These are the notes prepared for a talk that I gave at the Cambridge Union on Saturday 23 May, as part of the Global Scholars Symposium 2015. I spoke alongside Nic Marks and Rob Wiblin in a panel discussion on the topic “Alternative Measures of Progress”.
I want to speak about how the challenge of our time is not finding the perfect measure of progress; it’s finding the right mindset for approaching progress – and making our measures meaningful.
I want to start by asking you all two questions, and I want you to be honest. The first question is this: how many of you know the Gross Domestic Product (GDP) per capita of your home country? The second is: how many of you know how the GDP per capita of your home country has changed over the last five years?
The topic of this session is “Alternative Measures of Progress”, and – although there are other measures of progress aside from GDP – I want initially to focus on GDP, because I think it’s the standard measure of progress in economists’ minds. It’s the benchmark against which we can judge alternatives.
Economists can speak of GDP in quite rarefied or abstract terms. But I think it’s important to understand how GDP is actually relevant to our day-to-day life. GDP is important in three main ways:
- First, GDP per capita (the total GDP divided by the number of people in a population) is used as a rough measure of national income or wealth. You see this in atlases, or in The Economist. You don’t often see this figure quoted in everyday conversation, or in newspapers.
- Secondly, GDP growth is used as a sign of whether an economy is in good health. Just before the election in this country, growth was much lower than expected between January and March at 0.3%. These growth figures, calculated by national statistical agencies, are quoted a lot more by politicians and newspapers.
- Thirdly, declines in GDP can result in recessions. A recession is a technical term that means two quarters in a row of negative economic growth. As you know, when a recession is announced, this is generally major news, and as a signal about likely job losses, business confidence, and the health of an economy.
Often when there’s a wave of criticism of ideas or institutions, we can tend to inflate the power of those ideas or institutions. My first message, then, is: we need to get into perspective the power that GDP has. It does have considerable influence over economists, journalists, and politicians. But it is used in quite specific and confined ways. We’re not always aware of information about GDP. We all have our own proxies for progress – signals that we use to decide whether our country or community is progressing. So GDP may have less power than we think.
Nevertheless, because GDP has considerable power, we should be critical about how it is worked out and used. To me, there are three ways of criticizing GDP:
- We can say that if it’s progress we want to measure, GDP isn’t a very good proxy for progress. This is the standard criticism of GDP, and I think it carries a lot of weight. GDP is a measure of the financial value of goods and services produced in a country over a year. It’s therefore really a measure of economic activity. It’s not necessarily a measure of growth, though there’s a link between economic activity and growth. It doesn’t capture environmental destruction; and it ignores the shadow economy, and domestic labour. In short: GDP doesn’t represent what we understand progress to be.
- The second thing we could say, and I think this argument isn’t made so much, is that GDP is manipulated to serve political agendas. In particular, what I have in mind here is the fact that in recent years, austerity economic policy – which just means a policy of cutting government spending to “tighten our belts” or “live within our means” – has been justified because of the recession that the UK went into in 2008-2009. I think this is a special form of economics, recessionary economics, which uses the fact of a recession to shrink the size of a government because of an ideological belief that small government is better. I accept, of course, that recessions might require a shift in government policy. But what I am saying is that a recession has become something like an economic state of emergency, which gives a government a license to do what it wants to restore order. And at the root of this recessionary response is GDP.
- There’s a third way I think we should criticise GDP, which is to question the idea of progress more broadly. We could say that the concept of progress implies a linear improvement across history, when really human beings have cycled through progress and regress, going forward and going backwards; we could say that the urge for progress has resulted in disregard for the environment and in increasing materialism; and we could say that progress often means progress for some individuals and groups, and not others – or progress for some species and not others. I’d accept the force of some of these points (which have been made more eloquently than me by Frankfurt School philosophers like Max Horkheimer, Theodor Adorno, and Herbert Marcuse), but I’d want to hold onto a more limited idea of progress. I don’t believe that history is a story of ever-improving human welfare. I do think, however, that we should be striving to make our world better than it is today. If progress just means this – striving for betterment, aiming at an improved society – then I think we don’t have to abandon it altogether.
What does all this mean, though, for alternatives? Some of you might say that you knew all this already – Joseph Stiglitz and Amartya Sen, amongst others, have written a long report about the limitations of GDP, and I think the weaknesses of GDP even appear now in standard economics textbooks. I want to close with some comments about how we approach progress in a world where we don’t focus so much on GDP – and here I might differ from Nic and Rob a little bit.
The main point I want to make is that I think the challenge is not to perfect our measures, but to make our measures meaningful. What do I mean by that? I think we’ll always have measures of progress that are traded and tossed back-and-forth by people from different sides of the political spectrum. Just think about all the measures we have at the moment: apart from GDP, we have debt, unemployment rates, inflation rates, inequality rates (as measured through the Gini coefficient), export numbers, wage rates; also, away from narrow economic measures, we have carbon emissions, imprisonment rates, crime rates, voting rates, educational results, and many more. I doubt that we’ll ever have a single authoritative measure of progress. And I don’t think we necessarily need to give up entirely on GDP. The challenge, instead, I think, is to understand the measures we have, to recognize the pros and cons of those measures, and to justify why some measures are more important than others.
To do that we need values. We need to explain, for example, why inequality is harmful, and why we should care about the Gini coefficient – and that involves talking about the value of community. We need to argue for why climate change is the most important policy problem of our time, and why we should be looking at carbon emissions – and that involves talking about values like environmental protection and the interests of future generations. And we need to show, in my opinion, that high imprisonment rates are a sign of a society that isn’t progressing, which involves talking openly about forgiveness, or kindness, or love as values. When we refer to these measures, we also need to be clear about what they mean, so that they’re not just another number quoted in the media. And we should acknowledge that there might be some proxies for progress that aren’t well-represented in any measure – and which we shouldn’t try to measure. I tried to sit down and think about values matter to me, and I came up with the following: freedom, equality, community, identity, dignity, security, responsibility, inclusiveness, creativity, and integrity. If you have some time, try to jot down some values for yourself.
To ensure that we’re consistent in the values that we’re invoking, we need ideology, I think. Ideology, to me, is just a pattern of values and a story about where we should be going as a society. It’s not very fashionable to say that we need ideology – most people think that ideology is divisive, and that we should be focusing on what works – but I think both values and ideology can help us to decide as societies what measures are meaningful.
This is an important task for our time. In most modern constitutions, we have shared standards that relate to rights in the political and social sphere. We’ve agreed that we need to look out for where rights – like freedom of expression, or the right to a fair trial – are being respected or undermined. But these constitutions don’t refer to the economy. They don’t usually articulate standards for an economy that is progressing. That’s the debate we need to be having. I am not seeing we should put the measures that matter to us in a constitution, and allow judges to strike down laws or acts inconsistent with these measures. But we need to build a kind of constitution for the modern economy. Each country needs to decide for itself what measures matter. Having that debate wouldn’t be complete progress. But it would be a limited form of progress. And it would allows us to be more thoughtful, more careful, and maybe more caring. That, I think, would be a progress we could all rally around.