Date Finished: August 18th 2020
Serendipity can play a role in finding great authors. I should think I’ve come across quite a few of my favourites by chance occurrence, and sometimes you merely happen upon an author with no expectations and find yourself blown away. That was the case when I picked up Bending Adversity by David Pilling all the way back in early 2016. God knows why I did: it was early on in my immersion into nonfiction, and a book by a financial journalist about Japan’s adaptability – from the aftermath of Hiroshima and Nagasaki, to the economic crisis, to the Tōhoku earthquake and tsunami that ravaged the country and caused the crisis at the Fukushima power planet – was a bit advanced for me back then. Yet it proved an eminently satisfying history of the country explored through a unique lens and was my favourite nonfiction read of that year (hell, I might go back and reread it, I don’t remember much). Anyway, serendipity intervened again when idle browsing made me aware that Pilling’s second book, which I didn’t know existed, was on offer. Naturally, I bought it.
In The Growth Delusion, Pilling seeks to explore the concept of economic growth: its history, utility, contradictions and pitfalls. The fact is, economic growth has become one of the most important measures in modern politics, yet it’s just one number, and to interpret the health of our societies based on just one changing number seems potentially fraught with problems. Pilling reveals how the deification of this number has led to wrongheaded policies and the sidelining of important issues.
The idea of economic growth, and indeed of measuring economies in general, was cemented during the Great Depression. In order to understand the scale of the disaster, President Hoover commissioned the economist Simon Kuznets to work out the country’s wealth. Kuznet and his team took stock of the country’s agriculture and industry and came up with a first measurement by 1934, though their work continued until 1942. From the very beginning, Kuznet warned that economic growth should not be conflated with a metric of well-being. Working out what to include in measures of economic growth was subject to debate – Kuznet wished to exclude anything illegal, socially harmful, and government spending, however all of these things came to be included. One can see why Kuznet had reservations. In fact, as well as being the inventor of GDP, Kuznet has also been described as its most outspoken critic.
Kuznet’s warnings, however, were ignored, and today GDP is a much-vaunted metric, taken to be singularly meaningful. However, it’s ambiguity is demonstrated by Pilling in EuroStat’s attempt to standardise GDP measurements across the EU. Country’s vary in what they include in measures of economic growth, often due to differing legality: the Netherlands, for example, has legal drugs and prostitution whereas the UK doesn’t. Alterations as to what counts in GDP figures has led to some strange events, not least in 1987 when Italy suddenly jumped to being the world’s fifth largest economy after it decided to add the “grey” economy to its GDP figures; the mafia were suddenly responsible for a significant boost in the economy.
“Defenders of GDP say it was never meant to reflect well-being. To criticise it for failing to capture everything important in life is like blaming a tape measure for not telling us about a person’s weight or personality. That would be a valid rejoinder if the economy were just another concept, one of many we used to judge how we are doing as societies. But economic growth has become a fetish, a proxy for everything we are supposed to care about and an altar on which we are prepared to sacrifice all.”
Furthermore comes the question of whether all economic activity contributing to growth is good, and whether all activity that doesn’t contribute is worthless. This clearly isn’t the case. The American healthcare system is inefficient and costly and for all that, the country is 57th in the world for infant mortality and 31st for life expectancy. Yet it spends 17% of GDP on healthcare, compared to 9% in the UK and 4.9% in Singapore, both of which fare much better in terms of health stats. But healthcare’s contribution to the US economy is enormous: $5.36 billion between 1998 and 2012 was spent on healthcare lobbying, three times the amount spent by the military industrial complex in the same period. In this system, everything has a price tag and is therefore measurable. That means that thousands must choose between quality of life or even continued life and bankruptcy, but on the bright side their suffering contributes to GDP. Meanwhile, countries with universal healthcare are unable to effectively measure the contribution of to the economy of their healthcare systems due to the absence of price tags. And as Pilling warns, when a public service cannot be measured in a system where numbers like GDP have become deified, that sets a powerful precedent for market-driven interventions and privatisation.
“In pursuit of growth, we are told, we may have to work longer hours, slash public services, accept greater inequality, give up our privacy, and let ‘wealth-creating’ bankers have free rein. If environmentalists are right, the pursuit of growth without end could even threaten the very existence of humanity, ransacking our biodiversity and driving us to unsustainable levels of consumption and CO2 emission that wreck the very planet on which our wealth depends. Only in economics is endless expansion seen as a virtue. In biology it is called cancer.”
Conversely, take housework, stereotypically the domain of women. When Japan decided to invite women into the workplace in 2012 to shore up the stagnant economy, many took on low-paid jobs and the economy began to recover. But what, ultimately, is the difference between an unemployed Japanese housewife caring for her elderly father, and an employed Japanese woman doing the same work in a retirement home for pay? The same work is being done but only one instance contributes to GDP. Taking care of children, keeping house, maintaining a garden, and even breastfeeding can all be measured economically (though it is difficult to ascribe a number to such financially abstract activities), we simply choose not to. Where we draw the line is totally arbitrary but, as Pilling demonstrates, we do measure similarly invisible figures, namely in the form of imputed rent. This is an approximate figure of an owned house’s rental worth, as homeowner’s lack of contribution to the economy means they don’t contribute to GDP directly. Economists calculate imputed rent as a proxy for inclusion in growth data. A similar calculation could be made for housework and other activities, and many countries have made efforts to calculate this, though few include these figures in official growth stats. A 2012 estimate of household work, including cooking, cleaning and driving, found that these activities would add $3.8 trillion to the US economy, growing it by 26%.
