At the opening of China’s National People’s Congress in May, Premier Li Keqiang announced that the government would not set a target for economic growth this year.
This was the first time in decades that the world’s second-largest economy had not fixed a target for its gross domestic product (GDP), the UK’s Guardian daily pointed out. The decision was prompted by “the great uncertainty regarding the Covid-19 pandemic and the world economic and trade environment”, Li told China’s parliament.
Instead, he said, the government would “give priority to stabilising employment and ensuring living standards”.
Ironically, it took a pandemic-scale catastrophe to wake up China’s planners to the reality that the focus on an aggregate growth number had diverted their attention from how the people on the ground were faring.
The fact is that setting a GDP target creates a huge blind spot over things that matter deeply such as the quality of life, environmental integrity and socioeconomic justice.
Unsurprisingly, this dilemma has preoccupied some of the most noted economic thinkers of our time.
In his book Measuring What Counts:
The Global Movement for Well-Being, published late last year, Nobel Prize-winning economist Joseph Stiglitz makes a strong case for GDP to be abandoned.
“The world is facing three existential crises: a climate crisis, an inequality crisis and a crisis in democracy,” he writes with his co-authors, the French economists Jean-Paul Fitoussi and Martine Durand. “Yet, the accepted ways by which we measure economic performance give absolutely no hint that we might be facing a problem.”
The idea of at least augmenting the GDP metric has been gathering momentum since the global financial crisis. In 2007, the
European Commission, together with institutions such as the Organisation for Economic Co-operation and Development, hosted the Beyond GDP conference “to explore how to improve the measurement of progress, true wealth and the well-being of nations”.
The World Economic Forum has been fostering new thinking on the issue for some years. A report on that platform states that a panel of high-profile economists at this year’s conference of the American Economic Association noted the importance of measuring the well-being of families and de-emphasising GDP, “the one-number-fits-all measure of economic progress that currently dominates public discourse”.
In the area of measuring well-
being, the tiny kingdom of Bhutan (population 771,600) has long led the world. In 1972, the fourth King of Bhutan, King Jigme Singye Wangchuck, coined the phrase Gross National Happiness (GNH), declaring it more important than GDP.
The objective of GNH as described in official literature is “to achieve a balanced development in all the facets of life that are essential for our happiness”. It is framed by four pillars: good governance; sustainable socio-economic development; preservation and promotion of culture; and environmental conservation.
These are expanded further into nine domains: living standards; education; health; environment; community vitality; time-use; psychological well-being; good governance; and cultural resilience and promotion.
The range of qualities that are assessed clearly points to a more holistic outlook on human affairs than the conventional measurement of economic activity that is a central pillar of development for the modern world.
It is crucial to recognise that the lacuna in the GDP model is not merely an unfortunate lack of precision in measurement. There is a fatal flaw in its scope that links it to the most serious problems facing our civilisation — irreversible climate change, extreme socioeconomic inequality, global economic turmoil and more.
The essential quality that is missing from the GDP-based economic model is a value system that distinguishes human beings from robots that are programmed to pursue growth at all costs.
Further evidence that the prevailing economic model fails to meet holistic norms is the prevalence of parallel platforms such as Islamic finance, ethical investment vehicles and the concept of Buddhist economics.
Unfortunately, transforming economic outcomes is not a straightforward matter of substituting a flawed model with an improved one. The absence of growth in the current economic paradigm would invite financial, economic and social crises, with joblessness rising and inequality getting worse.
The UK-based movement Positive Money addresses these risks in radical fashion in The Tragedy of Growth, which it released in May.
It proposes to overcome the barriers posed by these growth imperatives, as the crisis-prone factors are called, by addressing the “tension between financialisation and growth”.
The policy document notes that the increasing financialisation of the banking system since the 1980s has generated excessive private debt, which requires GDP growth in order to reduce the risks of financial crises.
“We highlight that commercial banks’ disproportionate allocation of loans to the finance, insurance and real estate (FIRE) sectors hinders growth, thus making the private debt burden unstable,” the group states.
By simultaneously requiring and undermining growth, it argues, the current banking system repeatedly generates financial crises. For good measure, a survey of all financial crises around the world in the past 150 years shows that they were preceded by private debt growth outstripping GDP growth, the document states.
To overcome the monetary growth imperative, the reformers propose that a transformation has to occur in creditor-debtor relationships, “stemming the excessive power of creditors and reducing pressure on debtors to continuously grow their incomes for the purpose of debt repayments”.
Such an ambitious agenda will require the whole of society to shift to new ways of regulating finance, including guaranteeing access to means of payment and ensuring access to credit.
Building the consensus for this transformation will be no mean feat. Lighting the way, however, the governments of Scotland, New Zealand, Iceland and Wales have formed a Wellbeing Economy Governments partnership to promote the sharing of expertise and policy practices in building well-being economies.
Countries in the partnership have adopted a number of powerful policy instruments to change to the new way of doing things. Iceland’s broad-based coalition government adopted the Wellbeing policy agenda in April that has 39 well-being indicators.
Scotland’s well-being economy agenda is supported by the National Performance Framework, which was unanimously passed in the Scottish Parliament. In New Zealand, Prime Minister Jacinda Ardern introduced the first well-being budget in the world in May 2019.
As the concept of well-being becomes integrated into the policymaking frameworks of more governments, it spells hope that economic planning will come around to mainstreaming the idea that economic progress should be measured in terms of how well people are doing instead of merely by the increase in aggregate wealth, never mind the costs.
Rash Behari Bhattacharjee is an associate editor at The Edge