‘The idea that markets were always right was mad. Self-regulation as a way of solving all problems is finished. Laissez-faire is finished. The all-powerful market that always knows best isfinished.’
The Global Financial Crisis, 2008. Who uttered these strong words? A socialist activist? No. A radical, left-leaning political commentator, a la John Stewart? Wrong again. An enraged shareholder left penniless and pensionless by the collapse of the stock market? Not even close.
These words were spoken by a long-time political conservative. An economic liberal, a champion of the all-knowing, self regulating market. A firm advocate of ‘hands off’ economic management. A multi-millionaire.His name is Nicolas Sarkozy. President of France and, at the time, of the European Union. ‘Have I become a Socialist?, mused Sarkozy recently, ‘Perhaps.’
This recent, very public about-turn underlines the fact that more and more people are questioning not only the way in which our economy works, but how we can measure the effects of the ‘progress’ that economic growth is supposed to deliver. Gross Domestic Product was the 20th Century’s yardstick for ‘progress’ – GDP goes up, nation is better off. But GDP, as Sarkozy has noted, doesn’t accurately measure how well we’re all doing. Traffic jams, crime and pollution all contribute to GDP, but clearly don’t make life better for those of us having to live with them. And the push to keep GDP expanding constantly, without regard for unemployment, environmental damage, or how much debt you or your company were in, steepened the slippery slope towards the financial crisis of 2008-2009. So, what is the alternative?
In September 2009, the Commission on the Measurement of Economic Performance and Social Progress, convened by Sarkozy, released a reportadvocating new measures of progress that should supplement the GDP.The Commission, led by Nobel-Prize winning economist Joseph Stiglitz,believes that measuring social progress through an economic accounting system is impossible. They recommend measuring quality of life and sustainable development alongside an extended, modified GDP to keep track of how well people are doing. Quality of Life in this context means ‘thefull range of factors that influence what we value in living, reaching beyondits material side’. Subjective well-being, individual capabilities, and how money and goods are spread across society are just some of the major factors to measure. Sustainable Development means asking if the way that we use our resources will allow society to reproduce itself – in other wordswhether the way we live is viable in the long term.
A comparison between the range of the Commission’s measures and a range of other alternative measures of progress is set out in this chart, and demonstrates the breadth of Stiglitz & co’s vision.
By implementing the recommendations of the report, we would get a comprehensive picture of society’s vitals. How healthy we are. How people interact with each other in the community. How much we value our leisure time, or time with our family. In short, we could talk about what the economy does for people, rather than what people have done for the economy.
Australia may have fared comparatively well during the crisis, but can we afford to risk a repetition by declaring victory over a recession using GDP andheadline employment rates alone? By having the same focus on flawedmeasures of progress that helped get us into this mess in the first place? And does Australia’s recent economic ‘victory’ mean that we’re all happier andhealthier than we were earlier this year?
France has already adopted the recommendations of the report. Sarkozy has urged other world leaders to follow in his footsteps. Whether the AustralianGovernment will take his advice remains to be seen.
One of the key recommendations made by the Stiglitz-Sarkozy Commission is that progress should be measured not only in terms of income and expenditure but also net wealth. CPD is currently looking for people who can help prepare ‘Australia’s National Balance Sheet’ for 2010 – developing a basic set of indicators on the state of Australia’s stocksof natural, social, human and physical capital. If you have strong research and data analysis skills or you have expertise in one of theseareas and would like to help out, please get in touch via https://cpd.org.au//volunteer.