Beyond GDP: Greens spark debate on a better measure of progress

Daffodils do it; babies do it; kittens do it: growing seems like the most natural thing in the world, and over the years we’ve come to understand growth as the normal state for economies, too. Recessions, when GDP temporarily declines, are an aberration, imperilling human progress and interrupting the natural order. And chancellors are keen to trumpet Britain’s success when, as in 2014, our growth rate races ahead of the competition.

So when the Green party suggested last week that it might abandon the idea of targeting GDP growth as a public policy aim, it caused a storm of indignation with some commentators fearing that the environmentalist party – which has been registering support of more than 10% in some recent polls – would catapult Britain back to the dark ages.

Caroline Lucas, the Green MP for Brighton and the party’s spokeswoman on the economy, is keen to play this down, stressing that any shift to a new way of gauging economic success would have to be gradual.

She argues, for example, that a more rounded view of progress might incorporate a measure of how much Britain is depleting or polluting its “natural capital” – resources such as rivers, forests and oceans. The independent Natural Capital Committee, chaired by academic Dieter Helm, already produces regular reports for the government on sustainable use of resources.

“I don’t think it’s unreasonable to say that – at the very least to begin with – alongside GDP, we might also begin to have a measure of the depletion of resources,” Lucas says. “Once people get more used to that, you could imagine bringing in two or three more indicators: health, community cohesion, equality and so on.”

She argues that GDP – which measures all kinds of economic activity, but misses out “bad” factors such as pollution, is “a very, very flawed measure: all it’s measuring is the amount of money revolving around the economy, without ascertaining whether or not it’s being used to good or bad ends. The prior question is, ‘what are we trying to achieve with our lives?’

“The Green vision recognises that there are some things that need to grow – we certainly want to see growth in environmental technologies, for example – but we’re challenging growth, scrutinising it.”

The Greens are far from alone in questioning whether maximising GDP is what a modern economy should be aiming to achieve.

In wealthy, industrialised countries, there has long been a nagging feeling that after a certain point, continued economic growth doesn’t do much to improve people’s satisfaction. In fact, a whole field of “happiness economics” has emerged, to try to identify other factors besides GDP that can predict individuals’ wellbeing.

Former French president Nicolas Sarkozy appointed a clutch of august experts, including Nobel prize winner Joseph Stiglitz, to a commission on the measurement of economic performance and social progress. Its reports, published in 2009, concluded:“The time is ripe for our measurement system to shift emphasis from measuring economic production to measuring people’s wellbeing. And measures of wellbeing should be put in a context of sustainability”.

In other words, policymakers should take into account how effective economic policies are at improving workers’ and families’ lives, not just whether they generate growth.

This argument has been given added piquancy in the US and the UK in recent years, with as economic growth has bounced back after the great recession, but average incomes for ordinary families have in many cases stagnated, or fallen in real terms.

Stiglitz wrote in a Guardian article last autumn: “Regardless of how fast GDP grows, an economic system that fails to deliver gains for most of its citizens, and in which a rising share of the population faces increasing insecurity, is, in a fundamental sense, a failed economic system.”

Andrew Simms, director of the New Economics Foundation thinktank, says this disconnect between growth and rising living standards has undermined confidence in the growth-at-all-costs approach. “Today,” he says, “50 years on from a debate about the sustainability of infinite growth being raised in part of the burgeoning environmental movement, it’s not the Greens that have killed growth, it’s the market.”

Of course, traditional metrics such as real wage growth and the unemployment rate can help to flesh out a bare-bones approach that focuses on output alone, but there’s now a flourishing quasi-industry in dreaming up other indicators.

Soon after he came to power in Britain, David Cameron was keen to complete his project of shrugging off the Tories’ “nasty party” image, so asked the Office for National Statistics to put together new measures of national wellbeing, which the government could look at alongside GDP to judge the state of the economy.

As well as asking companies how many widgets they produced last week, and finding out how long an unemployed person has been looking for a job, the statisticians now report regularly on the public’s answers to questions such as: “To what extent do you feel that the things you do in life are worthwhile?” and “How anxious did you feel yesterday?” They will then track the changes in these measures over time.

Not to be outdone, Labour leader Ed Miliband recently announced that he would set up a new living standards index, which would be given equal status with GDP – though he intends to focus it firmly on such solid things as wage rates, rather than happiness.

Simms at the New Economics Foundation points out that that many early economists expected growth to be merely a medium-range target, not an infinite goal. Even Simon Kuznets, who carried out much of the pioneering work in compiling detailed records of US GDP at American’s National Bureau of Economic Research during the 1930s, insisted: “The welfare of a nation can scarcely be inferred from a measure of national income.”

Simms adds: “There was always this understanding that economies would expand up to a certain point, after which they would mature in other ways.” He argues that aiming at endless growth is simply not environmentally sustainable. “There’s a straightforward, scientific question: can you do it without pulling the rug from under your own feet?”

Lucas insists that politicians must start consciously working towards an economic model that conserves resources, minimises pollution, and improves welfare.

“We’re not talking about permanent recession. We’re not talking about pickling everything in aspic. We’re talking about a managed process over time, rather than something that has been forced on us.”

However, some economists are nervous about the idea of ditching a tried-and-tested measure of progress – and they argue that growth actually correlates well with many of the things people are really interested in: not least jobs and incomes. Mark Littlewood, director general of the Institute of Economic Affairs, says, “GDP tends to go with the grain of all the other things we care about in life. People do want, in general terms, to get richer, to acquire more goods. And I say good luck to them.”

And, he adds, when it comes to environmental sustainability, economic growth and the ingenuity and technological innovation it tends to encourage are not the problem but the answer.

“For example, London is enormously richer than it was 50 years ago, and its air quality is immeasurably improved. GDP has a hell of a lot going for it.”

GDP: WHAT IT IS – AND WHAT IT IS NOT

Gross domestic product is a measure of a country or region’s economic activity. It is compiled in the UK by the Office for National Statistics (ONS) and closely watched by policymakers in government and the Bank of England. In particular they focus on the change in GDP from quarter to quarter: if GDP is up on the previous three months, the economy is growing; if it is down, it is contracting. Two or more consecutive quarters of contraction mean a recession, technically speaking.

GDP is the sum of all goods and services produced in the economy, including services, manufacturing, construction, energy, agriculture and government. But there are several ways of getting to a GDP figure. The ONS uses three, and they should, at least in theory, all add up to the same number:

1. The value of all goods and services produced - the output measure.

2. The value of goods and services purchased by households, government, business (investment in machinery and buildings) and from overseas - the expenditure measure.

3. The value of the revenue generated from company profits and wages - the income measure.

Over time, the scope of what GDP covers has changed. Most recently, the value of sex work and drug dealing was included, to bring UK data into line with EU rules. Regardless of whether such activities are included, the ONS stresses that there are limitations in what GDP can tell us about an economy: It is not a measure of wealth, welfare or wellbeing. Katie Allen