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Bookmark and ShareAndrew Simms is nef‘s Policy Director and head of nef’s Climate Change programme.

Like a patient waiting for hospital scan results, this week the government nervously anticipates new growth figures for the economy. Any sign of an increase and relief could quickly lead to self-satisfaction about its handling of the recession. Approving nods may be seen later this week in Davos at the World Economic Forum. Why? Because among political and business classes, growth, measured by rising GDP, is considered always a “good thing”. But is it?

The banking crisis taught us that when things look good on paper, if the underlying accounting system is faulty, it can conceal high risk and imminent disaster – as Jared Diamond put it in Collapse, his book about societies throughout history that fell by wrongly estimating the resilience of their environmental life-support systems. What looks like wealth might just be a one-off fire sale of irreplaceable natural capital. Ecologically speaking, he writes, “an impressive-looking bank account may conceal a negative cashflow”.

To avoid collapse the economy has to operate within thresholds that do not critically undermine the things that we depend on on a daily basis. They’re often interconnected, like a sufficiently stable climate, productive farmland, fresh water and a healthy diversity of plants and animals.

On climate change, a new piece of research by the New Economics Foundation thinktank looks at which rates of global economic growth are compatible with prevention of a dangerous level of warming.

It shows that, even with the most optimistic likely uptake of low-carbon energy, it is seemingly impossible to reconcile a growing global economy with a good likelihood of limiting global temperature rise to 2C, the agreed political objective of the European Union, and widely considered the maximum rise to which humanity can adapt without serious difficulty.

In this context, Adair Turner, chair of the Financial Services Authority and the Committee on Climate Change, refers to the pursuit of growth for its own sake as a “false god“. Other work by Professor Kevin Anderson of the Tyndall Centre for Climate Change Research at Manchester University concludes that: “Economic growth in the OECD cannot be reconciled with a 2C, 3C or even 4C characterisation of dangerous climate change.”

The problem is that growth drowns out the gains from increased efficiency and technological innovation. The New Economics Foundation study looks at by how much growth would need to be delinked from fossil fuels – the so-called carbon intensity of the economy – to reach the mark of climate safety suggested by Nasa climate scientist James Hansen.

Having improved steadily in the late last century, “carbon intensity” changes flatlined over the last decade and even worsened in some years. Against this trend, to avoid dangerous climate change the fall in carbon intensity would need to improve by more than two hundredfold. The economic doctrine of growth collides headlong with the laws of physics and thermodynamics. Only so much energy efficiency can be squeezed from a system. The other problem is the counter-intuitive rebound effect spotted by William Stanley Jevons in 1865 when he wrote, “It is a confusion of ideas to suppose that the economical use of fuel is equivalent to diminished consumption. The very contrary is the truth.” Increased efficiency tends to lower costs and perversely drives up overall resource use.

Writing in the science journal Nature last year, a multidisciplinary group of scientists identified nine key safe-use planetary resource boundaries, three of which had already been transgressed (climate change, biodiversity and the nitrogen cycle to do with farming). We are on the cusp of several others.

So, this week, if you find yourself cheering a return to growth, you may be inadvertently celebrating our acceleration toward an ecological cliff edge and an opportunity missed to find a new, better direction. For example, the economist Herman Daly points out that full employment could be easier to achieve in an economy not addicted to growth because it would reverse “the historical trend of replacing labour with machines and inanimate energy”.

Both the desirability and possibility of never ending growth goes unquestioned in mainstream economics. It’s odd, because the world would be a very strange place if the same was applied in nature. For example, from birth until around six weeks old, a hamster doubles its weight each week. If, it didn’t stop and continued doubling each week, on its first birthday, you would be looking after a very hungry nine billion-tonne pet hamster. There is of course one thing in nature that grows uncontrollably. It’s called cancer and tends to kill its host. So when those growth figures come out, let’s hope the government scans the results for what they really mean.

nef‘s new report Growth isn’t Possible was published today.

Bookmark and ShareSaamah Abdallah is a researcher at nef‘s Centre for Well-being.

