Host: [00:00:00] You are listening to Make Change Happen, the podcast from the International Institute for Environment and Development, IIED. In this episode, The Trouble with Growth, Andrew Norton, director of IIED, and a panel of our senior researchers, help us to understand what current methods for measuring economic growth include and, importantly, what they leave out. They discuss that this means in the context of global sustainable development.
Andrew Norton: [00:00:31] I'm Andrew Norton. So I'm here with two colleagues, two economists and two non-economists – I'm one of the non-economists – to discuss: what is the trouble with growth and how can we fix it? So I'll ask my colleagues to introduce themselves now.
Clare Shakya: [00:00:45] Hi, I am Clare Shakya and I'm not an economist, I'm the director of the climate change group here at IIED.
Paul Steele: [00:00:51] Hi, I'm Paul Steele and I'm the chief economist at IIED.
Essam Yassin Mohammed: [00:00:56] Hi, I'm Essam Yassin Mohammed and I'm a recovering economist and head of blue economy at the IIED.
Andrew Norton: [00:01:03] Great, thanks very much. So, Paul, let's kick off with you. What is economic growth?
Paul Steele: [00:01:10] So, economic growth has a fairly straightforward definition in economics. It's the increase in the value of goods and services produced by an economy over the course of a specific time period, normally a year. So if economic growth is 3%, it means the value of goods and services in the economy are growing by 3% that year. Economic growth is normally measured by gross domestic product, or GDP as it's called. And despite its shortcomings, growth is important because it is a good indicator of other variables like jobs and livelihoods and, in many cases, reductions in poverty.
Andrew Norton: [00:01:52] Great, thanks Paul. Now, you were mentioning there are shortcomings, or things that aren't within the boundary of GDP, what kinds of things?
Paul Steele: [00:02:01] Well, a number of things. Environment is not factored in, in many cases, into growth, so CO2 emissions are not measured. The services provided by the care economy, often primarily by women and people who look after sick relatives, and then inequality is not particularly well captured because growth doesn't pick that up, as I'm sure we're going to discuss.
Andrew Norton: [00:02:29] Growth is an aggregate.
Paul Steele: [00:02:30] Correct.
Andrew Norton: [00:02:31] And if you do GDP by capita, it doesn't tell you anything about the two ends, the really rich people or the poor people, and how it's distributed between.
Paul Steele: [00:02:40] Correct, well, it's an average. That’s the point, so it doesn't pick up the actual distribution.
Andrew Norton: [00:02:47] Any thoughts from Clare, from you, about greenhouse gas emissions and the damage that it does that they're not included within GDP, or the way we think about growth?
Clare Shakya: [00:02:57] Well, there are two sides of it. One is that carbon is not constrained by a national border, so one country emitting a lot will affect all countries. And because there isn't a price on carbon in most countries, and where it is, it's very partial in terms of where it's… where it actually plays, you're not counting the cost to the vulnerable countries by not counting carbon.
But also when you have a climate shock, actually the recovery from that climate shock is counted as GDP growth, rather than being seen as a cost to the economy. So Australia at the moment is probably growing brilliantly because they're having to rebuild masses of houses from the fires there. But that actually should be seen as a cost, not true growth – not growth in terms of increase in wellbeing. You're just getting back up to the previous level of wellbeing.
Andrew Norton: [00:03:47] So things which, objectively speaking, are bad, can look like they're good because they cause growth in their economy.
Clare Shakya: [00:03:53] Yeah.
Andrew Norton: [00:03:54] Essam, any thoughts on natural capital in relation to that?
Essam Yassin Mohammed: [00:03:57] Yes, just before I do so, perhaps… well, it's very linked to the natural capital as well, but also the point that Paul made about how we define a GDP or growth, which is sort of the value of goods and services. Then the question, the very fundamental question, is what's value? How does one value it? So there are market and market values of course.
So there are conventional markets that put a monetary figure on number of goods and services that we produce, and the offload of other goods and services that we usually value. But the conventional market that we know today doesn't put any price tag on it, and as a result, it gets left out. Essentially, that's a very important point to make about the point of value.
In terms of the natural capital accounting, I think it's one of the remedies for all these… the ill effects of the pursuit to GDP, if you like. Because we try to grow] at the expense of the natural environment, as Clare rightly said, you know?
If a natural disaster hits a certain area, and then there's very high chance that following that the economy's going to grow, or if you exploit your natural resources, then there's a very high chance that you can grow economically as well.
