The whole world looks at gross
domestic product GDP
to gauge economic success.
GDP.
Global GDP.
But it's an old-fashionedmeasurement
that ignores people's actual
incomes and anything that
does not have easy monetary
value, such as the natural
environment.
How can we measure our economies
in a way that does not encourage
environmental destruction,
that gives a better indication
to how real people are doing
and perhaps even looks beyond
monetary wealth to include things
such as personal well-being and
even happiness?
This episode of Stakeholder
Capitalism asks, 'How can
we go beyond GDP?'
Welcome to Stakeholder Capitalism,
a show from the World Economic
Forum, exploring how
economies can be made to work
for progress, people, and
the planet.
I'm Natalie Pierce.
And with me is the co-author
of the book "Stakeholder
Capitalism", exploring
what's gone wrong with capitalism
and what can be done to fix it,
Peter Vanham.
Hi, Peter.
Hi Natalie, it's a real pleasure to
be here with you and indeed, to talk
about this book that I co-authored
with Klaus Schwab, the founder and
executive chairman of the World
Economic Forum.
He's been thinking for 50 years
about how capitalism can work, not
just in the short-terminterest of
shareholders, but for all
of a company's stakeholders,
including employees, the communities
it's operating in and, of course,
the planets as a whole.
Let's explore how this show
will play out.
In each episode, we will explore
one problem outlined in your
book associated with capitalism
and globalisation.
Yeah, I'll start by showing you a
graph that really shows what
the problem is that we're looking
at, and then we'll turn to two
expert guests.
The first one will talk more in
detail about what the issues are
related to this problem.
And then the second one will talk
more about what are possible
solutions.
And at the end of each episode,
we will have a post-match
analysis exploring
if we've arrived at answers or
solutions or where
we might go next from here.
Yeah, I think it'll all sound a
little bit less complicated when we
get to today's topic, and that is
beyond GDP.
Why that magic number that
countries use to measure
economic success may not
be fit for purpose anymore?
Peter, in a nutshell, can you show
us what's gone wrong with GDP?
Let's look at the global picture.
Let's look at what happened with GDP
from 1970 to 2019.
Now we see an absolute explosion
in nominal terms over the last
50 years, 30 times,
but it doesn't tell us the full
picture. We have to adjust for
inflation in economic terms.
We have to look at real GDP.
And the second adjustment we need to
make is we have to adjust for
population growth.
So we have to look at real GDP
per capita.
If we do that, then we see
that that number only increased
twofold.
Still, not bad, but
quite a lot less than
that 30 fold increase we saw
the first time.
And remember, it is something
like median income.
This is the real incomes that people
have. If we look at that number in
the U.S., for example, the world's
largest economy, we see that
number only increased by 40
percent, less than one percent
increase per year.
All this growth happened at the
expense of the planet.
If we look at our biocapacity,
that's the planet's capacity to
regenerate what we used
up last year.
And we see that that was more or
less in balance with our
ecological footprint in 1970.
But over the years, we started to
create what's called an ecological
deficit.
And by 2019, we
started using twice as
much as what the planet
could regenerate.
Two planets?
There's only one that's clearly an
unsustainable situation.
So income increases
that are not so high and we up
much more of the planet's resources
than we can regenerate.
Those are the problems with GDP.
Thanks, Peter.
It's now time to call on our
first expert witness,
Peter, who have you found on your
travels to tell us more about the
failings of GDP?
Well, Diane Coyle.
She's a professor of public policy
at the University of Cambridge in
the U.K. and also a former
adviser to the U.K.
Treasury.
She's, among other things, the
author of GDP A
Brief and Affectionate History.
And she's also the head of something
called the Beyond GDP
Initiative.
So hello, Diane.
And you, hello.
You've called GDP a wartime
metric.
Could you tell us what you mean by
that?
The initiative to understand the
economy as a whole, to find some
aggregate measure of national income
and production, actually dates
from the Great Depression in the
1930s, but it was wartime
that gave the impetus to the
development of what turned into the
GDP that we're so familiar with.
The governments in the US
and UK wanted to understand
how much could they produce for the
war effort? What sacrifices
was the civilian population going to
have to make in terms of consumption
and saving?
And then after the war years, this
became naturalised
by the United Nations in
a process to develop
a whole statistical framework known
as a system of national accounts,
GDP is one part.
And all countries are meant to do
this the same way so that we can
compare across countries, we can
compare over time and understand,
and the extent to which economic
progress is happening,
Pioneers of the metric voiced their
concerns about GDP.
Can you tell us more?
There were intense debates right at
the start about what should and
shouldn't be included because it's
how do we define what we mean by
the economy?
So the decision was taken not
to include most informal
work done in the home.
A lot of it falls to women in many
countries.
Things like childcare, cleaning,
cooking.
