Shamubeel Eaqub: What good is economic growth?

"For a holistic view on economic progress, our measures of progress need to grow up. We have to reject that growth in ...
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"For a holistic view on economic progress, our measures of progress need to grow up. We have to reject that growth in and of itself is a good thing," economist Shamubeel Eaqub says.

OPINION: We celebrate growth. But why? We are measuring economic growth for the wrong reasons and with the wrong metrics.

There is no easy alternative. We have to reject the illusion of a simple and single metric of economic wellbeing, and look at the many and complex measures that better reflect wellbeing.

Growth in and of itself is not what we are after. Economic growth measures are proxies, meant to capture broader improvements in economic outcomes and opportunity.

"Perversely, the Canterbury earthquakes boosted economic growth," Samubeel Eaqub says.
GRANT MATTHEW/FAIRFAX NZ

"Perversely, the Canterbury earthquakes boosted economic growth," Samubeel Eaqub says.

For a long time, this did bear out. Economic growth correlated with broader improvements in living standards and reducing inequality.

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This contributed to an increased focus and obsession with economic growth. This wraps up many of our entrenched ideas around the trickle-down theory or that the rising tide lifts all. The 'growth is good' ideology has become unquestioned theology.

Except of course it doesn't always.

Aggregate economic growth is a necessary but not sufficient condition for societal improvement.

If everyone is better off, the sum total has to increase. But the total also grows if a few are much better off. Increasingly, it's the latter kind of economic growth New Zealand has experienced.

Further, broad economic measures by definition aggregate individual experiences. But can mask significant underlying differences across regions, ethnicities or family background.

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Our economy has grown significantly over the last three decades, but some measures of income and wealth distribution show compelling evidence that trickle down has not worked.

Income inequality, as published by the Ministry of Social Development, has not improved since the early 1990s after a significant worsening in the 1980s.

Housing is the biggest store of wealth. But home-ownership peaked in 1991. It has been falling since then and is now at the lowest level since 1956. Wealth is more unequally shared among New Zealanders, despite decades of economic growth.

There is a growing body of work that looks at the weakness of how we measure economic growth.

Tellingly, we do not count the cost of negative things like the damages from the Canterbury earthquakes, or water contamination in the Hawkes Bay, or the degradation of the environment.

Perversely, the Canterbury earthquakes boosted economic growth.

The lost capital in homes, buildings, infrastructure and livelihoods did not count. But the subsequent building activity did.

The way we measure growth, breaking a window and fixing it counts are progress. Except of course that activity just got us back to where we were.

Environmental damage is not counted either. The language surrounding the debate is toxic.

It is valid to bask in the benefit of dairy price increases or increases in output through intensification, but discussions on the degradation of our waterways and natural environment is treated at economic sabotage.

Harder to measure are things like our clean green image and what impact it has on our quality of life or ability to trade with the world. Especially when the image is in fact a mirage – when we measure carbon emission or the quality of our rivers objectively.

Entrenched short term and managerial thinking, and measuring success with the wrong measures, has meant that our public debate around the economy is focussed on the short term, on the aggregate and has lost the true meaning of progress and concepts of stewardship.

There are alternatives. But they are complex. The Treasury's living standards framework or the the OECD's wellbeing framework are both useful ways to think about progress.

Aggregate measures of economic growth are useful for a very narrow purpose.

For a holistic view on economic progress, our measures of progress need to grow up. We have to reject that growth in and of itself is a good thing.

Life is too complex to be reduced down to one convenient measure of wellbeing.

Shamubeel Eaqub is an independent economist and consultant. Follow him on Twitter @SEaqub

 - Stuff

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