Our fixation on GDP risks backfiring on us, says Anders Wijkman. Regulatory frameworks and economics education must be transformed if we are to secure our future.
We have long chased GDP growth as if it were the answer to all our problems. But the economic model that has dominated since the 20th century has not only created prosperity – it has also led to waste, injustice and risks that threaten both society and the planet. The question is how long we can afford to turn a blind eye.
Increasing GDP growth is a mantra that recurs in almost every political discussion. It does not matter whether it is leading politicians, representatives of the business community or economists. Everyone strives for the highest possible GDP growth, almost regardless of the topic being discussed. It seems that nothing has been achieved from decades of debate about the shortcomings of the GDP concept as a measure of society’s development.
GDP is a quantitative measure and measures the total production in the country. Some growth is good. Other growth is less good or even negative. Therefore, increasingly strong voices have been raised to instead use metrics that are based on quality, not quantity. The insight that we are partly measuring the wrong things has increased. An international movement has emerged under the banner of “wellbeing economy”, which wants to put the wellbeing of people and the planet at the centre.
The discussion began during the depression in the 1930s through Simon Kuznets, who was commissioned by President Roosevelt to develop a system of national accounts. Kuznets warned that GDP was only a measure of the level of activity in the economy and should not be confused with a measure of social or even economic wellbeing. A few decades later, Robert F. Kennedy gave a speech in which he stated that the fixation on GDP growth was dangerous. “GDP measures everything, except for everything that makes life meaningful – things like good health, a clean environment, education and culture, and so on.” In recent years, the OECD has made similar points, recommending that GDP should be supplemented with social and environmental indicators.
No one disputes that the economic system has been very successful in the post-war period in creating prosperity in parts of the world. At the same time, the disadvantages are becoming increasingly clear. The economy is largely based on extracting and consuming natural resources – a so-called extractive model. More and more raw materials are being taken from the earth, often without being replaced or recycled, which leads to a gradual depletion of nature. Added to this is accelerating climate change. A recent report from EASAC, a research network consisting of Europe’s science academies, highlights that all important international environmental indicators are in decline.
But even when it comes to social goals and conditions, there are many objections. Former British Prime Minister Margaret Thatcher is often associated with the idea of “trickle down”, that is, that the whole of society would benefit from increased production because prosperity trickles down to everyone. Today, forty years later, we are talking more about “trickle up” – that a large part of the profits is instead concentrated in the hands of those at the top of the income ladder.
The conclusion we are forced to draw is that the economic model that emerged during the 20th century is both wasteful and unjust. It has been effective in generating wealth in general, but with consequences that risk destabilising both societies and the planet.
How do we explain this development? There are several reasons, but let me focus on the conventional economists and the neoclassical model that dominates thinking. The neoclassicals are stuck in a view where nature and natural resources are given a subordinate role. According to them, what is important for growth and development is primarily skilled labour, financial capital, technology and innovation. At the same time, it is claimed that nature and natural resources are more or less directly substitutable against financial and/or industrial capital. Robert Solow, a leading neoclassical economist and often referred to as the father of the growth model, even argued that “the world can actually do without natural resources, so depletion is just an event, not a catastrophe.”
It is perhaps understandable that the view of nature in relation to innovation and technology gave priority to technology in the early 20th century. At that time, natural resources appeared to be infinitely large while the lack of smart technology and financial capital was obvious. But that this view continues to dominate among conventional economists is beyond understanding.
The use of natural resources has more than tripled since the 1970s. According to a recent report from the International Resource Panel (IRP), the extraction and processing of various materials is responsible for at least 55% of greenhouse gas emissions and 90% of the loss of biodiversity (land-based). Unless the use of natural resources becomes much more intelligent and efficient, the effects on both the climate and vital ecosystems will be catastrophic. The IRP study also notes that resource use is extremely unevenly distributed between high- and low-income countries – which makes the challenge of achieving balance even greater. Low-income countries need to increase their material use, but in high-income countries the opposite is true. Our material footprints must be step by step reduced.
Whenever conventional growth is questioned, it is met with strong protests. The idea is that the lack of growth in GDP will result in economic collapse. At the same time, it is conventional growth itself that is driving the planet towards collapse. The challenge is very real. We are stuck in a so-called “double bind”. If GDP growth stops, financial markets falter, unemployment rises and governments panic. If GDP rises, the extraction of various natural resources increases and climate change accelerates while ecosystems are depleted. The de facto conclusion is that there is no secure future within today’s economic model and logic.
One would expect this “double bind” to be the subject of broad discussion. But instead, it is silently ignored by the vast majority of business leaders, politicians and economists. To steer development in a genuinely sustainable direction, a series of reforms are needed, first and foremost within the economic regulatory framework. It is incomprehensible to me that conventional economists have not made greater efforts to change their model, especially when it comes to the valuation of natural capital.
One crucial issue will be to rethink economic education. In today’s curriculum the content on nature and ecosystems is very limited. I am absolutely positive that the current economic system would look radically different if the majority of economists had a better understanding of the biosphere’s fundamental role as our life-support system. I am reminded by one of the great thinkers of the 20th century, Gregory Bateson, who said: “The world’s great problems are the result of the difference between how nature works and how people think.”