Then as a remedy to that, is the point is that, OK, what if we put a value to those goods and services. Let's talk about coral reefs, or forest, or wetland ecosystems. What if we were to put a monetary value to that and see them as a… whether we have a surplus or deficit in that? And that's reflected in how we measure our economy as well. And the natural capital approach is trying to remedy that, trying to fix that problematic issue about value and the way we value our economy as well.
Andrew Norton: [00:05:40] We'll come back, I think, to how we could adjust things, that these measures work better. The point you are making about what's counted and what's not, that's essentially the point about the care economy, which Paul mentioned.
If you pay someone or somebody is paid to look after children, it appears in GDP. Whereas if someone, typically a woman, a mother, does it and there's no monetary payment, then it doesn't appear in GDP.
Essam Yassin Mohammed: [00:06:05] Precisely that.
Andrew Norton: [00:06:06] So again, there's a sense there that it doesn't fairly measure a lot of women’s work in particular, it’s gender biased.
Essam Yassin Mohammed: [00:06:12] Precisely.
Andrew Norton: [00:06:19] So on the inequality point, the next thing in the list or the areas where there are issues with, if you like, directing policy purely according to growth, there's this famous result, Paul, that up to a certain level wellbeing kind of increases – this is things like longevity, happiness and health. I think it's between 10,000 and 20,000 a year in terms of gross national income average. And above that, inequality actually is a bigger determinant. Countries with lower inequality have more of the good stuff – the health, the longevity and the happiness.
So that's one of the areas where growth sometimes is seen as not the best measure of what we should be prioritising in terms of policy. Would you agree with that?
Paul Steele: [00:07:11] Well, yes, the challenge here is that neoclassical economics, which is behind the measure of GDP, always assumes that more stuff is better. So we're always trying to increase the amount of consumption and production that happens in the economy.
The point you're making is when you actually look at real people, and how they behave, it's not necessarily consistent with neoclassical economics, and that you get issues like mental health issues, you get issues around how you relate yourself to other people and your perception of others, which may be more important than just consumption for its own sake.
Andrew Norton: [00:07:50] I think it's really important to emphasise that this isn't just a question of theory, that these are mental models that drive the way governments run stuff – in particular governments, maybe local governments and also national governments.
Just to give it a sense of moving from theory to practice.
Can any of you give me examples of where you've seen bad policies, or policies that effectively are damaging, that were driven by a concern with growth and not enough concern with other stuff?
Essam Yassin Mohammed: [00:08:21] There are plenty of examples out there. One classic example is, for instance, is how governments channel down resources towards more destructive activities from an ecological point of view, but that looks good on balance sheets when we calculate our growth or GDP, for instance.
A classic example of that is the billions of dollars that governments give for capacity enhancing subsidies to fishing fleets, essentially enabling these fleets to go to hundreds if not thousands of miles away from the coast to hoover up the fish and come back , and that will still make economic sense.
Now, when you look at that, purely from an economic point of view, it makes absolute sense, because it will look good, in terms of demonstrating economic growth to your economy because it's an economic activity, someone is getting paid, and therefore the economy will grow. But at the expense of the natural resource which is the fisheries here. So this is a very, very classic example where the pursuit for GDP or economic growth can be extremely destructive for nature.
Clare Shakya: [00:09:31] There are a few on the climate side, many in fact, I suppose, not unexpectedly. I mean, one example is China's sort of pushed to continue it, it being the manufacturer of the world, we now have levels of air pollution, they're killing 4,000 people a day in China, and that's compared to 30,000 people a year in the UK. So [a] strong focus on energy security through coal and on manufacturing has led to these very poor levels of air quality.
Another example, Pakistan has had a very strong focus on export of agricultural products. And effectively it's a very water-scarce environment, and yet it's exporting grains that are full of water. So effectively it's exporting water at a huge rate at a time when really it should be looking at shifting to crops that are less water-hungry.
And on that front, I guess agricultural subsidies more generally have focused on the rice and maize products rather than on crops that are more drought-resilient or even higher in nutrition. So the comparison of nutrition coming from rice to, say, millet, it's quite clear that millet is actually a better crop – both in terms of its climate resilience, but also in terms of nutrition.
So the sort of perverse outcomes of many of the export-driven policies are bad for the climate as well as bad for basic human welfare.
Andrew Norton: [00:10:56] But if, again, coming back to the other side of the coin, for the poorest countries, there does tend to be a correlation between increased growth and various kinds of measures that we would value – longevity and human development measures, Paul?
