Category: Gross Domestic Product

Explaining the role that this indicator plays in getting us into the mess that we’re in.

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Behind the Scenes Gross Domestic Product Introduction

Katherine Trebeck: Corona Virus and Our Economy

A few days ago, I had the chance to catch up with Katherine – one of the two key protagonists in our film – about her thoughts regarding our current crisis, and what it means for changing our economies. This is a summary of the things she mentioned in our call.

“Corona is revealing to the wider community that it’s miserably paid armies of people in precarious work, hitherto dismissed as ‘low skill’, who really keep our societies going: the couriers, the nurses, the supermarket checkout staff, the care workers, the refuse collectors. They are now the ones who keep the shop open, who keep our streets clean, who deliver books and groceries to our door to help us get through lockdown. They are the ones who ensure our wellbeing these days.

Whereas the highly paid top managers are nowhere to be seen in such a terrain.

This should make us take a renewed interest in rather boring seeming and less glamorous aspects of our economy: schools, hospitals, the food industry (the so-called ‘foundational economy’). We should hold on to a new recognition of the importance of local supply chains.

And also ask ourselves new questions: what is the Care Economy really worth to us? How much do we value the “gift economy” — i.e. all the services that are provided in everyday life without payment (child supervision among neighbours, care for the elderly in the family, help here and there in the neighbourhood), which keep so much of our lives as individuals and as communities together.

And we should note that despite its vital role, so much of this is not calculated anywhere in the GDP of a country.

That is why now is the time to think new thoughts and imagine a better economy post-corona than the one we had going into it. This phase of crisis enables us to ask questions and give answers that were unthinkable only a short while ago. For example, the current UK Chancellor of the Exchequer seems to be thinking — or at least there were hints of this in some of his press conferences – in terms of the rich having to carry some of the burden of the mammoth income support programmes the government is having to bring in. We’ll see where that ends up, but it would have been hard to have imagined just a few weeks ago.

The risk is that this window of possibility will close again very quickly – that a “rollback” will come as people rush to return to how things were — forgetting or ignoring how grim that was for so many and for our planet. 

There is a similar diversity in the corporate world — the wheat separating from the chaff: some companies are now putting profits aside and trying to live up to their responsibilities. One example that has caught my eye is the supermarket chain Morrisons which has promised all its suppliers that from now on they will pay all deliveries immediately, to help them with their cash flow. This is significant because supermarkets are notorious for slow payment. Another example is whisky distilleries reconfiguring their operations to produce hand sanitizers — and making it available at cost or for free to front line workers. But there are others going in the opposite direction: Amazon has fired people who didn’t dare to come to work because of Corona, a chain of pubs forcing its staff to work when the government was advising against it.

This is exactly why we must do everything we can to start creating a better world now. The opportunity is to build back better as my former colleagues working in humanitarian situations would say. 

A lot of folks have been thinking long and hard for many years — decades even — about how our economy should be. Covid-19 may have just transformed the economic and political landscape so much that these ideas get the hearing they so urgently deserve.”

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Gross Domestic Product Introduction WEGo in Practice Wellbeing Economies: Concept

Replacing GDP with “Girls on Bikes”.

Since early 2018, we have spent a lot of time with our protagonist Katherine Trebeck. In the summer of last year, we also traveled to Costa Rica together, to film her while she was speaking at a conference about sustainable fashion, and while she met the Costa Rican First Lady.

On that trip, she told us about an idea that I forgot about later, and that I was again reminded of recently. It is a beautiful thought that very convincingly illustrates how much we must change our notion of what progress actually means.

You have a very tough challenge to overcome when you try to move away from an economy that is measured by the “growth” it produces, in terms of financially measurable output. Or, in other words, by how much it increases GDP every year. GDP is such an established measurement: Everyone has heard of it, it seems so incredibly familiar (even though most people have no idea what it really is), and that’s why people have a really hard time letting go of it.

Now, how does the growth of GDP tell us that a society is improving?

Well, it measures how much a society makes every year, in terms of how much money is being spent on things in that society. And then it assumes that we are doing better if more things are made and sold next year. And so on. Forever. More stuff is better. It’s as simple as that.

We are now finding out that more is not better. Up to a certain point, yes. But after that, more just hurts more: It hurts nature. It hurts equality in society. It hurts the psychological health in a population. It hurts the climate. Etc.

In the western world, and after we’d broken everything in World War II (“thanks” to the nation I come from, Germany), looking at the GDP was probably a good idea, for a while. We could simply count how much we are making and then assume that we’re doing better if we are producing more next year. It meant more people in jobs, more people could afford things, life was getting better. But those days are gone. We are no longer better off if the GDP keeps growing, we’re actually worse off, nowadays. And we’re clearly ruining the planet this way.

