by Kate Raworth
It’s a warning to economics too: lose sight of your goals and something else may well slip into their place. And that’s exactly what has happened. In the twentieth century, economics lost the desire to articulate its goals: in their absence, the economic nest got hijacked by the cuckoo goal of GDP growth. It is high time for that cuckoo to fly the nest so that economics can reconnect with the purpose that it should be serving. So let’s evict that cuckoo and replace it with a clear goal for twenty-first-century economics, one that ensures prosperity for all within the means of our planet. In other words, get into the Doughnut, the sweet spot for humanity.
How economics lost sight of its goal
Back in Ancient Greece, when Xenophon first came up with the term economics he described the practice of household management as an art. Following his lead, Aristotle distinguished economics from chrematistics, the art of acquiring wealth – in a distinction that seems to have been all but lost today. The idea of economics, and even chrematistics, as an art may have suited Xenophon, Aristotle and their time, but two thousand years later, when Isaac Newton discovered the laws of motion, the allure of scientific status became far greater. Perhaps this is why, in 1767 – just forty years after Newton’s death – when the Scottish lawyer James Steuart first proposed the concept of ‘political economy’, he defined it no longer as an art but as ‘the science of domestic policy in free nations’. But naming it as a science still didn’t stop him from spelling out its purpose:
The principal object of this science is to secure a certain fund of subsistence for all the inhabitants, to obviate every circumstance which may render it precarious; to provide every thing necessary for supplying the wants of the society, and to employ the inhabitants (supposing them to be free-men) in such a manner as naturally to create reciprocal relations and dependencies between them, so as to make their several interests lead them to supply one another with their reciprocal wants.3
A secure living and jobs for all in a mutually thriving community: not bad for a first stab at defining the goal (despite the tacit disregard of women and slaves that came with the times). A decade later, Adam Smith had a go at his own definition but followed Steuart’s lead in considering political economy to be a goal-oriented science. It had, he wrote, ‘two distinct objects: to supply a plentiful revenue or subsistence for the people, or, more properly, to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the public services’.4 This definition not only defies Smith’s ill-deserved modern reputation as a free-marketeer, but also keeps its eyes firmly on the prize by articulating a goal for economic thought. But it was an approach that would not last.
Seventy years after Smith, John Stuart Mill’s definition of political economy started the shift in focus by recasting it as, ‘a science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth’.5 With this, Mill began a trend that others would further: turning attention away from naming the economy’s goals and towards discovering its apparent laws. Mill’s definition came to be used widely, but by no means exclusively. In fact for nearly a century the emerging science of economics was defined rather imprecisely, leading the early Chicago School economist Jacob Viner, in the 1930s, to quip simply that ‘Economics is what economists do.’6
Not everyone found that a satisfactory answer. In 1932, Lionel Robbins of the London School of Economics stepped in with intent to clarify the matter, clearly irritated that ‘We all talk about the same things, but we have not yet agreed what it is we are talking about.’ He claimed to have a definitive answer. ‘Economics,’ he declared, ‘is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.’7 Despite its contortions, that definition seemed to close the debate, and it stuck: many mainstream textbooks still start with something very similar today. But although it frames economics as a science of human behaviour, it spends little time enquiring into those ends, let alone into the nature of the scarce means involved. In Gregory Mankiw’s widely used contemporary textbook, Principles of Economics, the definition has become even more concise. ‘Economics is the study of how society manages its scarce resources,’ it declares – erasing the question of ends or goals from the page altogether.8
It is more than a little ironic that twentieth-century economics decided to define itself as a science of human behaviour, and then adopted a theory of behaviour – summed up in rational economic man – which, for decades, eclipsed any real study of humans, as we will see in Chapter 3. But, more crucially, during that process, the discussion of the economy’s goals simply disappeared from view. Some influential economists, led by Milton Friedman and the Chicago School, claimed this was an important step forward, a demonstration that economics had become a value-free zone, shaking off any normative claims of what ought to be and emerging at last as a ‘positive’ science focused on describing simply what is. But this created a vacuum of goals and values, leaving an unguarded nest at the heart of the economic project. And, as every cuckoo knows, such a nest must be filled.
Cuckoo in the nest
This positive approach to economics was the textbook theory that greeted me as I arrived at university in the late 1980s. Like many novice economists, I was so busy getting to grips with the theory of demand and supply, so determined to get my head around the many definitions of money, that I did not spot the hidden values that had occupied the economic nest.
Though claiming to be value-free, conventional economic theory cannot escape the fact that value is embedded at its heart: it is wrapped up with the idea of utility, which is defined as a person’s satisfaction or happiness gained from consuming a particular bundle of goods.9 What’s the best way to measure utility? Leave aside for a moment the catch that billions of people lack the money needed to express their wants and needs in the marketplace, and that many of the things we most value are not for sale. Economic theory is quick – too quick – in asserting that the price people are willing to pay for a product or service is a good enough marketplace proxy for calculating their utility gained. Add to this the apparently reasonable assumption that consumers always prefer more to less, and it is a short step to concluding that continual income growth (and therefore output growth) is a decent proxy for ever-improving human welfare. And with that, the cuckoo has hatched.
