Quality not quantity
I encourage RSA colleagues to be ambitious and entrepreneurial, so I can hardly complain that our International Director, Josef, has taken advantage of my agreement to speak at an education conference in Berlin tomorrow by arranging two other speaking events, on different topics, to fill my thirty hours in Germany.
The first – this afternoon at four – is a debate on the motion: ‘GDP has failed – it is time to switch to a new measure of progress’.Being a trouper I will do my best but there are a few problems I need to overcome.
There is the fact that I don’t start out with particularly strong or developed views on this topic. More worryingly, it turns out that a massive German (Enquete) Commission on this very issue has recently completed its work, so I suspect the average German policy wonk – of whom my audience largely comprises – is worryingly well informed. Finally, I am debating against Professor, Dr (yes, professor and doctor) Karl-Heinz Paque, a distinguished economic advisor to the FDP, who will not only know all about the Commission but has himself written a book called ‘Wachstum!’, which is apparently German for ‘growth!’.
The only comfort is that I only have ten minutes to speak. My hope is that the audience will not spot that I am using my time to download all that I know about critiques of GDP while the Professor will only be sharing a smidgin of his voluminous knowledge. Given my vulnerable position I would be ever so grateful for any reflections on what I am currently planning to say, which is something along the lines of this:
There are several sets of critiques of GDP.
The first focuses on its limitations as a measure of the conventionally defined market economy. GDP figures are continuously updated and sometimes they prove to be disastrously wrong. For example, the first GDP figures for the contraction of the US economy in Q4 2008 suggested a fall in GDP of less than four percent but this figure was subsequently increased to a fall of nearly nine percent.
The technical limitations of GDP link to the second set of criticisms. Here it is important to distinguish between limitations of of GDP per se and concerns about the way it is privileged in political debate. After all, there are thousands of other big quantitative measures of economic and social change. It is not the fault of GDP but a a flaw in political discourse if we give too much emphasis to an almost immediate snapshot of economic growth.
Current GDP does not tell us much about the underlying strength of the economy. Factors like productivity, levels of capital investment, balance of trade, median earnings are arguably much more important long term indicators. I will at this point remind Professor Paque that while German economic growth has compared well to the rest of the developed world in recent years, its productivity has more of less flat lined since 2007, living standard have also stagnated and levels of public infrastructure investment have fallen.
In this sense GDP could be portrayed the statistical equivalent of the man plunging from the top of a hundred storey skyscraper who shouts ‘so far, so good’ as he hurtles past floor fifty: Or another way of putting this; current GDP is far from always a reliable indicator of future GDP, a lesson we should surely learn from the hubris of the late nineties and early noughties.
The next set of critiques move the focus from GDP per se to the wider question of the relationship between, on the one hand, economic growth and economic welfare and, on the other, between economic development, human development, well-being and sustainability.
The argument about economic welfare is reinforced by the breakdown in the relationship between average earnings and economic growth over the last two decades as well as the co-existence of growth and high unemployment. A fascinating opinion survey, reflecting on the themes of the Enquete Commission, found that Germans place significantly greater value on fairness and full employment than they do on mere growth.
Taking all these criticisms together my case is not to abolish GDP (it is an important internationally accepted measure) but, first, to follow the advice of Eric Zencey and name it more accurately as GDT, gross domestic transactions; second, to encourage Governments to publish GDT alongside a balanced scorecard (perhaps using a traffic light system) of other economic indicators. The content of this scorecard could be subject to two useful political debates. The first would be empirical and focus on different accounts of the relationship between the economic factors in the scorecard; the second normative, concerning the importance we give to each factor in relation to a broader account of benign economic development.
Of course, some of this already happens, both in official reports but also in changes in policy targeting like the decision of Mark Carney to make unemployment, rather than just inflation or growth, a key criterion for monetary policy.
But to more radical thinkers all this misses the key point, to them GDP stands as a symbol of fetishising market growth at the expense of human happiness and the environment. Clearing rain forests, building on the flood plane and other acts of environmental foolishness contribute to GDP while the sate of the remaining natural resources of the world are invisible. A nice small scale example is that drying your clothes in the sun makes no contribution to GDP while buying a clothes dryer and paying for it to run does.
Also, GDP takes no account of unpaid labour such as housework and volunteering. There is a link here to the debate about care which I hosted on these pages. The process whereby millions of people on modest wages pay millions of other people – usually on even more modest wages – to look after their loved ones appears from the perspective of GDP like a much better arrangement than supporting familial careers to pursue the more socially productive option of providing more care themselves. Arguably, the fact that we count money-based care regularly but have much less reliable and current data on love- based care is one reason why the massive experiment in socialising/privatising care has had so little critical attention.
This, along with the Easterlin paradox (countries with higher per capita income are happier then those with lower but growth of income within developed countries does not increase aggregate happiness) is why David Cameron’s decision to measure well-being (and gradually to make well-being a more importance policy indicator) is being debated in many other countries. Indeed, whilst a focus on growth may be understandable as we emerge from recession, arguably the long shift to a more balanced measure of progress is already well under way.
So, in answer to the motion for debate I will argue the problem lies less with GDP and more with politicians’ and the mainstream media’s obsession with it. However, it is legitimate to see the measure itself as a problem to be addressed through critical discourse and the development of other measures, in that it tends to exacerbate our cognitive biases towards both short termism and ‘misplaced concreteness’ (the process whereby we mistake a simple measure of reality for the complexity of reality).
Hopefully, this will get me through my ten minutes. Then, before I turn to preparing talks on public sector innovation and collaboration in education, there is something else I must do: change Josef’s targets from quantity of international events to the aggregate well-being of his CEO.