How the Political Focus on GDP Growth is Harming Society

It has long been held, in an unqualified manner, that economic growth is good. That is to say, that increases in Gross Domestic Product (GDP) - which is the aggregated market value of all the final goods produced/sold in a country during a year - are beneficial to society. As such, increases in GDP have become a central goal of political action, and decreases in GDP are seen as signs that an earlier policy was harmful. The logic has some merit to it: increases in GDP equate to increases in the economic activity in a country, if there is greater economic activity there are more jobs and more products, people are thus materially wealthier and there is more work for the unemployed - society is better off.

However, the focus on GDP growth and the logic supporting it is mistaken on several counts. Firstly, GDP was never intended as a measure of the good of society. Indeed, it's inventor, Simon Kuznets, on presenting GDP to the US Congress said that "the welfare of a nation can scarcely be inferred from a measurement of national income." To do so is to reduce the good of society to purely economic, market measures.

Secondly, as a consequence of the first point, that which is outside the market (i.e. not sold) is not considered. Instead, many things which are beneficial to society are not included. So, informal childcare arrangements, family housecare, home-made/grown produce, neighbourhood watches, charity support groups, sports teams, youth groups, etc are not included; are not, by users of the metric, counted as beneficial to society. Equally, many things that are harmful to society - crime, inequality, environmental damage, etc - are also not included in GDP. For example, an increase in GDP could be caused by a few people (say, bankers) getting significantly richer, rather than a more general increase in the welfare of society. Put together, increases in GDP could accompany a reduction in non-market factors that are beneficial to society and an increase in non-market factors that are harmful to society - GDP simply does not reflect them.

Thirdly, GDP growth does not necessarily equate to an increased numbers of jobs. GDP can be increased, without accompanying job growth, by increases in productivity or by the increased production of an expensive primary resource or service. Equally, GDP can decrease while the number of jobs goes up by movements from the production of high-market-value  products to low-value products (such as a company switching from financial services advice to growing potatoes.)

The essential point, then, is that GDP is not a measure of the welfare of society, nor is it a proxy measure. In itself, this point does not matter. However, that GDP growth is a central goal of political action means that the weaknesses of GDP have real world consequences, in that by promoting GDP growth negative outcomes can be encouraged. For example, in Canada the tar sands projects, which are destroying and degrading large areas of Canada and its environment, account for about 2% of national GDP. So, according to the "growth is good" mantra and in spite of any serious lasting damage the projects are doing, the tar sands exploitation equate to an improvement of the national well-being.

If we continue to follow this "GDP fetish", then environmental restrictions, consumer protections, mandatory safety features - regulations that can improve societal welfare - will  persist in being seen as costing GDP growth and thus as harming society, and activites that harm society will carry on to be seen as beneficial. What we will continue to do, then, is to set the cart before the horse - to favour "growth" over genuine progress.

The Free Market Illusion

In Anglo-Saxon politics there are continued calls to "free" the market from government regulation, particularly in the US. Such moves are intellectually validated by right-wing thinktanks and economists, some of who believe in a free market to such an extent they even cheer when companies shut down; celebrating the creative destruction of the market. According to this diverse mix of rich white men, "red tape" unnecessarily limits the opportunities for business expansion and, as such, economic growth.

However, the argument is false as the free market does not, and can not, exist; the concept is an illusion often used to justify a rampant and destructive form of capitalism. The reason the concept is illusionary, as Ha-Joon Chang (Thing 1) states, is that "the "freedom" of a market is, like beauty, in the eye of the beholder." Put another way, regulations that people agree go unnoticed and so are not regarded as limitations on the markets, whereas regulations that people disagree with are noticed and thus labelled as restrictions on the market. Hence, arguments for the free market are merely utilising an illusion in order to justify one's own political beliefs.

Take private property rights in their current formulation for example. These could be seen as restrictions on the market as if the government instead understood land as communally-owned (as was the case historically) then businesses would, arguably, be freer to utilise a wide array of resources than in the current system, where land is privately-owned and limited to the uses of the owner. Current private property rights are also restrictions on the market in that they decide what counts as property. So, for example, it could be seen as a limitation of the free market in that businesses may not own slaves; that people do not count as property.

Government also limits what transactions are allowed to take place and what services can be offered. So, bribery, assassination or heroin-dealing, for example, could all be legalised if we were to free the market and harness the full wealth-creating powers of the market. Likewise, child labour laws and minimum wage laws place limitations on the market that limit the opportunites for business expansion and increased economic activity.

Interestingly, proponents of the "free market" are yet to express a desire to re-intoduce slavery, legalise assassination, bribery and drug dealing, and allow children to work for pittance wages. The reason for this oversight is that these limitations are not considered limitations at all because they agree with the need for these regulations and so do not notice the continued operation of these laws. On the other hand, environmental protection and health and safety laws (which, frankly, if you go into the history of, are very much justified - just think Victorian work houses) are considered limitations on the free market....because free marketeers simply disagree with such restrictions.

Extending the logic, it would appear that any law or regulation that the government passes can be considered a restriction the free market. As such, a "free" market requires no government and no law - to free the market, one must destroy the state, law and authority. Once anarchy is achieved, then business will be free to pollute, kill, maim and destroy as it pleases, and we will all bask in the warm glow of the market.