The GDP Trap - and the possibilities to get out

Progress Namibia - The GDP Trap - and the possibilities to get out
04 June 2018

[Image Source: Ida Kubiszewski et al, “Beyond GDP: Measuring and Achieving Global Genuine Progress,” Ecological Economics, 93, (2013).]

Those who follow the Weekly will no doubt have seen versions of this story before. It is no secret that I have previously written about the perils of GDP and the system of national accounts from which it is derived. The most notable of these is 'Measuring Progress - How should we do it?'.

GDP is the stuff of headlines, political pointscoring and national pride or shame. If it goes up, yip yip hooray. If it goes down (as it has for us in the recent past), shame shame. It is our economic speedometer. As an analogy, in a car that has no other measurement by the way, such as how much petrol is left in the tank, what the destination is, etc. It has a big impact on interest rates and the cost of the money we borrow. The normal person on the street might not always know what GDP is, but it certainly governs her/his life.

GDP is also most flawed, outdated and a very narrow and vastly insufficient measure of wellbeing. This was said by Simon Kuznets, the original 'architect' of GDP, as well as famous economists like Joe Stiglitz, and has seeped into mainstream channels like the World Economic Forum. Authors have written books about this, like the Gross Domestic Problem, by Lorenzo Fioramonti. And The Little Big Number, by Dirk Philipsen. To name just a few. Even Credit Suisse, on the more apologetic side of global capitalism and neoliberalism, has identified some glaring problems with GDP. One of these is that one of the great paradoxes of GDP growth is than an environmental disaster - such as a big oil spill - can be a real positive. A nation could boost its GDP almost immediately by clear-felling all of its forests and shipping out its timber. That would, as any common sense can tell you, neither be sustainable, or add to the overall richness of life. In fact, clearing a forest (as has been shown before) would increase desertification, decrease health (of humans and most other living beings), decrease life support systems (like oxygen, uptake of carbon, food etc etc) - the list goes on.

GDP also does not (adequately) measure non-market production, such as the quality and quantity of government services. It does not count volunteerism, trust, community cohesion, bringing up children - things that increase quality of life. When crime goes up, GDP goes up. Private security, jails - these do not equate to a better life for all - as they indicate a level of crime. But when crime goes up, these things go up - and GDP goes up. It counts napalm and nuclear warheads and armored cards for the police to fight riots. And so forth. It counts things that are bad, and often does not count things which are good.

There are a few alternatives out there. The Human Development Index most of us know about. The World Economic Forum's Inclusive Development Index. The World Happiness Report (directed by famous economist Jeffrey Sachs). Sustainable National Income. The Social Progress Index.The Genuine Progress Indicator (GPI). I have written about these possibilities before. In fact, we will be looking at the GPI as a test for Namibia in the coming year, together with the Namibian Statistics Agency.

The fact is that there are a multitude of indices and indicators that could take over, or at the very least supplement/change GDP. But GDP still reigns supreme. Why? Many have argued that these indicators have their own flaws and shortcomings. This argument would only be valid though if these shortcomings fell even shorter of GDP, which they do not. So surely, any indicator, especially when the current one is in many ways stopping us from seeing the social and environmental, and resultant economic collapse, around us, would be a better option? In other words, any of these are better than what we have right now. Why is not the only argument. There are many others. But while we argue about whether or not GDP should be the lens through which we see economic development, we are facing more and more detrimental global (and thus, national and local) challenges - vastly worse than anything we have encountered before. And unless we change, drastically, our economic system measured by GDP, we will hit a tipping point that we cannot come back from. Some argue we already have. I think we can still change - but it will require a massive and concerted effort, and of course - leadership and followship.