Kenneth Boulding puts it as succinctly as possible: “anyone who believes exponential growth can go on forever in a finite world is either a madman, or an economist”.  And yet our governments continue to desperately pursue  growth at any cost. The call for an alternative approach is not new.  In the 70s, a ‘limits to growth’ movement built up, and as far back as the 19th century, John Stuart Mill expounded the idea of a ‘steady-state economy’  – one which remained stable without growth.

But with the current crisis cocktail – economic, environmental and social – it is perhaps not surprising that calls for rethinking growth are becoming more frequent than ever. In France, Spain and Italy, a strong ‘degrowth’ movement has developed and one can even hear some elected politicians, such as the député of the 11th district of Paris, Yves Cochet, advocating a degrowth economy.

The event at the Hub in King’s Cross last week, organised by CEECEC (Civil Society Engagement with Ecological Economics) and supported by nef, was intended to bring a flavour of décroissance to the UK. The word ‘degrowth’ perhaps doesn’t sound as good in English as in French, but the UK has seen a couple of key steps in the search for a new economic model – included the Sustainable Development Commission’s Prosperity without Growth and nef’s Great Transitionauthors of both publications spoke at the event. And there is clearly appetite – with little advertising, the event had booked up a week in advance, and people came through snow and ice to attend.

One audience member blogged that there was an element of preaching to the converted at the event and that we need to ‘move the debate from the margins’. Whilst this is true, as with any new movement, there is still a need to bring people together. The discovery that one is not alone in one’s heresy gives the heretic strength to work harder.  Furthermore, as Leida Rijnhout, one of the speakers, noted, large NGOs have to some extent co-opted governments’ commitment to growth – until people like this rethink growth, there is little hope for convincing the mainstream of business and the private sector.

Having said that, a recent business trip reminded me that perhaps the heresy of questioning growth isn’t that unpalatable for most people once they give it a moment’s thought. At a workshop for local government types in Cornwall on measuring progress and well-being, over half disagreed with the statement that growth is necessary for a successful society.  And in conceptualising progress, everyone saw the economy as, at most, a contributing factor to success – no more. There’s hope…

Bookmark and ShareJuliet Michaelson is a researcher at nef‘s centre for well-being.

Writing on the Guardian’s Comment is Free website, Catherine Bennett is unconvinced that “it is the state’s business to meet those psychological needs” that the Young Foundation’s recent research has highlighted. She suggests that “since no nice person would want to set their face against general wellbeing”, using well-being as a political goal is utterly devoid of meaning. This inadvertently raises a crucial question: what is the overall goal of politics?

Economic growth is the most common headline measure of political success. Combating problems such as poor mental health or income inequality, although dismissed by Bennett, might also be candidates. In fact none of these pass muster in the role of ultimate outcome for societies. When examined closely, it becomes clear that they are all different means to the end of well-being: enabling people to experience their lives going well. As the economist Andrew Oswald has noted:

People have no innate interest in the money supply, inflation, growth, inequality, unemployment … Economic things matter only in so far as they make people happier.

Aiming for well-being is not about seeking an “immediate surge in collective pleasure”, as Bennett puts it. It is about a life well lived, not short-term happiness or pleasure seeking. What we do is fundamental to how we feel, and research shows that strong connections to other people and engagement in meaningful activities are among the most important determinants of well-being. This understanding informs our work at nef, where we have demonstrated that well-being outcomes can be robustly and systematically measured through a framework of national accounts of well-being.

There is broad public support for well-being being the ultimate political goal. A 2006 poll for the BBC found that 81% of people supported the idea that the government’s prime objective should be the “greatest happiness” rather than the “greatest wealth”. Furthermore, a sense of well-being is itself a means to traditional policy ends, with proven links, for example, to longer life expectancy and improved health outcomes.

Bennett suggests that it would be “surreal” for policy initiatives to aim to improve well-being. But what is truly surreal is that public policy has often been antithetical to well-being – encouraging long work hours and personal debt, and engendering intense competition from tests at primary school onwards. The evidence shows that our current turbo-charged consumption levels are largely driven by competition for status – a zero-sum activity where for every winner there is a loser.

