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349 – Money mad
09 November 2011 (11:45:31)

Why the obsession with GDP when it fails to measure what is really important, asks Julian Huppert

Gordon Brown began his 2007 budget speech with a rather impressive fact: his budget was “built on the foundation of the longest period of economic stability and sustained growth in our country’s history” – his assertion justified by Britain registering positive Gross Domestic Product (GDP) figures for its 59th consecutive quarter.

With the benefit of hindsight, the strength of these economic foundations was deeply overestimated. But, more importantly, the disconnect between growth in GDP and progress in British society has now been brutally exposed. GDP is of course not the only measurement of progress but each of these analyses used measure relative economic success based on comparative monetary values, and then equates ‘growth’ with ‘progress’. This is not how humans view their own successes, and it is not how we should view progress in society. By coupling economic growth with progress, and measuring it obsessively, we have warped how we view achievements in our own lives and the societies in which we live.

The public debate surrounding the London riots was defined by an obsession with money. The media asked what was the exact cost of the riots, and how would people be reimbursed? Were existing wage differentials, or benefit dependency, to blame? Was the level of unemployment, or private household debt burden, a factor? It is much more useful to ask what these economic indicators actually mean to people. Is your well-being sufficiently improved by receiving the exact monetary value of the property that was destroyed? What is the impact on you, and your well-being as a person, of having a drastically lower wage than the richest in society, or of living in a household in which no one works? Is it more relevant how much you earn, or how much you earn relative to those around you or on the TV? How is your well-being affected by being out of work, or being heavily indebted?

Not only does GDP cause us to ask the wrong questions; it measures a lot of things that don’t improve our well-being.

If it wasn’t that the rioters hurt retail sales and small businesses, the riots could very well have had a positive impact on GDP – creating jobs for those who repaired the damage, funded from a mixture of insurance and government money. It would be morally reprehensible for anyone to suggest that this subsequent rise in GDP is a good thing, so why are we so fixated by those quarterly statements?

GDP doesn’t take any account of the environment in which we live, but studies have shown that good air quality and access to natural environments can dramatically improve a person’s life. Indeed, as I highlighted in my maiden speech, the clean-up operation from an oil spill has a positive impact on GDP – but we wouldn’t consider more oil spills something to aspire to.

So rather than simply promoting economic output, and just trying to close the gap between the wealthiest and the poorest in society, we also need to assess and influence things like well-being, and how people feel and flourish. There is now a lot of good research to show that many psychological factors are a much better determinant of happiness and well-being than yearly income. The recent Liberal Democrat ‘Quality of Life’ policy paper outlined a large number of areas where understanding well-being in this way can drastically improve public policy.

The debate at conference surrounding the paper reminded us that there is a real danger that such policies can be viewed as nannying and bureaucratic. In encouraging people to ‘flourish’, there were concerns that governments could begin to force people to be free, something that liberals have always guarded against.

But this is not the intention, and liberty is more than just the most basic Lockean form: freedom from imprisonment, and freedom from oppression. Personal agency and an ability to live your life in the way that you choose are crucial to the success of individuals and society as a whole – and to liberal thinking. To highlight just one example, assessments of happiness and well-being have shown that people thrive in strong local communities that have an identifiable social focus, such as a pub.

It is certainly not the role of the government to force people to build pubs, let alone go to them. But the government can make it easier for people to defend them; they can send a clear message, through planning regulations and local authority powers, that such community assets contribute to well-being. They can ensure fair pricing, and adjust the playing field to favour pubs – or other social foci.

In my constituency of Cambridge, residents are fighting to preserve the independent shops along Mill Road because they value what it adds to their lives, not simply considering what a new range of superstores could do to GDP.

Human progress is not, and never has been, the sum of our physical output. Money is a tool, not an end in itself. The post-war consensus has made it difficult for policy makers to realise this fact, but by having regard to advances in psychology, and thinking about what actually matters to people, we can start to understand and encourage personal well-being, and measure our progress in a meaningful way.

Julian Huppert is Liberal Democrat MP for Cambridge

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