Happiness and housework are as important as economic growth

Practical men who believe themselves to be quite exempt from any intellectual influence are usually the slaves of some defunct economist.” John Maynard Keynes wrote those words in 1947, but he could just easily have been referring to the political elite (plus Donald Trump) gathered in Davos this week.

You see, even though they don’t realise it, the government leaders cloistered in Switzerland are in thrall to the work of a statistician they’ve probably never heard of. His name was Simon Kuznets, and back in the 1930s he came up with the concept of gross domestic product — commonly known as GDP — as a way of measuring the size of a national economy.

Today that number has become the holy grail for determining how well a country — and its leaders — are doing. So if you’re a politician who wants to be taken seriously at Davos, you’d better have a plan to boost your nation’s GDP figures — or else. As the Financial Times journalist David Pilling says in his excellent new book The Growth Delusion, “GDP is the number we use to define success…It’s become a proxy for a country’s wellbeing.”

But here’s the problem. As Pilling points out, although GDP has come to be worshipped as the measure of success, it’s completely flawed in all kinds of ways. For starters, it doesn’t reflect environmental damage. Brazil’s new president, Michel Temer, is at Davos, and if he announced a plan to chop down the entire Amazon rainforest to build roads and factories, it could be seen as rational because it would boost his country’s GDP.

Of course, the long-term negative consequences of this decision would be vast, but these wouldn’t be reflected in the economic figures.

And look at Saudi Arabia, which has a large delegation of ministers at Davos. According to Pilling, its growth numbers are “virtually meaningless”. Why? “Because they’re predicated on flows of oil, which will one day run out.” So unless the country finds another way of generating its current level of income, its economy will shrink.

The issue is that GDP doesn’t take natural capital into account — the immense value of ecosystems such as forests, as well as fossil fuels. This matters. Unless governments can make an economically rational case for protecting natural habitats, nature invariably loses out to the pursuit of growth.

So if we’re not careful, chasing this narrowly defined GDP measure will lead us down the wrong path. According to ecologist Jared Diamond: “If we continue to follow our present course, we will have exhausted the world’s major fisheries, tropical rainforests, fossil fuels and much of our soil in a few generations.” Sobering stuff.

A second flaw with GDP is the fact that non-paid labour such as household work and volunteering isn’t counted at all. If you stay at home to look after your children, none of your hard graft is reflected in the economic data. But if you work in a nursery looking after someone else’s children, then the exact same activity counts. As feminists have rightly pointed out for decades, this means GDP fails to recognise the immense contribution that women in particular — as well as stay-at-home fathers — make to a country’s prosperity.

According to US researchers, housework would add $3.8 trillion to the US economy if it was counted in the GDP numbers. Here in the UK, statisticians have estimated that unpaid household work is worth £900 billion a year — including £220 billion in free childcare.

Why does this matter? If something isn’t measured, there’s a danger it becomes undervalued — and neglected when it comes to policy decisions. Sadly, you can see this in government childcare policy, which continues to be massively underfunded and under-discussed — in part because it’s not recognised as a major factor in economic growth.

Rohan Silva

A third problem with GDP is that it doesn’t tell us anything about whether or not people are satisfied with their lives. Nobel Prize-winners Joseph Stiglitz and Amartya Sen have long argued that we should measure “general wellbeing”, GWB — alongside GDP. In practice, this means asking the public how happy they feel. This might sound soppy but it’s actually something that the Office for National Statistics now does on a regular basis to help inform government policy.

And there’s good reason for ministers to pay attention. According to researchers at the London School of Economics, the happiness of a nation is a much better predictor of election results than GDP. If voters are glum, then governments will tend to be booted out of office.

So next time you hear politicians talking about economic growth numbers, just remember everything that’s not included. In the words of Bobby Kennedy, GDP “does not allow for the health of our children, the quality of their education, or the joy of their play. It measures neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile.”

Thinking about how we measure economic growth might seem obscure (sorry about that) but the truth is that what we choose to measure often ends up defining us.

A long way from the elites at Davos, the argument for better ways of measuring prosperity is steadily gathering momentum. As former French president Nicolas Sarkozy puts it: “We won’t change our behaviour unless we change the way we measure economic performance.”

If we want to protect our environment and build a fairer and happier society, that change can’t come quickly enough.