“After making all these complex calculations for the year 2000, British statisticians found that total unpaid household work was worth £877 billion or about 45 per cent of all economic activity for that year. Of that, £221 billion was attributed to the value of childcare, £164 billion to nutrition… and £156 billion to transport. Laundry accounted for £46 billion.”
However, the real deception of growth is in its averaging out of important trends. Growth worldwide has been steadily climbing, a few blips notwithstanding, but that’s a worldwide average. Delve into the data deeply and one reveals a more nuanced picture: the lion’s share of growth is occurring among the middle classes in rapidly developing China and India whereas the lot of the middle classes in the west has stagnated. Growth in the US is mostly seen among the top 1% of earners, exacerbating inequality, while the life expectancy of white working class men in the US has actually begun to decline. And no wonder: the average wage among “non-management, private-sector workers” in the US rose from $2.50 in 1964 to $20.67 in 2014, which sounds great until you adjust for inflation and find that 1964’s $2.50 was equivalent to $19.18 in 2014; the lot of these workers has barely improved in fifty years.
In volume two, Pilling tackles the view from developing countries. Here, growth is evidently more important, as it measures the development of countries rising from a far lower standard of living. However, problems with growth nevertheless arise. In Kenya, measuring the economy proved enormously difficult because so much economic activity wasn’t happening via the traditional methods. In fact, measuring light pollution from space proved a more accurate measure of GDP than traditional metrics. In China, whose growth has seen them rapidly become one of the world’s leading economies, economists and indeed the ruling elite have begun to turn away from idolatry of growth and started to consider the environmental costs industrialisation has wrought, with smogs over the cities containing deadly levels of pollutants. They have invested in renewable forms of energy extensively and, although continued industrialisation means that dirty forms of power generation have continued to grow, this cognizance of the problem and willingness to take steps to change the situation at least shows an awareness of the external costs of economic growth and a willingness to tackle them.
In the book’s final volume, Pilling considers how we could go about amending the way we measure economies. He first turns to the idea of wealth. Pilling compares growth to measuring salaries: say we have two people, one who earns $200,000 a year, one who earns $20,000. Clearly, the one earning $200,000 is richer – that’s what economic growth would tell us. Wealth, however, would measure the situation beneath those figures and reveal that, in this scenario, our $200,000 earner is in severe debt, while ou $20,000 earner is a lottery winner with millions who has kept on their menial job. We suddenly get a very different picture. Wealth as a measure of the economy takes into account the fuzzy externalities and nuances that growth hides, and models of what it should measure include health of the population and environmental welfare. Where destroying wetlands to build a shopping mall would contribute to economic growth, wealth would measure the damage to the wetlands and balance it against the contribution of the mall.
“The GPI… is not that radical. It is really a refined version of GDP. Maryland’s Department of Natural Resources, which compiles the index, says the GPI is drawn up according to three basic principles. It adjust for income inequality, which is regarded as bad. It includes non-market benefits from the environment (such as wetlands) and from society (such as volunteer work), and it deducts such things as the costs of environmental degradation, spending on things like crime prevention of health insurance, and loss of leisure time. Altogether, it uses twenty-six indicators, each expressed in dollars, to produce a single number akin to GDP.”
Next up is happiness. Measuring happiness has been a pursuit of economists for some time, with the UN providing annual World Happiness Reports for the last decade. The reports repeatedly flag up the Scandinavian nations, Canada and the antipodes as the happiest nations. Some of this is certainly down to income; all are rich nations, after all. But not all rich nations are happy, and not all poor nations are unhappy. Other metrics come into play such as social trust, inequality, health, opportunity and much more. At the same time, measuring happiness is not a cure-all. There’s always potential to take it too far and end up in Brave New World territory. On the other hand, Pilling cites Bhutan, which decided to switch to measuring its economy via a Gross National Happiness index. However, at a population of 800,000 and in a country so underdeveloped that it only built its first road in 1962, it has become a somewhat unfair example of the failures of adopting happiness as a metric: it ranks 114th in the World Happiness Report. It doesn’t really merit making an example of, however, having to struggle up from such a low base.
“As well as being a useful policymaking tool… the GPI has shown itself to be more sensitive than GDP to real economic conditions. He cites figures for 2009, the year in which the impact of the financial crisis rippled with devastating effect through the US economy. Yet in that year the gross state product for Maryland… actually rose 3.8 per cent…. By contrast, the GPI for that year was down 6.3 per cent. That made a yawning gap of 10 percentage points with GDP.”
Pilling’s conclusion is that growth is a useful measure and something that has brought benefits to countless countries, but it’s also something that needs further contextualising, and nations cannot rely on it alone if they wish to understand what is actually going on within their borders. A number of alternative metrics could deepen our understanding of the nuances that that one vaunted number hides. Externalities like pollution, inequality, and “grey” economic activity are not accounted for in simplistic measures of growth. There is no doubting that more data would contribute to the detail of the picture and help guide more effective policy-making, but unfortunately the cult of growth prevails.
The Growth Delusion is a compelling and readable exploration of the pitfalls and potentials, history and future of GDP and the measurement of economic growth. It’s a timely reminder that slavish devotion to a number as some profound indicator of human progress is simply not a good idea, and we need to devote time and energy to finding new metrics that can fill in the gaps and allow us to tackle the issues that plague societies the world over. More interesting still is the arbitrariness of GDP – how one can suddenly include or exclude simple things to game the figures. Without standardisation this seems to throw even further doubt on the utility of such a figure. While Pilling isn’t as impassioned and compelling as he was in Bending Adversity it’s nevertheless a worthwhile and very accessible exploration of fundamental ideas about the economy.
7/10
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