MEDIA: Open Forum - Redefining economic growth

MEDIA: Open Forum - Redefining economic growth

If we achieve high employment, a diverse economic base, and sustainable resource management, GDP will take care of itself.

At the G20 Finance Ministers and Central Bank Governors meeting in February, Australia’s Treasurer Joe Hockey pleaded with participating nations to increase their aggregate Gross Domestic Product (GDP) by 2 per cent per annum. GDP growth will again top the billing at this week’s G20 Leaders' Summit in Brisbane.

But few if any commentators have paused to ask a simple question: What does GDP growth provide for ordinary citizens?

GDP is the primary indicator used by governments and media to gauge the health of a country's economy. It represents the total dollar value of all goods and services produced over a specific time period. But there are serious problems with this indicator. GDP theory not only presumes an impossible world of unlimited resources – such as forests, oil, fish stocks, arable land and water – it counts many negative elements as positive contributions. For example, did you know that both cancer and a car crash can increase GDP? They both demand goods and services.

Another major weakness in GDP is that the depletion of our non-renewable environmental resources such as minerals and natural gas is counted as a positive, instead of a negative as is required in proper accounting standards (via depreciation).

It is also improper that the headline GDP figure does not account for population growth. If GDP grows at (say) .3 per cent in a quarter, but population growth is .5 per cent, we are going backwards on the GDP scale. During the GFC Australia had a per capita recession, with negative per capita GDP over two consecutive quarters. But only one or two economists mentioned this, and the myth still exists that Australia has had over 20 years of unbroken ‘growth’. Even today population growth is well over half the rate of aggregate GDP. At the very least we should be reporting GDP per capita.

The bottom line with Joe’s aggregate GDP growth obsession is that he’s forgotten to ask whether ordinary citizens are actually happier. GDP is a useful measure of economic activity, but it doesn’t measure human wellbeing or happiness, or equality.

In a step towards true social justice, we need to redefine ‘growth’ in our finite world. Not just for our sake, but for future generations. If we are to secure a prosperous economy, healthy environment and better quality of life, growth must focus on quality, not quantity. At present, who could argue that Australia’s economy, environment or quality of life are heading in the right direction? Under the current political duopoly, we're getting much bigger, without getting better.

Australia’s economic prosperity does not depend on the GDP statistic. In fact, GDP is a side-show. It would be more accurate to say that our economic prosperity is underpinned by three key pillars:

  1. Investment in better education and skills training to improve job security, workforce participation and innovation
  2. Encouragement of a diverse range of productive industries and
  3. Maintenance of our natural economic advantage via careful management of food, water, energy and mineral resources.

This third point is often overlooked in economic terms, and like the others, is undermined by rapid population growth. Rapid population growth acts as a disincentive for local training and education, and skews scarce economic investment into relatively unproductive city-building assets, like high-rise apartments.

We should not obsess over Joe’s arbitrary GDP target. In fact we should ignore it and focus on genuine progress indicators. If we achieve high employment, a diverse economic base, and sustainable resource management, GDP will take care of itself. We can be better without getting bigger.

William Bourke is President of the Sustainable Population Party.

This article was first published in Open Forum:
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