The Great Invention: The Story of GDP and the Making and Unmaking of the Modern World - Ehsan Masood (2016)

Chapter 10. “Nothing Is More Destructive of Democracy”

All over the world people believe they are being lied to, that the figures are false; that they are being manipulated. And there are good reasons for feeling this way. For years people whose lives were becoming more and more difficult were being told that living standards were rising. How could they not feel deceived?

— Nicolas Sarkozy, Mismeasuring Our Lives: 
Why GDP Doesn’t Add Up
 (2008)

Shortly after Tony Blair and Gordon Brown’s decision to hire Nicholas Stern to guide them through the forest of climate change economics, across the English Channel, France’s president Nicolas Sarkozy announced a project every bit as ambitious. Sarkozy’s aim was to take a shot at no less than GDP itself. In doing so he would become the second head of a state to not only realize the problems inherent in GDP, but to take steps to do something about them.

Sarkozy has long believed that GDP does not properly value those aspects of life that French culture both celebrates and is renowned for. A long-held bugbear for France is that GDP ignores, even devalues, those aspects of life that have little or nothing to do with money. As we know, GDP has no category that recognizes happiness or contentment. There is no tick-box or spreadsheet-field that rewards spending time with our families. A parent who chooses to scale back his or her hours, to work part-time, might be good news for the children, but that choice is bad news as far as government growth accountants are concerned.

Sarkozy had a second and possibly more important concern about GDP. Recall the example from Tunisia: in the years leading up to the tragic suicide of Mohamed Bouazizi, Tunisia’s economy was celebrated as a regional icon of growth. Successive quarterly announcements of GDP’s steady growth masked the gulf in inequality. And recall that in rich countries, rising GDP concealed the continued existence of an underclass. One of the canniest politicians of his generation, Sarkozy believed that the example from Tunisia showed how indicators such as GDP were potentially threatening to nothing less than the survival of democracy.

Here he is in 2008 after the financial crisis, explaining why: “All over the world people believe they are being lied to, that the figures are false; that they are being manipulated. And there are good reasons for feeling this way. For years people whose lives were becoming more and more difficult were being told that living standards were rising. How could they not feel deceived?”1

These are the words of a center-right, indeed hawkish head of state, not your average leftish economics blogger: “That is how we create the gulf of incomprehension between the expert certain in his knowledge and the citizen whose experience of life is completely out of synch with the story being told by the data. This gulf is dangerous because the citizens end up believing they are being deceived. Nothing is more destructive of democracy. I hold a firm belief: We will not change our behavior unless we change the ways we measure our economic performance.”

GDP, as far as Nicolas Sarkozy was concerned, is on the wrong side of the argument and it had to be reformed.

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Sarkozy’s first step was a surprising one for someone of his political ilk: this was to meet three respected thinkers broadly on the left of economic policy and establish if they agreed that he was on to something. He called Joseph Stiglitz, the Nobel Prize–winning former adviser to the Clinton administration, and an influential voice in support of policies that reduce inequality. There was Jean-Paul Fitoussi, Sarkozy’s economics professor at Sciences Po, the Paris Institute of Political Studies. And finally there was Amartya Sen, coinventor of the Human Development Index and by now a Nobelist, too.

Sarkozy had good reasons for his choice of expert advisers. Joseph Stiglitz has for some years been a leading source for ideas on how to reduce inequality. Fitoussi’s value would include acting as cover for Sarkozy against attacks from the home side. Amartya Sen, meanwhile, would bring experience of such an exercise, not to say nearly two decades of reflection on the shaping, launch, successes, failures, and aftermath of the Human Development Index.

In 2007, a whisker before the financial crisis of 2008, Sarkozy asked the trio to gather more of their colleagues, just as Sen and Mahbub ul Haq had done.2 He requested that they summarize for him the latest thinking in alternative ways to measure economies and societies. This being a political project, the group was given just eighteen months, a far shorter time frame than academics are used to. But crucially for such a project, and just as Blair and Brown had done, the president promised to act on their findings.

Let’s for a moment go back to 1989: a buoyant Mahbub ul Haq asks Amartya Sen, his friend from their days as Cambridge students, to join the team that created the HDI. Remember Sen’s skepticism, his justified reluctance to join a project to create yet another crude index, with unknown consequences. And remember Haq’s reply: that politicians need simplified information. “Amartya,” he said, “I want you to create something as vulgar as GDP.”

This time, an older, more politically savvy Sen would have it his way.

Mismeasuring Our Lives, as the Sarkozy’s commission’s final report is titled, makes a thoughtful, careful, and powerfully argued case for what is wrong with GDP and what could replace it. An alternative single number—a composite index collapsing different quantities into one figure—however, is not one of its recommendations.

Mismeasuring Our Lives instead argues for a “dashboard” of indicators that together paint a more accurate picture of a society’s well-being. These would include indicators on the living standards of households, such as income, consumption, and wealth. They would also include indicators of health, education, social connections, work, environment as well as insecurity (both physical and economic).3

The use of the word “dashboard” is more than a nod to Sen, who has often compared GDP with driving a car using only one instrument showing a spurious reading. And lest anyone had any doubt, the report makes clear to its readers that HDI was one component of a much bigger idea, that it was “the simplest representation” of a broader human development approach that sparked a global revolution in how we measure well-being. Such is their aversion to the single-number idea that no amount of reform, refinement, or improvement is good enough. GDP for Fitoussi, Sen, and Stiglitz is simply not good enough.

The final part of Mismeasuring Our Lives also parts company with the more radical thinking of ecological economists, notably Robert Costanza: it rejects ideas to revise GDP, to make GDP more representative of the things that society wants to value. Sarkozy’s advisers had no time for an adjusted GDP or a green GDP. And that to my mind was a huge missed opportunity born, it seems, of a reluctance to consider the bigger picture.

One reason why this may have occurred is because Sarkozy’s team was insufficiently diverse in its composition of expertise. What I mean here is that the broader group that compiled Mismeasuring Our Lives comprised mostly of economists. In addition there was one political scientist, a sociologist and a psychologist, but no working natural scientist; nor a researcher active in the humanities. Confining themselves to a relatively narrow set of expertise meant that Sen, Stiglitz, Fitoussi and their colleagues were able to reject much of the thinking that had gone into environmental valuation, and to do so without being challenged.

The main reason for their decision seems to be concerns about data accuracy: a reluctance to put a price on something (such as pollution) that isn’t bought and sold on an open market. In their view, trying to combine such monetary estimates risked repeating the mistakes of GDP and, not surprisingly, the team recommended that the issue of environmental indicators be parked for a follow-up exercise.

It is difficult to say what Sarkozy made of this, or if indeed he had much sense of the debates and arguments taking place within his report-writing team. He would lose the subsequent general election and his successor, President François Hollande, has shown little interest in giving the project the support that Sarkozy had promised.

But what is certain is that rejecting the idea of a single number, and rejecting ideas around green GDP, hasn’t done any favors for the cause of GDP reform. Furthermore, it did not help its patron, Nicolas Sarkozy, should the former president run for office again and pick up from where he left off.

GDP is simply too entrenched as a policy tool to be abandoned just because eminent academics dislike it. And though it is true that in our Big Data world a dashboard of indicators would be easier now than ever to collect and attractive to display, most politicians feel overwhelmed by the quantity of information that they are required to process. For this group of people, a composite index, a single number comprising a range of variables, is, if anything, more needed now than in the past.