Don Brash: the right road to 2025

Dr Brash’s preliminary comments on his new productivity task force suggest it risks heading in the wrong direction. Its focus is GDP and economic growth. The path to the future is different

Two roads diverged in a wood and I —
I took the one less travelled by,
And that has made all the difference — Robert Frost “The Road Not Taken” (1916)

Some people invoke Bhutan’s Ministry of Happiness but, for my whimsy, I like Robert Frost.

Since 1972, "gross national happiness" has been the measure of progress in Bhutan. Bhutan is neither very democratic, nor very developed, and the philosophy is Buddhist in origin, which in this secular country is more likely to be the end of the conversation than a beginning. This is not a post about Bhutan. The point is that they give equal weight to four dimensions of wealth or wellness—economic, environmental, political, and cultural—while we focus on GDP. Right now, that doesn’t make us very happy; we’re fretting about it.

Measured by GDP, Australian incomes are one-third higher than New Zealanders’, and New Zealand has slid in OECD rankings to the bottom third of developed countries. Labour’s aspiration to relocate us in the top half of the OECD was not realised. The National-ACT confidence and supply agreement promised “a high quality advisory group to investigate the reasons for the decline in New Zealand’s productivity performance and living standards relative to Australia’s, and make recommendations to address them”.

The group, dubbed the “2025 task force” and chaired by Dr Brash, will first report in November.

Brash set out his preliminary thoughts in a speech to the Auckland University of Technology on 30 July. It seems pretty clear from the speech that his measures for parity with Australia are GDP and economic growth. Others’ thinking is different.

First, a disclaimer. I’m not discounting the value of material wealth in supporting the living standards we want and expect: the subsidised education, free health care, welfare, pensions, good roads and rail, and so on. The extent of the coincidence between life satisfaction and per capita income has been disputed; some think that there is a ceiling, beyond which growth in income does not advance happiness. And yet, there’s a strong correlation.

In other words, this isn’t an “either or” argument about abandoning growth in pursuit of happiness—more of a “yes, but”.

GDP is our key economic indicator, the headline number that we take as a measure of progress; witness the relief with which reports of 0.1% growth in the June quarter emerged last week. Simon Kuznets, originator of the GDP concept, is said to have warned in 1962 that it was not supposed to be used as a proxy for national economic welfare, and yet that is how the media, politicians, and by extension all of the rest of us, extrapolate from it. But it paints a false picture.

GDP “counts for nothing” behaviour that has economic value. If community volunteer work declines, community well being also declines. The value to welfare of caregiving and housekeeping services such as cooking, cleaning and child rearing is only measured when they are paid for. If you live somewhere that supports a degree of self-sufficiency (trout fishing, foraging for firewood, saving seed to grow vegetables, drying clothes in the sun), GDP has nothing to say about it, but those activities allow income to be spent on something else, and your living standards are probably higher as a result.

It makes no distinction between items that are costs and items that are benefits. Using a clothes dryer instead of the sun takes resources, increases your carbon footprint, and raises GDP. Crime, prison-building, war and disaster relief may all contribute to GDP, assuming they don’t divert economic activity from its ordinary course. GDP counts things as benefits that are a net destruction of wealth in the form of natural capital stocks, such as over-fishing, unsustainable farming, or mining in environmentally precious places.

“Counting for nothing” was Marilyn Waring’s credo in Counting for Nothing: What Men Value and What Women are Worth (1977). These days, Waring is a colleague of Brash’s at AUT, and an advisor to the Canadian Institute of Well Being, which administers the Index of Well Being. Canada is also the home of the Genuine Progress Index developed by GPI Atlantic think tank founder Ron Coleman.

The limitations of GDP are widely and credibly acknowledged, economic orthodoxy it seems, not some green fringe wackiness. But even so, economic growth statistics continue to dominate and shape policy discussions.

To get on the right road to 2025, we need to follow the right road map. We need a different measure and, probably, a different way of thinking, before the drive to achieve growth ends by any available means takes us over the cliff.

The examples of GDP alternatives already mentioned barely scratch the surface of the fertile literature field reviewed in the Report of the Commission on the Measurement of Economic Performance and Social Progress (September 2009). The Commission was the brainchild of President Sarkozy, chaired by Nobel Prize winner, former World Bank chief economist, and Intergovernmental Panel on Climate Change contributor Professor Joseph Stiglitz.

The Commission reiterates GDP’s problems. Its goal was to consider how to better measure economic performance and social progress and, rather than attempting to supply a fully-formed solution, open a discussion with other bodies nationally and internationally.

It observes that its recommended reforms would in any event have been desirable. Facing the worst economic crisis in post-war history, and looking down the barrel of the worst environmental outlook known to mankind, they are essential. Not everybody agreed with everything in the report but, “the whole Commission is convinced that the crisis is teaching us a very important lesson: those attempting to guide the economy and our societies are like pilots trying to steer a course without a reliable compass”.

The report recommends measuring two things, in addition to economic production by way of GDP: first, people’s current well being or quality of life, and secondly, sustainability (that is, whether we will leave future generations enough resources of all kinds to provide them with the same opportunities as ourselves). The two Canadian indexes above are examples of quality of life measures; WWF’s ecological footprint concept exemplifies a sustainability measure.

We do, of course, measure a lot of the relevant variables ad hoc; others we ignore. The Commission’s point is that it ought to be done systematically, and accorded the same priority as GDP. The various measurement tools have huge difficulties and limitations but this, said the Commission, doesn’t excuse inaction; there is a vast body of work on which to draw, and enough coincidence of thinking to indicate the way forward.

Simon Upton endorsed it, commenting on the frustrations of his own experience: “Environmentalists have long (and rightly) despaired of the way politicians have regarded GDP as the pre-eminent measure of policy success … time and again, I found political argument reduced to a banal exchange over who could generate a higher quarterly GDP number.”

This is good timing for New Zealand. We have the direction-setting body, in the guise of the 2025 task force. Before taking GDP as its measure, and assuming rapid strong growth is the answer, it’s not too late for the task force to at least consider the other road.

They probably think they’ve got the baseline but, in the light of this, I would argue that they don’t; I’d like to know what the actual discrepancy with Australia is, on a fully robust measure, before we start using it to justify ideological pet projects. Then, in addressing whatever size of problem eventuates—assuming we’re still worse off, which is not a given—the new paradigm can help too, in testing policy options.