For years already, there is a debate ongoing about the role of economic growth (in terms of GDP and related measures) with regard to well-being and environmental sustainability. While some claim that GDP growth is a well-suited tool for economic policy-making and should not be questioned as a social indicator as well, most see this as problematic. It is widely believed that within the current economic system, economic growth causes disruptions both in social and environmental systems – in the latter particularly. But this let to another debate emerge, regarding whether GDP growth and environmental impacts can be decoupled or whether a transition to a no-growth economy is the only solution of anthropogenic environmental problems. But is this ongoing debate not detracting our attention from more real problems?
For the time being, GDP remains the single most important indicator of the success of economic policy throughout the world – mainly because it is widely believed that other variables (e.g., unemployment) are inherently dependent on sustained economic growth. Thus, GDP (growth) is seen as a “proxy” and the debate I mentioned in the beginning is about whether this proxy does really deliver.
But maybe the problem lies elsewhere? In fact, both sides seem to focus too heavily on the growth issue. If we have doubts regarding the quality of the proxy measure, let us just switch to more direct measures of what we want. The clear downside of this would be that we would be forced to use a whole system of indicators instead of focusing mainly on one figure. But we would likely know with more certainty whether our actual social and environmental goals have been achieved or not.
Which indicators may such a system include? Here are some proposals:
- (un)employment rates: this is perhaps the single most important social indicator, and is already in wide use; if it is to make sense, it should incorporate some measures of the quality of working relationships (e.g., those lacking social benefits counting less than regular ones); furthermore, there have been calls from experts for taking account of household work in labour statistics;
- inflation: even though less important in my opinion, inflation (also widely used an indicator already) should nevertheless be included, since fluctuating and unstable prices disrupt both economic activity and the people’s confidence regarding their future;
- poverty: an indicator of how many people live below a certain (necessarily ad hoc) poverty threshold (in terms of income and, perhaps,deviation from mean life expectancy within the society – both adjusted according to the capability approach, e.g. for chronic illness or handicap);
- life satisfaction: although it is widely discussed whether aggregated subjective feelings should be the basis of policy, there is no reason for excluding satisfaction survey results from a broader system of indicators;
- health: it is hardly possible to aggregate health data into one indicator (although attempts to do this were made in other contexts, see e.g. the QALY concept), but some possible single indicators could be: cancer rates, depression rates, obesity and overweight (particularly among children), diabetes rates etc.; in developing countries, life expectancy is mostly used for this purpose, but it is arguable that it does not provide much insight in richer societies;
- environmental impacts: again, it is not sensible to use one aggregated indicator here – environmental impacts of human activity are far too diverse; however, many single indicators come to mind: greenhouse gas emissions, anthropogenic nitrogen and phosphorus flow, land-use change (especially the conversion of forests into less natural systems), freshwater flow and quality, biodiversity rates (including numbers of threatened species), exposure to anthropogenic toxics and particles etc.
These are only some broad proposals, partly inspired by the recommendations made by the 2008 Commission on the Measurement of Economic Performance and Social Progress headed by Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi (see their report available here). Some of them may be contested, others may be added. But the purpose of this post is to question the sense of using GDP as the main indicator for economic and social policy, not to provide a ready-made alternative. Furthermore, as I stated in the beginning, I also view the debate about GDP growth as largely futile, as well as the attempts to adapt it to include e.g. environmental impacts – the social and economic reality is just too complex to put it in one single number, however elaborated.
Politicians won’t like this approach – it is much easier to work with a single number than with a whole system of indicators. But they, just as we all, have to face the truth that on indicator of such complex matter as social progress just cannot deliver. Furthermore, by embracing the system of indicators approach, we could largely avoid the futile debate of whether decoupling growth is possible or not. It wouldn’t matter any more.
The Sceptical Economist 