“Nature is a blind spot in economics that we ignore at our peril”. Pithy comment from respected Cambridge Professor of Economics, Sir Partha Dasgupta. On 2 February the BBC’s Today programme ran a story about his new report The Economics of Bio-diversity. A supportive response from Sir David Attenborough provided a popular touch. It is not reality that has blind spots. They belong to the economists whose tunnel vision of economic growth as the key measure of progress is increasingly irrational. Professor Dasgupta argues convincingly that a narrow and exclusive focus on Gross Domestic Product (GDP) – meaning the total value of economic activity within a state’s borders in goods and services – is a misleading measure of economic success.
The inadequacy of growth as the unique economic measure has been debated for decades. What has made this report a news story? Has there been a major theoretical breakthrough, a rethinking of economics triggered by the pandemic and climate change? There seem to be three principal reasons that made The Economics of Bio-Diversity newsworthy. First, it was commissioned by H.M. Treasury. Second, its strong and clear injunction that good economics must respect and manage nature better. And third the UK will be hosting and chairing the UN Climate Change Conference, COP 26, in Glasgow this November.
After the Second World War Mark Twain’s old aphorism, “there are three kinds of lies: lies, damn lies and statistics”, took on a whole new dimension: the economic measurement of progress. Success in the competition between nation-states was measured by a single statistic, the value of Gross National Product (GNP), later recalibrated as Gross Domestic Product (GDP). An annual increase of GDP of several percentage points meant pride and progress; low or negative growth, despondency and decline. As economics, its language, theoreticians, statisticians and beneficiaries, came to dominate political life so for governments economic growth became the overriding proof of political virtue.
But what counted as economic activity? What was excluded from the aggregated calculations that made up GDP? By definition ‘externalities’, such as women’s domestic labour and childrearing and the large ‘informal sector’ in the developing world. On the debit side, the social, health and environmental costs of material production were ignored. And this despite perennial challenges from sociologists, developmentalists, progressive economists, environmentalists, trades unions, religious leaders and feminists all contesting the adequacy of the prevailing economic growth paradigm.
Progress, critics of GDP argued, could be measured in a completely different way: by improvement in the standard of living, by increase in the well-being and happiness of a population, clean air, bio-diversity, leisure time, increase in human capabilities, decrease in the harms of inequality, and so on. In 1972, Sicco Mansholt, a Dutch former farmer, a founding father of the European Union and the fourth President of the European Commission, coined the term "Gross National Happiness (GNH)”. But only tiny Bhutan, which shares borders with India, Nepal and Bangladesh, adopted GNH as a national policy with a strong Buddhist flavour.
Critics of the growth paradigm seem to gain momentum when the stability of the global economy is shaken by crises. In the early 1970s, after the events of 1968, limits to growth became a UN conference topic. After the 1973 oil-shock when OAPEC (Organisation of Arab Petroleum Exporting Countries) raised oil prices fourfold. After the 2008 banking meltdown, fantasies of unlimited natural resources and the benefits of unregulated markets were challenged by reality. Stephen Macekura’s scholarly The Mismeasure of Progress: Economic Growth and its Critics charts in detail the history from the 1940s of such alternative economics and their failure to gain traction once the crisis has passed.
So Dasgupta and his Treasury report are a continuation of a long tradition that even includes popular writers: Rachel Carson published her readable Silent Spring in 1962 and Ernst Friedrich Schumacher his Small is Beautiful in 1973. During the same period pioneering developmental economists such as Barbara Ward, Mahbub ul Haq and Dudley Seers were grappling with the problems of achieving what they called ‘sustainable development’ and with environmental issues in the newly independent ‘Third World’ countries. Macekura shows that despite the best efforts of the growth critics, the dominant economic ideology never lost its self-confidence and power to convince, even though slowly but unsurely big guns such as the World Bank began to support some aspects of alternative economics and its vision of progress. Human development indexes burgeoned with measures of health, literacy, social inclusion and wellbeing to the fore. The intended beneficiaries of development aid were consulted about what they wanted rather than what governmental donors following the latest economic theory prescribed. But economic growth with GDP as its indicator remained the global orthodoxy, the common sense of Economics and Progress, with a dismissive ‘this-is-the-way-we-measure-things-around-here’ being the last word.
Today we inhabit a deranged world of economic statistics in which, according to the BBC Today programme’s introductory script, Amazon, the company, is valued at $1.6 trillion and Amazon, the river and forests at nothing - unless and until they are cut down for wood and farm-land. Nothing on the debit side, rivers silting up, extreme weather conditions, global warming. And the pandemic has woken us up to just how poorly equipped we are to evaluate statistics, even those which count ‘excess deaths’.
Dasgupta deploys economic language to get his message across. But it grates. He refers to our demands for nature’s “assets”, its “goods and services” have to be balanced against the earth’s capacity “to supply them”. The concept of the earth’s “natural capital” stretches the meaning of words to the limit. Don’t biodiversity and the environment have an incommensurable value? But ‘talking the economic talk’ is the most likely way to convince economists to ‘walk the walk’, heed their critics’ arguments, and avoid catastrophe. The assumption that a technological fix is going to make unnecessary a major change in how we measure economic success and how we conduct our lives, is a dangerous gamble and verges on magical thinking; as far as containing irreversible climate change is concerned current half-measures are set to fail.
One consequence of an emerging conceptual dissonance at the heart of the dominant economics is that we repeatedly hear politicians placing surviving the pandemic in binary opposition to saving our economy. Only an economy that has the nation’s health not as an ‘externality’ but as one of its key measures of success is worthy of being described as rational. Mark Twain was right. The statistics that have embedded economic growth in our minds as the only measure of progress hide a particularly insidious lie. So well done the BBC for giving a heads-up to a report about how we might now move on, at last, to a rational economics.
See TheArticle 05/02.2021