"More" May Not Be "Better": Puncturing the GDP Growth Illusion

By Ron Colman

There is no more pervasive and dangerous illusion in our society than the equation of economic growth, as measured by GDP, with well being and prosperity.

This was not the intention of those who created the GDP. Simon Kuznets, its principal architect, warned 40 years ago:

The welfare of a nation can scarcely be inferred from a measurement of national income....Goals for `more' growth should specify of what and for what.

Our growth statistics were never meant to be used as a measure of progress, as they are today.

Are we "better off" as a result of decades of continuous economic growth? Certainly we have bigger houses and more cars, appliances, and home entertainment equipment. We are also less peaceful and secure, three times more likely to be victims of crime than our parents a generation ago. We are more time stressed. Average unemployment rates have risen each decade. Our jobs are more insecure. Our debt levels are higher. Real incomes are declining. Child poverty is increasing. And economists predict that, for the first time since the Industrial Revolution, the next generation will be worse off than the present one.

More dangerously, blind growth has undermined our natural resource wealth, produced massive pollution, and changed the climate in a way that now threatens the planet. Are we happier? A recent U.S. poll found that 72% of Americans had more possessions than their parents, but less than half said they were happier than their parents.

Natural Resources De-Valued

Activities that degrade our quality of life, like crime, pollution and addictive gambling, make the economy grow. The more fish we sell and the more trees we cut down, the more the economy grows. We assign no value to the natural resources on which our economic wealth is ultimately based, and we count their depletion as gain in our growth statistics. This is like a factory owner selling off his machinery and counting it as profit, with no regard to the reduced flow of goods and services in the future?

Growth is simply a quantitative increase in the physical scale of the economy, and tells us nothing about our actual well being. The obsession with growth and its confusion with genuine development and quality of life have sent misleading signals to leaders and public alike, distorted policy priorities, blunted effective remedial action for social and environmental problems, and led us down a dangerous and self-destructive path.

The alternative is no mystery. In fact, there is a remarkable social consensus on fundamental values and on the goals that signify genuine progress. We all want a safer and more peaceful society with less crime, a clean environment and healthy natural resources, greater economic security and less poverty, better physical health, more free time, and stronger communities. We want to become wiser, freer, and more caring. We are completely capable of measuring our progress in this way, and of re-ordering our policy priorities accordingly, to create the kind of society we genuinely want to inhabit in the new millennium.

No political party officially favours greater insecurity, a degraded environment, or more stress, poverty and inequality. Why then do we see policies that promote those very outcomes? It is nobody's fault. We have all been receiving the wrong messages from the misuse of the GDP as a measure of progress, and we have all been hooked on the economic growth illusion. But we will never leave our children a better legacy until we cut through the myth that "more" means "better", and until we stop gauging our economic "improvement" by how fast the economy is growing.

One of the fastest growing sectors of the American economy is imprisonment, at an annual growth rate of 6.2% per year throughout the 1990s. One in every 150 Americans is now behind bars, the highest rate in the world along with Russia, compared to one in 900 Canadians and one in 1,600 Nova Scotians. But having a more peaceful society and spending less on prisons, burglar alarms and security systems actually shows up as disadvantage in our GDP and growth statistics. The booming U.S. security industry adds $40 billion a year to the economy, with most sales now going to schools. Is this our model of a "robust" and "healthy" economy?

Gambling is another rapid growth industry - a $50 billion a year business in the U.S. Divorce adds $20 billion a year to the U.S. economy. Car crashes add another $57 billion. Prozac sales have quadrupled since 1990 to more than $3 billion - a sign of progress?

Overeating contributes to economic growth many times over, beginning with the value of the excess food consumed and the advertising needed to sell it. Then the diet and weight-loss industries add $32 billion a year to the U.S. economy, and obesity-related health problems another $50 billion, at the same time that 20 million people, mostly children, die every year from hunger in the world

Toxic pollution, sickness, stress, and war all make the economy grow. The Exxon Valdez contributed far more to the U.S. economy by spilling its oil than if it had delivered the oil safely to port, because all the cleanup costs, lawsuits and media coverage added to the growth statistics. The Yugoslav war is costing the NATO countries $60 million a day, and our economies will benefit even more by rebuilding what we destroy.

Growth and Inequality

Even in material terms, measuring well being by growth rates does not tell us how many people have been left behind by the growth spurt of the 1990s. Indeed, the economy can mushroom even while inequality and poverty grow. The U.S. Census Bureau reports that income inequality has risen dramatically since 1968, by 18% for all U.S. households and by over 23% for families. The richest 1% of American households now owns 40% of the national wealth, while the net worth of middle class families has fallen steadily through the 1990s due to rising indebtedness. Bill Gates alone owns more wealth than the bottom 45% of U.S. households combined. Is this the example we want to emulate?

In Canada neither GDP nor inequality have grown as rapidly as in the U.S. But despite the economic recovery of the 1990s, child poverty has increased by 47% since the House of Commons unanimously vowed to eliminate it in 1989. Here in Nova Scotia, real income after taxes and transfers has fallen by 24% for the poorest 40% of Nova Scotian families since 1990. In other words, there is no guarantee that the tide of economic growth lifts all boats, and the evidence indicates that the opposite is frequently the case.

Measuring progress by the sum total of economic activity is like a policeman who counts his contribution by adding up all the street activity he observes. The lady walking her dog, the thief stealing the car, the children playing on the corner, the thug hitting someone with a lead pipe - all are recorded equally. Like the policeman's log, our growth statistics make no distinction between economic activity that contributes to well being and that which causes harm. We expect more of our policeman, and we should expect no less of our leadership.

But surely, it is argued, growth is necessary to create jobs. Next, we'll look at the evidence and at better ways to measure our well being and progress.