A lot of the services that we get
from nature are not included,
either.
And through the 1960s and
70s, there were environmentalists
pointing out the
adverse consequences of not
understanding the cost that nature
was going to be paying for current
economic activity.
So this debates have been constant,
and I think the reason that there's
so much more impetus now
in the beyond the GDP Initiative
is because we've understood that the
gap between that definition
that was created in the early 1940s.
We understand that we have not
been taking account literally
of some really important
consequences of our activity.
What is the Beyond GDP
initiative?
I would describe it as a coalition
of policymakers, economists,
campaigners who are trying
to work towards better metrics
of progress in our society.
The debate about how we measure the
economy dates back quite a long
time, and my
sense is that particularly with the
impact of the pandemic in the past
year, we're at a kind of turning
point when
this initiative could really start
to reshape the way that decisions
get taken in business and in policy.
Diane, you mentioned in your book
that a tree standing does nothing
for GDP until it is cut
down and consumed.
Does GDP promote environmental
destruction?
It's, unfortunately, has often
done so because
short-termincreases
in money spent in
marketing services
and goods based on natural resources
or the resources themselves has
added to GDP growth.
And the consequence of that has
been not thinking about the longer
term and
therefore sustainability.
So just as any company would
have a profit and loss account on
the balance sheet, we need that too.
We need to be able to understand
the long-termconsequences
on the stocks of natural assets
of today's activity so that we
can have sustainable growth.
One of the things that you also
wrote about is how the contributions
of the financial sector were not
included in GDP before, and
they are now.
Could you tell us a little bit more
about why and how those adjustments
were made?
You're highlighting the importance
of understanding that this is a this
is a human-constructeddefinition
of things that are important to us,
and the financial sector is a great
example because its definition
in the statistics has changed
several times over the decades
since the Second World War, all
of the changes have increased its
apparent contribution to GDP.
What we use currently in the latest
set of revisions is called financial
intermediation services indirectly
measured, and that does
kind of measure the price that they
receive, but it also measures the
risk that they're taking.
But these kinds of issues
point you towards the fundamental
question, which is how well
is GDP measuring
what we really care about, which is
economic welfare.
And there are some quite profound
questions now being raised by
the Beyond GDP initiative
about what do we care for?
Diane, could median income
perhaps be a better way
to sort of say how people are
really faring, since it's a measure
that more people can relate to than
GDP?
There's been a divergence between
the increase in GDP in many
countries and the increase
in what people are receiving
in their incomes from their work
and an increase correspondingly in
profits which have been increasingly
concentrated in the hands of a
smaller and smaller number of
companies.
Something about that mechanism for
sharing prosperity has gone awry.
GDP isn't measuring
the increase in prosperity the way
it used to until maybe ten or 15
years ago.
So certainly looking at median
household incomes gives you a much
better idea of how the typical
person in a particular country
is getting on. And are they seeing
their lives getting better?
Diane, what's the key takeaway
for those that are listening with us
today?
The key takeaway is
don't take any statistics
as gospel.
They are ideas.
And what we need to do is think
about which ideas matter,
which purposes matter, which ideas
matter and therefore what should we
be measuring?
And that's the conversation that we
all need to take part in.
Thank you, Diane.
You have presented the case against
GDP persuasively
and presented some alternative
ways we might measure economic
progress.
You can learn more about Diane's
work at the website for the Bennet
Institute of Public Policy.
In this next segment, we
are going to explore solutions,
where should we look in the world,
Peter?
Well, we would have to travel quite
far. In fact, all the way to
New Zealand, where they're trying
some new and different metrics
than GDP.
Let's perhaps first listen to
Jacinda Ardern, the Prime
Minister, of course, of New Zealand,
who's speaking at the World Economic
Forum's annual meeting in Davos
in 2019.
In New Zealand, we're roughly
projecting three percentgrowth
that unemployment's at 3.9 percent
on traditional measures budget
surpluses.
People would look at us and go, "Oh,
you're doing okay." But we have
homelessness at staggering rates.
One of the highest rates of youth
suicide in the OECD.
So our plan is through
the wellbeing work that we're doing,
a living standards framework,
to address the societal wellbeing
of our nation, not just our economic
wellbeing.
That was Jacinda Ardern speaking
about the Living Standards
framework.
And joining us now live from
New Zealand is one of the architects
of this framework.
Professor Girol Karacaoglu. He's
the head of the School of Government
at Victoria University in Wellington
and also the former Chief Economist
of the New Zealand Treasury.
And there, of course, he developed
this framework.
Hello, Girol.
Thank you very much for having me on
your programme.
So could you tell us what the living
standards framework is and how it
came about?
The framework is very much based
on the OECD
better life or how is life
indicators
which recognises
that income
employment are very important
contributors to people's wellbeing,
but also acknowledges
based on a lot of empirical evidence
from around the world
that people care about other
things as well,
such as social connexions.