Like hoodwinked mother birds, we student-economists faithfully nurtured the goal of GDP growth, poring over the latest competing theories of what makes economic output grow: was it a nation’s adoption of new technologies, its growing stock of machinery and factories, or even its stock of human capital? Yes, these were all fascinating questions, but not once did we seriously stop to ask whether GDP growth was always needed, always desirable or, indeed, always possible. It was only when I opted to study what was at the time an obscure topic – the economics of developing countries – that the question of goals popped up. The very first essay question that I was set confronted me head-on: What is the best way of assessing success in development? I was gripped and shocked. Two years into my economic education and the question of purpose had appeared for the first time. Worse, I hadn’t even realised that it had been missing.
Twenty-five years later, I wondered if the teaching of economics had moved on and recognised the need to start with a discussion of what it is all for. So, in early 2015, curiosity drew me to sit in on the opening lecture in macroeconomics – the study of the economy as a whole – for Oxford University’s newest intake of economics students, many of whom were no doubt planning to be among the top policymakers and business leaders shaping the world in 2050. As his opening gambit, the senior professor put up on the screen what he called ‘The Big Questions of Macroeconomics’. The top four?
What causes economic output to grow and to fluctuate?
What causes unemployment?
What causes inflation?
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sp; How are interest rates determined?
His list got longer but the questions never aimed higher, to encourage the students to consider the economy’s purpose. How had the GDP growth cuckoo so successfully hijacked the economic nest? The answer can be traced back to the mid 1930s – as economists were just settling upon a goalless definition of their discipline – when the US Congress first commissioned economist Simon Kuznets to devise a measure of America’s national income. The calculation he made came to be known as Gross National Product, and was based on the income generated worldwide by the nation’s residents. For the first time, thanks to Kuznets, it became possible to put a dollar value on America’s annual output and hence its income – and to compare it to the year before. That metric proved to be extremely useful, and it fell into welcoming hands. During the Great Depression, it enabled President Roosevelt to monitor the changing state of the US economy and so assess the impact and effectiveness of his New Deal policies. A few years later, as the country prepared to enter the Second World War, the data underlying the GNP accounts proved invaluable for converting its competitive industrial economy into a planned military one, while sustaining enough domestic consumption to keep generating further output.10
Other reasons were soon put forward for pursuing a growing GNP, and similar national accounts were created internationally, so that by the end of the 1950s, output growth had become the overriding policy objective in industrial countries. Eyeing the rise of the Soviet Union, the USA pursued growth for national security through military power, and the two sides became locked in a fierce ideological contest to prove whose economic ideology – the ‘free market’ versus central planning – could ultimately turn out more stuff. Growth appeared to offer an end to unemployment too, according to Arthur Okun, Chairman of President Johnson’s Council of Economic Advisers. His analysis found that an annual 2% growth in US national output corresponded to a 1% fall in unemployment – a correlation which looked so promising that it came to be known as Okun’s Law. Soon growth was portrayed as a panacea for many social, economic and political ailments: as a cure for public debt and trade imbalances, a key to national security, a means to defuse class struggle, and a route to tackling poverty without facing the politically charged issue of redistribution.
In 1960, Senator John Kennedy stood for the US presidential election on the promise of a 5% growth rate. When he won, the very first question he asked his chief economic adviser was, ‘Do you think we can make good on that five per cent growth promise?’11 That same year, the US joined other leading industrial countries to set up the Organisation for Economic Co-operation and Development (OECD), with its first priority being to achieve ‘the highest sustainable economic growth’ – aiming to sustain not the environment but output growth. And that ambition was soon backed up by international GNP league tables showing whose growth was in the lead.12 In the last decades of the twentieth century, the focus shifted from measuring GNP to today’s more familiar GDP, the income generated within a nation’s borders. But the insistence on output growth remained. In fact it deepened, as governments, corporations and financial markets alike increasingly came to expect, demand and depend upon continual GDP growth – an addiction that lasts to this day, as we will explore in Chapter 7.
Perhaps it should be no surprise that the GDP cuckoo so deftly filled the economic nest. Why? Because the idea of ever-growing output fits snugly with the widely used metaphor of progress being a movement forwards and upwards. If you have ever watched a child learning to walk, you’ll know just how thrilling that journey is. From clumsy crawling, usually backwards at first, then satisfyingly forwards, they gradually pull themselves up to standing, and take those triumphant first steps. The mastery of this movement – forwards and upwards – charts an individual child’s development, but also echoes the story of progress we tell ourselves as a species. From our lolloping four-legged ancestors evolved Homo erectus – upright at last – who gave rise to Homo sapiens, always depicted mid-stride.
