The Growth Delusion

March 31, 2015

NOTE: Images in this archived article have been removed.

It’s time to stop believing in GDP. Here’s why

There is an idea that wields power unlike any other. Faith in it is truly global: crossing national and ideological barriers and defining the logic of every major economy in the world today.
That idea is economic growth. The faith is that growth is not only desirable but necessary. What is meant by growth is represented by one little big number: Gross Domestic Product (GDP). From Athens to Beijing, Moscow to Washington, political aspirations and economic achievements are rooted in GDP. We all use it to measure the health of our economies: it’s a one-stop measure for success.
Its logic reigns with little resistance. Indeed, most people in or out of power are unconscious of its role, let alone its dominance. But, based on a controlling yet largely invisible assumption, GDP leaves us with a very narrow and misleading notion of success and progress.


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What exactly does GDP measure? When we say, ‘The tree has grown’, we tend to have a reasonably good sense of what that means. But what we mean by saying that a company has grown gets a lot more complicated: more employees? Better products? Higher sales?
What, then, does it mean to say that something as big and complicated as the economy has grown?
American and British economists invented GDP in the 30s to help determine the depth of the Great Depression. As a tool, it brought economics out of the dark ages, and allowed governments to take informed steps to escape crisis and despair. During World War II, it was repurposed to help the Allied powers figure out how to out-produce the Axis in tanks and armaments. Economist John Kenneth Galbraith described the significance of GDP as equivalent to ‘several infantry divisions’. Some compared it to the Manhattan Project, others considered it one of the great inventions of of the 20th century.
Within a generation, propelled by war and its subsequent US-dominated internationalisation of finance and trade – Bretton Woods, IMF, UN – capitalist nations worldwide embraced the logic of GDP. After the collapse of communism, the rest of the world followed.
But critics emerged early and in numbers. Shortly before his death in 1968, Robert F Kennedy argued that GDP “measures everything except that which makes life worthwhile”. Former World Bank economist Herman Daly demonstrated that GDP treats the planet as if it were a business in liquidation. Prominent names such as Erhard Eppler, Amartya Sen, Joseph Stiglitz and Jean-Paul Fitoussi have since joined the fray. A recent Harvard study concluded that GDP is “a woefully inadequate gauge of national welfare”.
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This should not surprise. GDP is a measure of quantity, not quality; of output, not development. It counts weapons as much as new toys, pornography as much as education, the crippling accident as much as the healing surgery. It never asks after the purpose of economic activity, much less measures its effectiveness: cars, not destinations; computers, not quality of education.
Restricted to the measure of market transactions, GDP fails to account for anything outside the market – from air and water to poor people and future generations. Social inequality is no more a line item in GDP than, say, quality of goods, purpose of work, or opportunities for our children.
In the face of mounting crises – all directly connected to growth – this represents an odd disconnect.
Corporations can strip mine the earth, blow off mountain tops, drill and frack. Employees work overtime, forgo their meagre annual leave, and get stressed out in the process. Trawlers overfish the oceans. Consumers max out credit cards. All this adds to our measure of success.
A large part of the problem is that GDP represents a neat and seemingly objective figure. Alternatives appear inherently difficult, messy and subjective. GDP attained global domination precisely because it appeared to avoid value judgments about purposes, directions and consequences of economic activities. Its mantra was simple: ‘More is better’.
One may well be tempted to reach for the Scotch when reading the litany of depressing statistics in the news. 2014 was the hottest year on record. By 2016, the top one per cent will hold has much global wealth as the bottom 99 per cent. Oceans are overfished, coral reefs are disappearing and catastrophic weather events are mounting. Species are dying at 1,000 times their normal rate. Young people are experiencing more job insecurity and unemployment than at any time since the Great Depression. Politics, meanwhile, is hamstrung by debts, corporate control and lack of perspective.
Daily, one can find headlines on how best to stimulate economic growth right next to ever more urgent calls to stem climate change, social decay and political disintegration. Few ever connect the two.