Focusing on social position through material goods leads to the inescapable treadmill of working longer and harder to buy ever more – at the cost both to well-being and the planet. While some less empathetic members of the public may, as Bennett says, “feel quite happy with current levels of brittleness, inequality and mental ill health”, this is cold comfort to those suffering at the sharp end of these problems. And as evidence from epidemiologists Kate Pickett and Richard Wilkinson has highlighted, we all suffer under greater levels of inequality, given its associations with crime, low social capital and a host of other undesirable outcomes. There is a clear role here for policy to discourage the excesses of these damaging behaviours.

Fortunately, the evidence from fields such as behavioural economics and positive psychology also points to what enhances experienced well-being. The “five ways to well-being“, distilled by nef from a 2008 government review of the latest scientific evidence in the field, identify well-being-enhancing activities in everyday life. Current policy, directed towards maximising hours spent in paid employment and failing to value non-market activities, hampers people’s ability to get involved in the sorts of community and voluntary activities that offer some of the best opportunities to connect with others, be physically active, take notice of what’s around us, learn new skills, and give. It is not the state’s business to impose such activities on us. But it does have a clear role in establishing the conditions that allow individuals to maximise their own well-being. This is the true yardstick by which political success should be measured.

Bookmark and ShareProfessor Herman E. Daly is Ecological Economist at the School of Public Policy, University of Maryland and Author of Steady-State Economics

Climate change, important as it is, is nevertheless a symptom of a deeper malady, namely our fixation on unlimited growth of the economy as the solution to nearly all problems. Apply an anodyne to climate and, if growth continues, something else will soon burst through limits of past adaptation and finitude, thereby becoming the new crisis on which to focus our worries.

The fact that the contributors to Other Worlds are Possible realise this makes this report a serious study. The fact that they seek qualitative development that is not dependent on quantitative growth makes it a hopeful study. It is a valuable collection of the specific and the general, of the grass roots details and the macroeconomic big picture regarding climate change and economic development.

The reader is told up front that, ‘This report represents the work and views of a range of individuals and civil society groups. It is a contribution to debate on what other worlds are possible. Not all the views and policies discussed are necessarily held by all the groups and individuals’. Although I did not find any contradictions among the various contributions, they differ greatly in approach and perspective—mainly between top-down and bottom-up modes of thought. Some people like to start with a big picture. They are impatient with concrete details until they can fit them into or deduce them from a framework of meaning consistent with first principles. Others are impatient with a big picture unless they first have a lot of concrete details and examples that inductively suggest a larger pattern. I confess that I belong to the first type, but that is more of a bias than a virtue. Both approaches are necessary, and are present in this collection, but the bottom-up predominates, at least in number of pages.

My advice to the top-down types is to first read Manfred Max-Neef’s fine big-picture essay. Then fit in the inspiring examples of Kenya’s Green Belt Movement, Thailand’s self sufficiency, Bhutan’s Gross National Happiness, the Happy Earthworm Project, the Happy Planet Index, etc. More inductive types should save Max-Neef for last. I do not mean to characterize Max-Neef as a top-down thinker since he has spent much of his life doing grass roots, ‘barefoot’ economics. But in this volume’s division of labour his is the big-picture essay.

To have packed so much information, inspiration, and analysis into less than 100 pages of clear prose leaves the reader grateful to the authors, the Working Group on Climate Change and Development, and nef.

This is the foreward to Other Worlds are Possible, a new report on climate change and development published today, which features contributions from a range of developing world economists and activists, including R.K. Pachauri, Wangari Maathai and Manfred Max-Neef.

Bookmark and ShareAndrew Simms is nef‘s Policy Director and head of nef’s Climate Change programme.

David Cameron

Could the Conservatives be the party to ditch economic growth as a policy and oversee the change our climate needs?

There are only seven more annual political conference seasons to go before the world enters a new, far more dangerous phase of unpredictable global warming, based on the risk categories of climate scientists.

That means we should already be able to see genuine solutions emerging in the debates and speeches echoing around the nation’s conference capitals of Brighton, Bournemouth and Manchester. It also means that whoever is successfully elected to form the next government in 2010, they will almost certainly be in power during the period when the fate of the atmosphere is settled.

