Posts

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.

_____

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.

Event Recap from July 2020

What is free trade? And why is free trade problematic?

Christian Felber, author of Trading For Good and WEAll Ambassador, explained this exact concept on a WEAll Talk on Ethical World Trade

Christian calls free trade ‘enforced trade’. ‘Enforced’ because countries that are young can be punished by international law or tribunals if they refuse to open borders. 

What makes free trade so unique is that the only counter solution is Protectionism, where countries close all borders and do not participate in any kind of international trade. 

These two avenues for trade are extreme and don’t offer any solution founded in protecting human rights. 

The goal of free trade, according to the EU is, “progressive abolition or restrictions of international trade of Foreign Direct Investment and of lowering of customs and other barriers.” 

In other words, the overarching goals of free trade laws just eliminate restrictions. You are free of any responsibility of how trade may impact local communities. Countries are convinced to open borders because “it’s good for trade!” 

Instead the goal could be, “open borders because it will provide a more thriving livelihood for your community”. A country’s decision to open borders, must be their decision, not an enforced decision by the international trade organisations. 

So what’s the alternative?

In a Wellbeing Economy, the goal of trade would be founded on human rights, labour rights, social cohesion, biodiversity, climate protection, and cultural diversity. 

Christian advises that we must stop considering trade as the end but rather, as a means to the end; make the goals of trade to support the international laws for human rights; and then adjust the means according to that overarching goal. 

This can mean that trade agreements are welcome  – if and only if they support a country’s goals. But if it puts a country at risk or the goals of that country at risk, they can opt out without punishment. 

He makes a good point about the language that is used with trade. Similar to the logic that everyone who criticises capitalism is a socialist or everyone who criticises excessive inequality is for the elimination of inequality: everyone who criticises free trade is automatically considered a protectionist. This kind of thinking can be no longer. 

In order to shift toward Ethical World Trade, Christian offers 6 steps: 

  1. Multilateral UN agreement: The World Trade Organisation is not a part of the UN and therefore, it’s goals do not align with wider UN policies on human and climate rights. These must be linked and therefore, a multilateral UN agreement on trade must be created. 
  2. Commitment to trade equilibrium: There must be an international agreement to avoid trade imbalance. 
  3. No equal treatment of poorer or richer countries: Countries who are poorer cannot be put on the same playing field as countries that are richer. Christan notes that the US was highly protectionist up until WWII, as was Great Britain. Protecting their borders and producing locally helped bring them to a stage to then produce internationally. Other countries have to be given this freedom as well. 
  4. No more political straight jackets: Milton Freedman suggested putting a “straight jacket” on countries, so that they open their borders and support international trade, which, in theory, would ultimately  make them richer. Unfortunately, this has not played out in reality. Christian counters this with the idea of giving everyone a dancers dress, so each country can make their own trade policies. This allows for flexibility, so that if a country sees engaging only in their indigenous economies as the best path forward, they can do so without repercussions from international counterparts. 
  5. Priority for Local markets: Countries need to continue to prioritise local production in communities. If it can be made locally, encourage this, as opposed to disincentivising local production to promote international trade.
  6. Limit and diminish power of multinational corporations: Corporations need to be better held to account for the impacts of their operations. The playing field for local businesses to compete with multinationals is not level. Global governance is needed to ensure corporations’ power is checked before it causes harm to people and planet. 

Christian proposes a new free trade defined by how open or protective a country wants to be. 

While Christian spoke about the changes needed to shift business and trade at the international level toward a Wellbeing Economy, there is much work to be done at the level of individual businesses. 

This month WEAll is publishing a new WEAll Business Briefing Paper, which also links to WEAll’s Business for Wellbeing Guide published last year. Both publications compile insights from experts on the important role that businesses can and must play to support the creation of a Wellbeing Economy.  

These outputs, coupled together, communicate a common vision for how business and governments can work together on a global scale, to deliver global wellbeing on a healthy planet. Now it is time to act on this learning.

Stay tuned for the Business briefing paper coming out next week and the Business Guide here, and watch Christian’s talk here.