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Originally posted on Meta from European Environmental Bureau (EEB) here

Christian Felber is the author of books on economic reform. These include Change Everything: Creating an Economy for the Common GoodMoney: The New Rules of the Game, and Trading for Good: How Global Trade can Serve People not Money. He is a university lecturer and affiliate scholar at the IASS Potsdam in Germany. In addition, he is a contemporary dancer and performer.

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It may sound like a paradox but it is possible to grow the economy without raising GDP, if we widen the definition of the economy to take account of human wellbeing and nature, says Christian Felber, the founder of the Economy for the Common Good.

A fierce battle is raging around the role of growth in the economy. While critics, such as British economist Tim Jackson, are demanding degrowth or post-growth, neoclassical economists and political leaders seem to be addicted to growing the economy. Without growth, they fear that the capitalistic engine would grind to a halt and the economy die.

Nevertheless, four female prime ministers – of Iceland, Scotland, Finland and New Zealand – are officially seeking a more suitable successor to gross domestic product (GDP) for measuring wellbeing.

One reason why the debate is so entrenched is due to the ambiguity of the core concepts involved. Economics does not offer a clear and universally accepted definition of “welfare”, let alone what it means when it refers to the “economy”. As a consequence, it remains unclear what exactly is meant when we talk about “economic growth”, beyond the equating of GDP growth with economic growth.

Money doesn’t grow on trees

But what grows when GDP grows is not necessarily cereals, vegetables, food security, affordable housing, meaningful work, healthy ecosystems, or even love and peace. GDP growth is little more than an aggregation of market transactions measured in monetary terms, such as the production and sale of chocolate, airplanes, facility cleaning, business consultancy, weapons production, regardless of whether or not they contribute to human wellbeing and the health of the planet.

The reason why mainstream economists focus on GDP and neglect the economy is quite simple: GDP is straightforward to measure. It is mathematically exact. However, it has no direct link to the satisfaction of needs and general welfare, which is supposed to be the goal of the economy.

If we define the aim of the economy as the satisfaction of the basic needs of present and future generations, within the planet’s ecological boundaries, while respecting democratic and social values like dignity, solidarity and justice, then countless economic activities are not measured by GDP but contribute to the growth of the – so defined – economy and create value.

Examples include childcare and other unpaid work, clean rivers and forests, growing your own herbs and vegetables, strengthening communities and social security, and much more. All this creates real value for real humans, but it is not considered by market economists nor accounted for by GDP. Theoretically, GDP could be zero and all these needs met.

Values-added economies

This reflects how inadequate GDP is when it comes to measuring human wellbeing. But there are alternatives.

One example is the Economy for the Common Good, a term which I coined over a decade ago. This approach goes back to basics by first asking “What is the economy?”. It clarifies the goal of the economy as the satisfaction of human needs without degrading the foundations of life and respecting democratic values. It then adjusts economic indicators to measure these goals using a Common Good Product (CGP), instead of the more common GDP, the composition of which is defined democratically.

This could be done directly by the people through a citizens’ assembly or economic convention. People can submit their proposals for the most relevant facets to be measured to gauge quality of life, wellbeing for all and the common good. Of all these proposals, let’s say the top 20 are included in the final Common Good Product (CGP) or Index (CGI). The Common Good Index could be measured using neutral points rather than in monetary terms. Its result would be comparable both across time and place.

In the future, all decisions of economic and other policies could be evaluated and taken according to their contribution to the growth of the (common good) economy rather than GDP.

If, for instance, life is better with clean rivers, breathable air, enough bees and fertile soil, growing food using agroecology or permaculture might generate fewer dollars but the sum total of healthier and happier children and adults will boost our gross CGI. In addition, more cohesive communities might take care of each other more effectively than expensive and GDP-boosting personal care services to mitigate loneliness.

In the end, when we use CGI, it simply does not matter if GDP rises, shrinks or stagnates – this measure becomes irrelevant. What matters is the improvement of the economy, in the broad sense of the word, with people thriving, societies flourishing, democracy strengthened, and ecosystems made more resilient – all of which are reflected in a rising GCI.