Paul Steele: [00:11:13] Yeah, I think, I mean, as we've said, growth has many shortcomings, but it very much depends on what kind of growth is being pursued. I mean, if you're focused on pro-poor growth – the point Clare was making, where you're looking at what would actually benefit the population and the majority of the population – then it's quite different.
So it's legitimate for many of the least developed countries like Sierra Leone or Uganda, which desperately need growth, to focus on it, but to do it in a way that's pro-poor and climate resilient.
Andrew Norton: [00:11:52] Let's move now to one of the key issues facing the world at the moment. It's this question of the really dramatic reductions in greenhouse gas emissions that will be required on a global scale to meet the goals of the Paris Agreement, either 1.5 degrees or two degrees.
So for example, a recent UN report estimated that to get us on a track to stand a reasonable chance of limiting global warming to 1.5 degrees above preindustrial levels, the world would have to re reduce greenhouse gas emissions by 7.6% per year, which is an enormous amount. And that implies in richer countries, which would have to do the heavy lifting, maybe 10% a year. So that's a big, big challenge.
Do we see that as something that is theoretically possible to achieve while still having economic growth as classically measured? What would you say on that, Paul?
Paul Steele: [00:12:48] Yeah, well, as I said at the beginning, growth measures the value of goods and services produced by an economy. So it's quite legitimate for us to shift from producing and consuming fossil fuel-produced goods to shifting to renewables, energy efficiency, clean cars and so on. So it's the nature of the growth, as opposed to growth per se, which is the issue at hand.
Andrew Norton: [00:13:13] I have to admit that, for me, when you start thinking about that scale of reduction – 10% per year – it's a stretch for me to think that you could do that and not be experiencing reductions in this kind of classically measured economic activity in at least sort of significant areas of rich country economies.
So Clare, that question of, is it possible to achieve really dramatic emissions reductions in wealthy countries, 10% per year, while still having classically measured economic growth? What do you think the evidence says on that?
Clare Shakya: [00:13:49] So, yes, we can decouple growth from emissions, and the Carbon Brief did a great review recently, which found 35 countries had decoupled emissions while still growing, between 2000 and 2014 and that's quite a short period.
So some countries have failed to sustain that. Decoupling China, for example, has seen an increase in their emissions with their growth more recently. But other countries have done it in a way that is more structural and could therefore persist. So it's worth getting under the bonnet of how these different countries are doing it.
But we also have to distinguish between decoupling emissions and decoupling resource use, and we need an absolute decoupling of resource use to protect our ecosystems while increasing the amounts of goods and services available. And that we haven't… Hickel and Kallis did a paper last year that suggests that there is no empirical evidence of being able to decouple from resource use.
So there needs to be fundamental structural changes to how we're growing our economies if we're seeking to grow them, or at least growing the benefit and wellbeing from more activity.
Andrew Norton: [00:14:57] I mean, I guess the parallel question then is about the poorer countries where we wouldn't be asking for 7.6% per annum reductions, but the question there really is, can they have prosperity? Can they grow their economies, grow wellbeing for their populations without growing their greenhouse gas emissions?
Clare Shakya: [00:15:14] Well, it's interesting. In comparison to the richest countries, they actually are starting in a much better place. Because they've got so much less infrastructure, and at least half of the infrastructure that they need to provide the human development outcomes that they are looking to achieve has yet to be built, they've actually got less emissions baked in, that have yet to lock in to the type of sprawling cities or vehicle-based transport that makes it so hard for the richest countries to begin to shift.
But we don't have any precedents. So, there's a lot of countries in the world thinking about how to shift from a past way of developing to a new way of incentivising their economies, but no countries really out there to show us how to reimagine a development pathway that is entirely low carbon and climate resilient.
So the biggest challenge, I think, is the need for a massive amount of public investment to really understand how to do this well, where countries are not being disadvantaged on wanting to move to a much more progressive way of developing because there aren't any models to follow.
Essam Yassin Mohammed: [00:16:22] I think if we start with this idea or the wisdom of sort of producing and consuming more, and whether that's right or not right. So in my personal opinion, I mean, I'm trying to say this with a developing country perspective here, and I think consuming and producing more may not be a bad idea, but it's what sort of more are we talking about here?