Take the current debate on secular stagnation. Within the logic of the GDP regime, the prospect of slowing or non-existent economic growth over long periods of time is cause for great concern.
Reading about political decay or earth systems in decline, you might be excused for responding with, “Stagnation? Great. Perhaps a first step away from danger.”
But here a startling reality emerges. The stagnation debate does not entail larger questions. The vital connection between the logic of the GDP regime and quality of life are missing from the debate. Growth remains ill-defined, and the inevitable dangers of its endless continuation remain unaddressed. The entire debate is crippled by its core assumption.
Then again, the premise is half-right. As currently organised, modern capitalist economies do indeed require GDP growth to succeed: no growth leads to the downward spiral of lack of investment, loss of jobs, decreased levels of demand and so on. It’s not just a problem of bad ideas or misguided values; it’s systemic failure.
But it is only half-right, because the reverse is equally true: for eco- and social systems not to be irretrievably harmed, GDP-based growth has to end. From this historian’s perspective, the sooner the better.

Rather than ask how to achieve more, it is time to ask, “More of what? And why?”
How do we begin to measure ‘profit and loss’ to include things like polluted waters, depleted oil reserves, destroyed communities? How do we count vital ecosystem services and labour that now occur ‘outside’ of market ledgers? How do we design qualitative measures to balance quantitative data?
Worldwide, well over a hundred initiatives have proposed smarter, more sophisticated metrics for measuring success and progress, with names like the Human Development Index or the Genuine Progress Indicator. Most would replace the single indicator of GDP with a ‘dashboard’ of measurements including vital issues like social equity and sustainability. Unlike GDP, they have been designed to reflect a range of human needs and to illuminate more facets of wellbeing.
Economic policymaking, meanwhile, remains wedded to the logic of GDP. No government (except Bhutan’s) and no international trade or governing body has yet moved past its imperatives. As for business, what matters is the ‘bottom line’, and what is or is not profitable continues to be determined by GDP accounts.
I have frequently wondered what it would require to give up on our blind faith in growth. Can we design smarter systems that do not require growth in order to function politically or survive economically?
In asking this question, it is helpful to recall that some of the most revered early economic thinkers in the West – Adam Smith, David Ricardo, John Stuart Mill, Karl Marx, Joseph Schumpeter – considered economic growth vital, but only temporary, as societies moved toward real development. They all anticipated a historical moment when continued growth would no longer be necessary, no longer desirable – no longer possible. Every race, they understood, must come to an end.
Regardless of whether they foresaw an essentially saturated market (Smith), or actively argued for a revolutionary transition in which ‘the realm of freedom’ replaced ‘necessity and mundane considerations’ (Marx), all envisioned an end to growth. Human development could take its place. John Maynard Keynes specified possible targets: a 15-hour working week with plenty of time to pursue the good life; a cultural shift from more to better.
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Having written long before the last frontiers of nature had been discovered, much less commodified and exploited, such thinkers may be excused for not having predicted the existential need for the end of growth. In 1776 or 1848, even in 1930, it was impossible to foresee a moment of seven billion people; most of them living off the capital, not the interest, of Mother Earth. Picture it: for everyone to live like the average American it would require five planets.
But how to move this idea into action? Will corporate, political, and academic leaders be able and willing to stop tinkering with the speedometer and move beyond the dominant growth paradigm? If governments were to put regulatory muscle behind smarter measures – directly addressing both the purposes and consequences of human activities – power would shift on its axis. Global oil and gas corporations, and the fossil lobby might have to fold their tents, while other business ventures would suddenly become profitable.
If logic, facts, and science were to determine the outcome, the debate would no longer be if, but how? How best to jump off the train of continued growth, and quickly? Much stands in the way: political inertia, cultural habits, and enormous economic clout. No regime, after all, has ever created more wealth.
I think it is very likely that in talking about the possible threat of secular stagnation, we are having the wrong debate. Instead of slowing down, getting out of the carriage and laying a new track, we’re busy discussing the train’s rate of acceleration; and all the while, it’s heading towards the cliff.



Dirk Philipsen

Dirk Philipsen is a professor of economic history and a Senior Fellow at the Kenan Institute for Ethics at Duke University, North Carolina. He is the author of the forthcoming book The Little Big Number: How GDP Came to Rule the World, and What To Do About It (Princeton University Press, May 2015).

Tags: economic growth, GDP