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By: Isabel Nuesse

One of the most significant measurements in our economy is Gross Domestic Product (GDP). GDP is a measurement of the total value of goods and services produced in a country. It measures the size of a nation’s economy but doesn’t reflect a nation’s wellbeing. While inherently flawed, GDP continues to dominate the space as the measurement to compare countries against one another, and more importantly influence global policymaking. 

In a Wellbeing Economy, we argue that it is time that we move beyond GDP and find a more holistic measurement that encapsulates both human and ecological wellbeing. 

In the podcast Citations Needed, Economic Anthropologist and WEAll Ambassador Jason Hickel breaks down the history of GDP, how it drives both the climate crisis and inequality, and what practical steps we can take to ensure thriving livelihoods for all. 

What’s the history?

GDP was initially developed as a war-time measure. Simon Kuznets, the economist that created the national income accounts which inspired the current GDP measurement, warned the US congress about using this as the measurement. 

“The [people’s] welfare can therefore scarcely be inferred from a measurement of national income as defined above.” 

Meaning, there is no determination of social progress or human welfare that can be derived from this metric. So why do we continue to use it?

Using GDP as the main measurement of economic success was solidified after WWII hit. Countries focused on the measure of economic production, as wartime was a race to military domination. Growth ruled supreme. Who could produce the most output, the fastest, and where did the highest capacity lie?

It was further solidified after the Bretton Woods conference in 1944 which had over 700 delegates from 44 nations and created big institutions such as the World Bank, the International Monetary Fund (IMF). GDP then continued to dominate during the 1980s, when these institutions created structural adjustment programs (SAPs) – primary for countries in the global south- which move countries away from national development models and push for global development models that essentially only pursue economic growth. 

Luckily, these criticisms of GDP as the sole metric for economic success are coming to the forefront. It’s hard to ignore when the richest 1% of the human population pockets 22% or a quarter of total GDP 

As Jason says, “We’re plundering the earth to pay tribute to the global elite.” 

To further demonstrate this, Hickel says that if we took ⅓ of the income of the richest 1%, it would be enough to raise everyone in the world above a high poverty line of $7.40/day – eradicating poverty forever. If we took another fraction of that, we could provide high-quality universal public healthcare for the world. And, it would still leave the richest 1% with over $130,000/year per person forever. 

These numbers are striking. 

Where do we go from here?

Jason points out that once we admit that we don’t need more growth – we can focus on building an economy that can deliver high quality of life for all, and meet the ecological needs of the planet. 

The UN Intergovernmental Panel on Climate Change (IPCC) model that outlines how to keep global warming to under 1.5 degrees celsius from pre-industrial levels, requires a reduction in material use and energy use in the global economy. Meaning, we must scale down – or reduce growth. 

If both material and energy use is reduced, GDP will likely crash, causing our economy to collapse as our entire system is underpinned by its health. In order to prevent that crash, we need to organise our economy in a way that will not deliver such a catastrophe. 

How can we develop policies that allow human flourishing, despite declining industrial activity?

What’s needed is a fair distribution of existing income and a redistribution of productivity gains to more people.  Jason suggests that one practical way of doing this is shortening the average working week to four days, increasing wages so they are living wages for workers despite fewer hours, and redistributing necessary labour amongst more people. 

He raises  an interesting point about how self-defeating we will be if we continue to pursue GDP growth. Yes, the world is switching to renewables at a rapid pace, which will reduce the carbon footprint of our globe. However, renewable development still requires extraction of raw materials. And, if we’re continuing to grow the economy, we need to transition the whole economy to renewable energy and do it three times over to maintain our current pace of growth. 

In order to give technology a chance to be effective in delivering goals of human and planetary flourishing, we need to remove the growth priority so that innovations that address some of the glaring problems of the world are elevated, not stunted, because of low growth trajectories. The more you require companies to ramp up supply to meet demand, the more pressure on those capacities and the less of a solution they become.

How does equity play a role? 

Equity and justice have to be at the core of this transition to a ‘post-growth’ economy. The vast majority of the causes of the ecological crisis come from excess consumption from high-income nations. If everyone in the world consumed at the level of the average person in the Global South, we would have no ecological crisis. If they consumed at the level of the high-income nations, we would be operating at over 4x capacity of the Earth

There needs to be a balance between necessary growth for lower-income nations and degrowth for higher-income nations. 

