Quality not quantity

August 30, 2013 by
Filed under: Politics, Public policy, The RSA, Uncategorized 


 

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.
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Comments

  • Joe Lane

    This is an entertaining (also long) critique of ‘happyism’ http://www.newrepublic.com/article/politics/magazine/103952/happyism-deirdre-mccloskey-economics-happiness.

    These two passages demonstrate the argument. Which is essentially, happiness can’t be measures scientifically and even when it is statistical significance is often regarded as scientific significance.

    “… the literature simply strides past the problem evident since the first criticisms of Bentham—that utils cannot be compared among people. This is not merely a technical matter. It is also a matter of human dignity. Suppose that Connor and Lily have the same happinessproducing circumstances of income and health and so forth. Yet Lily’s reported “very happy” value of 2.8 exceeds Connor’s meager 1.4. Well, then: Lily must be a better machine for making happiness than Connor is. Never mind that Lily-utils have nothing to do with Connor-utils. We are in the realm of “Why is a mouse when it spins?” (The answer, of course, is, “The higher the fewer.”)
    There is in fact substantial biological and psychological evidence that some people are more cheerful than others—just in case you didn’t already know that. So, let’s see: What are the “policy implications?” Shoot the Connors? Give all the money to the Lilys? “A Brahmin,” noted a Hindu lawyer, “is entitled to exactly five-and-twenty times as much happiness as everyone else.” If it would please 99 people to feed on the hundredth, then util-maximization says, get out the cooking pot.”

    “THIS BRINGS US to the deepest humanistic criticism of the 1-2-3 economists. If we economists are not going to get any deeper than such a dubious pot-of-pleasure theory, perhaps we ought to rely on what we can measure scientifically and relevantly. We can measure national income, for example, or the U.N.’s Human Development Reports, which serve as reasonable indexes of human potential. It’s what I call “scope,” or what Amartya Sen and Martha Nussbaum call “capabilities”—the ability to read, for example, or the potential to become the founder of a new business, or the scope to cultivate a talent as an artist.”

  • Travis Wentworth

    Just to further the point about underlying economic health, I’d emphasize that GDP neglects flexibility. Growth today looks very different than it did in the mid-20th century when GDP gained currency. Markets, demands, technologies change very quickly, and growth (and potential for growth) requires a greater ability to adapt.

    Let’s hope Dr. Prof. Paque isn’t a regular reader!

  • Benjamin D

    Sounds good. Hope it went well, you could have also mentioned the rise of alternative currencies (like Bitcoin and the Brixton pound) as a striking example of how measuring everything in £ or $ has its limitations. The value of money is just a delusion after all….

  • Steve Green

    This might be of interest: RFK from 1968 during his election campaign. The principles are the same despite America the Great ending. http://www.youtube.com/watch?v=77IdKFqXbUY

    Volunteering stands out of course rather than the half hearted happiness indices. Sandel’s Moral Limits of markets also an airline read to top up!

  • http://expatentpreneur.com Nathaniel Smith

    Think you have most of the main points down Matthew. Couple of other thoughts:

    GDP includes expenses such as law enforcement, costs of clearing up road accidents etc. Anything that costs is included, but not everything that costs necessarily means progress. Is more prisons progress? According to GDP (and thus every politician) it is.

    GDP is overall country wealth, and takes no account of equality. This is a criticism EF Schumacher made back in the 70s of our approach to international development – we see GDP growth in these countries but actually this is all in the cities and the rural areas are becoming worse off as wealth floods to cities.

    The relationship between GDP and positive measures of societal well-being becomes almost non-existent above $15,000 GDP per capita. Tim Jackson’s work on this and, in particular, his book ‘Prosperity without Growth’ is particularly good at illustrating this point and highlighting the research behind it.

    It takes no consideration of societal well-being or environmental impact! Other measures do. Social Progress Index is one to keep an eye on – adopted recently by Paraguay’s government (I think). nef’s Happy Planet Index is also good.

    Hope it went well! The question of how we define progress is a really interesting topic. Amazing really that GDP has been the answer to this for so long when it is so flawed, and even its creator never intended it for it to be used anything like this.

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