Adherents of GDP growth as a goal of economic policy erred in three regards. Firstly, they present no precise definition of the economy beyond the value of monetary transactions. Secondly, they have no clearly defined goals for the economy. Thirdly, as consequence of the previous two failings, there is no precise methodology for measuring economic success.

And it gets worse. We know that GDP accounts positively for many destructive and harmful activities, including possibly the most damaging of all, the production of weapons and even wars. Giving positive value to negative activities is methodologically flawed.

A new kind of ‘green growth’

This highlights a deeper reason why ‘green growth’ falls short as a concept. Not only is there no empirical evidence that resource consumption can be decoupled in absolute terms from GDP growth, GDP encompasses many activities that destroy the social fabric and the foundations of life. However, green and internal growth is possible in the context of the Economy for the Common Good, which decouples and liberates human happiness and planetary health from the chains of GDP growth (see the new report ‘Towards a wellbeing economy that serves people and nature‘, produced by the EEB and Oxfam Germany in the context of the Climate of Change project).

A Common Good Index has other benefits too. In addition to conventional financial balance sheets, companies could start keeping a common good balance sheet, in which they report what and how much they contribute to the Common Good Index. Tax levels, freedom to trade and access to public procurement contracts could be linked to the CGI, providing companies with an incentive to bolster the common good.

As a result, the goods and services provided by sustainable and responsible businesses would become cheaper, while the products of irresponsible and polluting firms would become more expensive. This means that companies will no longer be able to gain a competitive advantage by externalising costs and the polluter will truly pay.

So far, almost 1,000 businesses and other organisations – including cities and universities – have conducted their first common good balance sheet. The alternative is spreading to ever more countries.

At the microlevel, banks, funds and stock markets would apply a common good assessment before they finance a project, fund or list a company. This will enable them to set fair terms and conditions: cheaper money for sustainable business activities and more expensive loans or none at all for less responsible actors.

The result of this interplay at the macro and micro levels would be a greener, more sustainable, inclusive, democratic, and resilient economy. As a side effect, everybody, not only economists, would finally know what we mean when we talk about “the economy” and “economic growth”. And nobody, except statisticians, would care if GDP grows, shrinks or remains steady.

by: Rutger Hoekstra

Gross Domestic Product (GDP), the way we measure economic growth, has become the primary measure of success of societies. Countries that have a high GDP are considered important and governments that experience high economic growth are admired. As a result, there is a dominant narrative in society that “growth is good”.

But we have known for many decades that this narrative is flawed and that GDP is not a comprehensive measure of success. It does not measure important components of wellbeing such as health, education and social relationships. As far back as 1968, Robert Kennedy already proclaimed that GDP “measures everything….. except that which makes life worthwhile”.

Crucially, GDP also does not account for the growth in environmental degradation or growth in inequalities that are caused by growth in GDP.

To remedy this gap, many hundreds of alternatives for measuring economic success have been suggested: the Human Development Index, Sustainable Development Goals (SDGs), Genuine Progress Indicator, Ecological Footprint, Happy Planet Index, Adjusted Net Savings, Comprehensive Wealth, and the Inclusive Wealth Index. Many brilliant scientists, thought leaders and important institutes have contributed to this impressive body of research, which is foundational to the creation of a Wellbeing Economy, an economy that delivers social justice on a healthy planet.

Yet, despite 50 years of understanding the drawbacks of  GDP and the introduction of hundreds of alternative ‘Beyond-GDP’ measures of economic success, it seems that the “growth is good” economic narrative is becoming stronger every day. But now,  more than ever before, we need our economy and society to focus on delivering wellbeing, sustainability, and equity. The election of Joe Biden, the introduction of climate targets in China and Europe, marches for racial justice and climate action are all signs of  the dire need and public demand to ‘Build Back Better’ after the COVID-19 pandemic. There has never been  a better time to replace the growth narrative. WEAll’s  new briefing paper describes a three-pronged strategy which should be adopted to do just that:

1) Harmonise. There are simply too many Beyond-GDP alternatives and new ones are being created every month. One of the most powerful features of GDP is that it is measured in the same way all over the world. The United Nations and OECD played a crucial role in developing a global economic accounting framework: the System of National Accounts, which allows for the global comparison of GDP. We need the United Nations and other international institutions to step up and help harmonise Beyond-GDP indicators to ensure there are consistent measures of success for the performance of a Wellbeing Economy.