So essentially something that contributes to the wellbeing of the people in terms of providing them with reliable and good health services for instance, and education etc, etc, access to nutrition, to food etc. So whatever that enables that to happen, access to services and market systems etc, all of these are very, very important. That’s sort of ‘more’ that delivers that sort of benefit of the people will be extremely important.
Then the question then, how can they get there? What sort of trajectory are they going to follow? I think there is a very good opportunity at this point in time that I don't think developing countries would be very keen to follow the same trajectories as the West, for instance, where we had to burn coal, for instance, you know, to grow the industries or to build transport and infrastructure, etc, etc.
There is an opportunity for them, the technology allows, the knowledge allows, them to choose a separate trajectory in terms of how they want to achieve a certain economic and social transformation to their society.
However, I see a challenge here where, I call it the culture of hoarding, you know, when it comes to technologies, for instance, if under the pretext of intellectual property rights or trade regimes etc, if these countries that have the technological – the knowledge and technology at hand – and they keep on holding on that, they are not properly transferred to those countries, we are not enabling these developing countries to go through the right path to achieve their aspirations in terms of in achieving social economic transformation.
So I think the change needs to come from both sides. The conviction from those kinds of developing countries to follow on that route, which is sort of the environmentally sustainable way of bringing about that change. But at the same time, that sense of solidarity from the global players who have the technological know-how in particular to be able willingly to transfer that to those countries to enable them to do so.
Andrew Norton: [00:18:54] And what about the kind of policy communities within the countries? My experience, ministries of finance have a deep attachment to that sort of talismanic significance of economic growth. Do you see countries where that is breaking down or do you think it's more a broader change happening within societies, which hasn't reached the halls of the ministry of finance yet?
Essam Yassin Mohammed: [00:19:18] I think that's partly true, in my opinion, and of course this steps and the local context of course, where there’s that drive, you know, to prove that, you know, this line ministry or that development agent has done very well in terms of achieving social and economic transformation, which is usually measured by output or by GDP etc. And I think there’s some change that's needed there.
But at the same time, sorry if I'm sounding a bit philosophical here, but we also have a global economic and political order that rewards that sort of behavioural distractive pursuit to growth.
For instance, you know, you have… I can start from sort of an individual level, when you look at the people's ability to travel across countries, for instance, it depends on what sort of level of economic or income levels that you have as a nation. You know, for instance, personally I have experienced this carrying a Eritrean passport and the way I'm treated now as a British passport holder is completely different. That definitely rewards that sort of pursuit to economic growth.
Of course, everyone would aspire to become like one. And the other one is look at the clubs of the G7 and G20 etc, etc. Also somehow structurally put there to encourage that sort of endless pursuit for growth would somehow incentivise the practice that we see on the ground as well.
So, unless we address sort of, you know, those challenges at both levels, I think you’ll find that very challenging to bring about that change.
Andrew Norton: [00:20:54] Yeah, I think one of the interesting things in recent years is evidence in richer countries that, again, maybe not policymakers, but citizens are starting to have different values.
There's an interesting analysis of the recent election in Ireland, which the government going in was very confident because they had good economic growth, but there's real evidence that ordinary people were feeling the pinch, particularly in terms of rents. Younger people who didn't own their own properties, where although incomes had risen, rents had risen just vastly more, and the same issue about health services as well.
So there is this sense, I think, that there's a change in the way citizens view these things. Maybe valuing other things, whether it's the natural world or inequality. Clare, any thoughts about that?
Clare Shakya: [00:21:40] Yeah, I mean, I guess what's clear with climate change is that all economies are going to be fundamentally undermined if we don't take action. And, you know, there is good analysis beginning to come out of what this means if we took… if we don't act on climate change, whether the countries are rich or poor, hot or cold, that those economies are going to shrink. And these are things that people want to see action on and care about.
But there's also, interestingly, some analysis done a couple of years ago now, showed that the usual story, the cost of action isn't that great, half a trillion was Marshall Burke's analysis from Stanford. But actually if you act, you're saving US$30trillion globally, but at the same time reducing global inequality.
So by acting on climate, we're actually restructuring the economy in ways that more people can benefit from. And that analysis was done without looking at air pollution, without looking at the protection of ecosystems. So just imagine how much greater the benefits are when you begin to factor those elements in.
So those sorts of, you know, living in a different way is part, I think, of this narrative that we're beginning to see from younger people coming out, that it's less about consuming stuff and more about choosing not to work so many long hours, or living more locally, in more connected ways with their local communities. And those things have real traction, and yet they're also really good action for a more climate-friendly economy.
