What does economic success really mean?

This comment article is written by Glenn Vowles, Open University associate lecturer in environment

Economic success has conventionally meant growth in the economy, measured by Gross Domestic Product (GDP) increase. For more than 70 years, this key socio-economic indicator has: captured and communicated trends; given feedback on what is happening in the economy and society; framed public policy and market behaviour.

Statisticians this year began including, among other things, estimates of the value of sex-work and illegal drug dealing in GDP. They didn’t subtract these social negatives from GDP, they added them. Unlike what we usually think of as accounts, the accounting process to produce GDP only adds. The £10billion that was added for UK sex-work and illegal drug dealing is roughly the value of Bristol’s GDP. Later there was a political row when, on the basis of the recalculated figures, the EU asked the UK to increase its contribution to the budget.

All political colours, except the Greens, have increasing growth as their aim. The G20 summit and the Autumn Statement focussed on it. Grant Thornton rank cities using it. Yet this statistic takes no account whatsoever of the costs of achieving growth, counting anything that causes a flow of money as a positive whether good or bad. What’s not included in growth figures reveals it as a very poor indication indeed of general prosperity and progress.

Measures such as the Genuine Progress Indicator meanwhile compare the “costs of crime, pollution, commuting and inequality to the value of education, volunteer work, leisure time and infrastructure, [helping] us understand the true impacts of our policies”.

Academics show that genuine progress has, since the late 1970s, been flat. Here are just three reasons why.  

GDP takes no account at all of the depletion of resources. When the economy grows, finite resources like land are consumed. As a result irreplaceable parts of the capital stock are used up and are unavailable to help meet needs and give people reasonable economic opportunities on into the future. It’s a fundamental matter of fairness that we should not run down, waste or squander resources but our main economic indicator tells us nothing about this cost.

GDP does not reflect the distribution of growth. It therefore does not reflect inequality and it also can’t distinguish between money spent that people actually have or that they’ve borrowed and gone into debt for.  Who is benefitting from the proceeds of growth and how much is a key issue of fairness. If politicians, civil servants, the media and so on thought of reducing inequality as a key part of economic progress then perhaps policies and priorities would be different. Countries that are less unequal suffer fewer health and social problems.

GDP figures don’t show any difference between production that is clean and green and that which is polluting. The environmental costs of growth are thus not accounted for. Yet environmental quality is a very important public health and wellbeing issue. It’s an ecological issue too because polluting industries undermine ecosystem capabilities to provide essentials such as clean water, fertile soil, relatively stable climatic conditions, and biodiversity.

Give me GDP alternatives that do the sums properly any day.

Picture: Photographee.eu / Shutterstock