What Do We Value?
We Can’t Reimagine Capitalism without Knowing and Measuring What We Want
In our ongoing series, Reimagining Capitalism, Net Impact’s ambitious learning journey, we are considering a range of solutions, from tweaks to capitalism as it is, “the cleanest shirt in the laundry,” to outright system design change. But as we explore, process, hypothesize, and act, what are we seeking to improve, to optimize?
If it is to drive a more just and sustainable world, with say, the equitable participation of, and for the benefit of all stakeholders (from most marginalized to those most advantaged) how does that manifest into something measurable? And if the system is flawed, if our gripes about our economic systems’ placing value on the wrong things is to change, may we still be tinkering too small?
GDP and Governmental Obsession with this Flawed Barometer of ‘Well-Being’
Gross Domestic Product (GDP) is an historic tool, an index that is used to determine the health of an economy and the well-being of a nation. GDP is a measurement of the value of finished goods and services within a country over a specific time frame. A nation’s GDP can then be divided by its population to determine the GDP per capita (or person). This is, in turn, used to make assumptions about standards of living within that country, with the idea that the higher the per capita amount, the better the standards are.
But GDP doesn't really illustrate the welfare of people. As an economic tool, it only makes assumptions about the basic standards of living, which can be different across the socioeconomic spectrum of a nation and among nations. Additionally, better standards of living do not necessarily equate to better welfare, with the latter affected by a range of factors including but not limited to mental well-being and physical health, cultural resilience, and the environment. Nobel Prize-winning economist and designer of modern GDP, Simon Kuznets, noted in 1934: “(t)he welfare of a nation can scarcely be inferred from a measurement of national income.”
This is essentially the rub: the financial wealth of a nation is not the true ‘wealth’ of its collective people. The ‘wealth’ of people is more than the accumulated financial value of people’s assets. So, as we Reimage Capitalism, we also have to Reimagine Economics.
Garbage In, Garbage Out, So Garbage Abounds
The narrow simplistic notion of GDP must give way to, or be supplanted by a more nuanced approach. The economy and its measurement is currently configured in ways that: do not account for nature; are almost blind to distribution of resources; do not reward the best attributes of people; and put measures of progress such as short-term profit and Gross Domestic Product calculations to the fore.
Our economic system and measurements are not supporting the planet to flourish. In the last 40 years, humanity as a whole has gone from using one planet’s worth of natural resources each year to using one and a half and is on course to using three planets worth by 2050. If we measure economic growth and national (international) well-being by GDP, our planet and its ever scarcer resources as ‘externalities’ are not priced in. The downside of a constant growth mantra and benchmark, is that it inevitably pushes up against what scientists call “planetary boundaries.” Therefore, not only is GDP an inaccurate reflection of well-being, it is a dangerous tool driving depletion of resources, inevitably causing an even larger gap between fictional textbook economic well-being and the safety, security and happiness of people - along with financial, true well-being. Our economic measurement tools have been designed by us and hence, can be designed differently, with a different purpose: that of measuring and enhancing the prospect of collective human well-being.
As economist Kate Raworth puts it, “I think it’s the obsession with what’s known as cost-benefit analysis by Treasuries (governmental treasury departments). And you can completely lose sight of the much bigger picture, the dynamics, the knock-on effects of systems that just can’t get picked up in there. I think at the macro level and the micro level, we need to release ourselves from these devilish tools that tie us to very short-termist calculations.”
Measuring True Well-Being for People and Planet - Must We Choose Happiness or Wealth?
“That which is measured, improves. That which is measured and reported, improves exponentially.” - Karl Pearson
An ideological debate on relevance and value of GDP misses the moral imperative and the initial premise of this article: GDP purports to measure well-being of people, but does not. A certain level of national wealth and success, solving for the health, well-being and happiness of people (in addition to financial security) is a more accurate way for economists to glean the true ‘well-being’ of its people. So I ask again, what really matters? Is the well-being of its people not properly the moral objective for leadership?
I am sure there are many whose efforts and life’s work have been about accumulated wealth. Many would make the presumption that through wealth, comes the prospect of health, well-being and happiness. So how does this explain Costa Rica, a country that has higher life expectancy than the US, higher happiness indicators than the US, and yet 80 percent less GDP on a per capita basis? Says Jason Hickel, Economic Anthropologist and Visiting Professor at the University of London, “(p)ast a certain point, which high-income nations have long surpassed, there’s actually no fundamental relationship between GDP and human well-being. It completely breaks down. And that, I think, should be a very liberating realization, that we can achieve the heights of human flourishing and even improve the lives of people in high-income nations without needing more GDP growth whatsoever.”
What if unbridled pursuit of growth was replaced by heightened Prosperity Without Growth? Kate Raworth has co-authored the “Human Development Report”, whose Human Development Index measures countries not by economic power but by factors like standard of living and education and life expectancy. The World Bank now reflects all those indicators in its own tables. Raworth’s work and the World Bank’s efforts have spawned other indexes of human well-being too - the index of social progress, and serious discussion, goal-setting around ‘gross national happiness’.
These ideas are beginning to garner support. New Zealand, Scotland and Iceland now seek to optimize for their citizenry’s happiness and well-being. New Zealand, in fact, has dropped GDP as an economic measurement tool, adopting the Happiness Index metric, announcing a new budget that focused on improving the prosperity of local communities. Described as a “game-changing event” by London School of Economics Dr. Richard Layard, New Zealand’s budget has set a new standard in the redesign of measuring what matters. “No other major country has so explicitly adopted well-being as its objective” says Layard. One could argue that these are all smaller, less complex economies than say, the US. Should that obviate the ambition, recognition of the flaws in our measurement and milestones of ‘success’, to optimize for the true well-being and contentment of a people?
Reimagining Capitalism Requires Pondering/Defining What we Want
So what do we value? When politicians talk about GDP, or for that matter, the stock market, these benchmarks that they optimize for are largely financial, inequitable and only tangentially, people’s true well-being. If our measurement of a country’s well-being incorporated the health and longevity, education and housing of its people, considered earth’s environmental planetary boundaries, wouldn’t we get a truer reflection of the well-being of people? If we considered new benchmarks of ‘success’, wouldn’t our governments and businesses then manage to achieve these truer and more moral outcomes?
Net Impact believes that businesses can/do agree to be a force for good. It can be expedient and make good business sense for corporations to consider all stakeholders (not just shareholders), but if it is all measured, rolls up into an economic framework where the well-being of people /, a nation /, a world, is articulated using a misguided assessment, true and proper measurement fails. And if measurement fails, our objectives will not be achieved. As we continue to explore our 2020 theme of Reimagining Capitalism, we ask the difficult questions, challenge our assumptions, discover our blind spots, un-learn, deconstruct, pause, reset, and re-imagine. We hope you will join us in this learning journey.