As George Lakoff and Mark Johnson vividly illustrate in their 1980 classic Metaphors We Live By, orientational metaphors such as ‘good is up’ and ‘good is forward’ are deeply embedded in Western culture, shaping the way we think and speak.13 ‘Why is she so down? Because she faced a setback then hit an all-time low,’ we might say – or, ‘Things are looking up: her life is moving forwards again.’ No wonder we have so willingly accepted that economic success must also lie in an ever-rising national income. It fits with the deep belief, as Paul Samuelson put it in his textbook, that ‘even if more material goods are not themselves most important, nevertheless, a society is happier when it is moving forward.’14
What would this vision of success look like if drawn on the page? Curiously, economists rarely actually draw their adopted goal of economic growth (in Chapter 7, we’ll return to see why that is). But if they did, the image would be an ever-rising line of GDP: an exponential growth curve moving forwards and upwards across the page, chiming perfectly with our favourite metaphor for human and personal progress.
Kuznets himself, however, would not have chosen this as the picture of economic progress because he was well aware of the limits of his ingenious calculations from the outset. Emphasising that national income captured only the market value of goods and services produced in an economy, he pointed out that it therefore excluded the enormous value of goods and services produced by and for households, and by society in the course of daily life. In addition, he recognised that it gave no indication of how income and consumption were actually distributed between households. And since national income is a flow measure (recording only the amount of income generated each year), Kuznets saw that it needed to be complemented by a stock measure, accounting for the wealth from which it was generated, and its distribution. Indeed, as GNP reached the height of its popularity in the early 1960s, Kuznets became one of its most outspoken critics, having warned from the start that ‘the welfare of a nation can scarcely be inferred from a measure of national income’.15
GDP growth: forwards and upwards.
The metric’s creator himself may have offered up that caveat but economists and politicians alike tucked it quietly to one side: the appeal of a single year-on-year indicator for measuring economic progress had become too strong. And so over half a century, GDP growth shifted from being a policy option to a political necessity, and the de facto policy goal. To enquire whether further growth was always desirable, necessary, or indeed possible, became irrelevant, or political suicide.
One person who was willing to risk political suicide was the visionary systems thinker Donella Meadows – one of the lead authors of the 1972 Limits to Growth report – and she didn’t mince her words. ‘Growth is one of the stupidest purposes ever invented by any culture,’ she declared in the late 1990s; ‘we’ve got to have an enough.’ In response to the constant call for more growth, she argued, we should always ask: ‘growth of what, and why, and for whom, and who pays the cost, and how long can it last, and what’s the cost to the planet, and how much is enough?’16 For decades mainstream economists dismissed her views as foolishly radical, but they actually echo those of Kuznets, the hallowed creator of national income itself. ‘Distinctions must be kept in mind,’ he advised back in the 1960s, ‘between quantity and quality of growth, between its costs and return, and between the short and the long term … Objectives should be explicit: goals for “more” growth should specify more growth of what and for what.’17
Evicting the cuckoo
Knocked sideways by the 2008 financial crash, alarmed by the 2011 Occupy movement’s global resonance, and under growing pressure to act on climate change, it’s no wonder that politicians today have started searching for words to express more inspiring visions of social and economic progress. But they seem always to revert to the same answer: growth, the ubiquitous noun, decked out in a splendid array of aspirational adjectives. In the wake of the financial crisis (while still in the midst of crises of poverty, climate change
and widening inequalities), the visions offered up by political leaders started to make me feel like I had stepped into a Manhattan deli, hoping for a simple sandwich, only to be confronted by an endless choice of fillings. What kind of growth would you like today? Angela Merkel suggested ‘sustained growth’. David Cameron proposed ‘balanced growth’. Barack Obama favoured ‘long-term, lasting growth’. Europe’s José Manuel Barroso was backing ‘smart, sustainable, inclusive, resilient growth’. The World Bank promised ‘inclusive green growth’. Other flavours on offer? Perhaps you’d like it to be equitable, good, greener, low-carbon, responsible or strong. You choose – just so long as you choose growth.
Should we laugh or cry? First cry, for the lack of vision at such a critical point in human history. Then laugh. Because when politicians feel obliged to prop up GDP growth with so many qualifying terms to give it legitimacy, it’s clear that this cuckoo goal is ready for booting from the nest. We evidently want something more than growth, but our politicians cannot find the words, and economists have long declined to supply them. So it’s time to cry and to laugh but, most of all, it’s time to talk again of what matters.
As we have seen, the founding fathers of political economy were unabashed to talk of what they thought mattered and to articulate their views on the economy’s purpose. But when political economy was split up into political philosophy and economic science in the late nineteenth century, it opened up what the philosopher Michael Sandel has called a ‘moral vacancy’ at the heart of public policymaking. Today economists and politicians debate with confident ease in the name of economic efficiency, productivity and growth – as if those values were self-explanatory – while hesitating to speak of justice, fairness and rights. Talking about values and goals is a lost art waiting to be revived. With all the awkwardness of teenagers learning to talk about their feelings for the first time, economists and politicians – along with the rest of us – are searching for words (and of course the pictures) to articulate a greater economic purpose than growth. How can we learn to talk again of values and goals, and put them at the heart of an economic mindset that is fit for the twenty-first century?