The other key point is that this transition must be de-colonial at its core. No longer can the Global North rely on the extraction from the Global South. Imagine the possibility of an economy that doesn’t rely on that kind of extractivism! 

Institutions such as the IMF can no longer link voting power to GDP metrics. This is actively exclusionary and continues to set the wealthiest nations up for success. As Jason notes, “it’s crazy to have a plutocracy1 at the heart of global economic governance.”  

1 Plutocracy: a society that is ruled or controlled by people of great wealth or income

Jason presents another glaring statistic: “The poorest 60% of humanity only receive 5% of the income from global GDP growth”- proving that the theory that wealth at the top will “trickle down” to all levels of society does not hold true in the real world. 

Meaning, this idea that global aggregate economic growth is necessary in order to reduce poverty is untrue. The global south contributes the vast majority of both labour and resources and yet don’t reap the benefit of their output. 

We need a fair economy that allows the global south to claim their fair share of yields they produce. This will in turn eradicate much of the poverty in the world simply by distributing income more fairly. 

Jason concludes that once we build a more fair economic structure and shift to a post-growth economy we can more easily fight the climate crisis and tackle global poverty. 

The last point that Jason makes on the podcast is around the phrasing that, “humans are the virus” that is damaging the earth. He wants to completely shift that thinking. Humans are not the virus, capital is the virus.

Capital is programmed to replicate itself – everything it touches turns into more capital. Exactly like a virus that colonises the host to produce more of itself. 

The problem is that expansionary economic systems are organised around appropriation, plunder, and extrication. 

It’s time we changed the economic system, don’t you agree? 

On 12th August 2020, the Office for National Statistics announced that the UK’s GDP had fallen 20.4% in the second quarter, putting the UK into its worst recession since records began. Following the UK’s prolonged lockdown, this drop in Gross Domestic Product is more severe than losses seen in the US and the Eurozone.

The impact of COVID-19 has been difficult for everyone, especially those who have become ill or lost loved ones. For many, it’s been a prompt to take stock of what really matters, placing a greater emphasis on individual and community wellbeing.

At WEAll, we’re passionate about advancing the wellbeing economy concept: an economic system purpose-built to deliver social justice on a healthy planet. Within a wellbeing economy, humanity determines economics, not the other way around.

So when we see figures like this—that GDP has fallen by 20.4%—it’s important to clarify what this data means and what it does (and doesn’t) tell us about the state of society.

No one should argue that these are not difficult times, with furloughs and redundancies widespread and social isolation still a reality for many people. In terms of the actual numbers we use to measure our country’s economic health, however, we propose that GDP is a skewed figure that reveals little about the wellbeing of the millions of people who keep the economy running, each and every day.

GDP doesn’t see the outpouring of community support, for example, and it neglects our country’s renewed focus on nature. It measures cash transactions, which include drug dealing, but ignores volunteer work and caring duties.

Find new oil? GDP goes up. Start a community garden? No impact.

Have to deal with flooding caused by global warming or medical treatment to cope with heatwaves? GDP will see that as a good thing. Spend more time with your family and friends? GDP isn’t interested.

Take your car into a congested city? GDP loves that. Jump on your bike and use one of the new cycle lanes? GDP doesn’t care.

The last few months have seen big hits to restaurants, education, the arts, public transport, and even healthcare—all sectors which are very important to the wellbeing economy, not to mention to their workers. However, even here the GDP statistics do not tell the full story. Childcare and education did not disappear. For better or for worse, it just happened at home. We are seeing our friends and family less than we would like to, but we still see them. It’s just that many of us now go for a walk in the park rather than for a meal in a restaurant. These activities still have value, but they are simply not captured by GDP.

We can all agree on the need to rebuild, but it’s imperative that we build back better instead of simply returning to the status quo, which works only for the few and often neglects the very key workers on whom we all rely. We are just not convinced that GDP is the most useful measure of how Scotland builds back better, renews, or recovers. See our recent response to comments made by Benny Higgins, the chairman of Nicola Sturgeon’s advisory group on economic recovery, to learn more about the myth of “green growth”.

Katherine Trebeck, Advocacy and Influencing Lead at WEAll and co-founder of WEAll Scotland, has long campaigned for alternative measures of progress to GDP. One such alternative to GDP she points to is to focus on things like the number of girls riding bikes to school. It might sound radical at first, says Katherine, but just think of the contextual factors that need to be in place in order for higher numbers of girls on bikes (and in education) to improve.

