As we navigate the 21st century, the tension between economic growth and environmental sustainability has never been more palpable. Traditional measures of economic prosperity, such as Gross Domestic Product (GDP), have come under intense scrutiny for their failure to consider the environmental and social implications of growth. The question that arises is whether it’s possible to sustain economic growth whilst addressing the climate crisis and staying within environmental limits. This article explores alternative measures to GDP, the growing momentum for a well-being economy approach, and the potential for wealth accounting in promoting sustainable growth.
Understanding Economic Growth
Before delving into the discourse on alternative measurements, it’s crucial to understand what economic growth entails. Economic growth is conventionally measured as the rate of change in output, or more specifically, in real GDP. Real GDP is a measure of the market value of all final goods and services produced in the economy within a given year, adjusted for inflation. It’s used as an indicator of material living standards in a given country. However, this measure overlooks the value of the natural environment and other aspects of human wellbeing that are challenging to quantify, prompting the suggestion of alternative measures of wellbeing.
The Imperative for Change: Critiques of GDP
The Gross Domestic Product, albeit an established metric, has been persistently critiqued for its limited perspective on economic health. It encapsulates the “good, the bad, and the ugly” of economic activity and labels it all as progress. GDP doesn’t account for unpaid work or distinguish between economic activity that positively or negatively impacts people’s health and the natural environment. These shortcomings have spurred global calls for a system that redefines economic success beyond mere growth in GDP.
Shifting Focus: The Wellbeing Economy Approach
A growing network of countries, including Finland, Iceland, Scotland, Wales, and New Zealand, are veering away from GDP as the primary measure of progress. These nations, predominantly led by women, have joined the Wellbeing Economy Governments partnership. This global coalition aspires to transform economies by 2040, aiming to deliver shared well-being for people and the planet. This approach involves reframing economic policy to focus on improving the quality of life for all people, in harmony with the environment.
Case Study: New Zealand’s Wellbeing Report
New Zealand recently published its inaugural Wellbeing Report. Serving as a landmark moment, it provides lawmakers with a comprehensive view of life in the country. The report highlighted a widening gap between the wellbeing of older and younger citizens, with older citizens faring better across various metrics. It identified mental health, educational achievement, and housing affordability and quality as priority areas necessitating improvement. Though the report isn’t the final word, it’s up to the citizens to decide how concerned they are about these issues and the actions needed to address them.
Beyond GDP: The Concept of Wealth Accounting
Wealth accounting presents a powerful alternative to GDP. This economic tool offers a more comprehensive view of growth sustainability. The World Bank’s Changing Wealth of Nations 2021 report provides an updated database and rich analysis of the world’s wealth accounts. Wealth accounting improves our understanding of economic sustainability and can help countries address the challenges posed by climate change and the low-carbon transition.
The Climate Case for Change
With a commitment to growth comes a commitment to more energy and material use, leading to environmental impacts that make decarbonisation harder. By focusing on wellbeing, countries can start to address these issues more effectively. For instance, transitioning to a zero-carbon society will lead to new economic and industrial opportunities. As reducing greenhouse gas emissions becomes the norm, businesses will compete to offer new, low-carbon technologies, goods, and services.
The Role of Labour in Growth
An increase in the size of the labour force could spur growth. With renewable energy creating on average three times as many gross jobs per million pounds invested compared to fossil fuel generation, the transition to a low-carbon economy could create a net gain in the total number of jobs and generate growth. However, in the long term, job creation would cease to be a meaningful indicator of growth as high labour intensity would imply lower labour productivity.
Envisioning ‘Sustainable Growth’
Sustainable growth adheres to the principle of meeting the needs of the present without compromising the ability of future generations to meet their own needs. This requires change on the supply as well as the demand side of production, including a shift towards more responsible consumption. Achieving a net-zero-carbon economy can be entirely consistent with continued growth in GDP in the form of ‘sustainable growth’.
The Intellectual Economy
The scope for sustainable growth can be broadened if we draw a distinction between the material economy and the intellectual economy. Consumption of non-material, or ‘intellectual’, goods like ideas, art, literature, music, and psychological insight generates value and increases wellbeing just as material consumption does, but without being bounded by the physical limits of nature.
The global economy is on the verge of a paradigm shift. As the repercussions of climate change become more pronounced, there’s a burgeoning need to reassess our measures of economic success. The wellbeing economy approach, wealth accounting, and the concept of sustainable growth offer promising alternatives to GDP. By embracing these new metrics, we can foster an economic system that values people and the planet as much as profit, paving the way for a sustainable future.