Efforts to combat global warming can clash with our addiction to economic growth. Even the global benchmark of success, GDP, is flawed.
(Photo courtesy of the Bennett Institute of Public Policy/@kazuend)
Mixed and often contradictory messages are turning the task of halting the headlong rush to planetary resource depletion into a nightmare of missed opportunities.
Urgent calls to reduce, reuse and recycle are crashing into government pleas to spend more. It’s especially true now that the pressure is on governments to boost economies after two years of pandemic destruction.
The problem is not just that changing human behaviour is fiendishly complicated, especially when starting from a position of vast inequalities in income, welfare and opportunities. It is also that Gross Domestic Product, or GDP — the global benchmark of success or failure — is itself deeply flawed, taking no account of sustainability, renewability or environment.
In the mantra of GDP, all consumption is good because it fuels the economy. The more the merrier.
But running a country using GDP as the main measure of progress is like driving a car with the only instrument on the dashboard being the speedometer. It is very good at gauging the rate of travel but gives no indication of fuel consumption or how much fuel is in the tank.
Travelling at a steady 80 kilometres an hour may be a very comfortable speed in many circumstances — like having GDP grow at 3% a year. But without a fuel gauge or an indicator of how much is being used, there is no way of knowing how much longer the trip can continue.
No one has yet come up with filling stations for planets.
“GDP will not tell you how deep is the hole you are digging yourself while at the same time telling you to keep digging,” said Tom Burke, co-founder of influential think-tank E3G.
Many economists argue GDP gives a misleading picture of the state of a nation.
Invented in the 1930s by U.S. economist Simon Kuznets to measure the total monetary value of goods and services produced in an economy, GDP had the novel advantage of being quickly, easily and uniformly measurable, not just across time but across nations.
It became the global benchmark at the Bretton Woods Conference in 1944 as nations began to face the gargantuan task of rebuilding the world economy as World War Two drew to a close. It became the benchmark even though Kuznets warned that it could not, and therefore should not, be used to assess the wellbeing of populations.
But politicians the world over regularly trumpet their country’s latest GDP figure as proof of how well their own government’s economic policies are doing or how badly others are doing. They directly associate spending on physical goods or financial services with national welfare and, by association, with people’s health, wealth and happiness.
The higher, the happier.
Over the decades, many economists have argued that GDP gives a inaccurate, incomplete and misleading picture of the state of a nation and, by extension, the planet, given that it ignores human welfare, resource depletion and environmental degradation.
In place of GDP — or at least to run alongside it and start to give it some relevant context — they have suggested an array of yardsticks, including the Human Development Index, the Genuine Progress Indicator, Green GDP, the Better Life Index, the Inclusive Wealth Index, the Genuine Savings Index and even the Happy Planet Index.
While each has its own validity, none does the job on its own, few are as easily measurable as GDP and most fail to produce simple figures that can generate a slogan or headline.
Decisions driven by climate concerns can produce economic fallout.
Unlike economists, politicians and many others prefer simple good-or-bad, yes-or-no statements. Nuance or ranges of probabilities are hard to digest and even harder to use as a basis for decisions.
Over many decades and starkly illustrated by the COVID pandemic, supply chains have become vastly longer and more complicated. It makes perfect sense from one perspective for someone in Europe to stop buying green beans from Kenya or blueberries from Peru, given the huge distances and carbon emissions involved in getting them to market.
Buying closer to home and when in season is on the surface a logical and conscientious decision.
But what if agrarian communities in Kenya and Peru have grown to depend on the income generated by the demand for their products coming from Europe? Stripping them of their livelihoods might seem a high price to pay for helping save the human race from its own short-sightedness.
There are innumerable similar examples around the world that are nowhere near as simple as to buy or not to buy.
‘Over time, GDP will be displaced.’
Corporate behaviour has not always helped either. Did anyone know they needed, let alone could not live without, a smart phone until the first one was produced?
And with more and more functions being crammed into each version and curtailing battery life, the desire to regularly buy a new one can become overwhelming, adding to the depletion of rare earth metals used to make the batteries but which fuel the economy.
But replacing or at least contextualising GDP is not a simple task.
“GDP does not measure happiness or wellbeing. But that doesn’t make it completely useless. It has value,” said Dimitri Zenghelis, special advisor to the Wealth Economy project at Cambridge University’s Bennett Institute for Public Policy. “It is measurable at regular intervals and comparable over time and across economies. But people are starting to recognise its limitations.”
The project focuses on social and natural capital as crucial factors in assessing actual wealth rather than the purely financial variety.
“GDP does not tell you about things such as freedom, human rights, wellbeing, sustainability, air quality, biodiversity, intangible capital, social capital — natural capital,” Zenghelis said. “Natural capital is clearly going down. But at the same time it is more difficult and takes longer to measure, and it is hard to give it a value. That does not mean you stop trying. Quite the reverse.”
Zenghelis added: “We need to measure what we can as well as what we currently do not. We need to connect numbers with stories, get the ideas into peoples’ heads. The key first step is getting people — the young decision-makers of tomorrow — to start asking questions. Then, over time, GDP will be dislodged by something far more inclusive and relevant. But the key is to start asking the questions. Everything flows from that.”
Questions to consider:
- What does Gross Domestic Product measure and what are its shortcomings?
- When was GDP first invented and why was it adopted as the global benchmark of a country’s economic performance?
- How would you amend or add to GDP to make it more representative of sustainable and inclusive economic performance?
Jeremy Lovell was a correspondent for Reuters for more than 23 years in Europe, Asia and Africa. He covered Dutch, Belgian, British and South African elections, the EU's Exchange Rate Mechanism crisis, Belgian pedophile murders, NATO going to war for the first time, Zimbabwean farm invasions and climate change, energy and the environment.