In July, the International Monetary Fund described ‘increasingly gloomy’ developments in the global economy resulting from shocks to a system already debilitated by the pandemic. Two months later, the World Bank warned that the world was ‘edging toward global recession in 2023.
Against a backdrop of war, food and fuel supply constraints, extreme weather events, rising inequalities and the highest inflation in 40 years, it is time for bold ideas on how to regenerate the global economy.
Unfortunately, the words used to describe the state of the economy risk shoring up 20th century pro-growth policies – many of which have contributed to today’s multiple crises.
Isn’t growth good?
When economic reporting uses the word ‘growth’, it generally refers to gross domestic product (GDP). GDP counts all money spent and received by participants in an economy and offers a method of comparing the states of economies against each other over time.
Since the 1960s, countries have often set targets for GDP growth given its association with rising standards of living. Speeches and reports regularly apply terms such as ‘buoyant’ and ‘strong’ versus ‘weak’ and ‘moribund’ to GDP performance.
But GDP is not a marker of a sustainable economy. It does not adjust for any wider social or environmental impacts of the goods and services it counts. It is also blind to the distribution of income, access to services and ownership.
Looking at GDP growth alone, a highly unequal society, which is polluting and depleting its natural assets can – at least in the short-term – appear a success story. In fact, once GDP growth is accepted as a good thing in itself, it can be used to support other political agendas and interests. Faith in the ‘rising tide lifts all boats’ theory of growth can sugar-coat policies that marginalize other important elements of economic health such as fairness and resilience to shocks. The focus of the UK’s Growth Plan on regressive tax reforms, deregulation and energy subsidies to spur higher production and consumption is one example.
The rhetoric is appealing, sounding more attractive than French president Emmanuel Macron’s recent emphasis on the ‘end of carelessness’, preparing citizens for the fallout of constrained gas supplies and higher food prices this winter.
Conversely, the fear of GDP declining is used as a justification not to act on existential, but seemingly more distant, threats such as climate change. Arguments along these lines have characterized political polarization around climate policy in the US and the UK. Following Truss’s mini-budget, the new secretary of state for business, energy and industrial strategy launched a review of the UK’s net-zero emissions by 2050 target ‘to ensure that it is ‘pro-business’ and ‘pro-growth’.
Returning to human values
Critiques of GDP as a measure of progress have a long history. But only recently have they begun to filter through to mainstream economics teaching or accounting. That is changing in view of ecological breakdown and the realization that measures to address these will not be achieved without greater social justice often referred to as ‘just transition’.
Failure to meet the goal of the Paris Agreement to limit global warming to 1.5C will severely impact economies around the world. As climate change impacts increase, so will the unpredictability of monetary transactions. Because the credit ratings of countries are tied to their debt-to-GDP trajectories, such destabilization will further raise the cost of credit to countries which are least responsible for, and most impacted by, climate change.
As a 2022 report from Deloitte states: ‘If the economic impacts of a changing climate are left out of economic baselines, the result is likely to be poor decision-making, ineffective risk management and dangerously inadequate efforts to address the climate crisis’.
In 2021, two important reports made the strongest case yet for moving away from a narrow lens of assessing growth. In one report, assembled by the two highest level intergovernmental panels on biodiversity and climate change, it was recommended to move toward a concept of economic progress ‘that balances human development with multiple values of nature for a good quality of life while not overshooting biophysical and social limits.’
The other report – a review for the UK government – urged that ‘inclusive wealth’ is measured in a way ‘that corresponds directly with the wellbeing of current and future generations.’
These ideas are finding form in policies from Wellbeing Economy Governments (WEGo) in Scotland, California, Iceland, Canada, Wales and New Zealand. The governments of the US, China, Germany and many more are also working to integrate ecosystem-based measures of prosperity.
Bhutan, too, has long prioritized gross national happiness alongside more conventional measures of growth. Calls to make wellbeing a political priority in rich countries are growing while a rising ‘de-growth’ scholarship has been calling for abandoning growth in aggregate production focusing instead on equity and sufficiency.