How should we measure economic performance and success?
We keep using GPD and economic growth and we keep ignoring all the critiques that point out how wrong are both concepts. Most of economists, citizens, and policymakers still use GDP and economic growth as the most important references to evaluate the good performance of the economy (Van den Berg, 2009). Although both ideas, as growth and GDP had been extensively contested in the academic literature (Victor, 2010; Stiglitz 2019), most of economic policies and governmental documents still use these measures as the main referents to evaluate economic performance. This has an effect to all the policies that we analyse and help to implement, including the circular economy itself.
On the last International Mother Earth Day, 22 April 2020, the President of the General Assembly of the United Nations, Tijjani Muhammad-Bande, emphasized that Mother Earth would only be preserved “through a paradigm shift from a human-centric society to an Earth-centred global ecosystem”. In other words, human centric priorities, as economic growth, should not be the first priority in a context of an existential environmental crisis caused by the economic system and an excruciating social crisis resulting from the COVID-19 pandemic. This context obliges scholars and practitioners to redefine how to evaluate economic performance to include environmental preservation or social satisfaction. Although there are plenty of proposals and discussions in the academic literature on how to build new indicators and propose new priorities, the king of indicators still is GDP, invulnerable to its critiques and counterproposals. Or at least this is what we tend to believe. Are GDP and growth as perennial as we think they are? Has all the literature on alternative economic framings been written in vain? Is it true that it is easier for policymakers to imagine an end to the world than an end to the growth-based capitalism?
Are politicians ready to challenge GDP?
On July 2020, the Secretary-General of the UN released a report called Harmony with Nature that explores how countries around the globe try to overcome the productivist paradigm quantified in GDP and growth. As this report says on its paragraph 92 “Harmony with Nature programme commends all efforts to develop and implement alternatives to the dominant growth-insistent economic model and the harnessing of lessons from the present moment in human history to develop regenerative systems. It emphasizes the need for jointly imagining and creating a new normalcy that prioritizes planetary health and human well-being for all.”.
Although governments are yet not overcoming GDP and growth economic models, policymakers and practitioners are understanding that the era of GDP will soon or later be over. The First Minister of Scotland, Nicola Sturgeon, declared that collective wellbeing, not GDP, should be the most important measure of a country’s success. Also, New Zealand’s PM Jacinda Ardern advocated to promote a “well-being” agenda, and Katrin Jakobsdottir, Iceland’s prime minister has urged governments to adopt green and family-friendly priorities, instead of just focusing on indicators based on economic growth.
In 2018, France passed the EGalim law to promote a socially and environmentally sustainable farming, prioritizing environmental protection over free enterprise. Also, grassroot approaches are gaining force as alternatives to address the social and environmental challenges caused by the growth-driven economy, as the case of the Solidary Economy in Brazil.
Are there implemented alternatives to growth and GDP?
Few examples showcase that is possible to calculate the economic performance of a country beyond the use of GDP. Some indicators try to incorporate elements to the use of GDP to nuance its results, as the Human Development Index an indicator developed by the United Nations Development Programme (UNDP), or the Green National Product, but these indicators still do not challenge the use of GDP and therefore, still encourage growth as a goal.
A handful of countries are also developing alternatives to GDP and growth. In the case of Bhutan, the Gross National Happiness (GNH) Index has been used to calculate the performance of an economic approach based on collective happiness and wellbeing. The GNH consists of four pillars: environmental preservation, sustainable and equitable development, preservation and promotion of culture, and good governance. In Canada, the Canadian Index of Wellbeing (CIW) is composed of eight interconnected domains that focus on how wellbeing of Canadians evolves over time. The CIW aims to measure societal progress instead of productivity and is composed by a set of subjective and objective indicators that include domains as democratic engagement, environment, public health, living standards, and leisure. The state of Vermont, in the USA, adopted the Genuine Progress Indicator in 2012 by legislation and many states had emulated Vermont and adopted the same indicator ever since. With regard to growth, the city of Amsterdam adopted the Doughnut Economics approach as a substitute to the global attachment to economic growth. Also, the Chinese premier announced that China will abandon the GDP growth target for this year due to the context of the COVID-19 and the world economic trade environment.
And what about the EU?
At the moment of writing this post, the EU still did not announce the promotion of any alternative to GDP to redefine and measure economic performance. The launch of the EU Green Deal and the second Circular Economy Action Plan (2020) were historical opportunities to reopen the debate of economic objectives. However, reports and internal documents of the EU institutions may start to recognise the need to re-contextualize GDP and to acknowledge its limitations. This November, a briefing of the Directorate-General for Internal Policies, from the European Parliament, acknowledge the shortcomings of the decoupling approach and that GDP is a mean to an end, but not an end per se, therefore, sufficiency-oriented strategies should be considered to meet the EU environmental targets . Of course, we are just talking about a small report, but in any case, we should keep a close observation on the EU’s position towards issues as growth and the potential that new debates open up.
This post (and the image used) has been inspired by this post from @timparrique