[DEBATE] : A sneaky attack on prosperity

[Russell Grinker]

Tuesday 10 July 2007

A sneaky attack on prosperity

Those who want to measure human wellbeing by 'happiness indicators' rather
than GDP harbour a deep anxiety about the benefits of mass affluence.

Daniel Ben-Ami 

It’s official. The world’s countries are moving away from economic measures
of progress such as gross domestic product (GDP) towards broader social
indicators. Many experts will welcome the move as a shift to a more
humanistic way of measuring the extent to which societies are achieving
wellbeing. Others will downplay it as part of an arcane statistical debate.
Both reactions are profoundly mistaken. 
Although the discussion takes the form of a comparison of the relative
merits of different statistical indicators of human welfare, it is about far
more than this. The declining importance attached to GDP reflects a broader
anxiety about economic growth and popular prosperity. As other factors are
elevated, such as indicators related to the environment or happiness, there
is relatively less attention paid to GDP. The attack on economic growth is
generally indirect, but nevertheless it represents an important reversal of
priorities compared with those normally associated with nation states. 
The official declaration on the downgrading of GDP came at the end of a
conference on ‘measuring the progress of societies’ in Istanbul last month.
Most of the world’s key multilateral bodies backed the event, including the
Organisation for Economic Cooperation and Development (OECD), which
organised the conference, the European Commission, the United Nations and
the World Bank. According to a key passage: 
‘We are encouraged that initiatives to measure societal progress through
statistical indicators have been launched in several countries and on all
continents.
 They reveal an urgent consensus to undertake the measurement of
societal progress in every country, going beyond conventional economic
measures such as GDP per capita.’ (2) 
This statement in effect gives official international sanction to the shift
away from GDP. It means that nation states, through their membership of
multilateral bodies, are coming to support this approach. Some, including
Britain, have already started to develop their own national wellbeing
indicators. 
Of course this conference did not come out of nowhere. There is a steadily
growing consensus that GDP should be deprioritised. The Istanbul conference
followed an earlier event on the same theme organised by the OECD in Palermo
in Italy in 2004. Earlier this year, the OECD also had a smaller-scale
conference in Rome on whether happiness is measurable (3). 
Nor are such events restricted to the OECD. For example, back in May the
Oxford Poverty & Development Initiative was launched with seminars on such
subjects as ‘missing dimensions of poverty data’ and ‘multi-dimensional
welfare economics’. The speakers included Amartya Sen, a Nobel laureate in
economics who has done much to pioneer this approach, and François
Bourguignon, the chief economist of the World Bank (4). 
The approach was also embodied in Unicef’s controversial report on child
poverty in rich countries. Rather than simply measure poverty by income, it
was based on six ‘dimensions’ of poverty, including material wellbeing;
health and safety; educational wellbeing; family and peer relationships
behaviours and risks; and subjective wellbeing. The publication of the
report led to a panic discussion in Britain as its children came bottom of
the league table. Less widely observed was the fact that the report was
explicitly pitched against GDP. One of its main findings was that: ‘There is
no obvious relationship between levels of child wellbeing and GDP per
capita.’ (5) 
But undoubtedly the best-known example of the shift to a wellbeing approach
are the Millennium Development Goals (MDGs), which were agreed to a huge
fanfare by the world’s leaders in 2000. These commit world leaders to such
targets as eradicating extreme poverty and hunger, achieving universal
primary education and reducing child mortality (6). Last month’s Istanbul
declaration on measuring social progress acknowledged the MDGs were a step
in the direction in which it wanted to go. 
The latest declaration takes the move towards wellbeing indicators further
than the MDGs in two ways. First, it is being applied to the rich countries
as well as poor ones. Second, rather than being restricted to a broader
measure of poverty they are meant to be measures of social progress more
generally. 
Many more examples could be given of the trend away from GDP and towards
wellbeing indicators. For example, there has long been an academic debate
about the usefulness of GDP as a measure of human welfare. As far back as
the 1940s Simon Kuznets, one of the pioneers of the development of national
accounts and a subsequent winner of a Nobel Prize for economics, was
questioning the usefulness of GDP in this respect. Other well-known
economist critics include Herman Daly, John Kenneth Galbraith, Fred Hirsch,
Ezra Mishan, Paul Samuelson, Tibor Scitovsky, Amartya Sen and James Tobin
(7). In 1990, the United Nations Development Programme (UNDP) devised a
Human Development Index that included income, literacy and life expectancy
as its components (8). Amartya Sen was one of the consultants on the report.

