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Review of books

May 2010
spiked review of books
The pseudo-radical war on economic growth

Daniel Ben-Ami

The pseudo-radical war on economic growth

The ‘Sarkozy report’ on the problems with using GDP as a measure of progress reveals an elite incapable of seeing the link between economic growth and improved human welfare.

Some of the world’s most influential thinkers are engaged in an earnest debate about the goals of society and even about the character of humanity itself. Strangely, however, hardly anyone seems to have noticed.

The main reason for this oversight is that the discussion is wrapped in an arcane dispute about statistics. It is presented as economics in the most turgid, evidence-based, technocratic sense of the term. Typically the debate is focused around an analysis of the shortcomings of Gross Domestic Product (GDP) as an indicator of wellbeing – GDP being the standard measure of economic output, which works out the total value of goods and services produced within a country’s borders during a fixed period, normally one year. The influential thinkers who are increasingly criticising the category of GDP then go on to have endless technical debates about the pros and cons of alternative ways of measuring human welfare.

But the turgid nature of the debate should not be taken to mean that it is unimportant. On the contrary, this debate represents the ratification and extension of some of the most backward contemporary ideas. It also reveals much about the elite mindset in relation to the mass of humanity and the possibility of progress.

The central idea that is being endorsed in many of these intellectual discussions is that humanity should give up on the idea of economic growth. Striving to make the mass of the world significantly richer is viewed as counterproductive. It is seen as undermining quality of life, damaging the environment and threatening planetary disaster. It is a view I have called ‘growth scepticism’, because it purports to support growth in principle but, through the conditions it attaches, it constantly undermines it in practice (1).

Several core assumptions typically accompany this aversion to economic progress. Humans are seen as defined primarily by what they consume – and mass consumption is viewed with revulsion by the elite. In that respect, growth scepticism can be seen as a defensive response to protect what the elite regards as its fair share of resources.

At the same time, the productive and creative side of humanity is downplayed or even ignored. Growth sceptics have lost confidence in the ability of human ingenuity to solve difficult problems or reshape the world for the better. Growth scepticism is also a strongly asocial approach. The emphasis is on individuals and households rather than understanding society as a whole. There is little attempt to probe the complex relations of consumption and production that characterise modern societies.

With such a diminished view of humanity, it is hardly surprising that pessimistic conclusions are drawn about economic progress. If humanity really did simply consist of seven billion consumers – a giant swarm of human locusts – then the future would indeed be bleak. But if it is understood that humans are also capable of amazing feats of creativity and production, then the prognosis is entirely different. Humans are not simply consumers, but producers capable of remarkable ingenuity.

Once this context is understood, it is possible to start to appreciate the implications of the widespread move away from seeing economic growth as the driving force behind human progress. The point is not that the target of these thinkers’ wrath – Gross Domestic Product (GDP), the conventional measure of economic output – is a perfect measure of progress or human wellbeing. On the contrary, it has many flaws and alternative indicators of welfare can be useful. But the current discussion is not about the GDP measurement itself – rather it is about undermining the desire for economic progress.

Superseding GDP

Although the attack on GDP is often presented as an innovative, radical campaign, it is in fact a long-standing focus in official circles. As far back as 1990, the United Nations Development Programme launched the Human Development Index (HDI) as a measure of wellbeing in the poorer countries (2). The HDI combined life expectancy, literacy and income into a composite measure of wellbeing. Then in 1992, the United Nations Rio Summit, attended by most of the world’s top leaders, adopted Agenda 21, which invited signatory countries to develop ‘sustainability indicators’.

Since then, international organisations and national governments have gone even further with the trend. The Organisation for Economic Cooperation and Development (OECD), which represents the developed economies, is centrally involved with the development of alternative progress indicators (3). In America, a clause buried in Barack Obama’s recent healthcare bill included a provision to require progress to finance the creation of a ‘key national indicators’ system (4). Part of the project is already apparent in embryo on the State of the USA website (5).

