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Redefining growth - by William Bourke of the Sustainable Population Party

The Group of 20 (G20) is meeting in Brisbane this week to discuss the global economy. William Bourke says we should focus less on the GDP and instead look at real progress indicators like high employment, a diverse economic base and sustainable resource management.

At the G20 Finance Ministers and Central Bank Governors meeting in February, Australia’s Treasurer Joe Hockey pleaded with participating nations to increase their aggregate Gross Domestic Product (GDP) by 2 per cent per annum. GDP growth will again top the billing at this week’s G20 Leaders' Summit in Brisbane.

But few if any commentators have paused to ask a simple question: What does GDP growth provide for ordinary citizens?

GDP is the primary indicator used by governments and media to gauge the health of a country's economy. It represents the total dollar value of all goods and services produced over a specific time period. But there are serious problems with this indicator. GDP theory not only presumes an impossible world of unlimited resources – such as forests, oil, fish stocks, arable land and water – it counts many negative elements as positive contributions. For example, did you know that both cancer and a car crash can increase GDP? They both demand goods and services.

Another major weakness in GDP is that the depletion of our non-renewable environmental resources such as minerals and natural gas is counted as a positive, instead of a negative as is required in proper accounting standards (via depreciation).

It is also improper that the headline GDP figure does not account for population growth. If GDP grows at (say) .3 per cent in a quarter, but population growth is .5 per cent, we are going backwards on the GDP scale. During the GFC Australia had a per capita recession, with negative per capita GDP over two consecutive quarters. But only one or two economists mentioned this, and the myth still exists that Australia has had over 20 years of unbroken ‘growth’. Even today population growth is well over half the rate of aggregate GDP. At the very least we should be reporting GDP per capita.

The bottom line with Joe’s aggregate GDP growth obsession is that he’s forgotten to ask whether ordinary citizens are actually happier. GDP is a useful measure of economic activity, but it doesn’t measure human wellbeing or happiness, or equality.

In a step towards true social justice, we need to redefine ‘growth’ in our finite world. Not just for our sake, but for future generations. If we are to secure a prosperous economy, healthy environment and better quality of life, growth must focus on quality, not quantity. At present, who could argue that Australia’s economy, environment or quality of life are heading in the right direction? Under the current political duopoly, we're getting much bigger, without getting better.

Australia’s economic prosperity does not depend on the GDP statistic. In fact, GDP is a side-show. It would be more accurate to say that our economic prosperity is underpinned by three key pillars:

1. Investment in better education and skills training to improve job security, workforce participation and innovation

2. Encouragement of a diverse range of productive industries and

3. Maintenance of our natural economic advantage via careful management of food, water, energy and mineral resources.

This third point is often overlooked in economic terms, and like the others, is undermined by rapid population growth. Rapid population growth acts as a disincentive for local training and education, and skews scarce economic investment into relatively unproductive city-building assets, like high-rise apartments.

We should not obsess over Joe’s arbitrary GDP target. In fact we should ignore it and focus on genuine progress indicators. If we achieve high employment, a diverse economic base, and sustainable resource management, GDP will take care of itself. We can be better without getting bigger.

 

William Bourke is President of the federally registered Sustainable Population Party.

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Comments

If breaking a window increases GDP, why not go down the street and break them all? This is the glaziers fallacy, a thought experiment introduced by Bastiat.

We are taught that GDP = Standard of living, which is partially true. But does GDP alone do this? If standard of living is eroded to increase GDP, obviously not. It is frustrating that many leaders dont acknowledge this, or refuse to acknowledge the paradox of increasing GDP by reducing quality of life.

In the past, GDP wasn't considered important, so why is it now? Why do we obsess over this, when throughout much of history, it wasn't a thing to gear a nation towards or even measure.

My hypothesis is that this is the result of a society beginning to find metrics for everything, and measure and compare, and then coming to the wrong conclusion. When one decides to measure GDP, something obvious becomes apparent. Nations with higher GDP have a better standard of living. The correlation is strong, so people became even more fixated on metrics. Metrics, metrics, metrics. We judge everything my metrics, even a cities livability is measured by plonking data into a spreadsheet.

So there is a correlation, what does that mean? Higher GDP means better quality of life? Generally, yes, but not necessarily. A nation which can PRODUCE will have a better quality of life, because it is capable of providing people with the housing, food, medical treatment and lifestyle they desire. It very simple. Nations which cant produce, don't have food, medicine, tools and hence social stability and peace. Nations which can, generally do. GDP is an indirect measure of this, as it reflects the productive capability. The capability and potential to produce, innovate and invent is the key. This results in higher GDP, but it is this, not GDP which ultimately matters.

