1 Irrelevance of GDP
In February 2008, the President of the French Republic, Nicholas Sarkozy created “The Commission on the Measurement of Economic Performance and Social Progress”. The Commission’s aim has been:
- to identify the limits of GDP as an indicator of social progress, including the problems with its measurement;
- to consider what additional information might be required for the production of more relevant indicators of social progress;
- to assess the feasibility of alternative measurement tools,
- and to discuss how to present the statistical information in an appropriate way.
It is an indicator of the inadequacy of classical economic theory that a group of distinguished economists, five of them Nobel Prize winners, would assert that in measuring social progress serious attention should be given to self-reports of subjective feelings.
The unifying theme of the report is that the time is ripe for our measurement system to shift emphasis from economic production to quantifying people’s well-being. And measures of well-being should be put in a context of sustainability.
Regarding material living standards i.e. income, consumption, and wealth, the Commission made the following four recommendations;
i: Look at income and consumption rather than production.
GDP is the most widely-used measure of economic activity. But GDP mainly measures market production not economic well-being. Material living standards are more closely associated with measures of real income and consumption.
ii: Consider income and consumption jointly with wealth.
Income and consumption are crucial for assessing living standards, but in the end they can only be truly gauged in conjunction with information on wealth. A vital indicator of the financial status of a firm is its balance sheet, and the same holds for the economy as a whole. This means having comprehensive accounts of its assets (physical capital – and probably even human, natural and social capital) and its liabilities (what is owed to other countries). Measures of wealth are also central to measuring sustainability because what is carried over into the future necessarily has to be expressed as stocks – of human, physical, or natural capital. Measurement of these stocks has to include the common capital of the planet: the atmosphere which is used as a sink for carbon dioxide, aquifers of water that are overpumped, ocean fisheries that are overharvested and large swathes of forest which are being razed.
iii: Emphasise the household perspective.
While it is informative to track the performance of economies as a whole, trends in citizens’ current material living standards are better followed through measures of household income and consumption. Indeed, the available national accounts data shows that in a number of OECD countries real household income has grown quite differently from real GDP, and typically at a lower rate. The household perspective entails taking account of payments between sectors, such as taxes going to government, social benefits coming from government, and interest payments on household loans going to financial corporations. Properly defined, household income and consumption should also reflect the value of in-kind services provided by government, such as subsidized health care and educational services.
iv: Give more prominence to the distribution of income, consumption and wealth.
Average income, consumption and wealth are meaningful statistics, but they do not tell the whole story about living standards. For example, a rise in average income could be unequal across income groups, leaving some households relatively worse-off than others. Thus, average measures of income, consumption and wealth should be accompanied by indicators that reflect their distribution across persons or households. Ideally, such information should not come in isolation but be linked, i.e. one would like information about how well-off households are simultaneously with regard to all three dimensions of material living standards: income, consumption and wealth. After all, a low-income household with above-average wealth is not necessarily worse-off than a medium-income household with no wealth.
v: Broaden economic measures to include non-market activities.
There have been changes in how households and society function. For example, many of the services people received from other family members in the past are now purchased on the market. This shift translates into a rise in income as measured in the national accounts and may give a false impression of a change in living standards, while it merely reflects a shift from non-market to market provision of services. Many services that households produce for themselves are not recognized in official income and production measures, yet they constitute an important aspect of economic activity. While their exclusion from official measures reflects uncertainty about data more than it does conceptual dissent, more and more systematic work in this area should be undertaken. This should start with information on how people spend their time that is comparable both over the years and across countries. Comprehensive and periodic accounts of household activity as satellites to the core national accounts should complement the picture.
The Commission was not primarily concerned with obtaining better estimates of material well-being, but rather in broadening the measurement of well being to encompass multiple domains of localism, with respect to social progress, classified in the following key dimensions:
* material living standards (income, consumption, and wealth);
* personal activities including work;
* political voice and governance;
* social connections and relationships;
* environment in relation to present and future conditions;
* insecurity, of an economic as well as a physical nature.