Except, perhaps, during wartime, history rarely offers up such a definitive performance indicator for a government. But here, for better or worse, the words, “it happened on your watch” will be carved, probably in coal, on their headstone.

New research from the Hadley Centre, part of the government’s own Met Office, set the scene for the political challenge. It warns that we should now plan for the possibility of a 4C temperature rise by 2060. This is far beyond the maximum 2C rise considered a maximum safe threshold before the environmental dominoes start to fall.

On 25 September, the Friday before the Labour party conference began, the world went into ecological debt for the year, beginning to consume more resources and produce more waste than the planet could handle.

The challenge couldn’t be clearer. Bad accounting, poor risk assessment and profligate behaviour nearly destroyed the global financial system. It threatens to do the same to a climate conducive to civilisation. It’s not reform that the next government must oversee, but paradigm shift.

Yet in the last few weeks, the siren voices for a return to business as usual have been getting louder. We need bonuses back, says the City, although they never really went away, to get and keep the best talent. But that was hardly a good strategy last time, when the “best talent” on bonuses wrought chaos. The Confederation of British Industry says recovery depends on cutting back regulation. But an absence of appropriate regulation is the slippery slope down which the economy and environment slide. Others call for another wave of no-strings bailouts for the fossil fuel-intensive car industry. These voices, effectively, are telling the survivors of a sinking ship to leave their lifeboats and climb back on board.

As the Conservative party takes energy from Labour’s disarray and disheartenment is there any sign that they might do the seemingly unthinkable, and consider radical economic redesign to prevent what happened to the banking system from happening to the climate system?

On one hand, there is a disturbing and furtive creep of old vested interests. Big money, big business, old school connections looking to return to their comfort zone after more than a decade of feeling culturally uncomfortable with a Labour government. Regressive tax, more binge consumerism and dirty and weakly regulated industry are all poised for a potentially easy ride. Yet the Conservatives are also on a journey to distance themselves from their own past. What started as an unavoidable rebranding exercise can take on a life of its own.

David Cameron is on record as saying that well-being is as, if not more, important than growth in an economy. An increasing number of voices from Nobel economists down are pointing out the ultimate incompatibility of endless rich country economic growth with the preservation of a habitable planet. What’s interesting for the Conservatives is that ditching growth as the single, overarching economic policy obsession could well revive ways of living that they find politically appealing.

A world in which there is much less passive consumption of goods and services is a world in which we do many more things for ourselves and each other. It’s a world not of absolute but much greater self-sufficiency, at the national, local and even individual level. In other words, it’s a world in which we have much more control over our own fate. A revival of real local democracy beckons in which we are more responsible locally for our own food, energy and the reciprocal delivery of services. With 86 months to go, that doesn’t sound too bad to a public very jaded about UK politics – it may even sound infinitely preferable.

86 months and counting

Bookmark and ShareJuliet Michaelson is a researcher at nef‘s centre for well-being.

This article first appeared at Policy Innovations.

A sunset in Costa Rica, the nation that topped the Happy Planet Index 2.0. | Image by Alexander Steffler

A sunset in Costa Rica, the nation that topped the Happy Planet Index 2.0. | Image by Alexander Steffler

Governments around the world are caught between the proverbial rock and a hard place: We are now nearly two years into what is widely heralded as the worst global economic crisis since the Great Depression, and the ecological crisis of global warming threatens the foundations of human civilization. Should countries stimulate their economies at any cost? How should they prioritize the health of global and local ecosystems? The debates about whether government money should be used to shore up struggling car industries neatly encapsulate these sorts of dilemmas.

Many in government may feel that the best overall path is far from clear. Part of the problem is that they lack tools for making these sorts of policy decisions. The common yardstick since the 1940s has been GDP growth. Gross Domestic Product reflected the wartime concern with increasing economic productivity, and since then it has become synonymous with progress. As the United Kingdom’s Sustainable Development Commission notes, “The state has become caught up in a belief that growth should trump all other policy goals.”

Yet intrinsic to growing GDP is the need to produce more stuff. This is exactly what our planet cannot sustain. More stuff requires more of the Earth’s dwindling fossil energy supplies, with waste products that threaten the climate.

