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Growth is not good: the great GDP myth

It’s not some question of being realistic yet effective over being compassionate but economically incompetent: there is absolutely no material basis to continue to measure societies by their GDP, explains BERT SCHOUWENBURG

SINCE the second world war, the number one priority for politicians and their economic advisers is the pursuit of growth, which is typically measured by gross domestic product (GDP), a composite index using consumer spending, private investment and government spending to arrive at a figure representing a country’s economic output.

In today’s media and academic circles, economic growth is widely acknowledged as being an unquestioned and essential good, the absence of which leads to recession, which is regarded as being an undesirable economic state.

Indeed, it is one of the few areas where Labour leader Keir Starmer has not committed a U-turn by frequently saying that he and shadow chancellor Rachel Reeves will make economic growth their principal policy aim once elected.

No opportunity to criticise Rishi Sunak’s Conservative government for anaemic growth figures is missed — and this is invariably echoed by the TUC which equates faltering growth with declining living standards for working people.

In general terms, then, growth in GDP is seen as being synonymous with improving people’s standard of living, though this analysis does not stand up to scrutiny. Its origins can be credited to Simon Kuznets, a Russian-US economist and statistician, who was instrumental in the creation of its predecessor, gross national product (GNP) during the pre-war Great Depression.

He warned the US Senate that national income statistics should be seen as measuring the production and consumption capacity of a country and not socio-economic welfare. His innovation was modified by John Maynard Keynes at the 1944 Bretton Woods conference and became the more inclusive GDP that we know today.

Even when GDP is broken down to a per capita figure, it does not account for leisure, environmental quality, levels of health and education and any activities conducted outside the market that, by definition, are not measurable.

It fails to take into account patterns of income distribution, inequality and technological innovations that have improved many people’s quality of life. In the US, for example, the average per capita GDP is higher than that of Germany but workers in the latter enjoy far more paid holiday entitlement and sickness benefits than their US counterparts.

In many parts of the global South, people who lived on the land were previously self-sufficient and did not figure in official statistics, have been driven off their farms and replaced by plantation agriculture where they are forced to find poorly paid jobs as agricultural labourers, leading to a resultant increase in both national and per capita GDP but at a cost of environmental degradation and drastically reduced quality of life.

As senator Robert Kennedy said of GDP in 1968: “It measures everything, in short, except that which makes life worthwhile.”

It is increasingly being recognised that profit-driven capitalism dependent on infinite economic growth is unsustainable on a planet of finite resources and this has given rise to degrowth theories, which argue that economic policy objectives should focus on social metrics such as life expectancy, adequate healthcare, housing and education as being better indicators of both ecosystems and human wellbeing.

While there is considerable merit in those arguments, a distinction has to be made between material growth, which has clear limits in terms of physical resources, and financial growth which itself can be of extremely dubious benefit when it includes the enormous sums of money made from paper transactions, including gambling, stock market speculation and various other Ponzi schemes that are used to prop up an increasingly precarious “free market” system.

However, that only serves to underline the fact that there is no morality in the pursuit of growth and profits. One only has to look at the obscene amounts of money being made by arms companies out of the awful conflicts in Palestine, Ukraine, Congo and elsewhere to realise that.

The inherent contradictions of equating GDP growth with the sum of human happiness can be seen in the illogical and discriminatory treatment of what constitutes work.

Here in Britain, the increased cost of living and the accompanying decline in living standards forced many women to enter the job market (often heralded as women’s emancipation), so somebody else had to be paid to look after their children.

The net result of this widespread development was an increase in GDP for many women and childminders but at the cost of women not being able to be with their own young children.

This is not to say that it is always women who should stay home to look after the kids but rather to show the absurdities of a situation where there is no payment for looking after your own children but there is for looking after someone else’s, thus improving the GDP figures.

This also applies to the thousands of unpaid carers, mostly women, looking after sick relatives at home instead of having them in an institution where the carers would be waged, and therefore would increase the level of GDP.

What the above scenario shows us is that properly targeted government expenditure could contribute to what we might qualify as sustainable economic growth and simultaneously improve wellbeing and quality of life. Were those thousands of unpaid carers to receive a social wage for looking after their dependent relatives, this would have a positive effect on GDP.

Nevertheless, the evidence of recent decades suggests that the pursuit of increased rates of economic growth is not a realistic scenario. Between 1949 and 2020, the year with the highest annual growth rate in Britain was 1973 when it was 6.5 per cent. In the OECD countries as a whole, per capita GDP grew 3 per cent between 1961 and 1985 and the growth increase in per capita consumption has slowed from 3 per cent in the 1970s to 1 per cent after 2000.

In light of these downward trends, it may seem surprising that so much emphasis has been placed on GDP and so little discussion has been devoted to alternative policies that would be more redistributive, equitable and sustainable.

However, given the slavish devotion to capitalist ideology exhibited by both major parties in Britain and the continued insistence on echoing the Gordon Gekko-like narrative that growth is good, there seems little prospect of change.

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