A key problem for those grappling with this discussion is that it is not
immediately clear what is wrong with it. Hardly anyone would claim that GDP
is a perfect gauge of human wellbeing. It is simply a measure of the amount
of goods and services produced in an economy in one year. It is also useful
to have a wide range of social statistics measuring such items as infant
mortality, life expectancy, literacy and so on. Even subjective wellbeing
indicators – such as measuring happiness – have their place. Psychologists,
for example, may want to study how humans respond to different events and
experiences. 
The first point to note is that the attack on GDP is generally based on a
caricature. Countless commentators have made the point, often as if it is
their original insight, that GDP is not a perfect measure of human
wellbeing. However, it would be hard to find anyone who would have made such
a claim for GDP in the first place. No one – except perhaps the most
hardcore economics geeks – cares about GDP numbers for their own sake. 
The real target of the attack is not GDP as a statistical measure, but
economic growth itself. Arcane discussions of statistics disguise what is an
implicit assault on prosperity. A powerful current in the discussion moves
to the conclusion that societies should not strive to make themselves
richer. Instead, so the argument goes, people should be happy with what they
have got or perhaps make do with even less. In this sense the discussion of
statistics is part of a broader trend towards growth scepticism – a set of
indirect attacks on the benefits of economic growth (9). 
Such discussions are perhaps clearest in relation to Third World
development. In the 1950s and 60s, the term ‘development’ was generally
taken to mean the transformation of poor, traditional, mainly rural
societies to rich, modern urbanised ones. Today, even at best, it refers to
the alleviation of the most extreme forms of poverty. Such low ambitions are
embodied most clearly in the MDGs. For example, rather than make poor
societies wealthy, the target is to reduce the number of people living on
the pitiful threshold of less than a dollar (about 50p) a day. 
Amartya Sen, now a professor at Harvard, is the arch-exponent of the
contemporary approach. His best-known book, Development as Freedom, argues
that growth should be downplayed as a component of development and ‘freedom’
should be given a central importance (10). But he defines freedom so
promiscuously it is hard to see what he means by it. Among his uses of the
term are removing sources of unfreedom (including poverty, tyranny and
intolerance), political freedom, economic facilities, social opportunities,
transparency guarantees, protective security and even ‘freedom to survive’.
Despite the grandiose rhetoric, what Sen is describing is a retreat from the
idea of development as a process of social transformation. Instead it is
redefined as a series of entitlements, which normally need to be provided by
the state or multilateral bodies. 
Although the debate is not so stark in the developed world, the retreat from
economic growth still has important implications. Economic growth is a key
driver of social progress. It makes higher living standards possible. It
provides the resources to enable humans to live longer and healthier lives.
And it enables people to spend less time working and more time engaged in
leisure or cultural pursuits. The drive to greater affluence is profoundly
humanistic rather than, as the sceptics claim, somehow anti-human. 
To the extent that there is any validity in the attack on GDP as a measure
of growth, it tends to be one-sided. The most common criticism is that
‘negative externalities’ are not somehow incorporated into GDP statistics.
For example, the impact of pollution is not included in GDP statistics,
since it is not counted as output of goods or services. 
But what such criticisms miss is that externalities can also be positive.
The most important example is technology. GDP figures – which just measure
the size of an economy – do not capture the benefits of the improving
quality of technology. Probably the most famous example relates to Nathan
Rothschild. When he died of an abscess in 1836 he was probably the world’s
richest man. Today such an infection could be treated with routine
antibiotics. But back then the technology was not even available to the
ultra-rich (11). 
What the Rothschild story shows is that, if anything, GDP statistics
underestimate the human benefits of economic growth. Having a larger economy
itself has important benefits. But the dynamic to economic growth also tends
to lead to qualitative improvements which benefit humans, too. That helps
explain why the huge improvements in human welfare over the past two
centuries have coincided with steady economic growth (12). 
There are other reasons to be wary of the shift towards wellbeing indicators
as official goals of national governments. For example, they can give
legitimacy to intrusion into individuals’ private lives. If pursuing
happiness indicators becomes official state policy, for instance, it can
lead to all sorts of interference by the authorities. Being happy as an
individual is one thing. Having the state put pressure on you to be happy,
whether you like it or not, is another (13). 
If the sceptics want to attack economic growth and prosperity they should do
so openly. At least then it will be possible to debate the real issues at
stake. Hiding behind statistics makes it impossible properly to discuss the
questions raised by the assault on popular prosperity. 
Daniel Ben-Ami is a financial journalist and author based in London. Visit
his website here www.danielbenami.com . 

(1) For more details on the conference see the website here 
(2) Istanbul declaration, available here (PDF) 
(3) Details of the OECD Rome conference on measuring happiness are available
here 
(4) For details of the event, click here 
(5) An overview of child wellbeing in rich countries, p3. Report available
here (PDF). 
(6) An official outline of the goals is available here 
(7) For an overview of the historical debate, see Jeroen CJN van den Bergh,
Abolishing GDP, Tinbergen Institute Discussion Paper, February 2007 (PDF) 
(8) See UNDP Human Development Report 1990: Concept and Measurement of Human
Development, Oxford University Press 
(9) See Daniel Ben-Ami, Who’s afraid of economic growth? 
(10) Amartya Sen, Development as Freedom, Oxford University Press 1999 
(11) This story is told in David Landes, The Wealth and Poverty of Nations,
Abacus 1999, pxvii-xviii. 
(12) See Daniel Ben-Ami, We’ve never had it so good 
(13) One of the most pernicious moves in this direction is to make happiness
a central goal of education. Richard Layard, a professor at the London
School of Economics, is one of the leading advocates of this view. See
Happiness and the teaching of values, CentrePiece, Summer 2007 (PDF). For a
critique of such views, see Frank Furedi, We need teachers, not amateur
therapists.