The kernel of the solution to resolving these competing demands lies within the structure of the problem itself. The fact that economic growth can be conceived of in opposition to the health of the planet suggests that neither can claim to be regarded as the true overall measure of success in human society. A much more convincing case is made by the concept of well-being. The experience of well-being is about feeling that your life is going well, something which is universally important to people everywhere. The concept of well-being enables us to define the ultimate aim of human endeavor to be healthy, happy, and meaningful lives.

The Earth’s resources are the fundamental input to this system. A well-regulated economy is just one means to produce well-being—along with others including community, technology, values, and governance. Systems thinking also shows us that using planetary resources so that they can be sustained into the future is vital to ensuring that human well-being can also be maintained in the long term.

The updated Happy Planet Index (HPI), published last month by nef (the new economics foundation), uses this view of society to formulate an indicator of overall progress. Scores on the HPI represent the amount of human well-being a country produces relative to its resource use. It is measured in terms of long and happy lives. The HPI is thus an efficiency index, measuring how much well-being is achieved per unit of environmental impact:

HPI ≈ (Life expectancy x Life satisfaction) / Ecological footprint

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Bookmark and ShareAndrew Simms is nef‘s Policy Director and head of nef’s Climate Change programme.

The first 'green budget' is very balanced – every measure to stop climate change is balanced with one that makes it worse

Faced with worsening projections for global warming and energy security, learning that the wind turbine maker Vestas will be closing its factory on the Isle of Wight is a bit like hearing that pharmaceutical companies are closing down the production of flu vaccines just as the alert for swine flu goes from level five to full pandemic.

The comparison is useful in more ways than one. It reveals how governments can recognise and act to avert systemic risk in some areas like high finance and flu, but have blind spots or grossly inadequate responses in others, such as climate change. It’s also a useful reminder that when natural systems cross a critical threshold – for example, the number and distribution of people infected with a virulent flu virus, or the concentration of greenhouse gases in the atmosphere – humanity quickly finds that it is no longer in the driving seat and able to control the direction of travel.

Last month the budget demonstrated the continuing confusion of a political system still struggling to come to terms with the inescapable parameters set by natural systems. The budget was balanced, but only in the sense that anything positive done to promote a low-carbon economy was cancelled out by other measures that will lock in fossil fuel-intensive infrastructure. Both the car and oil industry were happy recipients of budget bungs.

Grasping at the few optimistic straws still blowing around the economy, the chancellor, Alastair Darling, pointed out that the global economy still stood to double in size over the next 20 years.

What he forgot to mention, or didn’t know, is that with each “doubling” of the economy, you use as many resources as with all the previous doublings combined.

Prof Roderick Smith of the Royal Academy of Engineering at Imperial College identified these resource implications of economic doubling. Engineers, it seems, are more adept at understanding material limits. He wrote that the physical view of the economy “is governed by the laws of thermodynamics and continuity” and so, “the question of how much natural resource we have to fuel the economy, and how much energy we have to extract, process and manufacture is central to our existence”.

This year, on a conservative analysis, the UK started to live beyond its environmental means – consuming more and producing more waste than the UK itself can handle – by Easter Sunday, 12 April. This was our “ecological debt day“.

Given that both the UK and the world as a whole already use more resources and produce more waste than collectively our forests, fields, oceans and atmosphere can safely provide and absorb, where, we must ask, will the resources come from to double the size of the global economy?

Darling’s speech was to introduce the first “green budget”, a package meant to put the country on a path to sustainability. It included the world’s first legally binding carbon budget. Yet its targets to reduce emissions are roughly half of what is necessary, according to the climate research work of Prof Kevin Anderson at the Tyndall Centre at Manchester University.

The budget also included roughly £1.4bn of apparently new money to reduce emissions across a range of measures for energy efficiency and renewables. That sum amounts to about 0.09% of the UK’s GDP, and compares sadly to the 20% of GDP that the International Monetary Fund estimates the UK set aside for bailing out its financial sector.

But even here the green hue is darkened by our continuing dependence on oil, coal and gas, and plans to build more runways, roads and new coal fired power stations that capture only a small proportion of their carbon emissions.