2) Develop Policy Tools. Statistics help us to measure how things have developed in the past. But policy makers also need advice about their policy options in the future. Macro-economists have developed many tools to help inform difficult policy decisions, mainly focused on GDP growth. This community needs to create tools which show governments how to enhance wellbeing, sustainability and equity in their societies. A prime example of such a tool is New Zealand’s pioneering Wellbeing Budget that is designed expressly to prioritise the wellbeing of citizens.   

3) Change the Social Narrative. This strategy will only be successful if it manages to change societal discourse on economic success. Currently, our media plays a key role in spreading the “growth is good” economic narrative. The development of globally harmonised statistics and policy tools will help journalists and the general public to shift their belief on economic success to a narrative which values wellbeing, sustainability, and equity. If you would like to learn more about these ideas, download and share our new paper here.

Webinar Recording is below:

Download the Measuring the Wellbeing Economy Briefing Paper PDF

By Rebecca Humphries, Senior Public Affairs Officer at WWF European Policy Office

WWF is one of the world’s largest and most experienced independent conservation organisations, with over five million supporters and a global network active in more than 100 countries. The European Policy Office contributes to the achievement of WWF’s global mission by leading the WWF network to shape EU policies impacting on the European and global environment.

Before it’s even over, 2020 is already a year like no other. It has been marred by an unprecedented crisis caused by the COVID-19 pandemic, affecting people’s health, livelihoods, and social connections, with no end currently in sight.

Governments across the world have adopted measures to address the economic fallout of the crisis. In the EU, leaders have subscribed to calls for a ‘green recovery’ – but already there are signs that short-term economic interests are being prioritised over longer term considerations of environmental and social sustainability. This crisis has arrived at a time where we are facing an ecological crisis without precedent: runaway climate change and biodiversity loss are driving us towards a sixth mass extinction.

The wrong choices could have catastrophic implications for future generations: propping up destructive sectors such as fossil fuel energy or intensive agriculture with public funding could lock in investments for decades to come, making it all the more difficult to tackle the ecological crisis we’re facing.

That’s why WWF believes that now is the time for a paradigm shift, to take the EU on a different trajectory. Our new report ‘Towards an EU Wellbeing Economy – a fairer, more sustainable Europe post Covid-19’ calls on EU leaders to rethink what to prioritise and how to measure progress. With GDP growth as the only basis for political decision-making, policy-makers will inevitably miss what their citizens value most, such as our quality of life, wellbeing, health, and the health of our natural world. GDP growth fails to account for social inequalities and neglects the many benefits of thriving nature and a healthy society – new indicators that measure these important aspects would help leaders to better value our societies’ and our planet’s wellbeing.

There are already promising first signs of a paradigm shift: last year, EU Member States supported calls for ‘the economy of wellbeing’, tentatively following in the footsteps of countries such as New-Zealand, Iceland, Scotland and Wales, which are already working on implementing a wellbeing economy by integrating alternative measures into their decision-making, budgetary processes and economic policies. Just last month, the European Commission recognised that the health crisis had ‘reignited the debate on what kind of economic growth is desirable, what actually matters for human wellbeing in a world of finite resources and on the need for new metrics to measure progress beyond GDP growth’.

Now, we must ensure that the EU goes beyond words on paper. With this report, WWF is calling for a new framework for measuring progress, built on a shared commitment across the EU to shift to a wellbeing economy. The UN Sustainable Development Goals (SDGs), already provide a comprehensive, integrated and universal framework that aims to leave no one behind and to achieve prosperity for people and planet. By stepping up its efforts to fully implement the SDGs, the EU now has an opportunity to achieve this shift and deliver on its promises of a green, just, and socially inclusive recovery.