But rather than GDP being a coarse indicator, it became the be all and end all. Now, we equate the exact GDP figure with success, and like absolutely everything we develop a metric for with regards to society, it becomes corrupted, misunderstood and a problem. From this observation, we now think the metric itself is responsible for success, rather than the processes behind it.

Consider life span. Life span is a good indicator of quality of life, as nations with longer lifespans are healthier and safer. But what if we said good, now lets work towards increasing it, and did so by banning dangerous activities, keeping terminally ill and suffering patients alive as long as possible, and keeping old people alive as long as possible in palliative care in a vegetative state. We could ban unhealthy food, drinking and lots of other things. It would be sure to raise the average lifespan, and then we could point to the number and say "Look here, this PROVES we are better off", all while forgetting the point of it all.

So it is with GDP. I think GDP is important, and gives indicators, so I disagree it is a sideshow. But I think that targeting a GDP percentage is a problem, just the same way setting population targets can lead to evil. We should only observe it, and try to deduce what trends mean, within a broader context. Rises or falls may or may not be a problem. It all depends on context, and economists don't do context.

In February, G-20 leaders vowed to boost collective GDP by an additional 2 percentage points by 2018 – an ambition that appears increasingly challenging as members from Japan and China to Germany and Russia witness slowing growth.

While the world hails China and the US for moving forward on curbing carbon emissions, Australia is backsliding by scrapping a tax on carbon and resisting pressure to expand the use of renewables. Abbott's justification? The need for "growth". In fact, Australia's prime minister wants the rest of the G20 also to pledge to grow by an additional 2 per cent or more over five years. "Growth" can be malignant, and destructive!

Mr Abbott: The world doesn't need another growth target at G20

China's annual pledge to generate a fixed expansion in gross domestic product - 7.5 per cent this year - is also the biggest roadblock to clearing its air and eventually reducing emissions. So, there comes a point in which growth becomes detrimental, and the benefits end up being eradicated by the cost of pollution, environmental degradation and carbon emissions. Tony Abbott, a climate change denier, would rather ignorantly forge ahead and leave future generations with the burden of cleaning up the mess from this generation's megalomania. and greed for GDP growth. At least China will reduce their target next year, but Abbott is still forging backwards towards detrimental and unsustainable growth fixation!

In a step towards true social justice, we need to redefine ‘growth’ in our finite world. Not just for our sake, but for future generations. If we are to secure a prosperous economy, healthy environment and better quality of life, growth must focus on quality, not quantity. At present, who could argue that Australia’s economy, environment or quality of life are heading in the right direction? Under the current political duopoly, we're getting much bigger, without getting better.

As stated by William Bourke, Australia’s economic prosperity does not depend on the GDP statistic. In fact, GDP is a side-show. It would be more accurate to say that our economic prosperity is underpinned by three key pillars:

1. Investment in better education and skills training to improve job security, workforce participation and innovation

2. Encouragement of a diverse range of productive industries and

3. Maintenance of our natural economic advantage via careful management of food, water, energy and mineral resources.

What we need is for economic growth to be redefined to one that's descriptive of present day times, approprate to the challenges of climate change, human population growth, the decline of finite natural resources, and the rights of Nature to exist and thrive for the benefit of ALL species - not a narrow definition based on a narrow economic metric.

All the emerging markets members of the G20 were expanding slower than their 10-year average.

Fact is, the G20 will struggle to meet current growth hopes, let alone elevated ones. Rather than obsessing over a nonsense target. It's time for Australia to go beyond real estate, population growth and mining-dependant economy. We need another indicator of economic targets, one that's based on our nation's population and environmental health, and good stewardship of finite natural resources.

Vivienne, you raise a good point about needing more diverse industries. We are stuck just with constructing (crappy) units and declining mining.

I'm an admirer or Dr Deming, an American engineer from Iowa, and statistician who made large improvements in quality management (my profession). This was when Americans made quality products. Today, management is obsessed with KPI's, metrics and so forth. Deming said that these were overstated in importance, and management by metrics is a poor strategy. Amen!

I quote, "...management by numerical goal is an attempt to manage without the knowledge of what to do, and in fact is usually management by fear".
"Out of the Crisis" 1982 Ch2 - Principles for transformation.

He stated often the most important things were unknown, unknowable or unmeasurable and these things which evade easy measurement and are difficult to quantify, or even define, are often most important. Do our leaders think like this? It certainly is true. The biggest factors determining out lives, are currently beyond any metrics. Hence why "most livable city" titles are a side splitting joke.

Perhaps the best metric, is to just ask people if they think life and their vision for the future is getting better. Problem is, most people will give the answer that News Limited will have drummed into their heads, rather than their own answer.