Political economist urges Nicola Sturgeon to drop GDP as a measure of success

SNP MSP Ash Denham and Professor Lorenzo Fioramonti at The World After GDP - Image credit: Holyrood

If Nicola Sturgeon was to come to Holyrood this week and say she would deal with Scotland’s shrinking economy by ordering her economists to stop measuring the nation’s GDP, she would be accused of taking leave of her senses.

But that is exactly what one radical academic has urged her to do – and he has caught the attention of SNP MSPs and some of the Scottish Government’s top officials.

Lorenzo Fioramonti, Professor of Political Economy at the University of Pretoria, has said Scotland could be the first country in the world to adopt his thesis that GDP is a destructive measure of wealth.

SNP MSP Ash Denham, who sits on Holyrood’s economy and finance committees, invited Fioramonti to address an audience in the Scottish Parliament, which included Scottish Government chief statistician Roger Halliday, head of public service reform Stephen Gallagher and head of communities analytical services David Signorini.

The audience also included Jenny Holt, an international strategic affairs expert and parliamentary assistant to Bill Kidd, and communities analyst Anja-Maaike Green, as well as representatives from leading business organisations, unions and charities.

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The assembly heard Denham hail the notion of establishing ‘alternative G7 clubs’ for such measures as happiness or environmental performance.

The UK is a member of the existing group of seven rich nations which account for nearly half of the world’s GDP, but it would not be in any of Fioramonti’s ‘alternative G7s’.

Scotland’s economy shrank by 0.2 per cent at the end of 2016, raising fears that the country could be half way to recession (or already in recession once growth to March 2017 is counted) under the standard measure of two consecutive quarters of GDP contraction.

If any politician were to suggest abandoning GDP in the middle of a recession they would be accused of trying to change the rules of a game that they are losing.

However, Fioramonti said politicians should have the courage to scrap the “anachronistic” measurement.

He accused neoliberals like Margaret Thatcher and Ronald Reagan of triggering an economic spiral where production matters more than wellbeing and called for “a new Adam Smith” to shatter the prevailing economic model.

“It’s not about fluffy ideas or trying to steer the debate into Alice in Wonderland,” he told Holyrood.

“It’s about looking at the real issues and realising once and for all that GDP is no longer a good indicator of the things that really matter.

“The First Minister couldn’t be accused of not living in the real world, nor could she be accused of dismissing the things that people care about, it’s about moving on and realising that the problems can be fixed by understanding how a new economy can be produced.

“There are so many jobs that can be created in new sectors which can be incentivised, whether it’s environmental protection or social sector employment.”

Denham said she has been “personally interested in going beyond GDP for several years”, going back to her time studying international development in the mid-1990s.

“One of the things that struck me when reading Lorenzo’s book was the idea of ‘alternative G7 clubs’, such as a G7 of sustainable development, or maybe social progress, or maybe environmental performance, or economic prosperity, or even happiness,” she said.

“I suppose many of you won’t be surprised to know that the UK wouldn’t rank in G7 of any of those alternatives, so it’s clear that there is much work to be done.

“We know that GDP is not a good measure of economic success or wellbeing, not least because it doesn’t take account of things like public goods or sustainability.”

Halliday, a key figure in producing Scotland’s National Performance Framework, questioned whether GDP should be replaced or whether it could continue as part of a suite of indicators, but Fioramonti was uncompromising.

The chief statistician said: “The question is whether GDP has a place in a set of measures that capture the wellbeing of people, or whether we should just be focusing on getting a replacement for GDP?”

Fioramonti said: “Just so I am not misunderstood, my book is about ditching GDP, not fixing it, not embellishing it, not complementing it, it’s about ditching it.

“I’ve got nothing against the number or the three letters, that’s not a problem, the problem is the political power that it exercises.

“If you put it in a dashboard, and this is also a criticism of the National Performance Framework, where it is the only indicator that counts and the others [are on the side], it’s like having a steak with the accompaniments that everyone leaves behind and nobody really remembers once they’ve left the restaurant.

“It hijacks the ability of that new set of indicators to promote change.

“If it’s so toxic that every time you put it somewhere that it is the only one that is being discussed and used, then I would rather get it out of the way.”

He added: “If you have a measure where every time inequality grows it detracts from your economic performance, and you enact a fiscal policy for taxation or active redistribution of resources, you will not only support households and families, you will help your economy grow by definition.

“If that is part and parcel of what you measure as growth, you will have both positive effects.

“But if it isn’t, you will have a backlash – doing something that is in the interests of the economy and society will cause your GDP to go down and then your opposition parties will start shouting at you, the European Union will start looking at you as if you are doing something wrong, and three months into the process you will probably give up because you don’t want to be held hostage to this concerted attack.

“It’s very political and unless you change the framework of reference, whatever you do that is in the interests of sustainable economic performance and prosperity will be seen as going backward.”

Even if Sturgeon could convince Scottish society that GDP does not matter, she might face a tougher job convincing the EU to set it aside when it is implicitly written into its entry criteria.

EU accession countries must maintain a government deficit lower than three per cent of GDP, but the Scottish Government is currently running a deficit of nine per cent, which even outstrips crisis-hit Greece.

However, Fioramonti believes Sturgeon could be on to a winner if she simply urges the EU to change the rules.

“In Europe, there is a growing debate about the distorted parameters upon which the existing European Union is based,” he said.

“Nicola Sturgeon could simply piggyback on that debate and join the chorus of people who are saying we need to revise these parameters that are killing economic development in Europe, and that new members should not just embrace them blindly.

“The OECD, the World Bank, the UN, even certain sections of the EU are all talking about going beyond GDP – and she could easily win the argument internationally by looking at what these major international institutions have done and show that Europe is on the cusp of major change, which is wanted by new members, and that it’s just about getting it done.”

The academic called for the wider use of another measure called GPI (genuine progress indicator), which balances economic growth with the negative effects of economic activity like pollution, depletion of resources, crime and family breakdown.

“Until 1978/79 GDP grew on a par with progress, it was good GDP with fewer negative transactions, but since then negative transactions have grown,” he said.

“This is the time when Maggie Thatcher started ruling the UK, Ronald Reagan started ruling the US and the whole neoliberal idea started to prevail.

“During the rule of neoliberalism around the world we didn’t see real growth, we saw a downward trend in progress because of wars, traffic accidents, divorces and so on, while GDP was telling us it was a success story.”

Fioramonti urged international institutions to punish countries that accrue too many negative GPI indicators, just as they impose sanctions on countries that accrue too much debt.

The academic said Scotland is uniquely placed to lead the debate about a different economic model.

“Scotland has a history of understanding wealth,” he said. “Adam Smith wrote a book that has changed our narrative around wealth. He saw that a system made up of kings, knights and aristocrats was pretty obsolete.

He said: ‘You think these people are important, but they’re not really the wealth creators’.”

He added: “We are on the cusp of a similar change, with an obsolete economic model that is supporting a model of production which is like the kings of the old regime – it is obsolete.

“If you create a different system of valuation and design policies differently, you will do what Adam Smith did back then to the modern economy.”

Fioramonti urged Nicola Sturgeon to embark on a national debate similar to the democratic exercise that preceded the Scottish independence referendum, in which different paths and priorities were discussed in all sections of the society.

“There is a desperate need for different leadership – and I don’t know where this leadership is going to come from,” he said.

“There’s always a fear of being the first, that lack of courage, and I think maybe a nation like Scotland, just like other nations around the world, may need to play that role by showing the world that it is easier than you think.”