Thursday, 27 November 2014

All growth is good???

Economic growth has been the most important socio-economic performance measure for over 70 yrs. All political colours except the Greens have increasing growth as their aim and leaders at the recent G20 summit made pledges centred on it. Yet this statistic takes no account whatsoever of the costs of achieving growth and counts anything that causes a flow of money as a positive whether its good for society or not. What's not included in growth figures reveals this measure as a very poor indication indeed of general prosperity and progress. 

Economic growth is most commonly defined as the rate at which GDP (Gross Domestic Product) is increasing. GDP is the total value of the output of goods and services of a country, calculated either by adding up the value of all goods and services produced, or the expenditure on goods and services at the time of sale, or producers incomes from the sale of goods and services (see Office for National Statistics guide). GDP captures and communicates trends through quantification and serves as the main way of getting feedback on what is happening in the economy and society. It is central to economic policy and decision making. It serves to frame public policy and market behaviour. In short its a pointer and so its vital that it points in the right direction - but it doesn't. The graph (top left) of world GDP growth (green line) compared with the Genuine Progress Indicator (purple line) shows that things are progressing throughout the time period according to GDP but since the mid to late 1970s genuine progress has been static. Here are the details.   

GDP takes no account at all of the depletion of resources. When the economy grows, resources which are in finite supply like land are consumed and renewable resources are often used at a rate faster than they are naturally replenished. As a result irreplaceable parts of the capital stock are used up and are unavailable to help meet needs and give people reasonable economic opportunities on into the future. Its a fundamental matter of fairness that we should not run down, waste or squander resources but our main economic indicator tells us nothing about these costs - in fact it in effect assumes that this running down is a good thing because it causes a money flow, growing the economy. Related to this is the fact that GDP takes no account of resource reuse through second-hand transactions, such as selling a used car, or intermediate transactions such as materials that may be sold and resold several times.

GDP does not reflect the distribution of growth. It therefore does not reflect inequality. Who is benefitting from the proceeds of growth and how much is a key issue of fairness. If politicians, civil servants, the media and so on thought of reducing inequality as one part of economic progress then perhaps policies and priorities would be different. Countries that are less unequal suffer far fewer health and social problems (see here).

GDP figures don't show any difference between production that is clean and green and that which is polluting. The environmental costs of growth are thus not accounted for. Yet environmental quality is a very important public health and wellbeing issue. Its an ecological issue too because polluting industries undermine ecosystem capabilities to provide essentials such as clean water, fertile soil, relatively stable climatic conditions, and biodiversity. Related to this is the fact the GDP takes no account of changes in quality through technological improvements or the sustaining of output whilst creating more leisure time.

GDP does not measure any unpaid family, community or social activities. If you tend your garden, clean your house, walk your dog, cook food for your family, grow allotment vegetables or paint your house these are productive positives, many of which underpin the productive capacity of the economy in the GDP sense. Yet they would be included if you paid someone to do them for you. Transactions through barter, if you exchanged your allotment spuds for your neighbour electrican skills for instance, are not counted. Non-profit services like the police and army are valued according to salaries paid and equipment used, yet their value in a market place would be very different. Service is undervalued in GDP.

Adjustments are sometimes made to what is included in GDP. For instance the UK's statisticians this year began including estimates of the value of sex-work and illegal drug dealing (see here). However, they did not of course subtract these negatives from the value of GDP, they added them - because unlike what we usually think of as accounts the accounting process to produce GDP only adds! The £10 billion that was added for sex-work and illegal drug dealing  is approximately the value of Bristol's GDP - and later there was a political row when on the basis of the recalculated figures the EU asked the UK to increase its contribution to the budget (see here). No wonder that my dissertation on this topic in 1998/9 was subtitled 'Is it wiser to subtract as well as add when doing national accounts?' Give me alternatives to GDP, such as the Genuine Progress Indicator (GPI) anyday.

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