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LAST week the Beyond Growth Conference, the biggest European conference to discuss an alternative economic model, took place in Brussels. Over 10,000 attendees filled the European Parliament to listen to dozens of sessions and scores of speakers. Over three days, almost every influential scientist, researcher and economist who has been critical of the idea of perpetual growth for the global economy took the stage.
Kate Raworth (below), Tim Jackson, Johan Rockström, Julia Steinberger, Jason Hickel and Lebohang Liepollo Pheko. All leading lights of the there can be no business as usual academic community. European policymakers also took to the stage. For them, it was business as usual.
The EU politicians spoke of "green growth" and "sustainable growth" and patted themselves on the back for the European Green New Deal. You couldn’t hear the back slapping for the boos and whistles. Every time some variation of “growth but better” was uttered by members of the Commission, including its president Ursula von der Leyen and Paolo Gentiloni, the Commissioner for Economy, it was met with the same cacophony. The room was not the only thing the politicians hadn’t read. They obviously hadn’t picked up a scientific journal in the last decade.
Whether it is the lack of minerals and materials needed for renewable energy technologies, the continued reliance on the unequal exchange between the global south and devouring global north economies, the carbon budget that would be needed to transform the economy to a greener/sustainable business as usual or the devastating impact of our consumption-led economic model on habitats and ecosystems across the world, scientist after scientist painted a picture on the same canvas: Growth or survival.
Across the coming months, we will argue that the Scottish, UK and European economies must reduce their material throughput and move to a steady-state economy. In pure GDP terms, those economies must shrink. We understand that this is something you may have never read before in an economic commentary. So we will start with something most people agree on (including almost every speaker at the Beyond Growth conference) the inappropriateness of using Gross Domestic Product (GDP) as the only macroeconomic indicator. To understand the influence of GDP, it is helpful to tell its story.
What is GDP and where did it come from?
GDP was born in the USA in the early 1930s. Policymakers struggled to comprehend the impact of the 1929 Wall Street Crash, partly because they had no idea of the size of the US economy. Simon Kutnetz, an American numbers man, was on hand to answer the call. He solved the problem by calculating the US’s national income and later added the refined GDP. By the mid-1930s, Kutnetz was already aware of the monster he had created and was at pains to stress: "The welfare of a nation can scarcely be inferred from a measurement of national income". Only a decade later, at the Bretton Woods conference to establish a new global financial order, GDP was the macro measurement used to measure the welfare of a nation.
There are three ways to calculate GDP. The most common way to calculate GDP is the “expenditure approach”.
Gross Domestic Product = Consumption + Government Expenditure + Private Investment + Exports – Imports.
It counts the cost of everything and the value of nothing.
It could be argued that in the 1940s, focusing on GDP made sense. Across Asia, Africa, and beyond, Colonial powers like the UK, Belgium and France were still ripping the resources from their dominions, starving them in the most literal sense of the word, while greatly hampering their economic development. The national economies of these nations had to expand. In the "developed world", the War was causing an almost incalculable destruction of human, man-made and natural capital.
With so many with so little, GDP was a useful wellbeing shorthand. During the post-war "Golden Age of Capitalism", global GDP exploded, ending with the oil shocks in the early 1970s. Millions were pulled out of poverty, but this global expansion did little to close the vast gaps between nations. According to the United Nations, between 1961 and 1970, the average annual GDP growth rate among developed market economies was 5% and 5.5% for developing countries.
Growing pains
By the 1970s, GDP was widely questioned as a macroeconomic indicator of wellbeing in a modern economy. Beyond a certain point, economic growth, as measured by GDP, stopped adding to people’s perception of wellbeing. What seemed to be more important was relative wealth. Unless an increase in GDP was shared equally, it was not increasing individual wellbeing.
As well as the societal impact of chasing a macro-aggregate measure, the ecological strains of growth were beginning to show. As the world collectively started to chase GDP growth, the socio-economic development of the world moved to a new plain. Will Steffan and colleagues charted the change in their seminal 2015 paper, The Trajectory of the Anthropocene: The Great Acceleration.
