by Marlborough-based journalist and author, Tony Orman
The new buzz word
There’s a new tone likely in the forthcoming budget. A month or so ago Prime Minister Jacinda Ardern hinted that a “wellness” flavour was likely to feature in the 2019 financial statement, a.k.a. the Budget.
Then in another snippet of news it was announced Treasury Chief Executive Gabriel Makhlouf “who is credited with introducing well-being measures into government budgets, has taken a job as governor of the Central Bank of Ireland.”
The departing treasury CEO is not the only economist to talk about “well-being”. Other economists are increasingly mentioning a departure from focussing solely on monetary values and instead embracing human aspects such as the well-being of people and the environment.
Considering social and environmental values as well as economic ones
One or two public advocacy groups have called for wider criteria in running an economy. For example the Council of Outdoor Recreation Associations of New Zealand (CORANZ) in its election charter presented to all MPs before the 2017 election called for replacing Gross Domestic Product (GDP) with Genuine Progress Indicator (GPI) to measure the nation’s progress.
The reason for the latter’s inclusion in the CORANZ charter (i.e. GDP versus GPI) is that GDP measures the country’s state by solely economic values whereas GPI embraces not only economic but social and environmental values.
The relative merits of GDP and GPI are being increasingly debated. Just a couple of weeks ago the prestigious Financial Times reported “there is a growing chorus of economists who say it’s time to stop using gross domestic product as the prevailing measure of growth and economic progress. Barclays, one of the world’s largest banks, just joined in.”
“Doughnut Economics” hits the spot
Also recently I’ve just read a most interesting book called Doughnut Economics subtitled “Seven Ways to Think Like a 21st Century Economist” by Kate Raworth, published by Random House Business Books.¹
The world is undoubtedly undergoing traumatic times, both economically and environmentally. What are we going to do about these challenges which after all, a multifaceted crisis?
- The capture of governments and political parties by corporates and their public relations lobbyists
- deep and widening inequality, increasing violence and rampant consumerism
- the degrading environment whether it be the controversial climate change, stressed water resources, soil and water contamination, disappearing insects, depleted fisheries and others.
Kate Raworth argues that GDP in its present form and application has failed. Not all agree. Past economic theorists have argued that more economic growth would make the ugly stuff disappear. Ecological destruction would be arrested and controlled and inequalities would be erased.
But it has not happened. As values, ethical principles and moral purposes are lost, the promise of growth is all that’s left. It’s not unlike the dog chasing its tail.
Need for a balanced approach
Kate Raworth says getting to a balanced system that considers economic, social and environmental aspects “calls for investing in the sources of wealth – natural, human, social, cultural and physical – from which all value flows, whether it is monetised or not.”
She concedes that challenging the entrenched GDP system will be difficult as “the compulsion of the old GDP game holds its grip because GDP brings both global market power and global military power.” Macro-economic models need to be rewritten, but that will only be achieved by innovative thinking to adopt strategies that usher in “growth-agnostic global governance.”
The GDP model that caused the crises needs to be modified to address increasing social and environmental problems.
Even Simon Kuznets, who standardised the GDP measurement of growth, warned: “The welfare of a nation can scarcely be inferred from a measure of national income.”
Kate Raworth points out that GDP-based economics in the 20th century was “captured by a proxy goal – endless growth.”
Meeting needs by living within our means
The purpose of economic activity, should be “meeting the needs of all within the means of the planet”. Instead of economies that need to grow, whether or not they make people thrive, there’s a need for economies that “make us thrive, whether or not they grow”. This means changing the picture of what the economy is and how it works.
Undeniably something urgently needs to be done. But is the concept of “Doughnut Economics” too idealistic and not pragmatically facing up to the human myopic penchant of lusting for material wealth and power and to hell with the consequences?
Undeterred, Kate Raworth seeks a new economic approach that embodies happiness and well-being, reduces inequalities in wealth and income and respects the environment in contrast to the current abuse under GDP.
Regenerate rather than squander resources
Money, markets, taxation and public investment would be designed to conserve and regenerate resources rather than squander them. State-owned banks would invest in projects that transform society’s relationship with the living world, such as zero-carbon public transport and community energy schemes.
Could a new measure of progress which would measure genuine prosperity embracing happiness, replace the cold, hard cash values of GDP?
Look for the up-coming Budget for a clue as to future direction.
1. The book retails in NZ at $28.