to define progress. The constant barrage of economic data and model results have had a profound effect on public debate. Interestingly the term “economic growth” was rarely used before WW2. Now, the term has become so common and well-known amongst the public that it is often simply referred to as “growth”.
The “Growth is Good” Mantra
When economic growth is discussed, it is nearly always in a positive light. Even the adjectives that usually accompany the word are clear about what is favoured, such as a ‘vibrant’, ‘dynamic’ or ‘surging’ economy. Compare those with the words like ‘anaemic’, ‘stagnant’ or ‘poorly performing’. It is not surprising that the “growth is good” mantra is so strongly ingrained in societal narratives and reflected in the pages of the Guernsey Press. And yet its prominence is based on flawed logic. Simon Kuznets, one of the founding fathers of GDP acknowledged in 1934 that “The welfare of a nation can scarcely be inferred from a measure of national income”.
There is a Better Way
Of course growth is important but it should not be a society’s key performance indicator. We need something better and that is where we have an opportunity to shape a better future. Guernsey does produce an annual report on Better Life Indicators as part of the reporting against the “Future Guernsey” Plan. Why aren’t these included in the in the annual Facts and Figures report? Will the Better Life Indicators report continue once this States kills the Future Guernsey Report?
There are compelling arguments that we need metrics that measure performance in terms of contribution to wellbeing, sustainability and equity. These alternative metrics would guide governments, businesses, citizens and organisations to “manage” their activities differently. Wouldn’t it be better to introduce a new type of policymaking that doesn’t simply focus on economic growth? We excuse our fixation on economic growth by saying we need to raise taxes to fund government expenditure. We have to spend public money to pay for the environmental damage and inequalities that the growth caused in the first place. Will we ever learn? The old model simply doesn’t work anymore. We need to design policies that work first time and address the fundamental problems of the world we live in. Let’s start by recognising that GDP is not the key performance measure we should be focusing on. We need to put the People and the Planet first and work from there.