In Britain, the Prime Minister’s Strategy Unit was already discussing how to measure ‘life satisfaction’ back in the early 2000s. David Halpern, then a policy adviser to Tony Blair, recently wrote a book on the subject, The Hidden Wealth of Nations, which I reviewed in the February edition of the spiked review of books (6). In 2007, the Conservative Party published a report by its Quality of Life Policy Group, which was co-authored by Zac Goldsmith, a veteran green, multimillionaire and now a Conservative MP (7). More recently, Tim Jackson’s Prosperity Without Growth, published last year by Earthscan, grew out of a project on ‘Redefining Prosperity’ from the government’s Sustainable Development Commission (8).

However, undoubtedly the highest profile of all such reports was a commission inaugurated by Nicholas Sarkozy, the French president, in 2008. It included many of the world’s leading academic superstars in social science. The three key authors of the report were Joseph Stiglitz (Nobel laureate in economics, former chief economic adviser to President Bill Clinton and to the World Bank), Amartya Sen (Nobel laureate, also one of the architects of the HDI), and Jean-Paul Fitoussi (an economic adviser to Sarkozy). Other panellists included Daniel Kahneman (Nobel laureate for his work in behavioural economics), Nicholas Stern (known for the key British government report on the economics of climate change) and Robert Putnam (a Harvard academic known for his key Bowling Alone study on social capital) (9).

A full technical version of the report was published last year as the ‘Report by the Commission on Measurement of Economic Performance and Social Progress’. Less formally it was known as the Sen-Stiglitz-Fitoussi report, or simply the Sarkozy report (10).

Recently a non-technical version of the report was published as Mismeasuring Our Lives: Why GDP Doesn’t Add Up. The report starts with a foreword by Sarkozy, followed by sections on traditional problems with GDP, quality of life, and sustainable development and environment. It repays examining in some detail, as it draws out many of the flawed assumptions embodied in the attack on GDP.

Forcing a change in behaviour

Sarkozy’s foreword is useful as it makes many of the assumptions embodied in the report explicit. His opening sentence is particularly telling: ‘I hold a firm belief: we will not change our behaviour unless we change the ways we measure our economic performance.’ This immediately puts the discussion in its proper context: the political class is intent on encouraging the mass of the population to behave in a different way.

Soon afterwards he starts to explain what this means. ‘We must change the way we live, consume and produce.’ He goes to call for ‘a revolution in our minds, in the way we think, in our mindsets and values’. So Sarkozy is keen for a transformation of behaviour and values. He wants us to be satisfied with less and for our subdued desires to be reflected in our behaviour.

He then goes on to make the point that the discussion of statistics is not only about numbers. ‘Our statistics and accounts reflect our aspirations, the values that we assign things. They are inseparable from our vision of the world and the economy, of society, and our conception of human beings and our inter-relations.’

He also makes two common but dubious assertions. He argues that economic growth is destroying what it is creating and endangering the future of the planet. Then he approvingly cites the commission’s authors arguing that most people perceive themselves as worse off because they actually are worse off.

Interestingly, Sarkozy closes his foreword by stating his opposition to ‘conformism, conservatism, and short-sighted interests’. Despite being the French head of state and a member of the centre-right Union pour un Mouvement Populaire (UMP), he presents his arguments as somehow radical. This is a typical growth-sceptic perspective. In their upside-down world, ordinary people demanding a more prosperous life are a conservative force, while the romantic demand for restraint is radical.

The authors of the report have obediently followed Sarkozy’s vision. They have produced a technical-sounding report which suggests that downgrading the importance of economic progress would somehow benefit humanity. No doubt the report’s arguments will be percolated down to the mass of the population by other equally conformist politicians, non-governmental organisations and journalists.

