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Director’s Corner: The Economy: In Need of a Major Makeover

By March 20, 2014August 4th, 2020No Comments
“Policy itself follows from what is measured, and if all that is measured is money,
all policy will be about is getting more money.” 
~Martin Seligman

“At the end of the day, the role of business is to generate prosperity and a better quality of life for everyone… we should never operate at the expense of the earth or societies or future generations.” 
~Ray Anderson

In January we introduced the idea of the Sustainability Compass, which in graphic form symbolizes the four essential frames of sustainability: Nature, Economy, Society, and individual Wellbeing.  All four aspects of sustainability optimized together create a flourishing world.

In February we focused on Wellbeing.  This month, we turn our attention to the Economy.

The economy.  What is the ultimate purpose of the economy anyway?  Who does it function for and to what end?  How successful is the economy in achieving outcomes that improve conditions for all individuals and society?  As the quotes from Martin Seligman and Ray Anderson infer, questions about the purpose and functioning of the economy are questions of values, ethics, and morality. 
In so many ways, growing the economy dominates public conversation and the attention of policy makers. It seems every aspect of life is attended to through the lens of economic growth, the underlying conviction being that economic growth, wealth generation, and the state of the economy as measured by the Gross Domestic Product (GDP) are accurate indicators of societal and individual wellbeing. These assumptions for the most part go unquestioned.
Is GDP a valid measure of economic performance? Does unending economic growth make sense, and is it even possible?    
From the perspective of a holistic, all-four-points-of-the-Sustainability-Compass view, the answer to these questions is “No.”
And there is plenty of evidence to support that “No.” Here is just a tidbit of information that challenges the concepts of GDP and continuous economic growth.
Gross Domestic Product (GDP)

GDP is a very misleading indicator of wellbeing produced by economic activity.  As Martin Seligman observes, “Every time there is a divorce…two automobiles collide…the more people scarf down antidepressants, the more GDP goes up…. GDP is blind when it comes to whether it is human suffering or human thriving that increases the volume of goods and services.” 

Read David Suzuki’s recent blog “Measuring progress with GDP is a gross mistake,” and an NPR report about the economy that addresses the original purpose of GDP.  GDP is a dangerously misleading and inaccurate measure of progress, yet it remains THE go-to number.
Economic “Growth”

Another accepted premise that needs to change is the belief that perpetual economic growth is possible and desirable.  Perpetual growth on a finite planet whose natural capital is already overtaxed is not possible.  “There will always be limits to growth.  They can be self-imposed.  If they aren’t they will be system-imposed.” Donella Meadows 
Anyone who doubts this need only invest about 62 minutes to watch “Arithmetic, Population, and Energy,” by Professor of Physics Al Bartlett, University of Colorado, about the power of the exponential function as it relates to society, economic growth, and the future.  Sobering.
So, how might things be different?  There are better alternatives at hand.
For one thing, we could use a more honest and comprehensive measure of economic performance, one that assumes the purpose of the economy is to increase wellbeing and sufficiency for all.  Check out the Genuine Progress Indicator that Suzuki references in his blog.
For another, we could understand the distinction made by economist Herman Dalybetween economic growth and sustainable development and make development and wellbeing for all our goal.  As he points out, the earth has not grown in 4.5 billion years, but it sure has developed.
And we could view the economy from all four points of the Sustainability Compass, paying attention to all forms of capital necessary for a flourishing world: natural, financial/built, social, and human capitals.  For a glimpse at this idea, check out this month’s poster on a sustainable economy created by Alexis Harrison, one of our awesome interns.
GDP and the concept of “growth” are just two of many important issues related to the economy and its performance that need attention. 
Nevertheless, an economy that just does these two things, accurately measures wellbeing resulting from economic activity, and operates in accord with the laws and limits of nature, will generate a positive benefit/cost ratio in its outcomes.  It is going to look different and require some different values than those currently expressed by the market. Of all the hurdles we face, transforming the economy is surely one of the greatest.
But we can do it.  In the words of Herman Daly we can practice “economics as management of our home in a way that increases its value to all members over time.” 

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