GDP is a misguided measure of national prosperity

The wellbeing of the population must be taken into account when measuring economic success

 

The growth of GDP has become the key marker of success in British politics. George Osborne was quick to hail a 0.8 per cent rise in GDP in the first quarter of 2014 as evidence that ‘Britain is coming back’. A year later, Ed Balls declared that the slowdown in the first quarter of 2015 was evidence that ‘working families’ were suffering under the Conservatives.

So central is GDP to the political debate that it has become an end in itself, a proxy for what is ‘good for the nation.’

However, while historically growth and national welfare have increased together, the point where growth drives shared prosperity has long passed. We need to challenge the rhetoric that unquestioningly conflates growth and prosperity in politics: first by understanding why growth cannot be used as a proxy for national welfare; and secondly why uncoupling the two would make for more reflective policy.

The mainstream equation of growth and national prosperity ignores the fact that growth generates losers as well as winners. We see this in London’s housing market where rising prices have pushed up GDP figures when the rest of the economy is still dragging.

Who wins from this? The government can claim to be supporting growth and homeowners see their assets appreciating, while everyone else is spending increasingly unsustainable portions of income on rent or struggling to buy. GDP doesn’t tell us how benefits of growth are distributed – who wins within a population and who loses.

It also ignores the long-term damage that growth can do to our chances of future prosperity. This is clear in several high growth sectors. Coal, gas and oil have increasingly supported growth since the industrial revolution but they are simultaneously being depleted and damaging the planet. Most of us gain in the short-term (albeit to different degrees), but in the long-term this growth is unsustainable and hugely damaging to our chances of future prosperity.

Failing to reflect evenly distributed or sustainable national benefit, growth should be untangled from the idea of prosperity. The insistence that they are two sides of the same coin has been so strong that GDP marks the arena of what is considered ‘valuable’ by politicians: things that are accounted for by GDP are valuable, and things outside it necessarily become secondary.

Primary concerns are those that support growth, and other things come later on the list of priorities. This can perhaps be seen most clearly in the underfunding of care.

Much care is still given freely in the home. Unpaid childcare, for instance, was valued at £343 billion in 2010 – equivalent to 23 per cent of GDP.  Carers of ill and disabled relatives saved the NHS around £87 billion per year in 2006/07, more than the spend of the entire health service. Both economically and in terms of national welfare, care is vital.

Yet public infrastructure and spending does not reflect this – public care is under-resourced, and family carers are undervalued and under-supported. Unpaid care is unaccounted for by GDP, falling outside the realm of ‘the valuable’. As a result, the importance of care as a whole is undermined.

The ONS plans to start measuring unpaid labour with Unpaid Gross Domestic Product – the first figures were promised for mid-2015 – but it will likely be seen as secondary, not enough to rebalance the attention of national press, or the priorities of policymakers. This failure to balance attention is seen with the ONS’s measure of national well-being which has not yet made a political impact.

In 2008, Nicolas Sarkozy established the Commission on the Measurement of Economic Performance and Social Progress, to look into a new measure of national success for France. Headed by Nobel Prize-winning economists Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi, the Commission identified the need for ‘our measurement system to shift emphasis from measuring economic production to measuring people’s well-being.’

The Commission argued that such a system must be plural, capturing as many relevant dimensions as possible. Education, mental and physical health, income (both overall and distribution), quality of the natural environment, sense of social security, could all be part of a composite measure.

If we could measure prosperity differently it could lead to much more productive politics and public policy. The realm of what is considered valuable in political rhetoric would expand as the multi-faceted nature of any composite measure would prevent the single-minded pursuit of production, and ensure that considerations of people and place also get a hearing.

The way in which these different metrics are weighted and combined would no doubt be contentious. But a serious public debate about what it is we value as a society would be another benefit of moving away from GDP.

Brell Wilson is a researcher at Centre for London 
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