So we speak a lot about what might be a better measure. There’s not going to be a single thing that replaces GDP, of course. But if you ask Katherine which single measure she would pick if she could use only one, to analyse if a society is actually doing better year after year, she’ll say this:

Why not get countries to measure the number of girls who bicycle to school?

Ok, this may seem very strange at first glance. What? Rather than looking at how much economic output our country is producing, let’s count girls on bikes?

Think about it. It makes a heap of sense:

If more and more girls ride a bike to school, it means it’s safer and safer to cycle in traffic.

If more and more girls ride bikes to school, it means that bikes are increasinly accepted as a means of transport. And it means less parents’ cars — who are now doing the “parent taxi” thing (a big issue here in Germany) — are polluting the air and creating dangerous traffic jams outside schools.

If more and more girls cycle to school, it means that more and more girls are actually going to school and getting an education, period. That’s an important achievement in many countries.

If more girls are cycling to school, it means that they’ll get used to this mode of transport, it will translate to better health for them in the future, and to less pollution in society in the future.

If more girls go to school on bikes, it means that they are not afraid to be attacked by predators who do them harm.

If more and more girls ride bikes to school, more and more boys will do that, too.

If more and more girls cycle to school, it means that more of them are empowered and unafraid.

I think I agree with Katherine: This is an incredibly convincing measure of progress. And one that deserves serious consideration as a replacement for GDP. And I am not joking one bit.

Free photo by @luizmedeirosph.

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Gross Domestic Product Introduction

On Economic Growth As A Concept.

I just read the text “Economic growth: a short history of a controversial idea” by Gareth Dale — and thought that some of its points merit mentioning here, as they relate to the core issue of our film project: the unhealthy obsession of most governments with GDP Growth, and how to end it.

Dale’s text is all about where this idea came from, originally.

The first key point he is making is rejecting Elias Canetti’s “will to grow”, which posits that the desire to (economically) “grow” — in other words, to accumulate “more” — is a human quality that sits inside our DNA. From wanting your child to grow, to wanting your power to grow, to wanting your riches to grow, to wanting your farm to grow, this is just how we are made, we always want more.

But Dale disagrees and says that Canetti is throwing things together that don’t belong together:

Canetti’s ‘will to grow’ doesn’t withstand scrutiny. The diverse behaviours he describes can’t be reduced to a single logic. The ‘will’ behind creating babies is quite unlike the will to accumulate acreage or gold. And the latter is relatively recent. For much of the human story, societies were nomadic or semi-nomadic, and organised in immediate-return systems. Stashes of food were set aside to tide the group over for days or weeks, but long-term storage was impractical. The accumulation of possessions would hamper mobility. The measures that such societies used to reduce the risks of scarcity centred not on accumulating stores of goods but on knowledge of the environment, and interpersonal relationships (borrowing, sharing, and so on).

The next crucial point he is making is about data. It was only possible for humans to “want more” once they were able to properly count what they had. In other words, the development of statistical tools plays a key role for instilling this idea that we could “have more tomorrow” than we have today. This links directly to the discussion we experienced at the OECD Forum in South Korea, about new measurements and their political implications. Dale writes:

The same centuries experienced a revolution in statistics. In the England of 1600, the growth paradigm could scarcely have existed. No one knew the nation’s income, or even its territory or population. By 1700 all these had been calculated, at least in some rough measure, and as new data arrived England’s ‘material progress’ could be charted. Simultaneously, the usage of ‘growth’ had extended from the natural and concrete toward abstract phenomena: the growth of England’s colonies in Virginia and Barbados, the ‘growth of trade,’ and suchlike.

And as the advancement of science and the development of colonialism went hand in hand, the colonialists had a whole host of new quantitative questions to answer:

How profitable is this tract of land, and its denizens? How can they be made more profitable? Answering such questions was enabled by modern accounting techniques, with their sharper definition of such abstractions as profit and capital.

In other word, “growth of the economy” needed a lot of inventions before it could even be thought. And the idea was heavily based on thinking that originated from the development of colonialism. In the new colonies, it seemed even more important than anywhere else to count and “grow” the new properties that were being accumulated.

And what was the result of all that? A very simple story about how people evolved from barbarism to civilisation. Barbarism was the lifestyles of the people that colonialists found wherever their greed took them, civilisation was the way of living and counting and robbing and thinking in property terms that the colonialists brought. Since the invading nations were the “more advanced ones”, that gave them “the right” to control and harrass the others. And economic growth was always part of the story:

Through its marriage to progress and development, in the belief that social advance requires a steady upward ratchet in national income, growth gained its ideological heft.

