‘Growth, growth and growth’ may no longer be the sole aim, but it is still vital, and if measured by GDP, it will prove problematic for Sunak’s Chancellor. Rishi Sunak may be better informed and more thoughtful than his predecessor and, hopefully, won’t just apply simplistic neoliberal formulae for perpetual growth. But growth measurement by gross domestic product has become extremely dangerous.
When Adam Smith conducted his enquiry into the nature and causes of the wealth of nations, his assessment was based on observation of the world in progress. From those observations, such as the manufacture of pins, conclusions were drawn as to economic progression and its impact on the population. Productivity had grown massively, but Smith noted its production caused its workers ‘mental mutilation’, which he argued should be compensated by provision of free education, paid for by the rich. It was, he argued, ‘not very unreasonable that the rich should contribute to the public expense not only in proportion to their revenue, but something more than in that proportion’ [Wealth of Nations, Book V, Chapter 2, Part 2, Of Taxes].
That is not how Smith is quoted today, when the rich have established for themselves an elaborate network of entities which exist for the sole purpose of enabling them to avoid and evade contributing to the public expense.
Smith’s pragmatic observation and application of his moral philosopher’s common sense produced many coherent explanations of how wealth was produced and distributed. But by the middle of the 20th century, the misnamed ‘science’ of economics had replaced real understanding with shorthand measures, such as gross national product (GNP) which was calculated as the gross income of the nation’s citizens wherever in the world it was created.
That was then replaced with gross domestic product (GDP), the value of goods and services produced within the national boundary, irrespective of who the producer was. That enabled nations to encourage foreign entities to invest in their country, acquiring established productive entities. In the UK that resulted in the disposal to foreign buyers of whole industries, such as automotive manufacture, the proceeds being partly invested in rapid development of the predatory financial sector. The UK also gained from fast-growing foreign-owned financial operations basing themselves in the UK to gain ready access, via the City of London, to the tax-avoiding offshore world. Whether activities were value creators or predatory value extractors from the UK’s real economy, all such entities were included in the GDP calculation.
As a measure, GDP is full of ambiguities and inconsistencies. Any activity that can be exchanged for a price, or can have a price attributed to it, counts as a component of GDP. Irrespective of whether its contribution is positive or negative in terms of general wellbeing or sustainability, it is included in the calculation.
GDP is clearly unable to take account of moral values and sustainability. It makes no assessment of the consumption of the earth’s limited resources, impacts on social and ecological macro-systems and their destruction, nor even of criminality. Commitment to the continuous growth of all such is more a cancer than a virtue. Perpetual economic growth in an essentially finite world is simply not sustainable. Humanity has to find an alternative.
The problematic nature of GDP is well understood, but it remains the default measure of economic growth, deflecting attention away from what really matters. Some adjustments might make GDP a more valid measure. Measuring and reporting the separate positive and negative contributions to social and ecological sustainability might make GDP a partially useful measure enabling prohibitive taxation of negative contributions. But in a world which needs to learn how to progress without economic expansion, GDP has only a negative impact and should be set aside.
Sustainable development refers to progression in fulfilling commitments to environmental stewardship, the achievement of universal human rights and equal opportunities for all, plus some social balance in place of ever-increasing inequalities.
Today’s population confronts challenges never before confronted. Opportunities are there for us to act as saviours of mankind and the planet. But, so far, we have continued to destroy. Why is that?
The systems explanation recognises the basic human needs are those of survival, interaction with fellow humans and, at the top level, achievement.. That simple hierarchy can take account of the developing knowledge and understanding of our world and its increasingly apparent frailties.
Achievement is available in many different forms. The pursuit and application of knowledge and understanding in order to aid survival on planet earth is perhaps the most fundamental and valuable focus for satisfying that achievement need.
Without the moral guidance of philosophy or faith, it is perhaps not surprising that human beings might become increasingly immoral or amoral, in pursuit of their own self-interest, a condition encouraged and justified by values-free neoliberal belief.
The constituents of organised money may be able to extract value for their own personal gain. And they may be enabled to evade and avoid their due contribution to the common good. But they cannot escape the fundamental need to make survival, for themselves and their progeny, the greatest achievement of all.
Today, with our hugely improved technologies, we might achieve far more than ever before. Headed in the right direction, a Green New Deal might achieve the necessary changes. And at last, there is some mounting pressure for despatching to history the neoliberal economic belief system which is threatening the survival of our species.
We know where we are. We know where we want to be. We also know how to get there. The people with the money and power to achieve change need to act now. If they do, they will go down in history as the all-time heroes of humanity. If they continue to maximise their own extraction of value from the system, they will rightly be condemned by all other members of mankind as the arch criminals of all time. Or for as long as our species survives.
Gordon Pearson, former Head of Department of Management and Director of MBA programmes at Keele University.
Remaking the Real Economy by Gordon Pearson is available on the Bristol University Press website. Order here for £24.99.
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