by Dirk Damsma
GDP is a measure of the amount of goods and services a country produces and trades in money. The latter caveat is the source of much mismeasurement. First, it implies that home production is not valued. In their first course in macroeconomics, most economists have encountered the story of the woman marrying her butler. After their marriage he continues to wait on her as he did before. The exercise that follows asks you to analyze how this affects GDP. In response, some of my students say it has increased as he may be expected to provide at least the same level of service as before, while the services they provide for each other at night are added. Some say that there has been no change since the amount of services produced does not change (for all we know, they might have already engaged in nightly services before marrying). The correct answer, of course, is that it has fallen because the butler’s services are no longer denominated in money and traded in the labor market now.
Like most examples in macro-economics, this story is ludicrously simplistic, but it drives home an important point. It implies that GDP often falls when people get closer to the good life and rises when people are forcibly removed from their land, home, families and loved ones. Marx (1887: Ch. 27) famously described a period in English history in which small landholdings were consolidated (enclosed) into larger farms. In the process, the many farmers whose livelihood depended upon their communal farming of this land, were driven away. Meanwhile, use of the land became restricted to an owner that could now claim exclusive property rights. This was a win for both landowners and industrial capitalists. Landowners used ‘their’ land for sheep farming at a time when wool was in high demand. The disowned farmers had no choice but to move to the cities and sell themselves at the factory gates. This influx of labor kept their bargaining power – and thus their wages – low. This, in turn, lowered costs for industrial capitalists.
All in all, life expectancy and happiness fell considerably, but GDP rose. Before they were driven from their common land, the self-subsistence farmers hardly traded anything for money. Now they traded their labor power. So GDP rose, even though the wage they now earned could hardly keep them alive. Similarly, the land that once fed these farmers now yielded wool. Wool was not ‘consumed’ at the point of production. Instead it was traded for money and thus added to GDP.
In many resource-rich developing countries we see the same dynamic today. A multinational comes in to mine the resources. Helped by local governments that want a piece of this new pie, it uproots all communities that threaten to interfere with its plans. Penniless and deprived of land, the uprooted people move to the city to find work. If they succeed, their petty wages are added to GDP, as is the revenue from mining the resources.
Communally owned environmental resources and services (e.g. clean air and water, a livable climate, the ocean) are not traded for money either. Through their very nature, it is practically impossible to vest property rights upon them and/or restrict their use. However, products for which those resources are used as inputs can be traded and thus yield money. As a result, depletion of environmental resources and excessive use of environmental services, results in rising GDP. Yet their preservation is crucial for survival of the planet and all of its inhabitants.
To make matters worse, companies can boost their sales volume by making sure that the products they sell need to be replaced sooner rather than later. The sooner consumers need to or want to replace your product, the more you will sell. The replaced products are transformed into waste, which usually represents an environmental burden. But GDP rises as more waste is produced, increasing the strain on nature’s sinks further (see also here). All in all, GDP rises through severing social ties (by dislocating communities), depleting resources and overloading nature’s sinks. So, whatever GDP measures, it is not the ability of our economic system to keep us alive and healthy.
Enter the Doughnut. Kate Raworth (2017) describes the Doughnut as the ‘safe and just space for humanity’, the space where ‘humanity can thrive within the means of the planet’. This space lies between the social foundation and ecological ceiling (as illustrated in figure 1). The social foundation is formed by universal human rights. The ecological ceiling consists of nine planetary boundaries. Environmentalists are pretty sure that crossing these boundaries will set off a vicious cycle that life on earth will not (fully) recover from.
Figure 1: The Doughnut.
If we want to take human rights seriously and like our life better than our money, why don’t we focus on these two sets of social and ecological metrics directly? Why do we focus on GDP growth, knowing that what it measures is hardly related to what people want or the planet needs? Raworth explains how this focus on such an arbitrary metric came about (by all means, read her book). Her most important message, however, is that it is high time to get rid of it and focus on the Doughnut directly. Her book sets out the many ways to do this. It is replete with examples of people, governments and also businesses setting up projects that edge us into the Doughnut. Some of them are market based, but many are not.
Either way, all of them are highly idealistic. Although commendable, this idealism is also the Achilles’ heel of Raworth’s book. Its subtitle is: Seven Ways to Think Like a 21st-Century Economist. And that is exactly what the book offers. Ways to think and examples of how idealists put these alternative ways of thinking into practice. The implicit hope seems to be that alternative thinking will lead to alternative public and private actions.
This might well be the case in a truly democratic system. However, as I argued before, the system we live in, is an econocracy rather than a democracy. It is ‘a society in which political goals are defined in terms of their effect on the economy, which is believed to be a distinct system with its own logic that requires experts to manage it’ (Earle, Moran & Ward-Perkins 2016: 7). Such a system may well prevent alternative thinking from ushering in an era of alternative action. The indignant and rather childish responses of the economic profession to Raworth’s book illustrate the econocratic barriers we are up against rather nicely (see e.g. here for a critical synopsis of responses by Dutch economists – in Dutch). As long as such economists have the ear of politicians, nothing much will change, no matter how enlightened and well-meaning the rest of us become.
That said, no societal, political or belief system was ever successfully challenged without envisioning a viable alternative. Moreover, such alternatives usually appear unrealistic and unachievable at first. We should not let that thwart us. If we do, we will certainly follow the path of the business-as-usual-scenario and that scenario does not end well. The least we can do, is to envision a viable long-term future for humanity and start thinking about ways to achieve it. Raworth has done a good job setting out a vision of such a future. Based on that, we can start thinking and experimenting. We should do so as soon as possible. Time is running out.
Over hoe we de donut-economie kunnen toepassen in een ontwikkelingsland als Rwanda, zie hier.