The Sarkozy-Stiglitz Commission's Quest to Get Beyond GDP
For years, Western journalists and commentators have depicted the continent of Africa as an economic basket case, a caldron of hunger, joblessness, corruption and despair where living standards have barely risen. Certainly the figures on gross domestic product, the standard measure of growth and income, suggest as much. Between 1960 and 1999, per capita GDP in the world’s more developed countries rose from $13,000 to $31,000. During this same period, it went from $477 to just $561—about $1.50 a day—in sub-Saharan Africa.
But does this mean most Africans have seen little improvement in their quality of life? Hardly, argues economist Charles Kenny in his provocative new book, Getting Better: Why Global Development Is Succeeding—and How We Can Improve the World Even More. Consider the fact that between 1970 and 1999 the percentage of sub-Saharan Africans who can read and write doubled, from less than one-third of the adult population to two-thirds. Or that in northern Africa, life expectancy rose from forty-eight years in 1962 to sixty-nine in 2002. Across the continent, enrollment in primary education has surged, while infant mortality has fallen. Our image of African stagnation is closely tied to our fixation with GDP, Kenny suggests, producing a highly distorted picture of reality. “The biggest success of development has not been making people richer but, rather…making the things that really matter—things like health and education—cheaper and more widely available,” he contends.
There was a time not long ago when many mainstream economists and policy-makers would have rolled their eyes at such a claim. Far fewer are likely to do so today, thanks to the growing realization that, as economists Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi argue in another recent book, Mismeasuring Our Lives: Why GDP Doesn’t Add Up, GDP is a deeply flawed indicator of well-being. Their book is a streamlined version of the final report produced by the Commission on the Measurement of Economic Performance and Social Progress, which was created in 2008 by French President Nicolas Sarkozy to identify the limits of GDP and to outline new metrics that take things like education, gender equality and environmental sustainability into account.
More than a few policy-makers have taken note. In the United Kingdom, Prime Minister David Cameron recently directed the Office for National Statistics to conduct a nationwide survey asking citizens what they believe should be used to measure happiness, with the goal of formulating policy “focused not just on the bottom line, but on all those things that make life worthwhile.” In Germany, the Bundestag has established a commission on “Growth, Prosperity, Quality of Life” to develop a more holistic measure of progress. Reforms are under way in Italy, Australia, South Korea, Canada and the United States, where a project called State of the USA, supported by the National Academy of Sciences and numerous prominent foundations, has begun to track some alternative indicators of progress, which will eventually be accessible to citizens online.
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In light of the harsh austerity measures that have been adopted recently in Britain and several other European countries, it’s admittedly hard not to wonder how serious leaders like Cameron are about moving beyond the bottom line. Yet the push to rethink GDP is partly a product of self-interest, born of awareness that policy-makers can seem out of touch by insisting that citizens are faring well simply because the standard metrics say so. “I think the disconnect between our measures of national income—which have been growing for eighteen months—and how people feel about their lives is raising interest in broader measures of society’s well-being,” Alan Krueger, an economist at Princeton who recently stepped down as assistant treasury secretary in the Obama administration, tells me.
Attempts to overcome this disconnect face many hurdles, among them opposition from the forces that stand to lose from such a shift. In 1994, the Commerce Department unveiled an initiative to tally the financial impact of environmental harm for the first time. The initiative called for creating separate satellite accounts to track things like air quality and the depletion of mineral resources, which did not please the extractive industry and its friends in Washington. “Somebody is going to say…the coal industry isn’t contributing anything to the country,” complained Congressman Alan Mollohan of West Virginia, a major coal-producing state, at an appropriations hearing. Congress promptly ordered the initiative suspended until the merits of “green accounting” could be reviewed more thoroughly. When the National Academy of Sciences eventually issued a report strongly endorsing the initiative, its recommendations were ignored.
One person who remembers that battle well is Stiglitz, who before heading the commission created by Sarkozy served as chair of Bill Clinton’s Council of Economic Advisers. Stiglitz is more optimistic about the prospects for reform today. “The reason is that this is a very broad movement—it’s very global,” he says. “The fact that two governments of the right—Sarkozy and Cameron—have embraced it so strongly and yet it’s an agenda that has been advocated most vociferously by the center-left suggests it has broad appeal. I think that’s because political leaders in both camps want guidance in what they’re doing. Any political leader wants metrics that reflect the well-being of their citizens because, to put it frankly, if their constituents are happier they’ll get re-elected.”
