Alternative Economics Micro Series: Why Put Wellbeing Ahead of Profit? pt. 1

Introduction

"The way we assess economic performance and social progress is fundamentally wrong, and the climate crisis has brought these concerns to the fore." - The Guardian

Since 1937, Gross Domestic Product - GDP, has been used as an indicator of how well an economy is doing in a given area.

GDP is the sum of the value of goods and services in a given area - (usually a country's territory) over a period of time (usually one year). The GDP output is then a simple and easily comparable number that represents the size and growth rate of a given economy.

For more than 70 years, GDP has been the main indicator of economic growth, and its dominant position for comparing the state of the world's economies unfortunately continues. However, a significant number of economists have pointed out that a growth-oriented economy is not sustainable and have taken it upon themselves to imagine alternative indicators that could better represent the state of the economy and its complexity.

The criticism of growth is not a new thing. As early as the 1970s, the Meadows couple published a book entitled The Limits to Growth - the first report of the Club of Rome. One of the main messages of the report, simplistically, was that unlimited growth is not possible in a limited environment. Growth is seen here as the underlying problem and various solutions to this problem, such as the focus on technological solutions, are then merely responses to the symptoms, not to the causes of the original problem itself.

"Technology can relieve the symptoms of a problem without affecting the underlying causes. Faith in technology as the ultimate solution to all problems can thus divert our attention from the most fundamental problem - the problem of growth in a finite system - and prevent us from taking effective action to solve it." (Limits of Growth, 1972)

The shortcomings of GDP in the social sphere can be illustrated by the example of the United States. Here, from the 1960s to 2012, the GDP has approximately tripled, which may seem like good news. But the average wage there has been stagnant since the 1970s. However, the incomes of the richest 1% have risen significantly over this period.

Measuring the state of the economy by GDP does not take into account rising inequality, even though it is a major issue that significantly affects conditions throughout society.

A textbook example of the failure of GDP to reflect negative environmental impacts are environmental disasters. For example the 1989 wreck of the US tanker Exxon Valdez - the second largest oil disaster in the US. The wreck caused 10.9 million gallons of oil to leak into the sea, creating an oil spill that subsequently affected the coastline.

The result was the death of hundreds of thousands of animals and the destruction of entire ecosystems. Some, mostly small animals, are still dying because of this disaster.

But because GDP, as I mentioned above, is defined by the aggregate of goods and services, it has grown. Cleaning up the oil spill, the ocean and the coastline, removing animal carcasses, or repairing a tanker all merely increased the volume of goods and services in a given area and therefore led to GDP growth.

One could find countless similar examples. As long as GDP growth is our main objective, environmental problems will continue to be put on the back burner.

Mr. Stiglitz, an American economist and professor at Columbia University, once said: "What you measure affects what you do. If you don't measure the right thing, you don't do the right thing."

We, therefore, need to move to a different indicator that can incorporate both social and environmental aspects. However, this will not be easy. There are several such indicators at present, and they are linked to alternative economic trends such as Degrowth or Circular Economy.

In the following part of this Alternative Economics Micro Series, I will discuss their pros and cons in more detail. Stay tuned for part 2!