New Indicators for a New Economy

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Comments by John Cavanagh with David Brancaccio at the National Press Club

Thank you.  I’m thrilled to join this important forum, and to celebrate the launching of David Brancaccio’s “Fixing the Future.”  David is helping to stimulate the most important conversation that we can have in this country today.

I will add one point on context, and then say a bit about new indicators of progress.

On context, as David’s film demonstrates, the “old” economy isn’t working for most people in this society.  At least 15 million are unemployed, half of them since the crisis broke out in 2008.  Millions more are underemployed or have given up looking.  Most people think the economy is moving in the wrong direction.  Huge numbers are anxious or depressed or angry.  And, unfortunately, in the election 13 days ago, most voters blamed the wrong culprit.

The roots of the crisis are deep, but one huge negative shift in the U.S. economy came in the 1980s, under the leadership of President Ronald Reagan, who glorified what he called the “free market” as the path to prosperity, and he unleashed three decades of deregulation.  On Wall Street, the leading finance firms grew by leaps and bounds and shed their traditional roles as providers of finance for the real economy.  They built a casino economy divorced from Main Street, and they provoked the giant crisis which has us in its grip here today.

The good news is that more and more people are rejecting the old economy and building a new one from the bottom up.  My group, the Institute for Policy Studies, has joined with YES! Magazine and the Business Alliance for Local Living Economies and Ted’s Democracy Collaborative to build a “New Economy Working Group” and, under the leadership of David Korten, we’ve released an “Agenda for a New Economy.”  In that book, David elaborates seven points of intervention to create a new economy and the first is the topic of today’s panel: New Indicators.

Here is the “new indicators” issue in a nutshell: the main way our society measures progress is by a simple, unnuanced measure of economic activity or growth, called Gross Domestic Product.   If it goes down 2 quarters in a row, we say we are in a recession.  If it goes up for two quarters, we are out of the recession.  Either can happen and both have over the past two years, and it tells you very little about how people are doing.  In and out of recession over the past two years, the official unemployment level has hovered around a whopping 10 percent. 

And, as I think most of you know, GDP doesn’t distinguish between good or bad economic activity.  Cigarette smoking, the biggest easily preventable killer in this society and in the world, is good for GDP not just because of the sales of the cigarettes, but because of all the economic activity that goes into health care to take care of the many ailments that go with smoking.  Even environmental disasters such as the recent catastrophic BP oil spill off Louisiana increase the U.S. GDP.

New Indicators expert, John Talberth, adds one other great flaw.  He writes: “GDP fails to recognize the costs of inequality. It counts growth concentrated in the upper-most income brackets as ‘progress,’ even if incomes and quality of life are falling for most.”  GDP has grown rapidly in this country over the past three decades, but the growth has been concentrated at the top of the income ladder.  John reminds us that Bobby Kennedy once said of GDP: “it measures everything, in short, except that which makes life worthwhile.”  Even the very conventional magazine, The Economist, has recently hosted an online debate on the issue that concluded: “GDP is a poor measure of improving living standards.”  

Yet, GDP is what the president and economists talk about, as do their counterparts around the world.  They are happy when it goes up, and they get voted out of office when it goes down.  GDP has become equated with progress, and most governments have focused their attention and resources single-mindedly and foolhardedly on the growth of GDP. 

Happily, there is now a huge movement to dethrone GDP as the main measure of how an economy and society are doing.  I love that phrase: “dethrone GDP;” it is the name of an initiative headed up by my New Economy Working Group colleague, Gus Speth, at DemosGus points out that there are dozens of initiatives around the world to measure the well-being of people and the planet.  They have lots of different names: genuine progress indicator, happy planet index, you name it.  The United Nations Development Program, which I advise, has been measuring health, education and other indicator for two decades in what it calls a “Human Development Index.” 

A word on what these wise people are suggesting we measure instead of the value of the goods and services produced by a country.  Most indicators fall under two categories:

First, social well-being: things like child mortality and poverty and malnutrition; teenage crime; how long people live; percent of people with health care; how equal a society is; life satisfaction; percent of jobs that pay living wages with benefits; and involvement in community service.

And, second, environmental well-being: things like air quality, rates of soil runoff, amounts of carbon emissions, and biodiversity (the UN estimates that coral reefs should be valued at about $100 billion a year, since they are vital to the livelihood of about 1 out of 12 people).  Or another example: fishing adds to GDP; but so does overfishing.  I think we’d all agree that we should give a negative measure to large-scale corporate fishing that is depleting fishing stocks.

Dozens of expert panels have put together similar indexes.  Almost all of the things I just mentioned can be measured.  And, you won’t be surprised to learn that the United States usually ranks low in these indexes.  One index by the New Economics Foundation in London, which measures life expectancy, life satisfaction, and ecological footprint, ranks Costa Rica as number 1 and the United States as number 114.  One of my favorites is compiled by Social Watch, an international NGO head-quartered in Montevideo, Uruguay. Since 1995, they have been producing a Basic Capabilities Index (previously called Quality of Life Index), based on non-monetary indicators such as the percentage of children reaching fifth grade, survival until the age of 5, and the percentage of births attended by skilled personnel.   My wife, American University professor Robin Broad, and I are working on a new concept we are calling “rootedness,” which would give positive marks to countries that produce as much as possible locally and where communities control their water, their forests, and other natural resources.

Now, what is important is that these indexes of New Indicators are gaining political traction.  Activists have made governments pay attention and act.  New indicators are the rage in recession-ravaged Europe, in part because of the growing realization that GDP growth doesn’t insure job growth.  Last year, French President Nicolas Sarkozy had the smarts to pick the best two Nobel Prize winning economists: Joseph Stiglitz and Amartya Sen, to lead a “Commission on the Measurement of Economic Performance and Social Progress.” The Commission’s initial report specified the major flaws with GDP and outlined the contours of a better measure, and it is hard at work developing a single new indicator to replace GDP.  (I should point out that many believe that any single measure is inherently limited and call for a dashboard of indicators.) Other European nations have jumped on board.  The European Union’s statistical agency is now developing a workplan to incorporate new indicators into policy analysis.

Other countries, including China, India and Brazil have taken steps toward measuring “green” GDPs.  For the past two decades, the government of Bhutan has rejected GDP and has instead adopted a “gross national happiness” index, which serves as the main guiding parameter for the country’s development policy.

And, the idea is gaining traction in the United States.  I will bet that most of you don’t know that the recent health care legislation that Congress passed and that the Tea Party equates with socialism, actually creates a “Commission on Key National Indicators.” The commission is charged with establishing and disseminating indicators that provide a more accurate portrayal of true economic welfare.  In my own state of Maryland, just across the border here from DC, pressure from activists has pushed our governor, Martin O’ Malley, to release a “genuine progress indicator” and he has sanctioned its use in policy analysis in the state.

In sum: there is a revolution not just in thinking but in action on this issue.  A word of caution: transforming indicators can’t change economies on its own.  It needs to be accompanied by a radical revamp of our financial system, a redistribution of wealth and ownership, a shift from military to green jobs, and a new set of global rules, among other things.  But, new indicators is a vital step in the right direction. 

As David Korten puts it: “We get what we measure, so let’s measure what we want.”