Support in the budget to extract an additional 2bn barrels of North Sea oil will produce extra greenhouse gas emissions equivalent to the UK’s entire emissions in 2006, including shipping and aviation. Funds for car scrappage schemes, lacking any meaningful environmental criteria, could also see emissions rise rather than fall.

Funds for car scrappage schemes, lacking any meaningful environmental criteria, could also see emissions rise rather than fall.

Plans for electric cars may sound attractive, but you still need the clean energy to power them. More than a low-carbon vehicle strategy, if the UK is to improve its own energy security and environment, and tackle climate change, we need a low-car vehicle strategy.

Ultimately, the message sent by the budget was confusion. Setting an emissions reduction target in these circumstances is like setting someone a deadline to give up smoking, and then pushing them into a smoke-filled bar where all the walls are lined with cigarette machines.

Nature may be beautiful, but it also has a mind of its own and can take or leave humanity. That’s why we have to respect it and work within its parameters. Both flu pandemics and global warming are lethal. One difference is that if we go through the next 91 months without changing course, the climate roulette of runaway warming will not blow over. It will endure.

91 months and counting…

This article was originally published at Comment is Free.

Bookmark and ShareAndrew Simms is nef‘s Policy Director and head of nef’s Climate Change programme.

Vanuatu

The experience of small islands can teach us a lot about living good lives at low environmental cost

“A man who falls from a 100-storey building will survive the first 99 storeys unscathed,” wrote the economist EJ Mishan in response to critics of his attack on the costs of economic growth. It was the 1960s and then, as now, it was heresy to question growth. The cry went up: “But natural resources haven’t actually run out yet, and what about the costs of not growing?” Mishan returned to his falling man: “Were he as sanguine as our technocrats, his confidence would grow with the number of storeys he passed on his downward flight and would be at a maximum just before his free-fall abruptly halted.”

The environmental movement was labelled alarmist and wrong in reaction to the subsequent Limits to Growth report, written by scientists at MIT, which projected the natural resource constraints of trying to grow indefinitely in a finite space. When, last year, a detailed study compared the original report with 30 years of data and trends, it found a solid correlation between projections and reality. Among environmentalists there was less a sense of final triumph than sadness at a critical opportunity lost.

Now, with the UK’s ecological debt still rising, and perhaps about 90 months to go before the world enters a more perilous phase of warming, we cannot afford another lost month. We must look for new models of economy that can operate in dynamic equilibrium with the biosphere on which we depend. In getting out of this mess, our creativity needs more help than anything. How can we begin to imagine what it looks like to live within our environmental means?

Britain is an island nation, and we could start by looking at the experience of other islands, especially small ones. Try to grow indefinitely on a small island, and you’ll come a cropper. It’s not so different on a small island planet. When societies get it wrong on small islands the consequences are clear, think of the Pacific island of Nauru, mined to virtual destruction for its rich phosphate. But when islands get it right, they show how it is possible to lead good lives at much lower environmental cost.

vanuatu2

Vanuatu is a happy nation with a tiny ecological footprint. And yet it is seriously threatened by climate change thanks to the high ecological footprints of industrialised nations.

The Happy Planet Index is a measure that assesses the relative efficiency with which natural resources are converted into meaningful human outcomes. It compares peoples’ ecological footprints with life expectancy and life satisfaction. On average, island nations score better than other states on all three indicators. Within different global regions, islands come top. Malta was ranked highest in the western world, the top five nations in Africa are all islands, and two of the top four are in Asia. Sitting on top of the index was the island of Vanuatu.

Several reasons might explain why. Isolation and relative vulnerability have probably encouraged more adaptive and supportive ways of organising island societies and economies. Traditional Pacific agriculture is, for example, highly resilient to extreme climatic conditions. Island economies like that of Tuvalu developed around sharing and gift giving, helping to create highly co-operative and mutually supportive communities.