There are tough times behind us, and no doubt there will be tough times ahead. So moving forward, let’s build a stronger economy that works for all of us, not just those who benefit from outdated measures of success like GDP.

By Samantha Kagan

Those who follow the development and proliferation of wellbeing economics are likely already aware that earlier this year, New Zealand became the first country to reorient its national budget and decision-making framework to centre on wellbeing expansion, rather than on GDP growth. The shift was momentous, and it was executed with the intent from the Government of improving its service to citizens. Minister of Finance Hon Grant Robertson claimed in his speech introducing the new approach that “The things that New Zealanders valued were not being sufficiently valued by the Government”, and this was leading to outcomes undesired by citizens.[1] However, he relayed confidence that implementing the new wellbeing framework would rectify previous missteps and improve outcomes delivered by government. The new approach was well-intentioned, but little evidence existed to support the notion that citizens are more satisfied with a government that pursues wellbeing expansion over one that focuses on GDP growth. I conducted a study to investigate this assumption, and I found evidence that the Minister, in fact, was correct: in New Zealand, citizens are more likely to regard the government highly when wellbeing expands, rather than when GDP grows.

I came to this conclusion using two complementary methods of analysis. First, I examined correlations between GDP and satisfaction with the government’s performance, then between wellbeing and the same measure. I found a tendency for government satisfaction to move more closely with wellbeing factors than it does with GDP level or GDP growth rate. Next, I distributed surveys to New Zealanders that pitted hypothetical policies against one another and asked participants to indicate which option they would support. One policy would grow GDP, while the other would expand wellbeing, and results showed a preference for the latter.

The findings of my study are encouraging, as they suggest leaders in New Zealand acted rationally by shifting government priorities to focus on wellbeing. The objective for adopting this scheme was to improve satisfaction among citizens, and it appears that the strategy was well-calculated. According to Adam Smith, the value of any government is judged in proportion to the extent that it makes citizens happy.[2] Leaders in New Zealand improved their performance in this sense and have good reason to claim victory.

In other nations where government satisfaction is a concern, leaders would be sensible to consider launching a response like New Zealand’s. In Iceland and Scotland, such action is already underway, as each country’s government has introduced a plan to comprehensively restructure its framework.[3] In Britain, although the proposal is yet to be approved, individual policymakers are pushing for wellbeing to take precedence over GDP in government decision making.[4] Examples set by these countries and findings like those in this study should motivate policymakers to contemplate pivoting toward wellbeing to earn more satisfied citizens.

While improving contentment of citizens is itself a valuable objective, the findings of my study also have important implications for policy options available to legislators. Traditionally, policymakers are bound by the paramount goal of GDP expansion. If an otherwise sensible policy appears to threaten growth, it is usually denounced for precisely that reason. This study suggests when a policy is generally constructive, the fact that it may hurt growth should not lead to its automatic dismissal, and if the policy will enhance wellbeing, then it should be given serious consideration. In response to issues like the climate crisis or worsening mental health conditions, the most effective solutions may not be those most conducive to growth. They may even diminish GDP. This study, however, suggests that the public would prefer policies that sacrifice growth in the name of wellbeing, rather than forego wellbeing to consistently safeguard growth. Therefore, policymakers should feel encouraged to maintain a level of indifference toward GDP while observing wellbeing as the primary measure of their legislative success. A new range of policies will become available to them, and citizens will likely become more satisfied as a result.

Samantha Kagan from LSE with a distinction in Inequalities and Social Science. This blog summarises the findings of her dissertation: “Satisfied citizens: how GDP growth and wellbeing expansion relate to government satisfaction”

[1] Robertson, G. (2019) ‘Budget Speech’. New Zealand Government. Available at: https://www.budget.govt.nz/budget/pdfs/speech/b19-speech.pdf (Accessed: 25 June 2019).

[2] Smith, A. (1976) The Theory of Moral Sentiments. Oxford University Press.

[3] WEGo: Wellbeing Economy Governments (2019). Available at: http://wellbeingeconomygovs.org/ (Accessed: 7 July 2019).

[4] Partington, R. (2019) ‘Wellbeing should replace growth as “main aim of UK spending”’, The Guardian, 24 May. Available at: https://www.theguardian.com/politics/2019/may/24/wellbeing-should-replace-growth-as-main-aim-of-uk-spending (Accessed: 7 August 2019).