Some of Stiglitz’s colleagues are more circumspect. “What is happening now is that it is very fashionable, polite, for each country to design a system of its own, to show the government is interested,” says Fitoussi, a French economist who served as coordinator of the Sarkozy commission. One thing that hasn’t happened is the creation of a permanent commission at the Organization for Economic Cooperation and Development (OECD) to develop a set of common standards, which Fitoussi said was promised at the time and which he views as crucial to lending any alternative system credibility. “Assume you design a good measurement system for one country—how can you compare what is happening in another country?” he says. “If you have a system, it has to be common; otherwise it has no validity.” Invited to Britain for the unveiling of the Cameron initiative on measuring happiness, Fitoussi tells me he declined out of frustration. “I was invited, but I said no, because it’s a bit ridiculous: we will end this adventure with fifty systems of national accounting and measurement.”
It’s a fair point, though it’s also worth noting that having the OECD impose a one-size-fits-all alternative to GDP right now is not realistic, as Enrico Giovannini, who until recently served as the OECD’s chief statistician, acknowledges. “Does income distribution matter? Do CO2 emissions matter?” he says. “What are the domains that matter for each particular country?” Giovannini, who established an initiative called the Global Project on Measuring the Progress of Societies, points out that these questions are inescapably political, which is why he believes “instead of total harmonization it is better that each country find its own way to develop a shared and legitimate view of societal progress over time.”
Of course, what many countries have lately focused on is finding their way out of recession and crisis. Before he went to the Treasury Department, Krueger published innovative research on developing new ways to measure subjective well-being. But when he arrived in government, his attention was drawn to other things, he admits: “To be frank, I was so busy with battling the fallout from the financial crisis that I didn’t have much time to pursue well-being measures.”
Krueger’s experience underscores one of the problems with what politicians like Sarkozy have hailed as a “revolution”: unlike the recent uprisings in Egypt and Tunisia, this is a revolution being led largely by technocrats and bureaucrats rather than civil society organizations or ordinary citizens. To some extent, this is because only bureaucrats and economists care about statistics. But it’s also because not enough effort has been invested in engaging the public on this issue, according to some of the most ardent advocates of change. “I think we made a mistake to go after the policy-makers, where really we should be going after the people who vote,” says Jon Hall, who has been instrumental in leading the OECD’s effort to develop new indicators of progress. “The reaction from politicians is, they want to get re-elected. The ordinary person thinks much more long-term.” In Hall’s view, “the intellectual battle has possibly been won, but how to actually make change happen is the next big battle.”
Sharing this view is Lew Daly, director of the Fellows Program at Demos, which last spring co-sponsored a meeting with the World Resources Institute and the Institute for Policy Studies to discuss how to advance change in the United States. As a forthcoming Demos report argues, part of the reason the initiative on green accounting in the ’90s failed is that the Clinton administration, which was sympathetic to the initiative, didn’t hear from constituents or advocacy groups that might have raised their voices in support of it. The report quotes Brent Blackwelder, former head of Friends of the Earth, who, looking back, says, “We didn’t put the emphasis on it that we should have.”
“A big difference in the future is going to have to be more public engagement,” argues Daly. It was with this in mind that, after the meeting last year, Demos organized a letter to Congress signed by more than thirty policy and professional groups and organizational leaders that urged accounting initiatives focusing on the welfare of average households. Even some business-oriented groups signed on, and Congress proceeded to approve several of the proposed initiatives (although the subsequent budget freeze has made their ultimate fate uncertain), suggesting the strategy can pay off. On the other hand, Demos deliberately focused on an initiative around which consensus could be built: more fine-grained data on household income, which does not pose a threat to any established interests. The same cannot be said of projects that would tie national performance to, say, CO2 emissions, or greater income equality, or access to affordable healthcare.
“I hold a firm belief: We will not change our behavior unless we change the ways we measure our economic performance,” wrote Sarkozy in his foreword to Mismeasuring Our Lives. In the book Stiglitz, Sen and Fitoussi observe that “the commissioners decided early on in their work to limit themselves to a focus on our statistical system…and not to extend their work to the policy implications that might follow.”
This was probably a wise strategy. But it is in some ways artificial. Implicit in the critique of GDP is, after all, a belief that many things the free market can’t provide, such as leisure time and quality public services, matter, and that some activities that increase output—clearcutting forests, spending exorbitant amounts on inefficient private healthcare systems—are wasteful and destructive. If social welfare and equality are no less valuable than growth and entrepreneurship, nations like France and Sweden might start looking like they’re outperforming the United States, which is surely why the effort to rethink GDP has attracted more interest in European countries than in America.
Stiglitz and his co-authors are surely aware that, in fact, certain policy implications do follow if the excesses and injustices of twenty-first-century capitalism are to be mitigated. Fitoussi acknowledges as much. “Whatever measurement system you will devise, if you put real interest in the well-being of people, you have to be not completely dominated by the market,” he tells me. “For example, one of the main components of well-being is economic security. And if you have a policy that is trying to have a meager welfare state and a policy of flexibility”—which, for all the talk of rethinking GDP, he notes wryly, is very much in fashion in Europe—“you are increasing economic insecurity.”