Localism may be viewed as a system, the social action cycle, by which people establish a social niche and take up living sustainably as a right and a responsibility. This may be coupled with the concept of living with just enough to lead a good life, which may be used as a target for a sustainable economy. Resources drawn from the planet to have a good life may be seen in conjunction with the political uptake of economic localism. Local people are enabled and empowered with tools and resources to have a significant input in building a neighbourhood economy and making environmental improvements for living sustainably. The social action cycle therefore becomes responsible for the social transmission and inheritance of cultural knowledge, and material culture necessary for building a stable human niche through activities that positively assert the embeddedness of self and heritage, both cultural and biological, in a neighbourhood. It is linked to the biological action cycle by which other beings construct species niches by modifying their environment and thereby influencing their own and other species evolution
Looking back in my late 70s, I am struck by the riches my family has accumulated compared with my father, who as a child, roamed barefoot in the streets of Grimsby, then the largest fishing port in the world. Now, that economy is displayed in the local heritage museum and the town is notorious for its young people and adults not in employment, education or training. The view of the free marketers is that it is precisely economic growth that will lift these people out of poverty and unemployment, as it has done throughout human history, with population being the primary driver of prosperity. Accordingly, improvements in productivity occur by innovation and efficiencies in the use of raw materials. Market growth will be a creative response, with more goods being available to more people at lower prices; but the sums just do not add up.
It takes the Earth nearly 18 months to produce the ecological goods and services we currently use in one year. Furthermore, even a modest 2% economic growth rate implies a doubling of consumption every 35 years. Population growth is added to the debit side since each new person requires the basics of existence. Then there is the issue of the “carbon intensity” of consumerism, which needs to fall by 95% to meet the 2050 agreed targets for greenhouse gases. The vision of ‘business as usual’ is that humanity will become ecologically bankrupt with competitive conflict between nations.
Two out of three economists do not believe that future social progress will create ever more prosperity. So we must turn to the other historical thread of social progress. This is a process that endows an individual or collective with the ability to orchestrate change in their lives to provide a degree of autonomy and control over the world around them, including jobs and environmental services. With regards education, specialisms will still needed to support a material economy. But they will be branches from a core curriculum that relates well being to contact with a nearby and concrete reality rather than a far off and abstract one. The central educational concept is therefore localism, which can be applied to any activity that positively asserts the embeddedness of self in a community. Economic localism is now a feasible future for people to determine what happens to the economy and provides opportunities to address deep-rooted social and environmental ‘doorstep problems’.
Some would have it that localism was part of the thinking of hunter/ gatherers. The native American, N. Scott Momaday, describing the mind set of the Buffalo hunter puts it this way.
A man crouches in the ravine, in the darkness there, scarcely visible. He moves not a muscle; only the wind lifts a lock of his hair and lays it back along his neck. He wears skins and carries a spear. These things in particular mark his human intelligence and distinguish him as the lord of the universe. And for him the universe is especially this landscape; for him the landscape is an element like the air. The vast, virgin wilderness is by and large his whole context. For him there is no possibility of existence elsewhere.
As a more recent phenomenon, localism appeared in Britain in the 17th century when topographers and poets valued the diversity of local culture as an alternative to the rigid uniformity of the London Court. Modern localism emerged in the 1960s when ideas of ‘enablement’ and ’empowerment’ were promoted as a means of strengthening democracy, so that more decisions are made by local people, the stakeholders, rather than central government.
Localism now spans the political spectrum, with debate at the edges as to who foots the bill, state or community. Engagement and empowerment of local people is therefore a relevant starting going for a new ecopedagogy to support local routes to take no more than a fair share of Earth’s resources, whilst ensuring others have no less than a decent environment. Unfortunately, the ‘elephant in the room’ is the immovable and inflexible monolithic curriculum designed for a past era when the global exploitation of land and sea, with no thought to the future, was the national imperative of empire building.
Those were the days when environment did not matter!