The wellbeing framework
tries to turn it into
public policy, a public policy
that's trying to improve
both material and non-material
sources of wellbeing, including
social connexions and
environmental quality.
Girol, how is New Zealand faring
according to the framework?
The recent data shows that
the evidence and
performance of New Zealand is very
mixed.
In some domains, such
as per capita income,
housing affordability,
we are doing very poorly.
On the other hand, life expectancy,
social connexions, safety
are relatively high, and pollution
is low.
Natural capital is under huge
stress. Biodiversity is
getting worse, but social
capital, including trust
in government, is quite high,
so it's a mixed picture.
And how is it received by the people
in New Zealand?
Almost all the public sector,
both central and local regional
government, are
now framing policy propositions
and investment propositions around
the Wellbeing and Living Standards
Framework, and regional
and local government are
doing their long-termplanning
exercises by asking people
what they care about and trying to
capture that.
So what is the benefit of thinking
in terms of stocks of capital
as opposed to yearly production
value?
The reason they are important is
they highlight that
while we need to deliver the
flows in order to keep
and give current prosperity
to people living today,
if we can preserve appropriately
those capital stocks,
that means that we can also
deliver wellbeing to future
generations.
One of the big themes in New Zealand
public policy today is
intergenerational wellbeing.
In other words, how can we
ensure wellbeing to the wider
population while at the same time
preserving the capital stocks
to ensure that future generations
also have
and enjoy wellbeing?
So how do we know if these
metrics are successful?
What it forces us to do and this
is something very alive and active
in New Zealand, is
to think of public policy
as packages of policies
that complement each other.
So a policy package
that focuses on both improving
the wellbeing to mental
health of individual while at
the same time incentivising
a switch of production and
consumption towards greener, cleaner
technology, as a package
would serve both purposes.
If you had one takeaway that you
would like to share from this
conversation with your students,
what would it be?
There is a circularity
between individual ways of living
and the total social and communal
outcomes.
So I would urge them in whatever
they do to always think,
is it helping society?
Is it good for the environment?
Does it give me good material
comfort and
does it give everyone the right to
speak and contribute?
If you live that way, then
society will benefit as well.
Both today and across generations.
Thank you, Girol Karacaolu for
joining us.
Your book is "Love You
Public Policy for Intergenerational
Wellbeing".
It is out now.
Thank you very much for giving me
this opportunity.
Extremely appreciated.
Peter, you set the problem out for
us. GDP is no longer
fit for purpose.
What did you hear today that makes
you more optimistic for a different
way forward?
Well, I liked that first idea
that we heard that quick fix of
looking at the median household
incomes rather than, you know,
the aggregate GDP.
I think if you look at incomes, it
tells you much better how
real people are doing in an economy
as opposed to that dumber GDP
that really doesn't say much.
So that's the first thing that I
thought was very helpful.
Yeah, GDP may work for an economy,
but GDP does not work for people
and incomes as a better metric that
actually mean something to
people.
But Professor Karacaolu still told
us that income does
not help. It still can be an
aggregate number that is detrimental
to the environment or for
work-lifebalance was the example
he gave.
Yeah, and when he talked about
this idea of wealth being
also a stock of
capital as opposed to only a flow,
I think that that was quite helpful
too, because indeed, you know, it
helps you see these things as more
sort of something that was given to
us from our parents and our great
parents and our, you know, everyone
that came before us, and that we
have to leave to those who come
behind us.
And so that looking at wealth and
capital and and everything
that really produces value
more from that stock perspective
and from the flow perspective, I
think, is the other aspect.
I totally agree.
I think for Professor Karacaolu that
emphasis on intergenerational
wellbeing was something that as
a young person, obviously really
resonated with me.
I also really liked what Diane
mentioned around GDP as a concept,
it is just that it can be
transformed, it can be altered,
it can be reimagined entirely.
Yeah. And so, you know, she talked,
of course, about that idea that
previously we looked at GDP
and we looked at it as a wartime
metric. And therefore, for example,
we didn't include those unpaid
household chores, whereas
we all know that they're very
valuable. And I think in a peacetime
economy, perhaps we should value
that more also by including it in
that number to GDP is.
Yeah, it's not GDP or,
it's GDP and. And
Jacinda Ardern also emphasised
some of those other indicators.
That's all the time we have.
Thank you to Peter and thank
you to our guests.
Diane Coyle and
Girol Karacaolu.
We'll be back soon, of course, with
another episode of Stakeholder
Capitalism, and this time we'll look
at employees and how they're
treated.
And we'll also ask if we should
perhaps re-evaluate the role
of trade unions.
Join us for the next episode of
Stakeholder Capitalism.
See you next time.