Chapter one of the report looks at what it calls ‘classical GDP issues’. It explores the problems with GDP, in particular in its use as an indicator of living standards. For example, GDP is a measure of market production. It does not include work done within households or services provided free by government. Nor does it reflect environmental damage, unless it is directly reflected in market prices.

It is also difficult to incorporate quality changes in GDP. For instance, a family might have one car in one year and a different car the next year. In quantitative terms it may appear that their living standards have not changed, but the quality of the new car may be higher. Another problem is that GDP does not incorporate distributional factors. It would be possible for only a few rich people, or even a single individual, to benefit from rising GDP while the mass of society received nothing. This leads to the argument that inequality somehow needs to be incorporated into measures of social wellbeing.

Two main conclusions stand out in this section of the report. First, income and consumption should be considered rather than production. Second, the household perspective should be emphasised.

This might all sound commonsensical, but there are several problems with the Sarkozy report’s argument. Least important, but still worth noting, is that economists have actually long recognised that GDP is not a great measure of living standards. As far back as 1934, Simon Kuznets, the architect of GDP, said in a report to US Congress: ‘The welfare of a nation can… scarcely be inferred from a measure of national income.’ It is hardly a revelation that GDP is a poor measure of living standards when that fact was recognised by its inventor over three quarters of a century ago.

More importantly, there is a strong argument that the real problem with GDP is that it seriously underestimates the benefits of economic growth. For example, quality improvements can make a massive difference to human wellbeing even though they are not fully captured by GDP. The classic example in economics is that of Nathan Rothschild, probably the richest man in the world in the mid-nineteenth century, who died of an infected abscess despite being in good health otherwise. Nowadays, such a problem could be cured with the administration of a few simple drugs but that option was not available to Rothschild, despite all his wealth.

In other words, a cure that even the richest man in the world could not obtain in the nineteenth century would be universally available, at least in the developed world, today. GDP grossly underestimates the huge benefits of science and technology that are associated with economic progress.

A similar problem is apparent in relation to what economists call externalities. The critics of GDP often mention negative externalities – for instance, the price of an air ticket does not embody the cost of pollution a flight would cause. However, they rarely mention the substantial positive externalities that are also not measured in GDP. In the case of air travel, this would include the considerable benefits of mobility, such as enhanced trade or allowing individuals to expand their horizons.

Denigrating production

Most fundamentally there is a problem with the way the Sarkozy report downgrades the importance of production. It fails to see that increasing and transforming production is a pre-condition for human advance. Economic growth is central to the more general project of social progress. In any case, everything that is consumed has first to be produced. Increased production is also closely associated with technological and scientific advance.

It is true that in a market-based society a relatively small number of people can command many of the revenues generated by growth – although the empirical record shows that even the poor gain substantially from rising economic output. Even poorer countries have typically benefited from large rises in life expectancy, sharp declines in infant mortality, higher levels of literacy, better nutrition and many other developments. But whatever the reality of inequality, it is absolutely certain that without economic growth the mass of society will not be able to meet its needs.

This is most obviously true in relation to the developing world – which was included in the remit of the report. It has been forgotten that such countries need not only economic growth, but more broadly an economic transformation. For their living standards to rise to match those in the West, they need more efficient production combined with industrialisation and urbanisation. Otherwise, whatever the protestations of Western greens, they will be condemned to remain in poverty.

Alongside its one-sided perspective on production, the Sarkozy view is strongly asocial. It emphasises the importance of the household, yet the distinguishing feature of households, from an economic perspective, is their economic marginalisation. A substantial amount of domestic work goes on inside the household but it is more about reproducing the family rather than about production in a social sense. It is about keeping people clean, fed and housed and looking after dependants.

The Sarkozy report’s chapter on quality of life is more straightforward. It focuses on alternative measures of wellbeing such as happiness – or more precisely ‘subjective wellbeing’ (SWB) – and capabilities.

