One of the most significant measurements in our economy is Gross Domestic Product (GDP). GDP is a measurement of the total value of goods and services produced in a country. It measures the size of a nation’s economy but doesn’t reflect a nation’s wellbeing. While inherently flawed, GDP continues to dominate the space as the measurement to compare countries against one another, and more importantly influence global policymaking.
In a Wellbeing Economy, we argue that it is time that we move beyond GDP and find a more holistic measurement that encapsulates both human and ecological wellbeing.
In the podcast Citations Needed, Economic Anthropologist and WEAll Ambassador Jason Hickel breaks down the history of GDP, how it drives both the climate crisis and inequality, and what practical steps we can take to ensure thriving livelihoods for all.
What’s the history?
GDP was initially developed as a war-time measure. Simon Kuznets, the economist that created the national income accounts which inspired the current GDP measurement, warned the US congress about using this as the measurement.
“The [people’s] welfare can therefore scarcely be inferred from a measurement of national income as defined above.”
Meaning, there is no determination of social progress or human welfare that can be derived from this metric. So why do we continue to use it?
Using GDP as the main measurement of economic success was solidified after WWII hit. Countries focused on the measure of economic production, as wartime was a race to military domination. Growth ruled supreme. Who could produce the most output, the fastest, and where did the highest capacity lie?
It was further solidified after the Bretton Woods conference in 1944 which had over 700 delegates from 44 nations and created big institutions such as the World Bank, the International Monetary Fund (IMF). GDP then continued to dominate during the 1980s, when these institutions created structural adjustment programs (SAPs) – primary for countries in the global south- which move countries away from national development models and push for global development models that essentially only pursue economic growth.
Luckily, these criticisms of GDP as the sole metric for economic success are coming to the forefront. It’s hard to ignore when the richest 1% of the human population pockets 22% or a quarter of total GDP
As Jason says, “We’re plundering the earth to pay tribute to the global elite.”
To further demonstrate this, Hickel says that if we took ⅓ of the income of the richest 1%, it would be enough to raise everyone in the world above a high poverty line of $7.40/day – eradicating poverty forever. If we took another fraction of that, we could provide high-quality universal public healthcare for the world. And, it would still leave the richest 1% with over $130,000/year per person forever.
These numbers are striking.
Where do we go from here?
Jason points out that once we admit that we don’t need more growth – we can focus on building an economy that can deliver high quality of life for all, and meet the ecological needs of the planet.
The UN Intergovernmental Panel on Climate Change (IPCC) model that outlines how to keep global warming to under 1.5 degrees celsius from pre-industrial levels, requires a reduction in material use and energy use in the global economy. Meaning, we must scale down – or reduce growth.
If both material and energy use is reduced, GDP will likely crash, causing our economy to collapse as our entire system is underpinned by its health. In order to prevent that crash, we need to organise our economy in a way that will not deliver such a catastrophe.
How can we develop policies that allow human flourishing, despite declining industrial activity?
What’s needed is a fair distribution of existing income and a redistribution of productivity gains to more people. Jason suggests that one practical way of doing this is shortening the average working week to four days, increasing wages so they are living wages for workers despite fewer hours, and redistributing necessary labour amongst more people.
He raises an interesting point about how self-defeating we will be if we continue to pursue GDP growth. Yes, the world is switching to renewables at a rapid pace, which will reduce the carbon footprint of our globe. However, renewable development still requires extraction of raw materials. And, if we’re continuing to grow the economy, we need to transition the whole economy to renewable energy and do it three times over to maintain our current pace of growth.
In order to give technology a chance to be effective in delivering goals of human and planetary flourishing, we need to remove the growth priority so that innovations that address some of the glaring problems of the world are elevated, not stunted, because of low growth trajectories. The more you require companies to ramp up supply to meet demand, the more pressure on those capacities and the less of a solution they become.
How does equity play a role?
Equity and justice have to be at the core of this transition to a ‘post-growth’ economy. The vast majority of the causes of the ecological crisis come from excess consumption from high-income nations. If everyone in the world consumed at the level of the average person in the Global South, we would have no ecological crisis. If they consumed at the level of the high-income nations, we would be operating at over 4x capacity of the Earth.
There needs to be a balance between necessary growth for lower-income nations and degrowth for higher-income nations.
The other key point is that this transition must be de-colonial at its core. No longer can the Global North rely on the extraction from the Global South. Imagine the possibility of an economy that doesn’t rely on that kind of extractivism!
Institutions such as the IMF can no longer link voting power to GDP metrics. This is actively exclusionary and continues to set the wealthiest nations up for success. As Jason notes, “it’s crazy to have a plutocracy1 at the heart of global economic governance.”
1 Plutocracy: a society that is ruled or controlled by people of great wealth or income
Jason presents another glaring statistic: “The poorest 60% of humanity only receive 5% of the income from global GDP growth”- proving that the theory that wealth at the top will “trickle down” to all levels of society does not hold true in the real world.
Meaning, this idea that global aggregate economic growth is necessary in order to reduce poverty is untrue. The global south contributes the vast majority of both labour and resources and yet don’t reap the benefit of their output.
We need a fair economy that allows the global south to claim their fair share of yields they produce. This will in turn eradicate much of the poverty in the world simply by distributing income more fairly.
Jason concludes that once we build a more fair economic structure and shift to a post-growth economy we can more easily fight the climate crisis and tackle global poverty.
The last point that Jason makes on the podcast is around the phrasing that, “humans are the virus” that is damaging the earth. He wants to completely shift that thinking. Humans are not the virus, capital is the virus.
Capital is programmed to replicate itself – everything it touches turns into more capital. Exactly like a virus that colonises the host to produce more of itself.
The problem is that expansionary economic systems are organised around appropriation, plunder, and extrication.
It’s time we changed the economic system, don’t you agree?