But they're not ones where we have a clear pathway, they're not particularly well understood. But if we started looking at the sort of policy by policy, what you would need to do, I don't think it's rocket science. It's really quite clear.
Andrew Norton: [00:23:21] So basically, economic growth based on GDP works great, but it's not very good at looking at environmental damage, isn't gendered and ignores inequality.
Essam Yassin Mohammed: [00:23:34] Which is not great.
[All laugh]
Andrew Norton: [00:23:38] So what's the way forward? I think there are various things you could look at here in terms of modification or using other measures, or maybe changing it altogether.
So I’ll give Paul the last word because he started, but how would you take this forward from this point, Essam, what would you do?
Essam Yassin Mohammed: [00:23:55] I think with this desperate need to change the way we measure our goods and services, and that takes into account the gains or losses in the environmental goods and services, for instance, in our ecosystems and similarly in our greenhouse emissions as well. So all these factors, if they are taken into account, I think we can do much, much better, but it's just that willingness to introduce that change.
And I am very hopeful of that because the history of GDP doesn't span more than 70 or 80 years, so I don't know why we should be fixated to how we measure our economy using GDP, but I'm sure we can come up with a much more intelligent way. And the number of other initiatives that are out there, which are trying to fix GDP in such a way that it captures all the loss and gains in those that cannot be measured in conventional market systems.
Andrew Norton: [00:24:47] Clare, how would you go forward?
Clare Shakya: [00:24:50] Well, I know that people have tried to come up with alternatives to GDP over and over again, and we've had little traction on the ministries of finance of the world. But the reality is, unless we're using a different way of measuring and thinking about our planetary boundaries, and about how people in their real lives are measuring wellbeing, we're still a way off from really understanding what impact a policy measure would have.
So I would love to see a revolution of how we measure it. I think we need to engage ministers of finance in this conversation, because things coming from outside have failed to have traction. But I think the other opportunity is to recognise that all countries are now developing countries, no one country has a blueprint of how to do this well. And this is an opportunity for the poorest countries, who are actually perhaps closer to a sort of, you know, good development outcome, in terms of their planetary footprint, as well as in terms of their wellbeing, to start to shape this narrative.
Andrew Norton: [00:25:48] And is the climate crisis the sort of leading edge for that change, do you think?
Clare Shakya: [00:25:53] Well, working on climate change, of course, I see this as an existential threat right now. If we don't begin to measure things in more meaningful ways, then we're allowing countries who have had the most massive climate shock to talk about the massive GDP growth in the last year. So it'll be very interesting to see how countries begin to make sense of that.
And yeah, until we begin to see the costs of climate action as real costs, we will never win the narrative. So this is vital right now.
Andrew Norton: [00:26:24] Thanks. So, Paul, where would you go with this debate right now?
Paul Steele: [00:26:29] So I would echo Clare's words. I think it's about not being obsessed with growth, but thinking about this more general focus on wellbeing, which some people have started to look at. So taking a broader understanding of picking up the kind of populist mood, which you've alluded to, that people aren't satisfied with many aspects of their global economy. And then that's reflected in their own personal lives which, in other words, in their wellbeing.
So if we can get a broader understanding of how people really feel about the way their life is going, and how that's reflected in the economy, then things could improve.
Andrew Norton: [00:27:10] Great, thanks very much to all of you.
So, economic growth still has a powerful hold on the way policymakers see the world. But things are clearly changing. They're changing in the way citizens think about prosperity and progress and, if we want to value social justice, and preserve a liveable planet, then policymakers will need to catch up with the changing mood, and fast.
If you're interested in following up on the discussion, we will provide some key references for thinking about the trouble with growth, from Kate Raworth and Mariana Mazzucato for critiques of GDP, to Richard Wilkinson and Kate Pickett on their seminal work on inequality and wellbeing. Many thanks for being with us.
Host: [00:28:00] You can find out more about IIED’s work on growth, and the green and blue economies, on our website at www.iied.org/economics and www.iied.org/inclusive-blue-economy .
On our podcast webpage you will also find links to further research that has informed today’s discussion. We greatly value our listeners’ opinions so please leave us comments and feedback, and feel free to share this podcast with your colleagues.
You have been listening to Make Change Happen, the podcast from the International Institute for the Environment and Development
The podcast is produced by our in-house communications team. You can find out more about IIED’s work on our website.
Soundcloud
TuneIn
Spotify
iTunes
