LONDON – One of the silliest and least informative headlines carried in U.K. newspapers in 2017 compared alleged rates of economic growth throughout Europe, noting that the United Kingdom, after lagging and wobbling following the Brexit decision shock, had now caught up with Germany at 1.9 percent.
Why was it so silly? For three reasons of ascending force and obviousness.
First, comparisons like this depend on where you start from.
Second, overall rates of growth in a complex modern economy are notoriously difficult to measure and depend on unrepresentative samples, guess work and huge value judgments as to what constitutes GDP in the first place. How, for example, do you measure increased output in art, entertainment, better environment, smoother trains, quicker book printing, nicer nail varnishing services, more tolerance in a society? Nobody really knows.
Third, and by far the biggest, although least discussed, reason is that economic growth, however assessed, has become a deeply flawed measure of the health, welfare, dynamic vigor, balance and contentment of a society or nation.
Conventional economic analysis concentrates on the cash value of activities and the measurable flow of investment, wages and interest, savings and consumption, and enterprise, all driven by competition and with the banks oiling the wheels of finance and the state providing, and charging for, the necessary infrastructure of public services, law and security. At the center of this stage is placed the utterly unconvincing and unreal figure of rational economic man, who in real life does not, of course, exist.
That leaves out the real determinants of economic progress which lie at its very foundations — in the home, the household, the human impulses to share and cooperate, in the whole world of social relations and sense of fairness, in the surrounding environment and in the routine, but essential, dealings and requirements of daily life, on which everything else depends. Most of these activities in a society may be unpaid, but neither man nor woman — rational or otherwise — gets through the day without them.
These are precisely the “core” qualities that determine a country’s strength, or weakness They are what decides whether an economy pulls together or slows down to torpor and stagnation levels and falls apart.
Yet these are the considerations and measurements that almost all economists for the last century have completely ignored.
Focusing on market efficiency and better physical infrastructure may boost the all-absorbing growth rate figure, at least superficially. But that kind of growth, narrowly defined, may come with more social divisions, not less, with instability, demotivation, and with new dangers of the whole market system catching fire and blowing up, as it nearly did back in 2008.
So where is the progress and national strength in that? Economic analysis that just looks at markets and flows of income is starting half way down the track. The real drivers of national progress begin by treating people not just as consumers but as citizens, with all the needs, ambitions and attitudes that reinforce citizenship and a feeling of common purpose.
Will the economists now begin taking a wider view of what constitutes real and balanced growth in differing societies? The question is of high relevance to Japan. As a visitor, one arrives with a mass of “expert” Western briefings stating that the Japanese economy has been stagnating for a decade or so. Yet this is a society that has been, and continues to be, highly creative and socially innovative, lively and open in debate, remarkably cohesive and properly concerned both that there should be a role for all, in the home and the workplace, and that the environment should be fully respected, regardless of what impact this approach has on official data, on measures of GDP growth or productivity levels (another immeasurable of real life) and all the rest.
If this is “stagnation” then there is something seriously and deeply wrong with the way things are assessed.
The chances of getting any real change in mainline economic thinking are slim. But there is a way out of the trap.
An illuminating book by Oxford economist Kate Raworth, titled “Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist,” reminds us that in the 21st century global networks are doing what economists and policymakers should be doing but are not. Networks driven by vast digital power grow of their own accord, linking up real interests and concerns across the planet and bypassing blinkered economic theories, and misguided government measures that derive from them.
Networks influence behavior, she explains. They tap into norms and values such as duty, respect and care, and they distribute both power and wealth in ways that have never happened before.
State policies cannot deliver all these aims. But ensuring that new wealth is far more evenly shared is one central goal that governments can push toward. Those of us who in the 20th century used to believe that, with markets unleashed, wealth would “trickle down” now need to revise our mindset since that is plainly not happening. Radical redesign of monetary policy to share wealth much more widely is clearly essential.
So architects, and comparison-makers, of national economic growth and industrial strategies beware. Not only is national output much harder to define in the digital age. Not only is the future (and even the present ) shape of industry completely unpredictable.
But sticking to the old and narrow economic perspectives and definitions may be the wrong national target and the wrong strategy. Competing with rivals becomes pointless. More so-called growth may just mean more social tension, a less balanced society and a worse life for many.
You have been warned.
David Howell is a Conservative politician, journalist and economic consultant. He is chairman of the House of Lords International Relations Committee.
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