In Karl Polanyi‘s classic work The Great Transformation, he presents various types of social and economic organisation on islands as evidence against some of Adam Smith’s more sweeping assumptions on the central role of markets. Complex forms of “gift exchange”, in which people partly meet their needs not through markets mediated with cash, but through the giving and receiving of gifts, operated over vast areas, revealing a system that met people’s needs in a challenging environment, and bonded society together.

In their book The Spirit Level – on the comprehensive importance of equality – Richard Wilkinson and Kate Pickett point out that economies more based on sharing and reciprocity equalise access to resources and create more equal, resilient communities. Conversely, unlimited growth, fed by individualistic, beggar-thy-neighbour competition, is no recipe for survival on an ecologically stressed and finite planet.

The next lesson is deceptively simple: on islands you have to respect environmental limits. Close contact with nature may also help develop deeper cultural respect for ecosystems and ingrain notions of environmental stewardship. But we are challenged at the global level to learn – in a few short years – lessons that such small communities often took millennia to arrive at. We can bail out the banks, but if we bankrupt the biosphere there is nowhere else to go.

This article was first published in The Guardian, Monday 13th April 2009.

Bookmark and ShareAndrew Simms is nef‘s Policy Director and head of nef’s Climate Change programme.

MammonThe financial druids are all a flutter. Their worst fears have come true. It’s not only that we can now see the other side of the reckless credit boom: a long legacy of high unemployment, bankruptcy and wrecked public finances. The darkest fear of the priests of high finance is that we will never again trust and follow their sermons. Any faith faces disaster when people stop believing.

The “call to prayer” of conventional economics has been the incantation of economic growth figures: the accumulated monetary value of all the exchanges that take place in the economy. When it heads south, the system knows it has a problem.

Now, it has a real problem. Global economic growth is at its lowest level since shortly after the second world war, and the UK economy is shrinking fastest.

But here’s the problem. The fact that so much went so wrong, so quickly says that the long period of preceding growth hid a deep malaise. Growth conceals more than it reveals. It is about as informative as saying that when it rains things get wet. Yet the indicator retains an unbreakable grip on the imaginations of politicians and policymakers. Over 30 years of critique from the few dissident economists and environmentalists have not shifted its privileged position.

Growth tells us if things are happening, but not whether they are good or bad. Growth can be boosted by war, pollution and all kinds of social breakdown, from divorce to ill health and vandalism. That’s because they all require money to be spent, which shows up in the growth figures. This matters right now because the government is spending money simply to reboot growth, rather than to achieve particular, desirable outcomes, like creating green jobs to rebuild energy security, and tackle fuel poverty and climate change. It needs to get smart.

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Bookmark and ShareJuliet Michaelson is a researcher at nef‘s centre for well-being.

A letter to the Financial Times, 30 January 2009.

Sir, As John Thornhill notes (“A measure remodelled”, January 28), those such as Simon Kuznets who developed the modern measure of gross domestic product were explicit that it should not be used as an indicator of social progress. More than 60 years on, in a classic example of mission creep, GDP remains the de facto measure of national success and is used as the standard against which virtually all macro-level policy decisions are judged. The consequences of this obsession with economic growth are clear: a financial system disconnected from the real economy, unsustainable levels of debt and intolerable strain placed on the planet by our high-consuming lifestyles.

The new economics foundation has long called for governments to establish national accounts of subjective well-being – systematic measures of how people think and feel about their lives. In a report launched last weekend, we provided the first ever detailed proposal for how they could be structured and implemented – see www.nationalaccountsofwellbeing.org

An approach endorsed by, among others, Enrico Giovannini, the Organisation for Economic Co-operation and Development’s chief statistician, and Prof Daniel Kahneman, the economics Nobel laureate, national well-being accounts provide a direct measure of meaningful outcomes in people’s lives.

By enabling policymakers to understand the real impact of their actions on people’s experience, such accounts would reconnect government with its core purpose: improving the lot of the people it serves. It is a reconnection that must be swiftly expedited. As we enter uncharted territory it is clear that we need a better compass to guide us; National Accounts of Well-being would be a significant step in the right direction.

Juliet Michaelson
Sam Thompson
Centre for Well-being,
nef (new economics foundation),
London SE11, UK


See also: Reuters, ‘On wealth versus well-being’

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