The economy as a human affair

We need to begin to think about ways in which the state can intervene in the market to promote new visions of progressive political economy

Dan Bailey
Dan Bailey

There is a growing recognition that Gross Domestic Product (GDP) is, on its own, an inadequate measurement of socio-economic progress, at least in post-industrial countries such as the UK.

Of course, critique of GDP’s prominence in the political arena is longstanding. Robert Kennedy famously stated that GDP ‘measures everything… but that which makes life worthwhile’. The works of Tim Jackson, the New Economics Foundation and the Sen, Stiglitz and Fitoussi Commission, all of which address the negative environmental and social dimensions of growth, have enriched this tradition of thought in recent years.

Indeed, the Sen, Stiglitz and Fitoussi Commission also argued that the fixation with GDP has even failed us economically. It is admittedly a counter-factual argument, but it is intuitively plausible that a broadened dashboard of statistical indicators (including assessments of environmental and fiscal sustainability) could have tempered the euphoria of the pre-crash years and alerted us to the dangers of a growth model based on unsustainable credit and asset bubbles.

It would be specious to suggest that GDP doesn’t have its merits as a macroeconomic indicator. This is particularly the case in an era of high unemployment and (relatively) high levels of public debt. Historically, strong correlations can be found between economic expansion and both fiscal consolidation and a reduction in unemployment.

There is, nevertheless, a wealth of evidence to suggest that growth is not the elixir it is often portrayed to be. The discursive obsession with GDP can be seen as entirely disproportionate, and perhaps even counter-productive, in enhancing well-being.

As Tim Jackson has noted, in the monetarist era of wage repression, the proceeds of economic growth have been concentrated in fewer and fewer hands. This has meant that for the vast majority of the population ‘incomes in western countries were stagnant in real terms long before the current recession. Far from raising the living standard for those who most needed it, growth let much of the world’s population down over the last 50 years’.

Even worse, this concentration of wealth has led to a rise in income inequalities which, as empirically illustrated by Wilkinson and Pickett, is associated with a host of adverse variables such as ill-health, mental illness (including drug and alcohol addiction), violence, longer average working hours, falling levels of trust, declining life expectancy and growing infant mortality, obesity, falling educational performance, teenage pregnancy, homicide, increased imprisonment rates and lower social mobility.

These are of course traits symptomatic of the Anglo-liberal growth model, rather than of growth itself. There is, however, simultaneously a sense that the correlation between an expanding economy and an expansion of well-being, which is after all the underlying justification for the pursuit of GDP, has been largely severed in post-industrial societies anyway. As Richard Layard has demonstrated, once average incomes have risen above a certain threshold and material needs have been satisfied, further income growth has a liminal influence on well-being.

Crucially, growth also tends to intensify the processes of anthropogenic climate change, meaning that the pursuit of GDP may ultimately precipitate large-scale environmental degradation and subsequent humanitarian catastrophes. Consequently, in recent decades, growth for its own sake has begun to look more and more like fool’s gold.

The economy is a human affair. Yet economic policy-making has in recent times been carried out in a technocratic and quasi-scientific manner, with the perfunctory pursuit of growth the modus operandi of economic policy-making, and social and environmental concerns marginalised.

Economic management has been depoliticised and co-opted by economists beholden to a simplistic but influential a priori assumption that expanding aggregate utility – in other words, expanding our ability as a populace to buy products and services – is a sufficient proxy for the well-being of the citizenry.

The central question, therefore, becomes this: how do we recalibrate our governmental metrics to satisfy our contemporary social and environmental sensibilities? How do we define the ‘progress’ to which we now aspire?

It is unlikely that the answer to this question solely relates to further economic expansion. If this is true, indeed even partly true, this has enormous implications for the type of economic re-structuring which SPERI is committed to deliberating.

Allowing a profit-led logic to guide economic policy-making to an excessive degree has rationalised (amongst other things) ecological degradation, risky speculation, debt-fuelled consumerism and the growth of social and geographical inequalities. Particularly in a time of impending ecological catastrophe and social hardship, it is necessary to embed a greater focus on sustainability and human welfare through the creation of a more pluralistic framework of metrics.

So how do we cultivate a framework of economic governance that promotes a prosperous and sustainable way of life?

Although alternative indicators and the methodologies for quantifying them remain far from perfect, the capabilities approach associated with Amartya Sen and Martha Nussbaum has garnered significant academic attention and has been institutionalised to some extent in the United Nations Human Development Index (HDI). Carbon output is also widely recognised to be of increasing importance, and there is growing confidence in the well-being statistical movement.

A nexus of these alternative statistical insights has the capacity to advance a more holistic and nuanced mode of designing and assessing the functioning of the macro-economy, and thereby to promote and institutionalise a logic of sustainability and well-being, rather than profit, that emphasises the importance of non-market values.

But – and here’s the crunch – if we decide that our notion of socio-economic success is more complex, substantive and wide-ranging than simply the maximisation of aggregated national profits and incomes, we are unavoidably talking about subverting fundamentally the market values of profit-led optimality. This, of course leads us on immediately to other important, and equally vexed, questions: where, and how, can the state intervene in the market to promote non-market values that serve to protect both environmental sustainability and welfare?