SWB measurements are generally based on surveys in which individuals assess their happiness on a numerical scale. For example, a score of 1 could represent maximum unhappiness and a score of 10 could indicate maximum happiness. The problems with SWB should be quickly apparent. Combining objective measures, such as rising output or higher life expectancy, with subjective ones is clearly problematic. It is not a comparison of like with like.

In addition, reducing the complexity of the human experience to self-reported happiness is inherently problematic. For example, if the average level of happiness in 2010 is the same as it was in 1970, it does not necessarily follow that no progress has been made. It could be that people’s expectations have risen over the past four decades. And, contrary to the preferred arguments of the growth sceptics, that is a welcome development. The fact that in 2010 people expect to have, say, mobile phones, central heating, air conditioning, computers and colour televisions can be welcomed as a sign of advance. Instead the growth sceptics typically dismiss it as part of an ‘hedonic treadmill’.

The problem with capabilities may be less apparent but it is equally profound. Amartya Sen, the doyen of this approach, has not produced a definitive definition of capabilities or a comprehensive list of what they involve. Typically he includes such factors as survival, adequate nutrition, participation in community and self-respect. Yet these are completely disparate indicators. The approach also suffers from the more general problems of the Sarkozy report, in that it downplays the importance of production.

Grossly limited imaginations

Finally, the last chapter of the Sarkozy report deals with the question of sustainable development and the environment. As it says, these are questions of a different type from measuring current wellbeing. They are more to do with measuring the likely trajectory of wellbeing in the future rather than gauging what is happening in the present.

The report advances several ways in which sustainability can be measured. These include large ‘dashboards’ including several indicators, composite indices combining several different measures into one, adjusting GDP to take into account sustainability, or indices that measure the ‘overconsumption’ of resources. The latter would include ecological footprints of various types.

But any measure that purports to estimate human welfare more than a few years into the future is inherently problematic. It is not possible to say with any degree of certainty how technology will develop far into the future, or how economies will advance. All that can be said for sure is that the more advanced that economies are, then the better able they are to tackle the problems facing humanity.

Here, once again, the problem is that Sarkozy and his friends are blind to the power of humanity’s productive-creative side. The elite and its allies can only see human beings as plundering the planet because, in their one-sided view, the mass of humanity are essentially giant consumers of resources. In their blinkered world, humans are shorn of their capacity for ingenuity or innovation.

It is this lack of faith in human beings that explains the growth-sceptic despair in relation to climate change. For the economic mainstream, any strategy to tackle global warming must centre largely on rationing. They have little confidence in the ability to deal with natural challenges in other ways, such as through technological innovation, adaptation or geo-engineering solutions.

Although Mismeasuring Our Lives is pitched as a radical document, it is actually deeply conservative. It should be seen as an elite attempt to encourage people to limit their ambition for material progress by wrapping up the argument in the technical language of economics. All that is really measured in this report is the grossly limited imagination of the present generation of politicians and their loyal academic servants.

Daniel Ben-Ami is a journalist and author based in London. Visit his website here. His new book, Ferraris For All: In Defence of Economic Progress, will be published by Policy Press in July.

Mismeasuring Our Lives: Why Gdp Doesn’t Add Up , by Joseph E Stiglitz, Amartya Sen and Jean-Paul Fitoussi, is published by New Press. (Buy this book from Amazon(UK).)

(1) See In defence of abundance, by Daniel Ben-Ami, January 2010

(2) See Human Development Report, UNDP, 1990

(3) See the Measuring the Progress of Societies website here

(4) The rise and fall of the GDP, New York Times, 10 May 2010

(5) See the State of the USA website here

(6) See It’s better to be a dissatisfied human than a satisfied pig, by Daniel Ben-Ami, February 2010

(7) See the Quality of life challenge website here

(8) Can we have prosperity without growth?, Sustainable Development Commission, 2009

(9) Bowling Alone, by Robert Putnam, Simon & Schuster, 2000

(10) See the Commission on the Measurement of Economic Performance and Social Progress website here



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