Altering our conception of what constitutes economic success

24th March 2022

We need to alter our conception of what constitutes economic success, says Tom Pashby

The UK economy has seen huge changes since records began, with governments swinging from massive investment in public services to privatisation and the pursuit of a small state. This year’s Budget came at a time when the cost-of-living crisis is making some people choose between heating and eating, while the wealthiest in society enjoy historically low taxation.

Our economic conditions have changed dramatically in the past years and decades. The UK has shifted from a manufacturing economy to a financialised and service-oriented one. Precarity of work has expanded with the advent of ‘platform’ employers such as Uber and Deliveroo, with zero hours contracts, shifting definitions of the word ‘worker’ and the ongoing failure to recognise unpaid socially reproductive work as economically valuable. Automation has been replacing people in jobs for hundreds of years, but this has increased since the information technology boom.

The climate emergency is impacting the economy in many ways, particularly in the jobs market. Increasing numbers of people are moving from fossil fuel or consumption-related jobs to roles in climate mitigation and adaptation. Climate chaos is also acting as a risk multiplier for the most vulnerable people, including in the UK, and expands wealth and health inequalities.

The problem with GDP

Ongoing global political changes have moved the UK’s place on the global stage from the largest empire in history to a middle-ranking economic power, with much of that change happening in the past 100 years. Soon after that decline, economist Simon Kuznets developed the concept of gross domestic product (GDP) as a way for national-level decision-makers to understand what was happening under their management, and a measure of the success of their economic policies. In 1934, he warned the US Congress against its use as a measure of general welfare. GDP has been used as a key measure of economic wellbeing in the UK since at least 1955, and by the World Bank since at least 1960.

“GDP rises if you destroy a home and then rebuild it with new, perhaps non-renewable materials”

There are economic indicators other than GDP that are used extensively in the UK and the wider world, such as GDP per capita, employment, unemployment, stocks and shares indices, median wages and taxation receipts. However, these cannot completely accurately describe the wellbeing of the overall economy. GDP rises if you destroy a home and rebuild it with new, non-renewable materials – clearly not a useful activity. Another issue is that in economically unequal countries such as the UK, GDP tends to over-represent the wellbeing of very wealthy individuals, with people in poverty effectively ignored.

The climate and ecological emergency is another example of the failure of these measures. If we simply ignored the climate crisis and engaged in activities such as aiming for maximum economic output of North Sea oil and gas, GDP and the rest of the traditional measures would indicate improvements to general welfare. They would fail to consider the expansion of extreme weather events, vulnerable communities’ decreasing access to insurance products, climate-related deaths and ecological destruction.

An alternative approach

A growing number of alternative economic indicators have appeared in recent years. These include the capability approach, the Human Development Index, the Index of Sustainable Economic Welfare, Gross National Well-being and Gross National Happiness. Indeed, the Gross National Happiness measure, which takes a more holistic approach towards ‘progress’ and recognises the contribution of unpaid work to overall wellbeing, has been adopted by the government of Bhutan.

IEMA’s policy and engagement lead on biodiversity and natural capital, Lesley Wilson, recently submitted written evidence to the House of Commons Environmental Audit Committee (EAC) that echoed some of these concerns about GDP, and proposed that the government create new economic indicators to take natural and social capital into account. The EAC was seeking evidence to support its enquiries into aligning the UK’s economic goals with environmental sustainability.

While UK chancellors continue to use reports about GDP growth, stagnation or shrinkage as some of the most important indicators of their policies’ successes, we will be left with huge blind spots over our labour markets, household activity, environmental welfare and capacity to adapt to the climate emergency.

Tom Pashby : IEMA Digital Journalist

Image credit | Paddy Mills - Synergy Art


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