In the 1950s, the global population rose exponentially, especially the urban population. Tourism exploded, as did transportation. Energy, water and fertiliser use started to show "hockey stick" growth. This all had an impact on the ecosystem. Steep rises in carbon dioxide, methane, ocean acidification, surface temperature, tropical forest loss and biosphere degradation accelerated as the world focussed on growth, as measured by GDP. Policymakers were forced to focus on the flows in the economy and pay no concern to the stocks.
As Joseph Stiglitz, the American economist, said: "GDP tells you nothing about sustainability." The flows, for example, the number of new wooden tables, were likely undermining the stock of natural forest resources. By chasing GDP, we have created the conditions for much poorer wellbeing. As US presidential candidate Robert Kennedy said in 1968: "GDP does not allow for the health of our children, the quality of their education, or the joy of their play."
Kennedy could have spent his whole speech listing the problems with GDP. It does not value any household chores or care. It has no way of calculating the support of your local community. Of time spent relaxing. It does not value the ecosystem services rivers, forests, soil, or oceans provide. None of this is measured. And what is measured matters.
With GDP, a proxy for wellbeing, the economy's growth became an end, not a means. Growth for the sake of growth. For most of the global north, GDP is not delivering wellbieng.
But GDP does have its use. It measures the pile of stuff (the throughput of an economy). In accounting terms, GDP in Scotland, the UK, Europe, and the global north must fall to avoid ecological collapse. We need less stuff.
GDP should not be the target for any country.
Despite the decades of evidence that GDP as a target hastens ecological collapse and is not a proxy for wellbeing, it is still the macro indicator of choice. It can be argued that sustainable growth was possible up until around 1970. After that, at a global level, growth likely became uneconomic.
How does this all relate to Scotland?
At the Beyond Growth conference, there was a consensus that GDP was a poor measure of wellbeing. The view of the majority of the audience and this column is that policymakers should abandon GDP growth as the target for their economics. So how likely is this in Scotland? According to the poorly briefed co-president of the Club of Rome, Sandrine Dixson Declève, Scotland already has a “wellbeing economy”. If only.
Scotland is, however, a founding member of the Wellbeing Alliance Governments (WEGO), a group of progressive nations that includes other small nations like Finland and New Zealand. But wellbeing economies they are not. They are all still addicted to the growth drug. And the Scottish Government just can’t shake the habit.
The National Strategy for Economic Transformation (NSET), written in March 2022, confirmed the Government GDP target was to “significantly outperform the last decade”. Scottish politicians wear the same clothes cut from the same cloth as their European counterparts. Green growth cries the NSET, but better. This time, it really will trickle down.
Scotland must ditch its main economic indicator, GDP, to have a wellbeing economy
Our policymakers should concentrate on redistributing the wealth that has been accumulated and on ensuring that growth is, as Herman Daly, the American economist, defined it, economic. Other macroeconomic indicators align more closely with wellbeing by including the distributional factor missing from GDP.
Of the alternatives, the Genuine Progress Indicator (GPI) stands out. The GPI estimates the major benefits and costs of economic activity. According to one of its chief advocates, the Australian economist Philip Lawn, the GPI is designed to estimate “the sustainable economic welfare or progress of a nation's citizens”. This wellbeing approach fits with Scotland’s destination as a modern post-carbon economy and aligns with the Scottish Government’s wellbeing agenda.
Growth had its chance. And we blew it. “Green growth is a myth” said Timothée Parrique, repeating his message to the Scotonomics Festival of Economics in March. In Brussels, he received a standing ovation. He can read a room and a scientific journal. The Scottish Government should follow his lead.
Watch Timothée’s brilliant contribution and other sessions at the Beyond Growth conference here. Join William Thomson from Scotonomics at 2.30pm BST on Wednesday, May 31, to discuss the topics covered in May’s Economics of the Real World newsletter.