And this takes us into the twentieth century. The idea of economic growth turned into a global competition and race, for power, influence and promises to the electorate. And in the fight between the political systems of the Cold War, it became the tool for everything:

Growth was firmly established everywhere: in the state-capitalist economies of the ‘Second World,’ the market economies of the West, and the postcolonial world too. It became part of the economic-cultural furniture, and played a decisive part in binding ‘civil society’ into capitalist hegemonic structures — with social democratic parties and trade unions crucial binding agents. It came to be seen as the key metric of national progress and as a magic wand to achieve all sorts of goals: to abolish the danger of returning to depression, to sweeten class antagonisms, to reduce the gap between ‘developed’ and ‘developing’ countries, to carve a path to international recognition, and so on.

And then to me, the most interesting conclusion can be found in the penultimate paragraph:

Growth, although the result of social relations among people, assumes the veneer of objective necessity. The growth paradigm elides the exploitative process of accumulation, portraying it instead as a process in the general interest.

It’s actually an incredible sleight of hand: The accumulation of wealth is redefined as the primary public interest. We are lead to believe that as long as a massive accumulation of capital happens, somehow everyone will be better off. Even though it’s overwhelmingly a narrow group of people benefiting from this type of accumulation. Because ever since the TINA years, so much taxation has been dismantled, bit by bit.

Not too long ago, this whole idea was also referred to as the “Trickle-Down-Effect” — an effect that doesn’t actually work in the real world. Just because the rich get richer doesn’t mean the rest are better off. Quite the contrary. Unless we rethink the way we distribute access to capital and resources: Wellbeing Economies.

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Behind the Scenes Gross Domestic Product OECD South Korea On the Road Wellbeing Economies: Concept

Film: Thoughts from the OECD Forum in South Korea.

In November our documentary film took us to Incheon in South Korea for the OECD World Forum on Statistics, Knowledge and Policy. Here’s a little video from the trip!

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Gross Domestic Product Sustainability

World Economic Forum: “Forget GDP.”

On November 13th, Pushpam Kumar — Chief Environmental Economist at the UN — published a text on the “Agenda” blog of the WEF website, cautioning against the use of the GDP as the primary yardstick for economic and societal progress. Titled “Forget GDP – for the 21st century we need a modern growth measure“, he is quite explicit about the GDP’s shortfalls:

GDP provides measurements of output, income and expenditure quite well, and these are needed to understand and devise fiscal and monetary policies. But this measure flatly fails when it comes to wellbeing.

And he quotes a UN report that shows that nature “goes down” while the GDP goes up:

The UN Environment Programme-led Inclusive Wealth Index shows the aggregation through accounting and shadow pricing of produced capital, natural capital and human capital for 140 countries. The global growth rate of wealth tracked by this index is much lower than growth in GDP. In fact, the 2018 data suggests natural capital declined for 140 countries for the period of 1992 to 2014.

As a consequence, he advocates five factors that a better measure for progress should consider: financial and produced capital (these are the more traditional output-based measures, interested in assessing whether more has been produced and earned), plus: skills in the workforce (human capital), cohesion in society (social capital) and finally, the value of our environment (natural capital). The approach is still a very monetary one — he argues in terms of what all this is “worth” to us, financially speaking:

Natural capital assets such as forests and water bodies have only been valued for the products they provide for the market, such as timber and fish. However, these ecosystems offer a much larger suite of services, such as water purification, water regulation and habitat provisioning for species, among many others. These are clearly valuable services.

I am unsure if true change can happen if we keep considering the financial measurement of outputs as a core element of our economic systems, and if we evaluate nature as “but a resource” that provides services which we just haven’t started including in the calculation yet. The chosen vocabulary betrays a viewpoint that still considers the “accumulation of wealth” as the core idea of any economic activity — just a more varied range of “wealth types”. And yet, it seems like a helpful starting point for those who come from a GDP point of view.

Finally, he presents a Canadian approach to measuring progress more holistically, the Comprehensive Wealth Project, which now includes the five factors. And its current results are summarised as follows in the text:

The report raises several red flags, most notably that Canadians’ comprehensive wealth only grew at an annual average rate of 0.2% from 1980 to 2015. In contrast, GDP grew at an annual average rate of 1.31% over the same period.

In other words, if you look at all five facets, the GDP of Canada may have been growing by 1.31% per year on average — so the country keeps making and earning more. But in terms of a more overall approach to wellbeing, the development has been pretty much flat.

In other words, and once again: More GDP does not mean better lives.

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Gross Domestic Product Sustainability Wellbeing Economies: Concept

Criticising the GDP: a Key Concept for Wellbeing Economies.

One of the key ideas driving the fight for wellbeing economies is the realisation that the Gross Domestic Product — the GDP — and its “endless growth” may no longer be the right measures to guide our economic policies. What served us well in the past, particularly after the end of World War 2, seems to be increasingly dangerous for the development of our societies. In our latest short video, we’re explaining why that is:

Update December 3rd 2018: If you’re interested in this, here is another blog post that describes what an alternative to “GDP-thinking” might look like, and what countries are doing to implement it.