joseph stiglitz

On September 14th, two of the most famous economists of the world issued a report on measuring development beyond GDP. To challenge the way economic development is measured matters politically because our society is in a discourse crisis. As the report puts it:

“as what we measure shapes what we collectively strive to pursue -and what we pursue determines what we measure - the report and its implementation may have a significant impact on the way in which our societies looks at themselves and, therefore,on the way in which policies are designed, implemented and assessed.”

Interestingly, if you bomb a city (say…Bagdad) and build it again, you can measure a huge peak of growth… More generally, people who talk about indicators agree on two points about GDP:

• It is simple and because of that extremely limited.

• It is simple and we have not yet devised an indicator as handy as this one to encompass “economic development”. Whatever “economic development” might mean.

French President Sarkozy commissioned Joseph Stiglitz and Amartya Sen (see box below) to lay the new foundations for measuring economic development. The one year long project addressed the two point mentioned above. Now there is not one single indicator to replace GDP but a set of many indicators. They can give a much more comprehensive picture.

How can economic development be better measured ?
If you want to purely measure the production of wealth in your country then GDP is enough. If you want to use it as a measure of the well being of your citizens…then you are using GDP in the wrong way. Some compare it to stearing a plane with only the speed-o-meter. I assume that politicians are not obsessed by the color of gold, and that beyond how much wealth is generated, they want to know how it is distributed and if it made a difference to the well being of people. Why otherwise build infrastructures, schools or a health care system ?
The commission argues the direct measuring people’s wealth allow for a much more precise account of people’s welfare than a mere GDP. There would be salary + taxes as usual but it would be accompanied by a more complete set of indicators. Here are just a few of them:

• The capital people manage to accumulate during their lifetime is important. Making a lot of money at a lot of expenses can not be called progress.

• Accounting for informal work. Indeed, if time is money, all home gardeners should be considered as self employed.

• Assessing the value of state-provided externalities. Being “destitute” has a rather different meaning in Sweden than in the US.

• The disparity of wealth, because inequality within a country is detrimental to its general well being and because it has a significant social cost.

How can we do more than this?
Recent imperatives such as “oh my god, CO2 might kill us” have changed our perception of the role the state has to play in economy. Producing is not just a technical challenge anymore, it involves a sacrifice. Each fish we eat, each drop of oil we burn will not be replaced. Let’s not debate technological fix here, and let’s agree that progress has become a much more complicated equation than it was just after WWII. From now on, the problematic to comprehend for a leader is to have the most qualitative development possible at the least sacrifice… The Stiglitz-Sen-Fitoussi commission wants to address this in two ways :
A comprehensive and objective way to survey people about their well being.
Tools to calculate the value of damage represented by environmental or social degradations.

Now, if this should be implemented, we could easily imagine the impact it would have on debates about public policies. For instance healthcare systems in the US, or carbon tax in France because most of us emphasize the need to preserve individual freedom and GDP. Better measurement could show that many taxation efforts are doing so.

What can citizen do at this stage…
There is a great deal of work to be made at this point. First, we need to continue to develop those ideas towards transnational and specific measuring instruments. Many of the tools are still to be developed further and adapted to different contexts. Secondly, we need to spread this discourse. France cannot survive such a stringent diet if other countries continue to compete using plunder and social dumping to reduce their costs. There is a need for critical mass to get political momentum and this critical mass could be the EU.

Much work needs to be done in order to synthesize those measurement tools and to make them operational for decision making and intelligible for the wider audience.

Be it civil society, research or the media, it is our responsibility as citizens to make something out of the results of this unique commission. It is necessary, because it might be the remedy for the political myopia we have been enduring for so long. As personally convinced as a politician can be, no policy could or should be accepted by a population without prior understanding of the impact implementation may have on society. As a matter of fact, this is a critical step to legitimize sustainability.

LUCAS LE PROVOST