In 1991 I argued that infant mortality and emissions were better economic indicators than GDP. Decades later, nothing's changed
When I received an email recently telling me that the publishers had decided to republish my book, Alternative Economic Indicators– 22 years after it first appeared – my first response was shock, and then I felt flattered. But since then, a third response has set in: I find it rather depressing.
The continued relevance of the book is an indication of what a short distance the world has come on the topics I wrote about. The book is basically a critique of the dominance of gross domestic product (GDP) in economics, and a search for alternative ways to measure the success or failure of economies.
Over the past 20 years or so, there have been many similar efforts. Some of them don't go as far as I did in criticising GDP, and some go further. Many opt for types of alternative indicators which I argued against, such as those which seek to "adjust" GDP by trying to put all social and environmental goods into monetary terms, adding and subtracting to make a single overall indicator which might rival GDP. Although in fact none of these suggestions has ever gathered enough support to do so.
The alternative I argued for was to use "real" indicators, such as the infant mortality rate or greenhouse gas emissions, rather than GDP-based calculations. The evidence for the importance of indicators such as these has mounted. And increasingly, critiques of GDP are regularly included within more general challenges to economic orthodoxy and the way that orthodoxy monopolises so many economics syllabuses.
Shockingly little, however, has actually changed. GDP remains dominant. In some limited respects, it is a useful statistic, for example, in managing the overall level of demand in the economy, or for estimating near-future tax revenue and unemployment figures.
However, what it is not useful for is measuring the success of an economy, as its growth is perfectly compatible with environmental disaster, deterioration in living standards, or both at the same time. Yet I still hear the BBC say it's "good news" that the GDP rose 0.8%. Governments still pay more attention to every flicker of a decimal point in GDP change than they do to the figures for infant mortality, ecosystem decline, or greenhouse gases – or more straightforwardly economic indicators like median income or the Gini coefficient of income inequality.
The inadequacy of GDP as a measure of economic success shows up very clearly right now in the gap between the official statistics of UK "economic recovery" and the opinion poll figures, which show that most people don't believe it has reached them. Median income is much closer to people's perceptions of their living standards than GDP per head is, because GDP figures can be raised by a small minority of people becoming much better off, even though most people's real incomes have fallen. Labour's current arguments on "cost of living" are implicitly critical of the dominance of GDP, but they haven't dared take the extra step and say so.
Most economics syllabuses in schools and universities are increasingly seen to be out-of-touch and out-of-date, by students and employers alike. The orthodoxy conspicuously failed to anticipate or explain the 2008 financial crash and its relationship to commodity price increases earlier that year. The current syllabuses are more about transmitting an ideology and a set of political attitudes than they are about enabling students to understand what is happening in the world.
Pressure is building up, and that situation seems likely to change. But it hasn't happened yet, and when it does, there is almost certain to be another time-lag before the media and politicians wake up. These sorts of changes are said to be generational, rather than measured in mere years. However, at this rate it will take two generations to bring discussion about the performance of economies in line with what I thought was perfectly obvious many years ago.
It would be naive to wonder why all this is taking so long. This is not simply about a technical statistical argument. It is a matter of political power and influence. GDP growth serves many functions, but crucially it is a proxy for some of the things that governments, finance, and big business value most, such as company profitability, which is sensitive to changes in GDP growth rate.
Sadly we still do not live in a society in which social progress and environmental sustainability are given as much importance. If I were to write my book again now, I think I would give more attention to how this situation might be changed.
Victor Anderson is visiting professor at the Global Sustainability Institute, Anglia Ruskin University, Cambridge
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